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

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The workhorse of the returns-­‐to-­‐labor literature is the Mincer’s “human capital earnings function,” in
which the rate of return to an individual’s schooling is estimated by reference to years of education and
a polynomial in experience (Mincer 1974). Subsequent generalizations have brought in other worker
characteristics such as gender and ethnicity, as well as conditioning variables such as family background,
cognitive ability and school quality, generating a class of models known as “returns to schooling
functions” (for a survey, see Card 2008). An ex post interpretation of this function also includes post-­‐
schooling information such as industry and location (e.g., rural v. urban). Here, we adopt a general
equilibrium interpretation of the returns to schooling function; in this, each worker earns a wage equal
to the average rate plus or minus premia due to individual characteristics such as gender and ethnicity.
The average wage itself is a function of general equilibrium variables: prices, policies, and aggregate
factor endowments.
Our analysis of the Vietnam case is special due to the qualitatively different treatment of private and
public sector workers. On one hand, the public sector in Vietnam has always been very tightly
regulated, and remains so to this day. On the other, in the first decade of economic reforms (roughly
1986-­‐1998) the Vietnamese government introduced a number of changes directly and indirectly
affecting wages and conditions for public sector workers. Direct influences included a wholesale reform
of the public sector, resulting in the loss of an estimated 1.5 million public sector jobs, and the 1994
introduction of a new Labor Law, which relaxed somewhat the regulations governing public sector
workers’ compensation and benefits (Moock et al., 2003). These labor law reforms were thought by
contemporary observers to have had little direct impact on private sector workers, as “in general the
private sector was not hampered by the more rigid labor remuneration regulations” to which
government workers and those in state-­‐owned enterprises were subject (World Bank 1995: 63).
Indirect influences included early initiatives to “equitize” (partially privatize) some state-­‐owned
enterprises, and the relaxation of statutory limitations on joint venture partnerships with foreign capital.
These liberalizing reforms were adopted in the 1990s while retaining very high rates of protection and
other forms of preferential treatment for state-­‐owned enterprises (Athukorala 2006). As the World
Bank (1995) concluded, “These privileges -­‐ in particular preferential access to land and foreign trade
quotas and licenses -­‐ have played a very important role in the concentration of foreign direct investment
in joint ventures with state enterprises, which is transferring to them new financial, managerial and
technological resources.” Undoubtedly, the differential access of SOEs to foreign capital and joint
venture partnerships in the 1990s helped raise their productivity, and along with it the returns to their
labor force—subject, of course, to the restrictions on compensation imposed by the Labor Law.
These empirical conclusions from contemporary observers of the Vietnamese economy motivate a
model in which the labor market – and especially that for skilled workers – is not well integrated
between public and private institutions. Hiring and wages in the latter depend on conventional
profitability calculations, while in the former, we find persuasive evidence of non-­‐market wage-­‐setting.
This is consistent both with tighter regulation of state wages, and—and in the case of state-­‐owned
enterprises, with the partial monetization in wages of rents attributable to quasi-­‐monopoly status and
other statutory privileges.