Expert Commentary

The public and private sectors in Vietnam, 1993-2006

2012 study in The World Bank Review on economic and income trends in Vietnam, as it transitioned to a more market-based model.

Like China, Vietnam has been moving from a communist economic system to a hybrid form of capitalist communism. These reforms, known as Doi Moi, were launched in 1986 and have transformed Vietnam from one of the world’s most impoverished countries to a lower-middle income country. According to the World Bank, per capita income in Vietnam rose from the equivalent of less than $100 in 1986 to $1,130 in 2010, an 11-fold increase. Certain features of this transformation make it an interesting — at times even surprising — case study in the transition toward a market-oriented economy.

A 2012 study in the World Bank Economic Review, “Decomposing the Labor Market Earnings Inequality: The Public and Private Sectors in Vietnam, 1993-2006,” examines how wage inequality has been affected by changes in the country’s economic policies. The study uses multi-dimensional data from the Vietnam Living Standard Surveys (VLSS) from 1993 and 1998, and the Vietnam Health and Living Standard Surveys from 2002, 2004 and 2006.

The study’s findings include:

  • Overall wage inequality in Vietnam declined from the 1990s and early 2000s, a “surprising” finding for the researchers. Against the backdrop of market reforms, privatization and development, diminishing wage inequality “conflicts with the intuition that more competition in the labor market leads to more inequality.”
  • While the country privatized much of its economy, it did not lay off large numbers of public-sector workers; in fact, the Communist Party re-branded public-sector institutions as “general companies,” giving them an important role in economic development.
  • From 1993 to 2006, wages for both private- and pubic-sector employees increased significantly in nominal terms, though inflation considerably reduced these gains. In 1993, those in the public sector earned 1,460 dongs per hour; by 2006 the rate was 9,320 dongs per hour. In 1993 private-sector employees earned 1,320 dongs per hour, increasing to 5,750 dongs per hour by 2006.
  • The gap between wages of public- and private-sector employees increased over the period studied. In 1993 public sector workers earned 11% more than those in the private sector; by 2006 the gap had increased to 62%.
  • The most productive and educated workers have traditionally been attracted to the public sector, but in the 1990s were underpaid relative to their productivity. Economic reform and development have since brought about a situation where “workers who are more productive [are] receiving higher benefits. This change could be explained by increased competition between the public and private sectors to attract the best workers in the market.”
  • A growing majority of public employees work in government, education and health services; this increased from 51% in 1993 to 62% in 2006.
  • There are 12% more female workers in the public sector than the private sector, “suggesting that public employment is more women friendly than private employment.”
  • Between 1993 and 2006, it “appears that the private- and public-sector workers have become more similar in terms of their observed characteristics, with the exception of experience; the public sector workforce is aging.”

It should be noted that Vietnam’s lack of political openness and individual freedom continues to be an area of concern. As the World Bank states: “Despite this progress, greater openness and opportunity for citizens to participate in governance is needed to support Vietnam’s long-term vision of becoming a modern industrialized society.”

Tags: poverty, Asia