The impacts of education on earnings in the case of vietnam

CHAPTERII:LITERATUREREVIEW 2.IDefinition...6 2.2 Theoreticalframework...6 2.2.1Mincer’sEarlyWorkonexperience,1958...7 2.2.2 TheSchooling—EarningFunction.. 17 3.2Population andlaborforce.

UNIVERSITYOFE CONOMI CS INSTITUTEOFSOCIALSTUDIES

MASTEROFARTSINDEVELOPMENTE C O N O M I C S

HOCHIMINHCITY,NOVEMBER2008

1.1 Introduction

1.2 Problems t a t e m e n t s 4

1.3 Research objectives 4

1.4 Researchquestions 5

I.5Researchhypothesis 5

l.6Dataandmethodology 5

1.7Thesisstructure CHAPTERII:LITERATUREREVIEW 2.IDefinition 6

2.2 Theoreticalframework 6

2.2.1Mincer’sEarlyWorkonexperience,1958 7

2.2.2 TheSchooling—EarningFunction 2.2.3 Theoryofhumancapital 10

2 3.Empiricalstudies 2.4Commentsonthetheories andempiricalstudies 15

2.5 Modeling 16

CHAPTERI I I : E C O N O M I C , E D U C A T I O N A N D L A B O U R M A R K E T INVIETNAM 3.1EconomicinTransition 17 3.2Population andlaborforce

3.3 Ed ucationachievements 2i 3.4Educationexpenditure 21

3.5Employmenta n d income 22

3.5 IE m p l o y m e n t 22

3.5.2Income 23

3.6 Factorsaffectonearnings 25

3.6.1Education 26

3.6.2 Experience 26

3.6.3 Gender 28

3.6.4Region 28

3.6.5Economicsectors 28

CHAPTERIV:DATAANDMETHODOLOGY 4 1Statisticanalysis 29

4.2 Regressionmodelofearningfunction 32

4.3 Regressionr e s u l t s 35

4.4 Estimatecoefficients 4.4.1Genderdisparityinreturnstoeducation 40 4.4.3Regionaldisparityinreturnstoeducation 44

CHAPTERV:POLICYIMPLICATIONSANDCONCLUSIONS 5.1 1C onclusions 46 5.2 Rec ommendations 47 5.2.1Recommendationsf o r employees 47

Table1:Vietnamese’spopulation 19

Table2:Literacyofpopulationage15andoverbyarea,regionhavecertificate 20 Table3:SchoolenrollmenttrendinVietnam2000-2004 21

Table4:TheproportioneducationexpenditureinGDP2000—2005 22

Table5:EducationexpenditureofVietnamcomparingwithothercountries 22

Table6:Monthlyaverageincomeperemployeeinlocalstatesectorat Currentpricesbyregion(thousandVND) 25

Table7:Descriptivestatistic 32

Table8:AverageearningsbyeducationLevelbyRegionandSex 32

Table9:Descriptionvariablesusedinthemodel 34

I‘ablel t l : VietnamL a r n i n g function • Table12:Vietnam:EarningsfunctionsbyGender 41

Table 13:Vietnam:ExtendedEarningsfunctionsbyGender 42

Table14:Vietnam:Earningsfunctionsbysectorofemployment(bothsexes) 43

Table15:Vietnamextendedearningfunctionbyeconomicsector 43

4able17:Vietnams:ExtendedearningsliinctioiibJRegion

InthecaseofVietnam

l

Thelabormarket,earningsandthereturnt o educationh a v e beens t r o n g l y i mp act edafterVietnamtransitingintothemarketeconomyfromplannedeconomyespecialsincetheDoiMotpolicywas carriedout.Toexamtheimpacts,inthispaperweattempttoanalyzethereturnstoeducationonearningsin2004byanalyzingthe

monetarybenefitsofschoolinginVietnam.Ourestimatesdemonstratethatthereisincreasingreturnsofearningonschoolingwhichconsistentwithhumancapitaltheoryandourobservation

toVietnamlabormarket

2

kntixviim o d e l ofM i i i c e r isHumancapitale a r n i n g s 1iincti‹›n;i n c l u d e t h e

l o g ‹›fi n d i v iduale a r n i n g s a s t h e e x p l a i n e d

v a r i a b l e s a n d

sch‹›olingandexperienceareasexplanatoryx'ariab1es.Recentstudiesofc-‹1ucati‹inandearninguerealmostembeddedinthelranieivorkof’Minccrandcoiribincdisithdifferentcontextswithadditionali m p o r t a n t ct’thehouseholdandcomiri unit›’c h a r

t e d i n Laopeople’sdemocraticRepublic(PhanhpakitandEducationandEarningsinLaoPDR2006)o r i n

tialr e t u r n s tos c h o o l i n g f‹›rVietnamese,maleand1male,ruraland

urbanareasandalsobetweenthepublica n d privates e c t o r

Itishope-dt o providea benchm a r k t o examinetheeffectsofmarketliberalizationandeducationretormInVietnam

