Post on 26-Dec-2015
VIETNAMESE LABOR DEMAND:EVIDENCE AND ISSUES
Philip Abbott Finn TarpCe Wu UNU-WIDER, Helsinki and
Purdue University University of Copenhagen
CIEM, Hanoi July 2010
July 1, 2010
Vietnamese Labor Demand:Evidence and Issues
Labor demand adjustments were necessary in WTO modeling work
CIEM has longstanding interest in labor constraints on economic growth and development
Literature on sluggish labor demand and high capital intensity of transforming economy Recent focus on structural transformation by MOLISSA
Purpose of this session: Define research agenda on labor outcomes as a result of alternative development strategies
Labor Market Issues
While Vietnamese economic growth has been rapid, reaching over 8% per annum during 2005-07, and previously from 1992-97, employment growth has been more sluggish, averaging 2.1% from 1992-97 and 2.2% from 2005-2007
Demand for unskilled labor may have been stagnant, but some believe shortages of highly skilled labor may have constrained growth in the past, or may constrain growth in the future
Goal is to understand past labor market dynamics to shed light on likely future trends and constraints Data is more readily available to examine first issue
Explaining “stagnant” labor demand? Structural transformation – moving labor out
of agriculture and into industry Shifting from low productivity to high productivity
sectors Underemployment in agriculture
Capital intensive development? Minimum wage distorts wage-rental ratio State and foreign investment overly capital intensive
Technical change TFP or labor saving? Traditional versus modern technologies
Skilled labor constraints?
Wages vary across sectors, enterprise types – labor is not homogeneous
Human capital as part of labor endowment
Investments in training? State and foreign enterprises pay higher
wages Well above minimum wage
Preliminary evidence
Preliminary evidence
Economic growth and labor trends Productivity over time and across
sectors Modeling experience
Data limitations
GDP and growth - Recent
Growth accelerated from 2000-2004 at 7.2% To 8.4% from 2005 to 2007 Slowing to 6.2% in 2008, projected 4.8% in
2009 Inflation increased over decade to over 8%
from 2004, 21% in 2008 Recession has reduced inflationary
pressures, 4.8% in 20092000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Growth rate (Real GDP) 6.79 6.89 7.08 7.34 7.79 8.44 8.23 8.48 6.2 4.8GDP per capita ($) 402 440 492 553 636 722 835 1041 1035Inflation 1.9% 4.0% 6.7% 8.2% 8.2% 7.3% 8.2% 21.7 4.8
Labor
Employment was growing more slowly than GDP Urban unemployment rate falling Most rapid growth in foreign invested sector – from small
share SOE employment stagnant
Wages increasing rapidly, especially in state sector
2008 GDP slowdown will ultimately impact employment
2000 2001 2002 2003 2004 2005 2006 2007Employment growth 2.5% 2.5% 2.7% 2.5% 2.3% 1.9% 1.9% State 2.9% 4.1% 7.6% 1.8% -1.7% -2.2% 0.7% Private 2.3% 1.9% 1.7% 2.1% 2.3% 1.9% 1.6% FI 20.0% 31.6% 31.4% 22.8% 18.9% 17.7% 15.5%
Urban unemployment 6.42 6.28 6.01 5.78 5.6 5.31 4.82 4.64
State Wages 1.0 1.12 1.26 1.47 1.67 1.93 2.28 2.43 Agriculture 1.0 0.87 1.09 1.45 1.84 1.66 1.80 2.06 Manuafcturing 1.0 1.10 1.23 1.38 1.62 1.82 2.11 2.20 Service (trade) 1.0 1.09 1.28 1.50 1.66 2.05 2.21 2.40
GDP and employment - history
Vietnam not so different from other Asian countries
World Bank had it wrong in 1999 when it suggested labor demand kept up elsewhere in Asia Especially large productivity gains in China Comparable elsewhere when at low GDP levels!
