Effect of public transfer on labor supply decision of households in vietnam

UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS  EFFECT OF PUBLIC TRANSFER ON LABOR SUPPLY DECISION OF HOUSEHOLDS IN VIETNAM BY NGUYỄN THỊ THANH HẰNG MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, NOVEMBER 2014 UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS  EFFECT OF PUBLIC TRANSFER ON LABOR SUPPLY DECISION OF HOUSEHOLDS IN VIETNAM A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS BY NGUYỄN THỊ THANH HẰNG Academic Supervisor: DR TRƯƠNG ĐĂNG THỤY Ho Chi Minh City, November, 2014 DECLARATION This is to certify that the thesis entitle “Effect of public transfer on labor supply decisions of rural households in Vietnam”, which is submitted by me in partial fulfillment of the requirement for the degree of Master of Art in Development Economic to Vietnam – The Netherlands Programme The thesis comprises only my original work and due supervision and acknowledgement have been made in the text to all materials used Nguyễn Thị Thanh Hằng i ACKNOWLEDGEMENT I would like to express my sincere appreciation to following persons without whom this thesis could not be finished My supervisor, Dr Trương Đăng Thụy, whose detailed and useful guidance, comments and advises have enabled me to go through my research question formation, data mining and thesis writing up Particularly, for his necessary push-ups, encouragements and patience during my writing process, I am indebted All lecturers and instructors from Vietnam-Netherlands Programme, for valuable knowledge and instructions that I have received during the period of my studying here My boss and my colleagues, for their supports of sharing my workloads and for their encouragement My friends: Nguyễn Thị Mỹ Hòa, my K18 classmates: Nguyễn Thị Ngọc Linh and Nguyễn Trường Toan, for their unconditional supports in methodologies, Stata application and paper formatting and valuable encouragements during my thesis process My family: my parents, my parents –in-law, my husband, with my special gratitude, for all supports, scarification and love that they gave me ii ABBREVIATION AFDC Assistance for Dependent Children AFDC-UP Assistance for Dependent Children-Unemployed Parents IPSARD Institute of Policy and Strategy of Agriculture and Rural Development CIEM Central Institute of Economic Management GSO General Statistics Office of Viet Nam HIV Acquired Immune Deficiency Syndrome IFAD International Fund for Agricultural Development ILSSA Institute of Labor Science and Social Affairs OLS Ordinary Least Square OXFARM Oxford Committee for Famine Relief N.G.O Non-government Organizations VARHS Vietnam Access to Resources Household Survey VHLSS Vietnam Households Living Standard Survey VND Vietnam Dong WB World Bank UNDP United Nations Development Program UNICEF Children’s Right and Emergency Relief Organization ABSTRACT This paper examines the effectiveness of public transfer of poverty alleviation programs on the labor supply behavior of rural households in Vietnam The labor supply decision is analyzed by employing the individual labor supply model on the basis of data from VARHS Analysis results show that the public transfer that the farm households receive in 2008 discourages the working efforts of households’ members in 2010 Though this effect is negative and statistically significant, its value is quite small with the marginal effect of public transfer (2008) on labor supply (2010) around 0.0004 to 0.0007 which means for each additional VND 1000 of public transfer that an household receives would lead to an decrease in number of working days of it members by 0.0004 to 0.0007day per year And from the results of each laborer in the households, it is concluded that the transfer the households get in 2008 lead to a reduction of working time of the households by 4.219 days/year/household and 2.411 days/year/household on average Keywords: public transfer, rural households, individual labor supply model CONTENTS DECLARATION i ACKNOWLEDGEMENT ii ABBREVIATION .iii ABSTRACT iv CONTENTS v CHAPTER : INTRODUCTION 1.1 Problem Statement 1.2 Research objectives 1.3 Data and