1.2

ProblemstatementsSince1 9 9 6 , f r o m t h e c e n t r a l i z e d p l a n n i n g e c o n o m y c h a n g e

d t o m a r k e t o r i e n t e d economy.VietnamhasastrongdevelopmentwithmoreopennessandfurtherintegratedintotheWorldeconomy,Vietnam h a s strongintegrationi n t o theglobaleconomy,exchanginggoods,services,Capitals,technologieshaveincreasedrapidlyandstronglyleadstochangeVietnam’ssocietyandeconomy

Int h e year2006Vietnamofficiallybecametot h e WorldTradeOrganizationmember(WTO)thathelpedtocreatemorenewopportunitiestopromoteexportgoodsandserviceswhichVietnamhasadvantages,thiscircumstancehelpedVietnamabsorbsForeignDirectInvestment(FDI)especialincapitalandtechnologies.W i t h theintegrationintotheWorldeconomy,Vietnamhasmorechancestoinvolveintheinternationallabordivislonprocess,thesectorw h i c h Vietnamhasc o m p e t i t i v e advantages.Accordingtointegrationtot h e Worldeconomy,Vietnamesehavechancestoaccesstoadvancedtechnologiesandmodernmanagementtechniqueswithincreasinglaborp r o d u c t i v i t y andi n c r e a s i n g w a g e s A c c o m p a n y witht h a t m o r e challengesfacelowskilledw o r k e r s ; lowere a r n i n g s , sincet h e g a p e o f e a r n i n g betweenskilledandunskilledarebigger

ResearchobjectivesTheobjecto f thiss t u d y i n g i s a i m e d toexamt h e i m p a c t o f educationo

n earnings duringthetransitionperiod,anditisalsoaimedtoidentifydifferenceof

educationsimpactbetweengender,economicsectors,andregions.Togettheseobjects,theratesofreturnstoeducationinstrumentanddatawhichsurveyintheyear2004areused.Although,thereweremanypreviousresearcheshavementionedabouttheeducationande a r n i n g s i n V i e t n a m , B u t e a c h r e s e a r c h h a s d i f f e r e n c e i n t

e r p r e t a t i o n s w h i c h

4

1.4 Researchquestions

Fromtheobjectsoftheresearchhavementionedabove,themainquestionscouldbemade:Doeducationlevelssignificantlydetermineearningsofwageearners?

Whatfactorsaffectonwageearners,suchas;gender,Region,Economicsectorandexperience?1.5 Researchh y p o t h e s i s

heimpactct“education( › n

earningsanddescribesx-ariablesanddata,ChaJater1iv’cincludingcollusionswhichbasedontheresultsof’theregression.andmentionssomeappropriatesolutiontotheauthoritiesixithconcerningoneducation

CHAPTERII:LITERATURER E V I E W

2.1 Definition

2.1.lI n c o m e : “Incomereferstoallcashinflows t r e a m s toanindividualfromallsources”(

TonyChan,StephanieKent,S um Lam,Shirley Li.ECON37 4HongKongEconomyTermPaper)

2.1.2W a g e : “ W a g e r e f e r s t o t h e m o n t h l y ory e a r l y coiripensationfromh e r /

h i s employment”(TonyChan,StephanieKent,SumLam,ShirleyLi,ECON374HongKongEconomyTermPaper)

2.1.3E a r n i n g s : “ E a r n i n g s r e f e r s t o t h e c o m p e n s a t i o n p e r u n i t l a b o r i n p u t

, o r , i n m o r e familiarw o r d s , t h e a b i l i t y a n i n d i v i d u a l c a n e a r n s u s i n g a f i x

e d a m o u n t o f l a b o r (TonyChan,StephanieKent,SumLam,Sh ir le y Li,ECON374HongKongEconomyTermPaper) Itisthebestestimated totheproductivit

yo f laborandwewilltakethisdenotationthroughoutourpaper”

