Educational and family background determinants to employments wage in vietnam , luận văn thạc sĩ

EDUCATIONAL and FAMILY BACKGROUND DETERMINANTS TO EMPLOYMENT'S WAGE IN VIETNAM ' > ~· , I v- Academic Supervisor: Dr Nguyen Van Phuong Student: Tang Thi Bich Hien \ -., "· "' ACKNOWLEDGEMENT fl First of all, I would like to thank Dr Nguyen Van Phuong, my Academic Supervisor, for his valuable comments and assistance Without his support and encourage, my thesis would not be finished I would like to special thank Prof Nguyen Trong Hoai, our respectable Dean, who has been interested in our studying during the Master course Supports from the Vietnam-the Netherlands Programme for MA m Development Economics' staff and classmates are fully acknowledged • • Hochiminh city, Mar 2011 Tang Thi Bich Hien • ' DECLARATION I declare that "Educational And Family Background Determinants to Employment's Wage In Vietnam" is my own work, that is has not been submitted to any degree or examinations at any other universities, and that all the sources used or quoted are indicated and acknowledged by complete references • • I 11 ABSTRACT ' Data from the Vietnamese Household Living Standards Surveys are used to estimate the determinants impact on employee's wage The analysis suggests that educational attainment strongly affects the wage The additional level of schooling years positive changes the wage It also found that wages have increased according to worker's age, and a married person is paid higher than other person The findings recommend that parents got better education have positive interaction to their children' wages when they enter labour market • • 111 TABLE OF CONTENTS ACKNOWLEDGEMENT i I DECLARATION ~ ii ABSTRACT iii TABLE OF CONTENTS iv LIS LIST OF TABLES vi LIS LIST OF FIGURES vi LIST OF ACRONYMS vii • CHAPTER 1: INTRODUCTION • 1.1 Research goals and objectives 1.2 Research questions o •••••• o.ooooooo CHAPTER 2: LITERATURE REVIEW 2.1 Theoretical fratneworks o o o o o.oooo • • 2.2 Previous empirical studies 0 •••••••••••••••• CHAPTER 3: OVERVIEW OF VIETNAM LABOUR MARKET 13 3.1 Employment by age and gender • 3.2 Employment divided by regions 0 ° 0 .o o o o o o oooooooo oooooooooooooo•o 3.3 Employment with education and training IV 14 17 18 Employment by status 21 3.5 Unemployment 23 CHAPTER 4: THE MODEL 26 CHAPTER 5: DATA 31 5.1 Statistics descriptive analysis ofVHLSSs 32 CHAPTER 6: ESTIMATING RESULTS 35 6.1 Results analysis 6.2 Test of education attainment dependence 39 6.3 Test of family background dependence 40 6.4 Measurement of goodness-of-fit 40 CHAPTER 7: CONCLUSION 41 7.1 Conclusion 41 7.2 Policy implications 41 7.3 Limitations : 43 REFERENCES 44 APPENDIX 46 Regression results ··· ··· ··· ·.46 Definitions 49 v LIST OF TABLE Table 3.1: Labour force participation 14 Table 3.2: Labour force divided by sex, regions (%) 17 Table 3.3: Labour force classified by education(%) 19 Table 3.4: Distributions of status in employment by sex 22 Table 3.5: Unemployed workers (person) 23 • Table 4.1: Variable description 29 Table 5.1 :Mean of wage, age, parents' education and employees' siblings 33 Table 5.2: Group of determinants by binary characteristics in year 2008 by percentage 34 Table 6.1: Models of Log Hourly Wages 35 Table A 1: Construction of Duncan index variable 51 Table A2: Youth labour force participation rates(%) 52 Table A3 :Labour force classified by sexes and regions 53 Table A4: Unemployed workers by age-bands (person) 54 Table AS: Distributions of status in employment by sex 55 LIST OF FIGURE Figure 3.1: GDP growth rate (%) 13 Figure 3.2: Workforce classified by age-bands (person) 16 Figure 3.3: Employed worker's skills(%) 20 Figure 3.4: Workforce vs employed workers (thousand of person) 24 vi LIST OF ACRONYMS GDP Gross Domestic Product GSO General Statistics Office ILO International Labour Organization MOLISA Ministry ofLabour, Invalids and Social Affairs UNDP United Nations Development Programme VCCI Vietnam Chamber of Commerce and Industry VHLSS Vietnamese Household Living Standards Survey WTO World Trade Organization Vll CHAPTER INTRODUCTION The Doi Moi reforms are widely credited with improving incentives for production and growth Economic integration and the transition