Methodology 1.4 Thesis Organization .6 CHAPTER :LITERATURE REVIEW AND THEORY BACKGROUND 2.1 Individual Labor Supply Theory 2.2 The Agricultural Household Model 13 2.3 Unitary and Collective Household Labor Supply Models 18 2.4 Review of empirical studies 20 2.4.1 Labor supply behavior 20 2.4.2 Factors affecting labor supply decisions 24 CHAPTER : METHODOLOGY AND DATA DESCRIPTION 26 3.1 Specification of the Labor Supply .26 3.2 Hypothesis Testing 30 3.3 Estimation 31 3.4 Data description 35 3.4.1 Vietnam Access to Resource Household Survey (VARHS) 35 3.4.2 Sample Description 37 CHAPTER : ESTIMATION RESULT 43 4.1 Bivariate Analysis 43 4.2 Regression Result 49 4.3 Hypothesis testing result 55 CHAPTER : CONCLUSION .57 REFERENCE .61 Appendix 1:Correlation matrix of labor supply function’ variables: .67 Appendix 2:Two-stage Estimation results for labor supply function 68 Appendix 3:Alternative results of labor supply function .69 LIST OF FIGURES Figure 2.1: The Budget Line And Indifference Curve Figure 2.2: Substitution Effect And Income Effect 10 Figure 2.3: The Backward Bending Characteristic Of Labor Supply Curve 11 Figure 2.4: Effect Of Non-Labor Income 12 Figure 3.1 Twelve provinces that VARHS is implemented 36 Figure 4.1 The association of working day and wage rate 44 Figure 4.2 The association between working day and children in the household 45 Figure 4.3 The association of an individual’s working day and the public transfers that the households receive in 2008 and 2010 46 Figure 4.4 The association between household’s gross nonlabor income and number of working day of a household laborer 47 LIST OF TABLES Table 1-1 Percentage of people living in poverty line Table 3-1 Key hypothesis of dependent variables 30 Table 3-2 Descriptive Statistics Data of Variables 40 Table 3-3 Dummy Variables 41 Table 4-1: Comparing mean working days of different groups 47 Table 4-2: Two-step estimation results for labor supply function 50 Table 4-3 Hypothesis testing result of the labor supply function specification 55 vii CHAPTER INTRODUCTION 1.1 Problem Statement For long, social assistance is believed to be an effective method for poverty alleviation Facing the fact that around 1.4billion people in developing countries living below poverty threshold (i.e.: under $1.25/day, World Bank, 2008), among which three out of every four people living in rural area and thousands of children dying each day due to poverty (IFAD, 2011; UNDP, 2007; Unicef, 2007) has put hard pressure on governments of many countries, especially developing countries, to reduce the poverty, and improve the people living 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(2007) The state of the world's children 2008: Child survival (Vol 8) Unicef Van de Walle, D (1998) Assessing the welfare impacts of public spending World Development, 26(3), 365-379 Van Soest, A (1995) Structural models of family labor supply: A discrete choice approach Journal of human Resources, 63-88 Viet Nam Academy of Social Sciences (October 2010) "Poverty Reduction in Viet Nam: Achievements and Challenges,” Assessment of Poverty in Viet Nam Synthesis Report 2008-2010, Wilding, J., & Ayalew, M (2001) Evaluation of Cash Based EGS in Ambassel and Kutaber woredas of South Wollo, Ethiopia Ethiopian Red Cross Society and IFRC A P P E N D I X A : CORRELATION MATRIX OF LABOR SUPPLY FUNCTION’ VARIABLES: d D logW1 logW2 logW3 Gnonlabor S10 S08 health gender logW1 0.235 logW2 0.143 0.241 logW3 -0.108 0.096 -0.024 0.002 0.016 0.022 -0.014 S10 -0.019 -0.068 -0.069 -0.003 -0.008 S08 -0.032 -0.040 -0.060 -0.010 -0.005 0.600 health 0.111 0.020 -0.085 -0.035 0.040 0.004 0.001 gender 0.088 0.077 -0.005 0.050 0.003 -0.009 -0.009 0.043 child5 -0.004 -0.003 -0.091 0.027 0.005 0.061 0.053 0.042 -0.018 child15 0.043 0.010 0.095 0.0004 -0.042 -0.057 -0.068 -0.060 -0.020 Gnonlabor child5 child15 child5 child15 -0.004 CHAPTER APPENDIX 2: TWO-STAGE ESTIMATION RESULTS FOR LABOR SUPPLY FUNCTION: Heckman selection model two-step estimates (regression model with sample selection) Coef Std Err z Number of obs Censored obs Uncensored obs = = = 6076 239 5837 Wald chi2(13) Prob > chi2 = = 215.98 