2.1.4“Education:isfundamentaltoenhancingthequalityofhumanlifeand

ensuringsocialandec o n o m i c p r o g r e s s ” ( M i c h e a l P Todaro,S t e p p h e n C S

mi th , E c o n o m i c Development,E i g h t h E d i t i o n )

2.1.5.Humancapital:“Productiveinvestmentsembodiedinhumanpersons.Thisincludes

job-trainingprograms, andmedicalcare”(Becker,1993)

ofearnings.Mincer’smodel

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provideda n a n a l y s i s o f " t h e man n er i n whichon—t h e

-j o b t r a i n i n g i n f l u e n c e sdifferencesinearningsacross individualsandhowthisdeteriiiinestheinequalityandskewnesso f earnings,this m o d e l b a s e d o

n r a t i o n a l e c o n o m i c b e h a v i o r b y individualsinlabormarketwhichisnowcalledanexperience—earningprofile.with

work;heidentifieda n d emphasizedt h e important distinction b e t w e e n a g e and

oftheexperience-earningsprofile.Andhewrotethat“formaltraining“ismoredifficulttomeasurethaninformalon-thejobtraining

Mincer’smodelshowedthatwithinanoccupationearningsinequalityincreaseswiththesteepnessoftheage-

earningsprofile,andthisprofileis steeperforoccupationsrequiringm o r e s k i l l

s , w h e t h e r a c q u i r e d i n s c h o o l o r o n t h e job.H e a l s o s h o w e d theoreticallya

n d empiricallythatinequalityincreaseswithage,schoolinglevelandincome.Histheorys h o w e d t h a t t h e greater t h e a v e r a g e a mo un t o f trainingi n thegroup,t h

e g r e a t e r t h e i n e q u a l i t y i n i t s i n c o m e d i s t r i b u t i o n ” , w h e t h e r t h e g r o u

p i s definedbyindustry,race,gender,maritalstatusorcitysize

Whiletherehavebeennumerousstudiesovertheyearsofratesofreturnfromformaleducationorfromspecific

formaljobtrainingprograms,theliteratureineconomicisverticallyd e v o i d ofstudiesofmagnitudeo f andratesofreturnf r o m investmenti n on-the-

jobtraining,especiallyexperience ormerelyl e a r n i n g bydoing,thismaybedueto,atleastinpart, tothedifficultyofmeasuringthecostoftheinvestmentinon-the-jobt r a i n i n g

magnitudeofonthejobtraining,therateofreturnfromo n t h e

j o b t r a i n i n g a n d t h e i m p l i c a t i o n s o f o n t h e

-j o b t r a i n i n g f o r th edistributionofearnings.Herehenotedexplicitlythatearningprofilesimplyadeclineinon-job-

trainingi n v e s t m e n t w i t h a g e , whichi s attributedt o thedeclinewitha g e lengtho f ther e m a i n i n g w o r k i n g l i f e A m o n g o t h e r f i n d i n g s , M i n c e r e s t i

m a t e d o f dollarmagnitude o f

on-the-jobtrainingi n c r e a s e witht h e levelo f schooling

Althoughatthemarginschoolingandon—

thejobtrainingcanbealternativewaysofacquiringskills,overallschoolandexperienceinvestment a r e positivelyc o r r e l a t e d acrossindividuals.Thisisthefirstempiricald e m o n s t r a t i o n o f positiverelationship betweentwoformsofhumancapital

7

Estimatingo f thevalueoftheforgoneearningscomponento f investmenti n on-the

—jobtrainingmadebyworkerswereobtainedbycomparingearnings t r e a m s

Ratesofreturnfromearningsstreamswerecomputed.Byassumingthatrateofreturnfromschoolingandon-the—

jobtrainingwerethes a m e , a n d subtractinginvestmentinschoolingfromt o t a l investment,Mincerwas abl e toestimatethei n v e s t m e n t i n training.T h e s e estimatess u g g e s t e d thatformalesthedollarvalueofinvestmentsinon-the-

jobtrainingwasthesameasthev a l u e o f i nv est men t i n s c h o o l i n g I n v e s t m e n t i

n s c h o o l i n g had i n c r e a s e d o v e r timeintermofyears

anddollarvalue,andinvestmentinlabormarketexperiencedidnotseemtobeanylessandmayhaveevenincreasedin dollarvalueduringthesameperiod