to a socialistoriented market economy provide both challenges and opportunities for the people in Vietnam Under Doi Moi Renovations, the opening up of Viet Nam to a competitive global marketplace, with rapid changes in information technologies, capital flows, mass media and culture The transition to a market economy in Viet Nam involved a drastic modification of young men and women's transition from school-to-work Today, many youth enter the labour market resulting in labour is a critical aspect of Vietnam's development strategy in overcoming persistent poverty and enhancing further economic growth as set out in a number of documents, such as the country's ten year national strategy for socio-economic development (200 12010) with its second five year socioeconomic development plan (2006-2010) One of main objectives for Vietnam is to further strengthen its economy and prepare the country for further integration into the world community that need numerous skilled employments Meanwhile, education has played an important role in preparing knowledge for an employment prior to joining labour market The linkages between the education and training system and the labour market have to be strengthened to close the gap between the skills in demand and the skills offered on the labour market It is said that a person's successes in seeking a job after quitting school is remarkable affected by the period he have stayed at school As a result, individuals with high levels of education are able to find work more easily, to command higher wages within a given occupation, and also to improve their chances of upward occupational mobility Harmon and Walker (1995) suggest that educational attainment is the main observed determinant of occupational status, which directly influences earnings Vietnam has been viewed as labour endowment but low productivity because of unskilled or semi-skilled employment Consequently, being employment or unemployment is not hirge distance For example, if an employment gets higher education, he enables to adapt easily with changes of technology in a firm, so that he has more opportunities to be hired again Additionally, Hamilton et al (2000) proves that workers who receiving more training will receive higher income because their training costs are lower than others without or less training Adversely, he will become unemployment if his company makes changes in technology By finding contribution of education on employment's wage, we can stress the impact of schooling to individual at initial stages On other hand, children are affected by their family background Father, mother and siblings create an environment that help a member better, otherwise adversely effect by their interactions Meghir (2005) finds that one of factors is parents' education Practically, parent with good education and pay more time for children can be instructor that encourage them to better study and confident in choosing a work If we combine two ideas above, we can find an interesting relationship between wage and family background of a person after quitting school Within this framework, the purpose is to determine the extent to which parents' schooling outcomes feed through into children's schooling The determinants effect on wage of an employee is obtained by running ordinary least squared model I have utilized data of VHLSS 2006 and 2008 for my thesis The next section will introduce previous relevant empirical studies Section III will present about Vietnam labour market Section IV explores the model and introduces the data in Sections V The empirical findings are reported in Section VI with several sensitivity tests are undertaken, and Section VII provides concluding comments 1.1 Research goals and objectives CHAPTER CONCLUSION 7.1 Conclusion This study aims at examining determinants of employee's wage for the Vietnam labour market on the basic of Vietnamese Household Living Standards Survey The estimation results are basically consistent with the findings of empirical studies and expectation The only difference is Duncan index represented for household's head occupation This is explained by lower educational attainment and proportion of manual jobs of parents The improvements of education