Productivity growth = real GDP growth – employment growth
1986-90 1991-95 1996-2000 2001-05 2006-08China 5.7 11.0 7.5 8.6 10.5Korea, Rep. 6.4 5.6 3.4 3.4 3.5Thailand 7.7 8.3 -0.4 3.4 3.1Indonesia 4.6 5.5 -1.9 2.7 4.2Philippines 2.0 -0.9 1.7 2.0 3.3Vietnam 2.7 6.4 4.7 5.7 5.0
Huge Productivity differences across sectors
Productivity growth in All sectors- erratic but similar
2/3 of overall productivity growth explained by sectoral shifts
Nevertheless, over 2% productivity growth in modern sectors
2000 2005 2007 2008 Growth 2000-07
Value added per worker 7,276 9,242 10,444 10,906 5.2%
State 31,854 39,575 45,095 45,985 5.0%
Private 3,929 4,972 5,703 6,031 5.3%
Foreign investment sector 79,203 41,888 39,285 39,596 -10.0%
Agriculture and forestry 2,428 2,926 3,183 3,339 3.9%
Mining and quarrying 72,048 66,981 55,104 48,852 -3.8%
Manufacturing 14,504 17,022 19,083 19,840 3.9%
Electricity, gas and water supply 76,626 74,287 68,452 66,336 -1.6%
Construction 19,852 17,223 18,906 17,841 -0.7%
Wholesale and retail trade 11,457 12,963 14,274 14,965 3.1%
Hotels and restaurants 12,931 17,553 20,993 22,338 6.9%
Transport, storage and communications 9,137 12,678 15,437 17,407 7.5%
Financial intermedation 75,133 52,444 45,979 46,756 -7.0%
Scientific activities and technology 83,564 96,653 101,784 108,030 2.8%
Real estate, renting and business 191,408 97,860 73,481 64,684 -13.7%
Public administration and defence; compulsory social security21,327 16,158 15,363 14,966 -4.7%
Education and training 9,207 10,640 11,408 11,932 3.1%
Health and social work 17,491 15,680 17,101 17,801 -0.3%
Structural transformation underway
SectoralShares
MOLISSA, 2010 cites slow restructuring!
Industry and Services both growing
SectoralShares
Under employment in rural areas Underemployment in rural agriculture
means agriculture productivity growth may be understated
2008General Urban Rural
Unemployment rate 2.38 4.65 1.53
Underemployment rate 5.10 2.34 6.10
Minimum wages grow nearly as fast as GDP , slower than state wages
Vietnam Development Report, 2008
Wages kept up with CPI
0
20
40
60
80
100
120
140
160
180
1986 1990 1994 1998 2002 2006 2010
Inde
x, 2
005=
100
CPI Wages Real wages Unit labor cost
Economist, Economist Intelligence Unit Country Data (2010)Economist real wage estimates “suspicious” - constant
Wages growing, fastest in State and FDI sectors
Private wages growing Household income looks like agriculture
Table 1.3: Average monthly wages 1998-2006
Form of ownership
Average monthly salary of a worker, 1000
VND
Annual
growth rate
per cent 1998 2002 2004 2006
Households 552 606 649 664.2 2.34
Private and collective 554 771 852 935.5 6.77
State 572 1002 1077 1,103 8.55
Foreign investment 680 1037 1044 1,316 8.60
Wage gap between FDI and
household sectors 1.2 1.7 1.6 1.98
Source: GSO, VHLSS 1998 - 2006
Skill level (Human capital) increasing
Table 1.1: Structure of labour force by professional level, %
Source: Annual labour - employment statistics, MOLISA (2000 - 2007), GSO (2008)
By professional level Annual growth
rate Structure 2000 2001 2002 2003 2004 2005 2006 2007 2008
Total 100 100 100 100 100 100 100 100 100 2.5
Unskilled workers
86.4 84.4 82.0 79.7 77.4 75.0 72.7 70.3 68.0 -0.5
Elementary 3.0 4.6 6.3 8.0 9.7 11.4 13.1 14.8 16.5 25.5
Vocational training
2.0 2.1 2.4 2.7 3.0 3.3 3.6 3.9 4.2 13.0
Professional secondary
4.6 4.65 4.7 4.75 4.75 4.8 4.85 4.9 4.9 3.4
College, University and higher
4.0 4.3 4.6 4.9 5.2 5.5 5.8 6.1 6.4 8.7
Modeling Lessons
Investment and Trade – Lessons from Modeling
Strong institutional biases in investment allocation Government invests in infrastructure, SOE equity
Targets specific sectors, mobilizes savings State impacts biggest for energy
Foreign invested firms emphasize manufacturing, ag exports Private firms emphasize agriculture, services
