The impact of technology adoption on employment structures and labor productivity a case study in vietnam manufacturing firms form 2007 to 2013

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 THE IMPACT OF TECHNOLOGY ADOPTION ON EMPLOYMENT STRUCTURES AND LABOR PRODUCTIVITY A CASE STUDY IN VIETNAM MANUFACTURING FIRMS FROM 2007 TO 2013 BY NGUYEN HUONG NGUYEN MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, NOVEMBER 2015 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 THE IMPACT OF TECHNOLOGY ADOPTION ON EMPLOYMENT STRUCTURES AND LABOR PRODUCTIVITY A CASE STUDY IN VIETNAM MANUFACTURING FIRMS FROM 2007 TO 2013 A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By NGUYEN HUONG NGUYEN Academic Supervisor: PROF.DR NGUYEN TRONG HOAI HO CHI MINH CITY, NOVEMBER 2015 Declaration “The thesis entitled “The impact of technology adoption on employment structures and labor productivity A case study in Vietnam manufacturing firms form 2007-2013” is the requirement for the degree of Master of Art in Development Economics to the Vietnam – The Netherland Programme (VNP).” Nguyen Huong Nguyen Acknowledgments I have taken efforts in writing this thesis However, it would not have been possible without the kind support of many people I would like to extend my sincere thanks to all of them I wish to express my deep sense of gratitude and thanks to my supervisor, Prof.Dr Nguyen Trong Hoai for his invaluable guidance and constant encouragement which has sustained my efforts at all the stages of this thesis work Sincere thanks also go to Dr Pham Khanh Nam for his valuable comments and suggestions for my concept note as well as for his enthusiasm of helping me collecting data It is also my duty to record my gratefulness to all VNP lecturers who have helped and taught me a great deal of useful knowledge My appreciations go to my classmates who have willingly helped me out with their abilities and accompanied with me at VNP during two years I am also very much thankful to VNP officers and librarian for all their assistances of available lab room, library and study materials Finally, I owe a debt of gratitude to my parents for inspiring me and keeping me going to this work Nguyen Huong Nguyen Abbreviations ASEAN : Association of Southeast Asian Nations NBER : The National Bureau of Economic Research OECD : Organization for Economic Co-operation and Development U.S : The United States R&D : Research and Development DANIDA : Danish International Development Agency FDI : Foreign Direct Investment SOEs : State-Owned Enterprises GSO : General Statistics Office CIEM : Central Institute for Economics Management GDP : Gross Domestic Product APO : Asian Productivity Organization HIDS : Human Identification Solutions Conference VRA : Vietnam Rubber Association MIT : Ministry of Industry and Trade Abstract This study investigates directly the impact of technology adoption on employment structures and labor productivity in Vietnamese manufacturing firms by using the panel data from the Survey of Small and Medium Scale Manufacturing Enterprises (SMEs) from 2007 to 2013 Results show that adopting technologies into production positively affects the share of professionals including engineers, technicians, accountant/economist and other professionals in Vietnamese manufacturing firms However, applying manually operated machineries and operated computers could lead to the decrease in added value per worker while other factory equipments seem not to have any effect The study also finds that the capital-intensive firms hire more nonproduction workers and gain higher labor productivity Keywords: Technology adoption; employment structures; labor productivity; operated personal computer; factory equipment; manufacturing firms Table of contents Chapter 1: Introduction 11 1.1 Problem Statement 11 1.2 Research objectives: 13 1.3 Research questions 13 1.4 The scope of the study 13 1.5 The structure of the study 13 Chapter 2: Literature review 15 2.1 Key concepts: 15 2.1.1 Technology and technology adoption 15 2.1.2 Employment structures 16 2.1.3 Labor productivity 16 2.2 The relationship between technology adoption and employment structures 17 2.3 The relationship between technology adoption