and occupation have lead to positive effects recent years such as in 2008 Practically, living standards have improved resulting in they themselves take care of children as well as interest in their children' education In term of family background, number of siblings negative affects wages But in some case this variable is insignificant One of findings is worker lives in the South East and urban receiving higher wages The results emphasize the real situation that people have tendency to favor living in city and urban areas Age and ethnicity of workers are significant and positively correlated with wage while married status and ethnicity are recognized insignificant in 2006 The education attainment of worker is positive increase to wage It is the key factor effect on wage The improving each level in five categories confirms wage increasing during investigated period from 2006 to 2008 The regression results of the study shows that the goodness-of-fit of the model is around 20% It means there are 20% of the total variance in wage is explained by all independent variables 7.2 Policy implications Educational attainment of workers is recognized the strongest factor effect wage The finding shows the important of education combination with worker's skills encourage the vocational training for all workers Therefore, some policy implications are suggested below 41 Firstly, to support and push improvement educational attainment of workers Short, medium, or long term training courses would help employee equip necessary knowledge prior to working through encouraging private sectors as well as enterprises set up training center, university create more seats for students Each year, Vietnam's workforce increases 1,484,200 people (from 2000-2009, MOLISA) which young labour accounts for around one third Meanwhile, technical and professional workers have been become competitive advantages instead of cheap unskilled workers Therefore, if the number of workforce getting vocational training increases, labour market will increase more skilled employees that helps improve the advantages of labour force This implication can be deployed as Vietnamese's literacy rate is over 90% and 64.46% workforce graduated High school including 38.64% Lower secondary graduation As a result, labour endowment really proves its advantages in attracting investments On other side, well-equipped knowledge prior to entering labour market will help employees quickly get used to jobs as well as create more chances to find out works after leaving schools In long time, it leads to rising in group of wages and salaries worker, and decreasing in group of vulnerable worker which is considered as a source of widespread poverty Secondly, to encourage the joining of firms in vocational training The gap between knowledge teaching in schools and requested knowledge in working is big problem because training does not meet practical needs Enterprises often claim that they have to re-train for employees after recruitment And it costs both time and funds not only for employers but also for employees If universities associate with employers in construction teaching programs, students will be taught practical awareness that help them easily begin new after leaving schools Therefore, the cooperation will narrow down the gap as removing the barriers which have existed for a long time ago leading to cutting costs Furthermore, more classes are opened for workers and students that give them more chances to successfully seek works And the cooperation will contribute to the socialism policy in education of the J Government by utilizing funds from enterprises 42 - - The mentioned suggestions aim to improvement education of employees They are initial help workers inore opportunities to find out works as well as improve the labour endowment advantage Next, they can affect the ratio of wages and salaries group and vulnerable group in employed workers leading to preventing widespread poverty 7.3 Limitations In my thesis, the Adjusted R is over 0.2 Thus, hourly wage is explained approximately 20% by independent variables in the mode That is caused by the restrictions of data set which are mentioned in chapter as well as the restriction of number