Mincerestimatedtherateofreturnfromon-jobtrainingfordifferentoccupations,heassumedthattheiralternativeemploymentw

o u l d beoperatives,andbycomparingearningsasapprenticesandasjourneymeni n contrasttothoseofoperatives,Mincercomputedtherateofreturnsfr om on-the-

jobtraining.He estimatedth at

therateofreturnfrominvestmentinonthejobtrainingw e r e about9t o 13p e r c e n t , thisestimationa l s o discusses i n o n t h e

-j o b t r a i n i n g b y w o m e n c o m p a r e d t o m en, a n d showedthattheaverage

femaleexpectstospendlessthanhalfherworkinglifeinthelaborf o r c e a n d h a s h i g h e r p

r o b a b i l i t y ofd r o p p i n g o u t o f l a b o r f o r c e f o r c h i l d

-rearing.Mincernotedthatforreasonsemployersaremorereluctanttoinvestinfirmspecifictrainingforwomenthanformen

2.2.2 TheSchooling—EarningFunction

BeckerandChiswick(BeckerandChiswick,1966)presentedanalternativeapproachtoestimatingratesofreturntohumancapitalanddeterminantofthedistributionofearningsbyformulatingasbelow:

Earningforpersoni inyearj ( E i j ) wererelatedtoearningsift h e r e werenoinvestment(Ei0) plusthesumoft h e annualreturnsfrompasthumancapital

investments,IrfjCij,whererijistheperson’srateofreturnfrom thisperson’s

investment(Cij)i n t h e j "'period.Withkji s a s i n v e s t m e n t (forgonee a r n i n g s

a n ddirectc o s t s ) i n y e a r j relatet o t h e e a r n i n g s w o u l d haveb e e n ift h e r

Then a t u r a l earningsaree x p r e s s e d int h e t e r m s o f t h e r a t e o f r e t u r n fro

mt h e investment( r i j ) theinvestmentr a t i o (kij)andthenumberof periodsof investment(n).Theproduct rkisreferredtotheadjusted rateofreturn,r’

Ifr’isconstantforalllevelsofinvestment,equation(4)couldberewritten:LnEi,j—LnE0

rnd+U,

WhereU i i s t h e e r r o r t e r m w h i c h m e a s u r e s d i f f e r e n c e a c r o s s i n d i v i

d u a l s int h e omittedvariablesthatinfluenceearnings,includingotherformsofhumancapitalandluck

Byseparatingformalschooling fromotherhumancapital,andassuming, isthe

samefora l l levelsofs c h o o l i n g , andp u t t i n g differenceinr ’ , acrosslevelsofschooling,o n - t h e -

j o b t r a i n i n g a n d o t h e r e f f e c t s i n t h e residual ( U ’ ; ) , eq ua ti on ( 4 ) shouldbe:LnEij=LnEi0*r’,Sij*U’;

ThentheregressionofLnEijonSijgivesanestimateofr’=rk

Bycreatingseparatevariable.say,f o r y e a r ofp r i m a r y secondary,andhighereducationw e r e c r e a t e d , t h e r a t e o f returnf o r d is t i n c t l e v e l o f sch oo li ng c o u l

ingsfunctionofevencrudemeasuresot“postschoolinvestment’sinadditionalschoo

linglendsagreatdealofscopetotheanalysisofincomedistribution”andnamedtheterm“thehumancapitalearningsfunction”

earningsprofilesandexperience-earningprofiles,whereexperienceistheyearssinceleavingschool.If

individualsdifferintheirlevelofs c h o o l i n g , school( o n - t h e - j o b training)investmentsbegin,andhencethe

theydifferintheageatwhichpost-twop r o f i l e s differ.Mincershowedthat,t h e correlationbetweenschoolingandon-the-

jobtraininginvestmentsaretendpositive,notbecausetheyarecomplements,butbecausetheyarereflectthedominanceofindividuald i f f e r e n c es i n factorsdetermining

eventhoughatthe marginvarioustypesofhumancapitalcanbesubstitutedforeachothertoa t t a i n t h e s a m e e a r n i n g s I n t h e c a s e o f ab senc e o

f direct i n f o r m a t i o n o n jobtrainingorontheyearsoflabormarketexperienceMincersuggestedthatsubtractingtheageofcompletionofschoolingfromreportedage

yearofon-the-0.ThenifLnEtisthelogofearningsintheyeartandrki s thesameforall levelsofschooling

istherateofreturnfrominvestmentsinon-the-jobtraining.Thelogarithmofgrossearningscanbeexpressedasaquadraticfunctionofyearsoflabormarketexperience.Toanalyzeearnings,(2)wasrewritten:

