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Decomposing the Labor Market Earnings Inequality: The Public and Private Sectors in Vietnam, 1993–2006

  • Clément Imbert

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. We use 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. We find 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. Copyright 2013, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/wber/lhs009
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Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 27 (2013)
Issue (Month): 1 ()
Pages: 55-79

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Handle: RePEc:oup:wbecrv:v:27:y:2013:i:1:p:55-79
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  1. 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, vol. 69(2), pages 272-295, July.
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  3. Brian McCaig, 2009. "Exporting Out of Poverty: Provincial Poverty in Vietnam and U.S. Market Access," ANU Working Papers in Economics and Econometrics 2009-502, Australian National University, College of Business and Economics, School of Economics.
  4. 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., vol. 20(4), pages 445-465.
  5. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, 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, vol. 14(3), pages 693-709, October.
  7. Martin Painter, 2005. "The Politics of State Sector Reforms in Vietnam: Contested Agendas and Uncertain Trajectories," Journal of Development Studies, Taylor & Francis Journals, vol. 41(2), pages 261-283.
  8. 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, vol. 114(4), pages 1153-1191, November.
  9. 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).
  10. 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, vol. 16(2), pages 261-91, April.
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