of variables Next, I have selected between mother's education and father's education, which one is higher as proxy variable for parents' education because there is not full data of both mother and father for each employee because of lack of spouse's information in cases such as widow, widower or divorce Therefore, I cannot independent test effect of education of mother and father on employee's wage Thirdly, occupation of household's head is scored as Duncan (1961) with modification in selection works for each group according to VHLSS's occupation codes That index was originally constructed by the US data, so it would make differences in implication, even though there were adjustments The limitations may be a chance for further research 43 REFERENCES Ashenfelter, Orley and Zimmerman J.David, 1997 Estimates of the Returns to Schooling from Sibling Data: Fathers, Sons, and Brothers The Review of Economics and Statistics, Vol 79, No Betts, R Julian, 2001 The Impact of School Resources on Women's Earnings and Educational Attainment: Findings from the National Longitudinal Survey of Young Women Journal of Labor Economics, Vol 19, No.3, pp 635-657 Buchinsky, Moshe and Leslie, Phillip, 2009 Educational Attainment and the Changing U.S Wage Structure: Dynamic Implications on Young Individuals' Choices Available at: htp:/w.sanfordeu~lic Dang, Nguyen Anh; Le, Bach Duong and Nguyen, Hai Van, 2005 Youth employment in Viet Nam: Characteristics, determinants and policy Responses Economic and Labour Market Analysis Department, ILO Ganzeboom et al, 1992 A Standard International Socio-Economic Index of occupational Status Social Science Research 21, pp.l-56 Gaviria, Alejandro, 2002 lntergenerational mobility, sibling inequality and borrowing Constraints Economics of Education Review 21, pp 331-340 General statistic office ofVietnam, http://www.gso.gov.vn Halvorsen and Palmquist, 1980 The Interpretation of Dummy Variables in Semilogarithmic Equations The American Economic Review, Vol 70, No 3, pp 474-475 Hamilton, Jonathan; Thisse J Fran9ois and Zenou Yves, 2000 Wage Competition with Heterogeneous Workers and Firms Journal of Labor Economics, Vol 18, No 3, pp 453-472 Harmon, Colm and Walker, Ian, 1995 Estimates of the Economic Return to Schooling for the United Kingdom The American Economic Review, Vol 85, No 5, pp 1278-1286 Levine, David and Mazumder, Bhashkar, 2007 The Growing Importance of Family: evidence from Brothers' Earnings," Industrial Relations, Vol 46, No I Meghir, Costas, 2005 Educational Reform, Ability, and Family Background The American Economic Review, Vol 95, No 1, pp 414-424 Mincer, J and S Polachek, 1974 Family Investment in Human Capital: Earnings ofWomen Journal ofPolitical Economy, Vol 82, No.2, pp.76-108 44 Minimum wage 2006, 2008 MOLISA Available at: http://www.molisa gov vn/docsNBPL/detailVBPL/tabid/213/DociD/4 7/TabModul eSettingsld/450/language/vi-VN/Default.aspx Accessed: Jan, 2011 Population and Housing survey 2009, General statistic office Resolution concerning statistics of the economically active population, employment, unemployment and underemployment, 2007 International Conference of Labour Statisticians, 5th edition, pp 108 and 339 Solon, Gary, 2002 Cross-Country Differences in Intergenerational Earnings Mobility Journal of Economic Perspectives, Volume 16, Number 3, pp 59-66 Solon, Gary et al., 1991 The effect of family background on economic status: a longitudinal analysis of sibling correlations The Journal of Human Resources Solon, Gary, 1991 Intergenerational income mobility in the United Sates The American Economic Review, pp 393-408 Stevens and Featherman, "A Revised Socioeconomic Index of Occupation Status," University of Wisconsin, CDE Working paper 79-48 • Tan Due, 2010 Cheap employment: disadvantages from advantages Vietnam Economy, 15 Jun Vu Quynh, 2010 Labour shortages: the answer is wage Vietnam Economy, 25 May Wooldridge, 2002 Econometric Analysis of Cross Section and Panel Data Massachusetts Institute of Technology Press 45 APPENDIX '• Separately regression results in 2006 and 2008 1) 2006 ,t eststo, title(" "): reg ln_wage age married ethnicity ED parents_education South East if Duncan index urban siblings m1ac5> 15& m1ac5F = 0.0000 Adj