WhereE ; , S ; a n d T , a r e e a r n i n g s , y e a r s o f s c h o o l i n g a n d y e a r s o f potentia

lp o s t schoollabormarketexperience(ageminusyearsofschoolingminussix),b’saretheregressioncoefficientsa n d i t i s a s s u m e d t h a t U , i s a n o r m a l l y d i s t r i b u t e

d homoskedasticr e s i d u a l T h e a b o v e f u n c t i o n p r o v i d e s t w o e s t i m a t e s o fther a t e o f

onthejobtraining.I f thethereareestimatesofKgandT*,therateofreturnf r o m o n

t h e

-j o b t r a i n i n g c a n b e e s t i m a t e d fromt h e c o e f f i c i e n t o f T o r T ' , Thesetwoe

st i m a t e s t e n d t o differi n partb e c a u s e t h e d a t a are f o r earningsn e t o f currentinvestments, b u t perhapsm or e importantly b e c a u s e i n v e s t m e n t r a t i o (kt)isassumedtodeclinelinearly

IntheMincerresearch(1974),h e showedthattheexplanatorypoweroft h e schooling-earningsfunctioniso n l y 7 p e r c e n t andt h e e x p l a n a t o r y

p o w e r oft h e functionwiththequadraticexperienceprofileis29percentwhichisincreasedto53percentw h e n d u m m y v a r i a b l e s a r e usedf o r sch oo li nga nd th e l o gweeksw o r k e d variablei s addedtotheequation.T he explanatorypoweri s increasede v e n f u r t h e r whentheanalysisiscomputedattheovertakingage,that

is,atthenumberofyearsofexperiencewherethevarianceinearningsbyexperiencelevelissmallest.Thus,thehumancapitalearningsfunctionprovidesa highexplanatory

p o w e r forearningsinspiteofsimple

measuresofinvestmentinhumancapital,namely,yearsofschoolingandyearssinceleavingschool

realsituationaswellasit’sconditioninordertohasvisualr e s u l t Allo f theses t u d i e s a r

e mainlyr e s e a r c h t h e i m p a c t s o f educationo n earningso r theeffectsofeducationa n d experienceo n earnings I n myr es e a r c h I introducedsomeoftheseempiricalresearchesasbelow:

StudyingeducationandearningsinLaoPDR,Phanhpakitusedfunctionasbelowtoestimatetheaveragerateofreturnstodifferentlevelsofschooling:

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ForVientianecapital,therateofreturnstoschoolingincreasedfrom3.5percentfor11yearsofschoolingto5.1percentfor13years(Vocationlevel)andstarted

decline2.4percentf o r 1 5 yearsandincreasedag a i n to6percentf o r 1 8 yearso f schooling

Forotherprovinces,the rateofreturndecreasedfrom2.7percentf o r 11yearsto2

percentf o r 1 8 yearso fschooling

Regionaldifferences:

Anadditionalschoolingyearwouldyield4.5percentand2percentmoreearninginVientianecapitalandotherprovinces

Ther e t u r n s t o o n e a d d i t i o n a l y e a r o f e x p e r i e n c e w o u l d i n c r e a s e e

a r n i n g b y 3 5 percentinVientianecapitaland1.2percentinotherprovinces

Genderd i f f e r e n c e sTherateofreturnsf o r femalesisaboutl 5percenth i g h e r thanthatofmales,5 2 9 percent forfemalesand3.82percentformales

Regiond i f f e r e n c eAworkerinthenorthern,central,andsouthernregionswouldearnabout28%,16%,and21%lowerthanhis/hercounterpartincapital

AndEstimationo f thehumanc a p i t a l earning functioni n HongKong,T o n y Ch

an, StephanieKent,SumLamandShirleyLiusedtheeconometricmodel:

WhereY,S,Tarethemonthlyemploymentincome,yearsofschoolingandyearsofwork,andtoestimatethepercentageofincreasinginearningbystudyingonemoreyearanditisexactlyequaltothereturnonschooling,theyusedthefunction;

returntoon-the-Therei s nouneducatedp e r s o n i n HongKongcoulde a r n i n g 5 2 9 5 0 0 i n 1 9 9 6

