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Long-run costs of piecemeal reform: wage inequality and returns to education in Vietnam

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  • Phan, Diep
  • Coxhead, Ian A.

Abstract

“Shock therapy” transitions in Eastern Europe facilitated movement of skilled workers into privatized industries offering high wage premia relative to state industries. Other transitional economies (notably China and Vietnam) have been slower to relinquish control over key industries and factor markets. Some costs of this piecemeal approach are now becoming apparent. We examine the spillover of continuing capital market distortions into the market for a complementary factor, skilled labor. Using Vietnamese data we find that capital market segmentation creates a two-track market for skills, in which state sector workers earn high salaries while non-state workers face lower demand and lower compensation. Growth is reduced directly by diminished allocative efficiency and incentives to acquire education, and indirectly by higher wage inequality and rents for workers with access to state jobs.

Suggested Citation

  • Phan, Diep & Coxhead, Ian A., 2012. "Long-run costs of piecemeal reform: wage inequality and returns to education in Vietnam," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124207, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea12:124207
    DOI: 10.22004/ag.econ.124207
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    Cited by:

    1. McGuinness, Seamus & Kelly, Elish & Pham Thi Thu, Phuong & Ha Thi Thu, Thuy, 2015. "Returns to Education and the Demand for Labour in Vietnam," Papers WP506, Economic and Social Research Institute (ESRI).
    2. Schmillen,Achim Daniel & Packard,Truman G., 2016. "Vietnam's labor market institutions, regulations, and interventions : helping people grasp work opportunities in a risky world," Policy Research Working Paper Series 7587, The World Bank.
    3. Hai-Anh H. Dang & Paul W. Glewwe, 2018. "Well Begun, but Aiming Higher: A Review of Vietnam’s Education Trends in the past 20 Years and Emerging Challenges," Journal of Development Studies, Taylor & Francis Journals, vol. 54(7), pages 1171-1195, July.
    4. Baccini, Leonardo & Impullitti, Giammario & Malesky, Edmund J., 2019. "Globalization and state capitalism: Assessing Vietnam's accession to the WTO," Journal of International Economics, Elsevier, vol. 119(C), pages 75-92.
    5. Nguyen, Thinh T. & Saito, Hisamitsu & Isoda, Hiroshi & Ito, Shoichi, 2015. "Balancing Skilled with Unskilled Migration in an Urbanizing Agricultural Economy," World Development, Elsevier, vol. 66(C), pages 457-467.
    6. Ian Coxhead & Rashesh Shrestha, 2017. "Globalization and School–Work Choices in an Emerging Economy: Vietnam," Asian Economic Papers, MIT Press, vol. 16(2), pages 28-45, Summer.
    7. Tomoki Fujii, 2018. "Has the development gap between the ethnic minority and majority groups narrowed in Vietnam?: Evidence from household surveys," The World Economy, Wiley Blackwell, vol. 41(8), pages 2067-2101, August.
    8. McGuinness, Seamus & Kelly, Elish & Pham, Thi Thu Phuong & Ha, Thi Thu Thuy & Whelan, Adele, 2021. "Returns to education in Vietnam: A changing landscape," World Development, Elsevier, vol. 138(C).
    9. Dang, Thang, 2017. "Education as Protection? The Effect of Schooling on Non-Wage Compensation in a Developing Country," MPRA Paper 79223, University Library of Munich, Germany.
    10. Baccini, Leonardo & Impullitti, Giammario & Malesky, Edmund J., 2019. "Globalization and state capitalism: assessing Vietnam's accession to the WTO," LSE Research Online Documents on Economics 102602, London School of Economics and Political Science, LSE Library.
    11. Shaio Yan Huang & Chao-Hsiung Lee & Lee-Hsien Pan & Bich Hanh Nguyen Thi, 2016. "IPO Initial Excess Return in an Emerging Market: Evidence from Vietnam’s Stock Exchanges," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-23, June.
    12. Emi Kojin & Ian Coxhead, 2020. "Introduction to the Special Issue on Pathways to Prosperity in Vietnam: Structural and Transitional Inequality in the Distribution of Opportunity," The Developing Economies, Institute of Developing Economies, vol. 58(4), pages 267-275, December.
    13. Daeheon Choi & Chune Young Chung & Ha Truong, 2019. "Return on Education in Two Major Vietnamese Cities," Sustainability, MDPI, Open Access Journal, vol. 11(18), pages 1-30, September.
    14. Ian Coxhead & Diep Phan, 2013. "Princelings and Paupers? State Employment and the Distribution of Human Capital Investments Among Households in Viet Nam," Asian Development Review, MIT Press, vol. 30(2), pages 26-48, September.
    15. Jaax, Alexander, 2020. "Private sector development and provincial patterns of poverty: Evidence from Vietnam," World Development, Elsevier, vol. 127(C).

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    Keywords

    International Development; Labor and Human Capital;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population

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