Differing economic impacts SOEs show somewhat greater GDP impact Private firms demand more unskilled labor, generate more wage
income SOEs have lowest labor demand impact (energy) FI firms generate lowest wage income increases, least labor
intensive
Labor demand
“LFP” assumptions critical to getting this close Assumed firms reduce use of unskilled labor
more so than skilled labor Pressure seems greatest after LFP on
educated workers, before LFP on unskilled labor demand
Base excess skilled labor demand persists Rural income shares declining
Urban wage income shows biggest increase
Labor demand
2000 2001 2002 2003 2004 2005 2006 2007
Employment (GSO)
37,610
38,563
39,508
40,574
41,586
42,527
43,339
44,172
Labor demand
42,358
42,538
43,287
44,961
46,663
46,885
46,904
48,887
Educated 1,636
1,712
1,807
1,924
2,057
2,157
2,261
2,449
Technical 5,633
5,880
6,202
6,615
7,044
7,367
7,680
8,363
Unskilled 35,088 34,945 35,279 36,422 37,562 37,360 36,963 38,075
Labor Supply
40,417
47,144
Educated 1,741
2,228
Technical 5,995
8,894
Unskilled 32,680
36,022
ICORs, Labor requirements and TFP growth
ICOR based on GSO output and investment data Labor-output ratio based on employment data ICOR is erratic but falling, after rising
Surge in 2007 investment may lead to final jump
Both Labor and Capital requirements falling TFP growth W/R increasing less labor intensive techniques (to 2004) Literature has been inconclusive on extent of TFP growth Labor biased technical change, also intermediate demands?
Labor-output ratio fell over 7%/year from 2000 to 2007, State manufacturing wages grew 12%/year
FDI & Foreign Savings – Macro Outcomes Large GDP declines with lost investment
Much smaller impact on consumption Current account improves, but not as much as financial
account declines Realistic devaluation scenario has GDP reduction cut in half
Labor impacts small, bigger for INV than FDI, especially for unskilled labor FI sectors used least labor
Scenario: FDI INV DEV DEV pteActual Predicted Diff. Diff. Diff. Diff.
GDP 1144 1113 1079 -3.1% 1071 -3.9% 1144 2.7% 1091 -2.0%Consumption 742 759 758 -0.2% 756 -0.4% 780 2.8% 762 0.3%Current account -113 -168 -137 -18.5% -130 -22.6% -82 -51.4% -115 -31.5%Financial account 282 282 214 -24.2% 56 -80.2% 56 -80.2% 56 -80.2%Labor demand 46,114 48,887 48,759 -0.26% 48,589 -0.61% Educated 2,154 2,449 2,442 -0.28% 2,435 -0.60% Technical 8,490 8,363 8,337 -0.31% 8,310 -0.63% Unskilled 35,470 38,075 37,980 -0.25% 37,844 -0.61%
2007
Lessons Learned – Labor and Income Labor –output ratios declining significantly
Vietnam wants to “move up value chain” Biased technical change a critical adjustment – “LFP”
Need better information on this Labor surpluses not yet exhausted, but…
Expected skilled labor demands to become tighter sooner than for unskilled labor
Wages growing faster than productivity & inflation FDI change had smaller labor effects than overall
investment changes – less labor intensive Very small changes in income distribution
WTO helped urban wage labor, hurt rural areas
Labor Research Agenda
Labor Research Agenda
Growth accounting and structural transformation How far does structural transformation get us? Why doesn’t model pick this up? What fixes are necessary?
Technical change TFP growth evidence is inconclusive Labor-saving biased technical change?
Price incentives and capital intensity Minimum wage Strong wage growth, above minimum wage Institutional investment allocation
Constraints from skilled labor? Human capital or specific skills?
Data issues
Skill demand issue is important, but it has been very difficult to get data to examine that
Use of household survey (VHLSS) for wage differentials, skills distributions (based on education)
Recent GSO labor survey (replacing MOLISSA) still focuses on quantity, not skills or wages