-y e a r s c h o o l i n g i s 6 6 3 p e r c e n t andm a r g i n a l increaseo f r e t u r n t o schoolingis0.36percent

Increasedinearningbyaccumulatingfirstyear’sworkexperienceis16.3percentanddecreasedreturnnatureofworkexperienceonearningis0.378percent

AndtoestimatethereturnstoschoolinginRussiaandUkraineY u r i y Gorodnichenko,KlaraSabirianovaPeterusedthebasicMincerianearningsfunctionwithstandardsetcovariatesavailableforbothcountriesas:

whereiindexesindividuals,tindexestime,i n ;,ismonthlyc o n t r a c t u a l wagesaftertaxesattheprimaryjob,sch;tisadjustedyearsofschooling,exp„isyearsofpotentiallabormarketexperience,female;,isadummyvariableindicatingif

anindividualisfemale,capital;tisadummyvariableindicatingifanindividualilivesinthecapitalcityandsitisanindependentlydistributederrorterm.Theresultsoftheresearchas:InRussia,thereturnstoschoolingin1 9 9 6 were8 lP e r c e n t c o m p a r i n g toin20

02were9.2percent,whileinUkrainewasonly4.5percentin2002.ThegenderwagegapinRussiafellfrom 53percentin1998to47percentin2002

14

2.4 Commentso n t h e t h e o r i e s a n d e m p i r i c a l s t u d i e s

Therearemanyfactorsimpactonearnings,themainfactorsthataffectonearningscouldbeextractedfromthetheoriesasfollows:

Themainfactsaffectonearningsiseducation;earningsare

dependedoneducation;educationincreasesskills,i n c r e a s e productivity,increaseoutcomeandincreaseearnings

Earningsareaffectedonexperience;aseducation,experienceincreaseskill,increaseproductivity,increaseoutcomeandincreaseearnings

Byu s i n g d i f f e r e n c e m e t h o d s o f research,a l l o f the t h e o r i e s w e r e m e n t i

o n a bowshownthat,education isthemainfactoraffectsonearnings

Mincer’searlywork,experiencewasoneoftheearliesttheoriesst u d i e s thefactors affectonearnings,thesetheoriesbesidesstudiedthereturnstoexperienceorinvestmenton-the-jobtraining,ilwasalsostudiedthereturnstoeducation.Its

shownthatbothexperimentorinvestmenton-the-jobtrainingandeducationincreasedskillsandincreaseearnings ( w i t h i n a n occupatione a r n i n g s inequalityi n c r e a s e s witht h e steepnessoftheage—

earningsprofile,andthisprofilewassteeperforoccupationsrequiringm o r e s k i l l ,

w h e t h e r a c q u i r e d i n s c h o o l o r o n t h e job).Moreover,t h e s e theoriesshownthatthereturnsonexperiencebetweenw o m e n and manearedifference,theseresultsweretrueuptonow.AlthoughMincer’sresearchwouldnotexplaineda l l o f factors a f f

e c t o n e a r n i n g s , i n o t h e r words, M i n c e r ’ s e a r l y m o d e l s wereacodetostudyth

notasufficientmodeltoapplyalloftheeconomies,becauseearnings ofindividualsarenotonlyaffectedbyexperimentande d u c a t i o n , b u t i t s a l s o a f f e c t b y o t h e

r f a c t o r s w h i c h w e w i l l d i s c u s s b e l o w Mincer’searlytheorieshavelimitedbutitsfoundationforothermodel

TherateofreturnstohumancapitaltheorybyBeckerandChiswick,intheirtheoryeducationwas separated in to manyl e v e l andearnings oflevelcouldbecalculatedseparated

ThehumancapitalearningsfunctionbyJacobMincerisasufficientfunctionandisareallyperfectfunction toanalyzethereturntoeducation,uptonow,thisfunctionisa

ltisanidentitybasedo n theoptimizingbehaviorofindividuals,andrepresentsthe

outcomeofalabormarketprocess

Itisreadilyadaptabletotheinclusionofothervariablesthataffectearnings

Thecoefficientsoftheregressione q u a t i o n h a v e economicinterpretations,theyarepurenumbersandtheirstandarderrorscanbeestimated.Thispermitscomparisons acrosstime,spaceanddemographicgroups