0.0000 P>|z| [95% Conf Interval] d logW1 logW2 logW3 logW1logW2 logW1logW3 Gnonlabor S_10 S_08 S_08_10 health gender child5 child15 _cons 8.454778 20.88099 0570342 -2.840096 -1.006065 -.0000126 -.0000934 -.0006841 9.66e-09 25.36307 19.9457 2.342204 4.850754 96.32206 3.160739 4.627475 2.936022 7853526 6374386 0000277 000224 0003554 5.38e-09 3.280077 3.332209 3.378948 2.329975 20.00585 2.67 4.51 0.02 -3.62 -1.58 -0.46 -0.42 -1.92 1.80 7.73 5.99 0.69 2.08 4.81 0.007 0.000 0.985 0.000 0.114 0.649 0.677 0.054 0.073 0.000 0.000 0.488 0.037 0.000 2.259844 11.8113 -5.697464 -4.379359 -2.255422 -.0000669 -.0005324 -.0013807 -8.84e-10 18.93424 13.41469 -4.280411 2840873 57.11131 14.64971 29.95067 5.811533 -1.300833 2432915 0000417 0003456 0000125 2.02e-08 31.7919 26.47671 8.96482 9.41742 135.5328 2003314 0211219 -6.63e-07 6.91e-06 -6.95e-06 -.064373 1922089 1527812 0806589 1.304369 0184191 0116888 3.63e-07 5.58e-06 2.74e-06 0643447 0592903 0433945 0632832 0755016 10.88 1.81 -1.82 1.24 -2.54 -1.00 3.24 3.52 1.27 17.28 0.000 0.071 0.068 0.215 0.011 0.317 0.001 0.000 0.202 0.000 1642306 -.0017878 -1.38e-06 -4.02e-06 -.0000123 -.1904864 076002 0677296 -.0433739 1.156388 2364322 0440315 4.93e-08 0000178 -1.59e-06 0617403 3084158 2378328 2046916 1.452349 lambda 122.4543 84.4332 1.45 0.147 -43.03175 287.9403 rho sigma 1.00000 122.45428 work1 logW2 logW3 Gnonlabor S_08 S_10 health child5 child15 gender _cons mills CHAPTER APPENDIX 3: ALTERNATIVE RESULTS OF LABOR SUPPLY FUNCTION The column Reg1 shows the estimation results of full labor supply function 3.1 Column Reg2 showing the estimated results of the function if negative wage rate is dropped The results of DropS10_1 and DropS10_2 are for the labor supply function with ommited S10 and with and without negative wage rate Similarly, the results of DropS08_1 and DropS08_2 are also obtained from the ommited S08 labor supply function with and without negative wage rate Variable Reg1 Reg2 DropS10_1 DropS10_2 DropS08_1 DropS08_2 8.4547777 20.88099 05703424 -2.840096 -1.0060652 -.00001263 -.00009344 -.00068407 9.663e-09 25.363067 19.945699 2.3422045 4.8507538 96.322056 8.4743357 20.566962 73934212 -2.7515255 -1.1606328 -.00001269 -.00009711 -.00067931 9.668e-09 25.508268 19.999628 2.372604 4.9016928 95.672232 8.373668 18.809572 -.24184961 -2.7150047 -.97468698 -4.866e-06 8.3907236 18.499931 44113753 -2.6257109 -1.1300261 -4.922e-06 8.558437 21.901683 18573453 -2.8909203 -1.0124747 -.00001597 -.00013499 8.5802266 21.587476 85994415 -2.8037384 -1.1649662 -.00001602 -.00013677 -.00036723 -.00036573 25.870953 19.288209 96876296 3.811566 106.03128 26.018889 19.33973 1.0045006 3.8700572 105.35031 25.218843 20.357716 2.977483 5.4705724 89.820432 25.362172 20.412122 3.0029594 5.5151353 89.199815 20033143 02112189 -6.628e-07 6.914e-06 -6.954e-06 -.06437304 19220892 15278121 08065887 1.3043685 20017384 02150372 -6.638e-07 6.898e-06 -6.965e-06 -.06503407 19199675 15229931 08127006 1.3044112 19984658 0207942 -6.512e-07 -1.233e-06 1996854 0211804 -6.522e-07 -1.261e-06 20001675 02072034 -6.648e-07 1998609 02109919 -6.658e-07 -.06492551 18371866 15511291 08140115 1.2937953 -.06558967 18349625 15462869 08202368 1.293818 -4.743e-06 -.06298308 19192632 15120098 08028652 1.3121486 -4.758e-06 -.06363999 19171531 15072609 08089081 1.3121762 122.45428 124.79074 62.838536 65.356062 152.442 154.59564 d logW1 logW2 logW3 logW1logW2 logW1logW3 Gnonlabor S_10 S_08 S_08_10 health gender child5 child15 _cons work1 logW2 logW3 Gnonlabor S_08 S_10 health child5 child15 gender _cons mills lambda ... by investigating the effect of such transfers on working efforts of rural households The main questions of this paper area follow: • Are public transfers affect on the working decisions of households? ??... of poverty alleviation programs on the labor supply behavior of rural households in Vietnam The labor supply decision is analyzed by employing the individual labor supply model on the basis of. .. decisions of production, consumption and labor supply, the problem of household is maximize its profit and utility under the constraint of production technology and inputs as well as constraints of