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The informal sector wage gap among Vietnamese micro-firms


  • John Rand
  • Nina Torm


Based on unique firm survey data from 2009, this paper examines the wage differential between formal and informal manufacturing household enterprises in Vietnam. Using the Blinder–Oaxaca decomposition method, we investigate whether the wage gap is attributed mostly to differences in observable characteristics (the endowments) between formal and informal firms, or to variations in the returns to these characteristics (the unexplained component). The results show that average wages are 10%–20% higher in formal firms and that the majority of this gap is due to observable characteristics, in particular differences in firm size, workforce characteristics and location. Thus, traditional wage determinants seem to play an important role in explaining the higher wage returns in formal firms.

Suggested Citation

  • John Rand & Nina Torm, 2012. "The informal sector wage gap among Vietnamese micro-firms," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 17(4), pages 560-577.
  • Handle: RePEc:taf:rjapxx:v:17:y:2012:i:4:p:560-577
    DOI: 10.1080/13547860.2012.724544

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    References listed on IDEAS

    1. Kim, Annette Miae, 2008. "Learning to be Capitalists: Entrepreneurs in Vietnam's Transition Economy," OUP Catalogue, Oxford University Press, number 9780195369397.
    2. Nguyen Huu Chi & Nguyen Thi Thu Huyen & Axel Demenet & Mireille Razafindrakoto & Francois Roubaud, 2010. "Dynamics of the Informal Sector in Hanoi and Ho Chi Minh City 2007-2009," World Bank Other Operational Studies 27581, The World Bank.
    3. Alan Gelb & Taye Mengistae & Vijaya Ramachandran & Manju Kedia Shah, 2009. "To Formalize or Not to Formalize? Comparisons of Microenterprise Data from Southern and East Africa," Working Papers 175, Center for Global Development.
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    Cited by:

    1. Auboin, Marc & DiCaprio, Alisa, 2016. "Why do trade finance gaps persist: Does it matter for trade and development?," WTO Staff Working Papers ERSD-2017-01, World Trade Organization (WTO), Economic Research and Statistics Division.
    2. Christopher S Adam & Edward F Buffie, 2020. "The Minimum Wage Puzzle in Less Developed Countries: Reconciling Theory and Evidence," IMF Working Papers 20/23, International Monetary Fund.

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