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Decomposing the labor market earnings inequality: the public and private sectors in Vietnam, 1993-2006

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  • Imbert, Clement

Abstract

In contrast with the typical transition to a market economy, earnings inequality in Vietnam between 1993 and 2006 appears to have decreased, and the earnings gap in favor of public employees appears to have widened. The paper uses a comparative advantage model to disentangle the effect of sorting workers across sectors from the effect of the differences in returns to workers'skills. The selection of the best workers into the public sector is clearly an important component of the explanation for the public-private sector earnings gap, but the widening of this gap over time is primarily due to changes in the compensation patterns. The paper finds that, in the 1990s, public employees were underpaid compared with their earning potential in the private sector whereas, in the early 2000s, public employees earned similar returns to their comparative advantage in the public and private sectors. The increasing homogeneity in returns to skills in the Vietnamese labor market appears to explain both the increase in the public-private pay gap and the decrease in overall inequality.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6344.

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Date of creation: 01 Jan 2013
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Handle: RePEc:wbk:wbrwps:6344

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Keywords: Labor Markets; Public Sector Economics; Public Sector Management and Reform; Inequality; Government Procurement;

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  1. Martin Painter, 2005. "The Politics of State Sector Reforms in Vietnam: Contested Agendas and Uncertain Trajectories," Journal of Development Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 41(2), pages 261-283.
  2. Brian, McCaig, 2011. "Exporting out of poverty: Provincial poverty in Vietnam and U.S. market access," Journal of International Economics, Elsevier, Elsevier, vol. 85(1), pages 102-113, September.
  3. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
  4. Azam, Mehtabul & Prakash, Nishith, 2010. "A Distributional Analysis of the Public-Private Wage Differential in India," IZA Discussion Papers 5132, Institute for the Study of Labor (IZA).
  5. Roman Frydman & Cheryl Gray & Marek Hessel & Andrzej Rapaczynski, 1999. "When Does Privatization Work? The Impact Of Private Ownership On Corporate Performance In The Transition Economies," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(4), pages 1153-1191, November.
  6. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
  7. McMillan, John & Woodruff, Christopher, 1998. "Inter-Firm Relationships and Informal Credit in Vietnam," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2036, C.E.P.R. Discussion Papers.
  8. Lemieux, Thomas, 1998. "Estimating the Effects of Unions on Wage Inequality in a Panel Data Model with Comparative Advantage and Nonrandom Selection," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 16(2), pages 261-91, April.
  9. Edmonds, Eric V. & Pavcnik, Nina, 2006. "Trade liberalization and the allocation of labor between households and markets in a poor country," Journal of International Economics, Elsevier, Elsevier, vol. 69(2), pages 272-295, July.
  10. Tavneet Suri, 2011. "Selection and Comparative Advantage in Technology Adoption," Econometrica, Econometric Society, Econometric Society, vol. 79(1), pages 159-209, 01.
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Cited by:
  1. Paolo Falco & Luke Haywood, 2013. "Entrepreneurship versus Joblessness: Explaining the Rise in Self-Employment," Discussion Papers of DIW Berlin 1334, DIW Berlin, German Institute for Economic Research.

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