and labor productivity 19 2.4 The relationship between firm characteristics and employment structures .21 2.5 The relationship between firm characteristics and labor productivity 22 2.6 The relationship between capital-labor ratio and labor productivity as well as the correlation of capital-labor ratio and employment structures 22 2.7 Conceptual framework: 23 Chapter 3: Data and Research methodology 24 3.1 Model specification 24 3.3 Data source 29 3.4 Estimate methods 31 Chapter 4: Technological revolution, employment structures and labor productivity in Vietnam manufacturing firms 32 4.1 Technology innovation 32 4.2 Employment structures 35 4.3 Employee productivity 36 4.4 Summary of the chapter: 38 Chapter 5: Empirical Results 39 5.1 Descriptive analysis 39 5.2 Empirical results 45 5.2.1 For the sample 45 5.2.2 For the specified industries 52 5.3 Summary of the chapter 61 Conclusion and policy recommendation 62 6.1 Conclusion 62 6.2 Policy recommendations 63 6.3 Research limitations 64 References 65 Appendix 69 List of tables Table 3.1: Employment structures in SMEs 28 Table 3.2: Definition of variables 29 Table 4.1: Technological content of manufactured exports (%, 2000, 2008) 33 Table 4.5: Labor productivity by firm size and location 37 Table 5.1: List of considered industries 39 Table 5.4: The summary of statistics by mean of each industry 43 Table 5.5: The coefficient signs between employment structures and other independent variables 46 Table 5.7: The coefficient signs between the proportion of professional workers and other independent variables 49 Table 5.8: The coefficient signs between the proportion of sales and office workers and other independent variables 50 Table 5.9: The coefficient signs between the labor productivity and other independent variables 52 Table 5.10: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of food .53 Table 5.11: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of textile 55 Table 5.12: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials 56 Table 5.13: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of rubber and plastics products 58 Table 5.14: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of fabricated metal products, except machinery and equipment 59 Table 5.15: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of furniture 60 List of figures Figure 3.1: The structure of industries considered 30 Figure 4.1: The proportion of enterprises that obtained a new technology by location and size 34 Figure 4.2: Levels of labor productivity per hour worked, 1970-2010 36 Figure 5.1: Changing in employment structures form 2007-2013 40 Figure 5.2: Added value per worker 41 Figure 5.3: Numbers of machineries and computer used 42 List of appendix Appendix 1-Table 4.2: Technology Characteristics (percent) 69 Appendix 2-Table 4.3: Worker Composition by Occupation (%) 70 Appendix 3-Table 4.4: Labor productivity by Sector from 2009-2013 71 Appendix 4-Table 5.2: Description of variables 72 Appendix 5-Table 5.3: Description of variables 74 Appendix 6-Correlation Matrix of variables 76 Appendix 7- Harris-Tzavalis unit root test 78 Appendix 8- Testing multicolinearity among variables by using VIF 80 Appendix 9-Testing multicolinearity among variables without BOTH variable by using VIF test 82 Appendix 10- List of industries in SMEs 85 10 Appendix 4-Table 5.2: Description of variables Industry Manufacture of food (10) Manufacture of textiles (13) Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials (16) Manufacture of rubber and plastics products (22) 72 (Table 5.2, continued) Industry Manufacture of fabricated metal products, except machinery and equipment (25) Manufacture of furniture (31) Total Soure: Author’s calculate on the data set with Stata software 73 Appendix 5-Table 5.3: Description of variables Industry Obs 1552 Mean 0.06 SD 0.24 Min Max Obs 212 Mean 0.25 SD 0.43 Min Max Manufacture of wood and of Obs 484 products of wood and cork, Mean 0.21 except furniture; manufacture SD 0.41 of articles of straw and Min Max Obs 296 Mean 0.03 SD 0.16 Min Max Manufacture of food (10) Manufacture of textiles (13) plaiting materials (16) Manufacture of rubber and plastics products (22) 74 (Table 5.3, continued) Industry