Althoughearningsarepositivelyskewedandtheinequalityofearningsriseswiththelevelofschooling,byusingthenaturallogarithmofearningsasdependentvariable,ther e s i d u

a l s arec l o s e r tobeingnormallydistributedand

homoskedastic.ThisfunctioncouldbeextendedtocalculatehumancapitalearningsinVietnam

Andearningfunctionwitheducationlevel

Lnyi-no+§;Seci+ §Posti+§E x i +§E x t ' +BXi+pi

WhereSec i andPostia r e secondaryandposts e c o n d a r y e d u c a t i o n b yi n d i v i d

u a l i , andXiisdummyvariableindicatingfemale,region,andeconomicsectors

16

e rce nt i n 1 9 9 8 and5 percenti n 1 9 9 9 andt h e n r o s e t o 6 percenti n 2 0 0 0 e v e

n a g a i n s t t h e b a c k g r o u n d ofg l o b a l r e c e s s i o n , m a k i n g i t t h e world'ssecond-fastestgrowingeconomy.InJuly13,2000

VietnamandUnitedstatesignedt h e B i l a t e r a l T r a d e A g r e e m e n t ( B T A ) t h a t w

a s a s i g n i f i c a n t m i l e s t o n e f o r Vietnam'seconomy.TheBTAprovidedforNormalTradeRelations(NTR)statusofVietnamesegoodsi n t h e U n i t e d S t a t e m a r k e t , t

h i s e l e m e n t a l l o w e d V i e t n a m t o hasteni t s transformationi n t o amanufactureb a s e d , a n d export economy It wouldalsoattractedforeigninvestmenttoVietnam,notonlyfromtheUnitedState,butalsofromcountriesinareaandotherregions

Afterr e c o v e r i n g f r o m E a s t A s i a n F i n a n c i a l C r i s i s , V i e t n a m ’ s e c o n o

m y h a d spectaculardevelopment whichan averagegrowthi n GDPof7.1percentperyearfrom2000to2004(GESVietnam,2007).TheGDP

growthwas8.4percentin2005,thes e c o n d l a r g e s t g r o w t h i n A s i a , a n d o v e r 8 percenti n 2 0 0 6 N o v e m b e r 2 0 0 6 , Vietnambecamethel50thmemberoftheWorldTradeOrganization,after1 1yearsofpreparation,i n c l u d i n g 8 yearso f negotiation.V i e t n a m ' s a c c e s s toWTOs h o u l d providea n i m p o r t a n t b o o s t t o V i

e t n a m ' s e c o n o m y a n d s h o u l d h e l p t o e n s u r e t h e continuationofliberalizingreformsandcreateoptionsfortradeexpansion

Inagriculture,fromanimportedcountry,Vietnamisnownotonlythesecondlargestriceexporterintheworldbuta l s o theworld'sl a r g e s t Robustacof fe e, cashewnutsandp e p

p e r e x p o r t e r V i e t n a m h a s t h e h i g h e s t p e r c e n t o f l a n d u s e f o r p e r m a n

e n t

17

crops.6.93percentofanynationintheGreaterMekongSub-region(GESVietnam.2007)

Parallelingi t s effortstoincreasea g r i c u l t u r a l o u t p u t anda f t e r applying industrializationandmodernizationpolicyVietnamhassoughtwithsomesuccesstoinvigorateindustrialproduction.IndustrymoreandmorecontributedhighpercentageinG D P , 3 2 5 p e r c e

n t o f GDPi n 1 9 9 9 and4 1 8 p e r c e n t i n 2 0 0 6 ( G E S V i e t n a m , 2007).Nevertheless,foreign

1 percenti n 1 9 9 0 to20,75percenti n 1 9 9 5 , 24,18

percentin2000,and26,88percent in2005(GESVietnam,2007)

Thepercentageo f youngi n thepopulationh a s increased.I n recentyears, av e r

ag e increasedofgroupage from 5-14years12percentandgroupage15-19increasedby

10.8percent

18

By sex By residence

Source General Statistic Office 2007

Table1:Vietnamese’spopulation

General Highest certificate (%)