R2 = 0.248 RootMSE = 45623 -Robust [95% Conf Interval] t P>ltl Std Err Coef I -+ -ln_wage age I south East I I I I I I I I cons I married ethnicity ED parents_ed-n siblings Duncan index urban 0178837 0025179 7.10 0.000 012946 0228214 0977344 029396 3.32 0.001 040088 1553807 0971864 0327715 2.97 0.003 0329208 1614521 1844392 0151367 12.18 0.000 1547557 2141227 0057902 0065868 0.88 0.379 -.0071267 0187072 -.0054261 0077631 -0.70 0.485 -.0206497 0097975 -.0006977 0007478 -0.93 0.351 -.002164 0007687 0266522 0244483 1.09 0.276 -.0212915 0745959 2064053 0252154 8.19 0.000 1569573 2558533 6626957 0688372 9.63 0.000 5277041 7976874 t 46 Testing of multi-colinearity · vif Variable I VIF 1/VIF -+ -parents_ed-n 1.49 0.669336 ED 1.44 0.693160 age 1.38 0.722334 ma·rried 1.24 0.807447 urban 1.19 0.838617 Duncan index 1.16 0.860285 siblings 1.08 0.924932 South East 1.07 0.935888 ethnicity 1.02 0.981038 -+ -Mean VIF I 1.23 2) 2008 eststo, title(" siblings "): reg ln_wage Duncan index urban age married ethnicity ED parents_education South East if mlac5>15& mlac5 F Adj R RootMSE 0.0000 = = 0.258 = 51293 47 -Robust [95% Conf Interval] t P>ltl Std Err Coet' I -+ · -ln_wage age I 0172137 0021451 8.02 0.000 0130072 0214202 I I I I I I I I 0825772 0268378 3.08 0.002 0299473 135207 1014361 03027 3.35 0.001 0420755 1607966 0773909 0066128 11.70 0.000 0644229 0903589 0291058 0076643 3.80 0.000 0140758 0441357 -.0060345 0029946 -2.02 0.044 - 011907 -.000162 -.0024873 0008772 -2.84 0.005 -.0042074 -.0007671 0040388 0265251 0.15 0.879 -.0479777 0560554 2650248 0297213 8.92 0.000 2067403 3233092 1.164637 0650007 17.92 0.000 1.037168 1.292105 married ethnicity ED parents_ed-n siblings Duncan index urban South East cons I Testing of multi-colinearity vif Variable I VIF 1/VIF -+ -parents_ed-n I 1.67 0.597052 ED I 1.46 0.683811 age I 1.28 0.783349 1.24 0.804781 1.18 0.844332 married I I I 1.18 0.848089 South_East I 1.14 0.875803 ethnicity I 1.08 0.926124 siblings I 1.02 0.975677 urban Duncan_index -+ -~ Mean VIF I 1.25 48 Employment: defined in the forms of: ( 1) employment which is paid in cash or in kind or by mutual help (2) self-employment to earn income for oneself (3) activities of production, business and service for one's own family and no wage or salary is received (MOLISA) Employed: a person who performed some work for at least one hour during the specified reference period for a wage or salary (paid employment) or for profit or family gain (selfemployment and contributing family work) A person is also considered employed if he/she has a job, but was temporarily not at work during the reference period The employed are all persons aged 15 and over in the labour force and those who are defined as being involved in one or more of the above-mentioned forms of employment in the last seven days Employed youth refer to those aged 15-24 who are involved in employment in the labour force (MOLISA) Job: a paid position of regular employment According to the standard definition, therefore, only wage and salaried workers could have a "job" Common usage, however, has extended the concept to encompass any work-related task, which means that any employed person, whether a paid employee, self-employed or unpaid family worker, could qualify as "with a job" (ILO) Labour force: Labour force or economically-active population includes all people who are of the age of 15 or above and employed, and those who are not employed but able to work and have a demand for a job In this regard, those outside the labour force refer to the economically-inactive population who include all people aged 15 or above but who are excluded from the employed component and unemployed Labour market: the virtual (non-tangible) arena where workers compete for jobs and employers compete for workers Analysts use labour market information, including statistics such as the employment-to-population ratio, the unemployment rate, etc., to make assessments of how well the labour market functions and how and/or why the supply of labour and the demand for labour not meet at perfect equilibrium (ILO) 49 Own-account workers: persons who are self-employed, with no employees working for \ them Unemployed: a person who, during the specified short reference