Contribution of Industry to Labor Productivity Growth in Vietnam45291

Contribution of Industry to Labor Productivity Growth in Vietnam Nguyen Thi Dong(1)*, Nguyen Thanh Trong(2), Dinh Thi My Hanh(1) (1) (2) Banking Academy, Phu Yen Campus, Phu Yen, Vietnam; Email: dongnt@hvnh.edu.vn University of Economics and Law, HCM city, Vietnam * Corespondence: dongnt@hvnh.edu.vn Abstract: Vietnam after 30 years of renewal process, due to a number of factors, especially the industrial sector, the growth of labor productivity has been increased significantly By using shiftshare analysis method to intra-industry between 1996 and 2017, which focused on internal industry, the result showed that both intra effect and static shift effect made a great contribution to the labor produtivity growth of the economy, and the contribution of static effect tend to increase This means that the movement of labor from inefficient sectors to the more efficient sectors has had a positive impact on the overall productivity growth rate Therefore, in order to promote productivity growth in the economy, Vietnam has to implement solutions in terms of reallocating resources, transforming the economic structure, applications of technology and training human resources Keywords: Industry structure; labor productivity; shift-share analysis Introduction Industry is the basic material manufacture sector and is considered the area that plays the leading role of most economies in the early stages of development, including Vietnam The importance of the industrial sector is reflected in the leading role of innovation and the application of technological advances in production while technological progress is one of the factors affecting the process of sectoral restructuring towards: which sectors are sensitive and responsive to advanced technology will produce higher marginal productivity and thus will attract more inputs such as labor and capital This helps the economy grow rapidly In Vietnam, the average annual growth rate of the industry in the period of 1991 – 2017 is often higher than the general growth rate of the economy (figure 1), so the contribution of industry in GDP increased rapidly: from 23.2% in 1992 to the highest at 40.1% in 2004; it fluctuated over 37% for the following years of this period (GSO Vietnam, 2018) The growth at this stage helps the industrial sector move from the secondary positon to the crucial position in economic structure 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 NN CN DV 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 0.00 Total Figure 1: Growth rate of economic sector Not only has the advantage of labor productivity due to catching up with technological progress, the industry is increasing asserting its leading position because income elasticity of demand for industrial products is much greater than the income elasticity of demand for agricultural products In other words, the role of agriculture is limited to providing essential products that meet fundamental human needs, so the demand for this product will not increase as fast as the growth rate of income In contrast, industrial products are often diverse and abundant They can capture and guide people’s consumption demand when their income rises In a multinational empirical study about the relationship between economic structure and income in three decades of industrialization, Syrquin and Henery (1989) forecasted the change of economic structure when income changes according to diffirent levels Accordingly, countries with per capita income below $300, the value of agricultural products often accounts for about 48% of GDP and the value of industrial products accounts for 21% GDP When income increases to $300 per person, then the value of argricultural output decreases to 39% and the value of industrial output increases to 29% of total GDP At the income level of $500 per person, the proportion of agriculture and industry is similar At the per capita income of $4,000, then the structure of agriculture – industry – service reaches 9.7% - 45.6% - 44.7% Over this income threshold, GDP of agriculture is only 7% while GDP of industry is 46% Besides, along with the development of industrial goods is the formation of a link between industry and other sectors This will create an effective chain effect that makes the economy grow, because as a means of production materials, industrial products not only meet the demand for consumption, but also meet the demand for production By providing modern machinary, transportation and storage facilities in agriculture, industry has contributed to increasing labor productivity and the value of products for the agricultural sector At the same time, with the cooperation of the processing industry, agriculture no longer worries about post – harvest issues, so it has more development opportunities to meet the huge input demand for this industry Thus, the industrial sector has inherent advantages, such as: modern techonology; income elasticity of demand is strong; the external impact of inter – industry links is very positive These have made the scale and speed of the industry grow faster than other areas Therefore, of course, this area will be one of the important factors that help the economy to improve labor productivity and grow rapidly in the early stages of industrialization and modernization Methodology 2.1 Using shift-share analysis method Shift – share analysis method (SSA) considers the process of increasing labor productivity through the movement of economic structure and the level of labor restructuring by industry According to the SSA approach, total productivity growth will be separated into effects based on endogenous productivity growth and sectoral restructuring Initially, this method was developed by Fabricant (1942) to analyze an economy with two areas, but then its was modified by Syrquin (1984), Fagerberg (2000), Timmer & Szirmai (2000) to apply to a multidisciplinary economy Assuming the economy is divided into i sectors (i = 1, n) Calling PA is social labor productivity, measured by the total output value (YA) on the total number of employees (LA), so PA = YA/LA Similarly, labor productivity of industry i, Pi: so Pi = Yi/Li Calling LA is the total number of employees working and Li is the number of employees working in industry, then the proportion of working employees in industry i will be Si, Si = Li/LA We have the formula: PA  YA  LA n  i 1  Yi   Li n   Li   *     Pi * S i   L A  i 1 Differences in social labor productivity between the two period and T: n T n o T i o i n Pi  Pi  Pi *(S  S )  (Pi  Pi )*(S  S )  (PiT  Pio )*Sio i1 T o T i o i i1 i1 Calling GPA is the speed of social labor productivity growth of the year T compared to the base year (t = 0), the formula for calculating GPA (Ark, 1995; Timmer & Szirmai, 2000): GP = − ∗ + − ∗ − + − ∗ The above equation evaluates the speed of social labor productivity growth based on three divisions: the first term of the right-hand side of equation dnotes static effect, the second denotes dynamic shift effect and the last denotes endogenous effect Static shift effect measures the growth rate of aggregate labor productivity through shift in labor structure from low – productivity industries to high – productivity ones using value of labor productivity of the industry in the first yearr of researching period According to Chenery (1986), the capital – to – labor ratio in light industries is lower than that in heavy ones, and transfer of labor from light industries to heavy ones tends to make aggregate labor productivity increase because capital – intensive industries usually obtain a higher labor productivity Static shift effect, moreover, plays an important role to developing countries, especially agriultural countries where population density is high and idle or redundant labor is common Transfer of labor from agricultural sector with low labor productivity to industrial one with higher labor productivity is therefore considered as “a structural bonus” for developing countries (Timmer & Szirmai, 2000) That means the hypothesis of “structural bonus” is based on expectation that contribution from static shift effect to growth of the productivity of social labor is positive: n Pi o ( S iT  S io )  i 1 >0 n  Pi o i 1 Unlike static shift effect that only reflects transfers to high-productivity industries, dynamic shift effect measures the growth of aggregate labor productivity based on changes in both labor productivity and speed of growth of labor productivity in the industry If the labor move to industries where both labor productivity and its growth rate are high, it may make the aggregate labor productivity increase and positive interactive effects greater Contrarily, the economy may suffer a slowdown when the labor moves from high – growth – rate and high – productivity industry to traditional ones characterized by a low productivity Baumol (1967) called it a “ structural burden” in the labor rellocation in each industry Thus, the dynamic shift effect will be negative when a structural burden appears: n  ( Pi T  Pi o ) ( S i1  S o i )