Without schooling Without

formaleducation.Theschoolnetworkcoveralmostr e s i d e n t i a l a r e a s whichp r o v i d i n g

c o n v e n i e n c e s t o thel e a r n e r s , educationf o r remotea n d f a r areas,especial f o r ethnicminorityp e o p l e a l s o improved.Thesizeofeducationalsohasbeendeveloped,almostpopulationf o r 15 yearofageoruppera r e literate,almostprovincesa n d citieshaveachievementt h e nationalstandardforliterallyeducationandprimaryeducation,theaveragenumberofyearsa t t e n d i n g s c h o o l s o f thep o p u l a t i o n w a s 7 3 T h e n u m b e r o f

YeaL 2000 2001 2002 20003 2004 2005 Totalexpenditure 23,219 25,882 34,088 3 7,552 54,223 68,9d8 Expenditure7GDPtº%1 5.3 5.4 6.4 6.1 7.6 8.3

ExpenditureoneducationinVietnami n periodtrom21100to2005wasveryhighcomparingw i t h t h e h o u s e h o l d a n d n a t i o n i n c o m e , t h e p r o p o r t i o n e d u c a t

i o n expenditureinGDPwas8.3percent.Inthisexpenditure.privatesectorfinanced40percent;therestwassubsidizedbyGovernment

4.34in2004,averageincreased annualofnewjobwas1.2millions(GES,2004)

22

Inrecentyears.theVietnam’sec on om y i n growthstability andrapidlyl e a d tothenumberofnewjobswereincreasedrapidly,employmentgrowthrateincreasedveryhigh,h i g h e r thanlaborforce,t h e n u m b e r ofn e w jobsgeneratedannuallyhasexceededincreasingoflaborforce.Unemploymentr a te continuouslyreducedfrom6.3percentin2001to5.6percentin2004(GES2004),duringthisperiodthestatusofu n

d e r e m p l o y m e n t a n d labortimeusinginruralareash a s beenremarkableimproved

Alsointhisperiod,thenumberofpeopleworkedi n agriculture,forestry —

fi s h er y sectorsabsolutoryreduced,newsjobsw e r e increasedm a i n l y inservicesandindustriessectorsandthiscircumstancewasprevalenti n developingcountriessuchasVietnam,especialinthebeginningprocessofindustrializing.AlthoughVietnam hasa b i g s u c c e s s f u l iti s s t i l l h a s a b i g changeine c o n o m y ande m p

Employeesweremainlyoutsidethestatesectors,average89percent,instatesectorwas9 5percent,t h e rest a r e inthef o r e i g n i n v e s t m e n t s I n recent years,F D I haveincreased,employeesalsoincreased, from0.6percentin2000to1.1percentin2002,

and1.6percentin2005(GES,2007)

3.5.2 Income

Before1990sVietnamwasoneofthepoorestcountriesintheWorld,althoughsinceVietnamopened thedoorandjointt h e World’seconomy,Vietnam’seco no my h a s developed,a c c o m p a n y w i t h t h a t G D P increasedq u i c k l y , i n c r e a s e d a v e r a g e

Wheneconomydeveloping jobshavebeencreatedmore,unemploymentdecreased,wagealsoincreasedrapidlyinthe1990s.Averagehourlywagesincreasedby10.5%peryearinrealt e r m s between1 9 9 3 and2004(VLSS1 9 9 3 -

2004).W ag e growthwasconsiderablyf a s t e r t h a n t h e g r o w t h i n h o u s e h o l d i n

c o m e p e r p e r s o n i n t h e s a m e period,whichgrewat8.7p e r c e n t peryear,andmonthlyaverageincomeperemployeeinwholecountryatcurrentpriceincreasedfrom359.It h o u s a n d VNDin1995to651.5thousandVNDin2000,andto1297.lThousandVNDin2005(GES,

3 I n s p e c i a l c a s e s , w h e n enterprisesfaceextremebusinessdifficulties,theyareallowedtoapplytheminimumratefrom417.000VNDpermonthto487.000VNDpermonthforcertainperiodo f time

Inrecentyears,Vietnamhasabigintegratedinto

theWorldeconomy,theeconomyhasa b i g r e f o r m e d , theG o v e r n m e n t reducedinterventiontot h e w a g e p a y m e n t mechanismofenterprises,labormarketbecomemoreflexibleandmoredynamic,thewageratesweregraduallydeterminedbysupplyanddemandrelation,inotherwordsthewagerateshasbargainedbetweenemployeesandemployers,includingwiththatnominalw a g e r a p i d l y increasesa n d d i s p a r i t y o f w a g

e s b e t w e e n SOEsa n d F D I enterpriseswasnarroweddown