period, was (a) without work, (b) currently available for work, and (c) actively seeking work (that is, using at least one of a number of methods to obtain a job) A person is also considered unemployed if he/she is not currently working, but has made arrangements to take up paid or selfemployment at a date subsequent to the reference period (ILO) Unemployment: a measure of the total number of unemployed persons Unpaid family worker (also called contributing family worker): a person working in the family business without pay The business is owned or operated by a family member, who is an own-account worker: (ILO) Vulnerable employment: for purposes of this report, the sum of own-account workers and contributing family workers (unpaid family workers) (ILO) Work: as a verb, a general term meaning to engage in "economic activity" or, equivalently, to supply labour as input in the production of goods and services As a noun "work" has come to be used interchangeably with "job" and "employment" for example, a person who supplies labour might say he/she "has work" or "has a job" or even "has employment" (ILO) Working age people: People at the working age outside the labour force include all people who are of the working age (men aged from 15 to 60 and women from 15 to 55) and excluded from the employed component and unemployed 50 - ' - - - Table Al: Construction of Duncan index variable Group of occupation Score Occupation codes in VHLSS 2006, 2008 Professional 74.65 21, 22, 23, 24 Managerial 61.95 11, 12, 13, 14, 15, 16, 17, 18, 19 - - Sales 50.54 42 Clerical 44.56 31, 32, 33, 34 41 Crafts 31.70 71, 72, 73, 74, 79 Operatives 18.58 81, 82 - Transport 19.50 83 Labourers 8.96 91, 93 Farm labourers 7.90 92 Farm-owners/ Manager 14.22 61 Services (protective) 17.95 00 7.46 51, 52 Services (household, private) J • 51 ~ ' ~ Table A2: Youth labour force participation rates(%) ' 1997 2000 2004 2005 2006 2007 Chango 1997 to 2007 (peon:entage points) Nauonal (15+) Doth sexes 74.3 72.3 71.4 71.1 70.3 69.7 -4.G Male 78.2 76.1 75.5 75.5 74.7 74 -3 remale 70.0 60.0 67.6 67.0 66.1 65.4 -5.4 66.1 63.2 63.8 62.7 62.3 ·2.5 Mala 64.9 71.1 70.5 69.0 69.9 68.7 67.8 -3.3 Female 59.4 62.2 58.0 58.2 57.1 572 -2.1 Both sexes 77.4 74.4 74.5 73.9 73.3 72.7 -4.7 Male 00.5 70.0 77.9 77.6 77.1 76.9 -J.G F€?male 74.6 71 i 71.3 70.4 69 687 -5 g Both sexes 66.2 56.2 56.1 55.1 56.0 54.8 -114 Male 65.5 55.3 5£.8 56.0 57.0 56.0 94 Female 66.9 57.2 55.4 54.2 54.9 53.5 -13.4 Both sexes 48.8 41.8 38 41.2 41.7 40.3 85 Male 49.4 39.6 42.1 -8.7 48.2 37.7 40.2 42.3 41.0 40.7 Female 41.9 41.7 39.9 8.3 71.3 00.5 61.7 59.5 60.5 59.4 -11.9 Urban (15•) Both sexes - Rural (15+) National (15 24) Urban (15 • 24) Rural (15 24} Both ~xe& Male 70.0 59.1 62.1 60.2 61.6 60.8 -9.2 remale 72.6 61.9 61.2 50.0 59.4 57.0 -14.0 -~.•rlN>'"m N•»>M-'"~w Source: MOLISA labour and employment surveys and GSO population estimates ~ J • 52 ., ' ,., I " Table A3 :Labour force classified by sexes and regions 2008 2006 Female Total Peo le) Regions ~-!_' orth East -~: 3,663 I Male Peo le) _:_~- 1,816 Peo le %) -~ -~: 49.58 1,847 - - -North West 1,303 643 49.35 660 i,-5-i9- -C27s ~rth I I -1-::3-61 -49~5 50.42 -~ 3,525 Peo le -=~: I Male Peo le) % -~:= 1,767 50.13 Female -~=: %) -=~ 1,758 49.87 - - 50.65 -50~4s 1,343 669 49.81 -2-:425- -i}o6- ~!-r2o6J;5isT94:37 -49~73 674 50.19 -(219 -5o-.-27 ciiiT_s_o36T _TTa6r49-.-44 I ~!i-r6a9sn47f5o2 ~3+=:r;Fnfo I Peo le) %) -=~ Total delta river u;b:~- _-c6sr9T_1~57 s16T-4~3 655_6_ -fos-9 -4-8:6_5_ :,-:26-i 5T3_5_ -6-:4-f9- -3-:-i-io -f299 -48~6i 51 39 - - - - - - - !Rural 18,160 9,026 49.70 9,134 Source: VHLSS 2006, 2008 53 50.30 17,902 8,961 50.06 8,941 49.94 • ' Table A4: Unemployed workers by age-bands (person) Reasons 15-19 I 20-24 I 25-29 I 30-34 I 35-39 I 40-44 I 45-49 I 50-54 I 55-59 I Total Studying/ 1,769 I 761 64 2,599 Not old enough _76-s-fiouse;~r92Ty76:nc Retirement/ 521 1491214 aged _22l f4-r T7-r 2o-r -i3_T _17T ioT _Ti r f4o-nTs~biel1rKt Illness 11 21 11 Can not 31 27 10 82 73 36 12 11 55 I 214 21 30 46 1 75 10 14 10 I 259 find a job Other ~ -< 2:oocf 1,02 t-2f3r~Tn4 Total 15 99 r -TsT-r -23_o_T _j2-or4~6_9 Source: VHLSS 2008 -1 • 54 ~:-'-' ?_ >:~ -~:' - ~: ·.: -~_: ~ : \ ~: ' ·.· ·~ "' .· , ·:~