Manufacture of fabricated metal products, except machinery and equipment (25) Manufacture of furniture (31) Total Soure: Author’s calculate on the data set with Stata software 75 Appendix 6-Correlation Matrix of variables Sample mom mom pdm both opc fiage size clr male mom mom pdm both opc fiage size clr male mom mom pdm both opc fiage size clr male 76 Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials (16) mom mom pdm both opc fiage size clr male mom mom pdm both opc fiage size clr male 1.0000 -0.1589 -0.1759 0.0275 -0.0266 0.0146 0.0601 0.0316 Manufacture of fabricated metal products, except machinery and equipment (25) mom 1.0000 -0.1031 -0.3143 -0.0314 -0.0258 -0.0307 0.0405 0.0044 mom pdm both opc fiage size clr male 77 Manufacture of furniture (31) mom 1.0000 -0.0826 -0.3478 -0.0208 0.0076 -0.0366 0.0595 0.0673 mom pdm both opc fiage size clr male Appendix 7- Harris-Tzavalis unit root test Harris-Tzavalis unit-root test for nonproduction Ho: Panels contain unit roots Ha: Panels are stationary AR parameter: Common Panel means: Time trend: Statistic rho Harris-Tzavalis unit-root test for manager Ho: Panels contain unit roots Ha: Panels are stationary AR parameter: Common Panel means: Time trend: Statistic rho 78 Harris-Tzavalis unit-root test for professionals Ho: Panels contain unit roots Ha: Panels are stationary AR parameter: Common Panel means: Time trend: rho Harris-Tzavalis unit-root test for salesandoffice Ho: Panels contain unit roots Ha: Panels are stationary AR parameter: Common Panel means: Time trend: rho Harris-Tzavalis unit-root test for valueadded Ho: Panels contain unit roots Ha: Panels are stationary AR parameter: Common Panel means: Time trend: Statistic rho 79 Appendix 8- Testing multicolinearity among variables by using VIF For sample M Manufacture of food products (10) M Manufacture of textiles (13) M 80 Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials (16) V M Manufacture of rubber and plastics products (22) V M Manufacture of fabricated metal products, except machinery and equipment (25) V M 81 Manufacture of furniture (31) V M Appendix 9-Testing multicolinearity among variables without BOTH variable by using VIF test For sample V M Manufacture of food products (10) V M 82 Manufacture of textiles (13) V M Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials (16) V M Manufacture of rubber and plastics products (22) V M 83 Manufacture of fabricated metal products, except machinery and equipment (25) V M Manufacture of furniture (31) V M 84 Appendix 10- List of industries in SMEs Industry Manufacture of food products Manufacture of beverages Manufacture of tobacco products Manufacture of textiles Manufacture of wearing apparel Manufacture of leather and related products Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials Manufacture of paper and paper products Printing and reproduction of recorded media Manufacture of coke and refined petroleum products Manufacture of chemicals and chemical products Manufacture of basic pharmaceutical products and pharmaceutical preparations Manufacture of rubber and plastics products Manufacture of other non-metallic mineral products Manufacture of basic metals Manufacture of fabricated metal products, except machinery and equipment Manufacture of computer, electronic and optical products Manufacture of electrical equipment Manufacture of machinery and equipment n.e.c Manufacture of motor vehicles, trailers and semi-trailers Manufacture of other transport equipment Manufacture of furniture Other manufacturing Repair and installation of machinery and equipment 85 ... to enhance the quality of labor and labor productivity, anticipate drawbacks of technology progress on manufacturing labor and increase the national competitiveness in the international market... offices and sales workers in Vietnamese manufacturing firms increased matching with the increasing in scale of firms and urban areas That leads to the issue that whether the technology adoption correlates... TFP in both the manufacturing and nonmanufacturing sectors Particularly, the authors concluded that the labor productivity relationship was even stronger in the manufacturing sector than the non-manufacturing