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Firm Ownership and Internal Labor Practices in a Transition Economy: An Exploration of Worker Skill Acquisition in Vietnam

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  • Jed Friedman

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Abstract

One feature common to many post-socialist transition economies is a relatively compressed wage structure in the state owned sector. We conjecture that this compressed wage structure creates weak incentives for work effort and worker skill acquisition and thus presents adverse consequences for the entire transition economy if a substantial portion of the labor force works in the state sector. We explore firm wage incentives and worker training, as well as other labor practices and outcomes, in a transition setting with matched firm and worker data collected in one of the largest provinces of Vietnam ??? Ho Chi Minh City. The Vietnamese state sector exhibits a compressed wage distribution in relation to foreign invested privately owned firms. State wage practices stress tenure over worker productivity and their wage policies result in flatter wage ??? experience profiles and lower returns to education. The state work force is in greater need for formal training, a need that is, in part, met through direct government financing. In spite of the opportunities for government financed training and at least partly due to inefficient worker incentives, state firms, by certain measures, exhibit lower levels of labor productivity. The private sector comparison group to state firms for all of these findings is foreign owned firms. The internal labor practices of foreign firms are more consistent with a view of profit-maximizing firms operating with no political constraints. This is not the case for Vietnamese de novo private firms that exhibit much more idiosyncratic behavior and whose labor practices are often indistinguishable from state firms. The exact reasons for this remain a topic of ongoing research yet we conjecture that various private sector constraints, including limited access to formal capital, play an important role.

Suggested Citation

  • Jed Friedman, 2004. "Firm Ownership and Internal Labor Practices in a Transition Economy: An Exploration of Worker Skill Acquisition in Vietnam," William Davidson Institute Working Papers Series 2004-696, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2004-696
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    References listed on IDEAS

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    Cited by:

    1. Blien, Uwe & Phan thi Hong, Van, 2006. "A pilot study on the Vietnamese labour market and its social and economic context," IAB Discussion Paper 200623, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

    More about this item

    Keywords

    Vietnam; within-firm incentives; labor productivity; transition;

    JEL classification:

    • P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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