Phan Coxhead Vietnam Wage Paper April 14 2011 - Agricultural ...

changes in government policies that affect state sector employment have the potential to shift the
supply of skills, which also influences the private sector returns to schooling function.
10
This model is preliminary in nature and has many shortcomings (it is, for example, static, and imposes a
number of assumptions, among them competitive wage-­‐setting in private sector employment). Its
virtue is its simplicity; it draws attention to what are arguably the dominant sources of wage
determination for private sector workers: their own characteristics (e.g., education); their marginal
value product in employment which is affected by reforms such as trade liberalization, and changes in
aggregate supply, including those resulting from policies affecting state-­‐controlled employment.
4. Sources of differential wage growth
The Vietnam data show that between 1993 and 2008, wages and the skill premium rose substantially.
But it is easy also to see that virtually all of the growth took place in the first decade of the reform era,
and that with the sole exception of the college degree/no education ratio in year 2008, every measure
of the premium declined after 2002. What is behind these contrasting trends? This is not an easy
question to answer in an economy where rapid growth is causing many things to change at once.
Moreover, Vietnamese statistical sources on some variables (such as workers’ wages and employment
by skills) are very difficult to reconcile with those providing other kinds of information, such as
employment, output and profits at firm or industry level. Our approach in this study relies primarily on
VHLSS sources. 8 This allows us to retain the richness of the individual data in VHLSS, at the cost of
constraining somewhat our ability to characterize the determinants of the general equilibrium wage.
Our solution is to consider the two types of policy innovations– those addressing labor and other
conditions in government and state-­‐owned enterprises, and reforms affecting the profitability of
production of tradables versus goods for the home market– as exogenous treatments, the effects of
which we measure against trends reflecting underlying economic growth and development and
captured in the evolution of wages for a control group. This section describes the methodology and
reports econometric results of hypothesis tests.
4.1. Empirical methodology: triple difference estimator
Our goal is to measure the effects of two policy “treatments” on wage growth and wage inequality.
Because we have two independent treatments, we employ a triple difference (DDD) estimator. To
measure the “treatment” effects of trade liberalization and domestic reform, we divide the sample by
public and nonpublic sector, and also by tradable and non-­‐tradable industries (see appendix B for a list
of industries in each category). While labor market reforms could have affected workers in both the
public and private sectors, the evidence presented in section 2 suggests that they had first-­‐order
impacts only on the public sector. Thus, in a single-­‐treatment difference in difference (DD) analysis, we
can think of public sector workers as the treatment group and private sector workers as the control:
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8 In related research currently in progress, we approach the same question via other sources such as Enterprise
Surveys.