A Micro Approach To Understanding The Role Of Human Capital In VietnamA Micro Approach To Understanding The Role Of Human Capital In VietnamA Micro Approach To Understanding The Role Of Human Capital In VietnamA Micro Approach To Understanding The Role Of Human Capital In VietnamA Micro Approach To Understanding The Role Of Human Capital In VietnamA Micro Approach To Understanding The Role Of Human Capital In VietnamA Micro Approach To Understanding The Role Of Human Capital In VietnamA Micro Approach To Understanding The Role Of Human Capital In VietnamThe study pursues three main objectives, that are 1 to analyze the differences in the rate of return to human capital between workers with and without a university degree, 2 to assess th
INTRODUCTION
Research context
1.1.1 Human capital in economic and social development
Human capital (HC) encompasses experience, education, skills, and health, serving as a crucial driver of global economic and social progress Becker (1964) emphasized that investing in education and training enhances individual productivity, a finding supported by Psacharopoulos and Patrinos (2018), who estimate a 10% increase in earnings for each additional year of schooling Schultz (1961) highlighted HC's role in reducing poverty and improving social resilience through better health and economic outcomes The World Bank (2022) reported that countries like Vietnam, which prioritize HC investments, experience faster GDP growth and reduced inequality due to a skilled and adaptable workforce.
Technological advancements enhance the value of human capital (HC), enabling skilled workers to effectively manage multiple tasks in a connected economy Hanushek and Woessmann (2008) highlight the importance of cognitive skills for economic development, aligning with Vietnam's educational priorities outlined in Vietnam Vision 2035 The emphasis on education, skills, and health showcases the transformative potential of HC in fostering sustainable and equitable growth.
In the Fourth Industrial Revolution (Industry 4.0), human capital (HC) encompasses digital literacy and essential cognitive and non-cognitive skills, including resilience and teamwork, as emphasized by Deming (2023) These competencies are crucial as technological advancements and automation reshape the labor market, necessitating a workforce adept at navigating a complex, knowledge-based economy (Brynjolfsson & McAfee, 2014) Schwab (2016) highlights the importance of adaptability in this rapidly evolving technological environment Moreover, HC serves as a vital buffer against global challenges like climate change, with Bleakley (2010) asserting that educated and healthy populations are better equipped to handle environmental disruptions Raihan et al (2024) further suggest that education and innovation are key to Vietnam's sustainable future This understanding aligns with Sen's (1999) capabilities approach, which views development as the expansion of human freedoms and opportunities, a perspective echoed in the United Nations 2030 Agenda (UN, 2015), emphasizing education and health as foundational for equitable progress.
Economic transformation and socio-economic improvement of Vietnam
Since the implementation of Doi Moi in 1986, Vietnam has experienced significant economic transformation and socio-economic progress, evolving from one of the poorest nations to a lower-middle-income country by 2010, according to the World Bank and Vietnam's Ministry of Planning and Investment This remarkable change has been driven by market-oriented policies and global integration, resulting in an impressive average GDP growth rate.
Over the past decade, Vietnam has experienced an impressive annual growth rate of 6 to 7% (World Bank, 2022) This economic transformation, highlighted by Phat (2015), reflects a shift from a predominantly rural economy in the 1990s to one where industry and services now contribute over 80% of GDP, resulting in increased labor productivity and income levels The General Statistics Office of Vietnam (GSO, 2022) further confirms this trend, noting a significant transition of the workforce towards higher-value industries.
From 2016 to 2020, Vietnam experienced significant growth in socio-economic indicators, including improvements in average life expectancy, years of schooling, and per capita income The World Bank reported that the poverty line was set at $3.65 per day (PPP) in 2017, with poverty rates plummeting from 16.8% in 2010 to below 4% in 2023, effectively lifting over 10 million individuals out of poverty Additionally, Vietnam's Human Development Index (HDI) rose from 0.666 in 2014 to 0.703 in 2023, reflecting the country's overall progress in human development.
Vietnam is classified in the high human development group, ranking 91st out of 166 countries according to the UNDP (2024) The World Bank (2022) highlights key factors contributing to this progress, including a 1.7-year rise in life expectancy, a 1.1-year increase in average educational attainment, and nearly universal access to electricity, which surged from 14% in 1993 to 2019 These advancements, driven by significant investments in human capital, align with Son's (2012) assertion that education and health are essential for equitable growth in Vietnam This perspective is further supported by the World Bank Human Capital Project (2018), which emphasizes the importance of long-term development through human capital.
Persistent problems in Vietnam's development process
Despite its advantages, Vietnam faces significant challenges that threaten socio-economic development, particularly in terms of income inequality The Gini coefficient showed a slight decrease from 0.431 in 2016 to 0.373 in 2020; however, the income gap between the wealthiest and the poorest groups widened in 2020 (GSO Vietnam, 2022) According to UNDP (2019), urban areas exhibited a lower Gini coefficient of 0.325 compared to 0.373 in rural areas, highlighting the unequal access to opportunities that contributes to this disparity This finding aligns with the World Bank's (2023) analysis of the persistent urban-rural divide.
Despite an increase in skilled and trained workers, Vietnam faces a significant challenge with 73% of its workforce remaining untrained as of 2022 This high percentage of untrained laborers, coupled with 24% engaged in simple jobs and only 10% in technical and specialized roles, poses a threat to the country's competitiveness The skills gap, along with 80% of employment occurring in the unofficial sector, complicates the transition to high-value industries, as noted by the World Bank.
Inadequate human capital (HC) growth in Vietnam is linked to lower productivity levels compared to neighboring countries (Autor & Handel, 2013) Son (2012) emphasizes that the quality of human capital is crucial for economic development.
Vietnam's labor productivity has seen growth, rising from 4.65 million VND per person per month in 2010 to 15.67 million VND in 2022, according to GSO data However, this increase remains low and inconsistent across various sectors, failing to meet the demands of the country's economic development When compared to Southeast Asian nations, Vietnam's labor productivity lags behind, being slightly lower than the Philippines and significantly lower than Malaysia, Singapore, Japan, and South Korea Consequently, Vietnam faces challenges in enhancing labor quality to sustain its competitiveness both regionally and globally.
To achieve sustainable development goals (SDGs), Vietnam should focus on transitioning to a growth model that emphasizes labor productivity and the creation of high-quality jobs, leveraging human capital as a foundational element.
Climate change poses significant risks to households dependent on rural agriculture, which represents 18% of Vietnam's GDP and employs nearly half of the workforce (World Bank, 2022) According to Raihan et al (2024), rising CO2 emissions from fossil fuel reliance threaten Vietnam's goal of achieving net zero emissions by 2050, necessitating the implementation of sustainable development strategies, including human capital (HC) initiatives Bleakley (2010) highlights that educated populations are more resilient to environmental shocks, yet rural areas continue to face substantial educational and welfare losses following disasters (World Bank, 2023).
The disparity in development between urban and rural areas poses significant challenges for impoverished ethnic minority and northern mountainous communities, which experience poverty rates double the national average (World Bank, 2023) While access to education and clean water in rural regions improved from 17% in 1993 to 51% in 2020, it still falls short compared to urban areas, particularly in the Southeast.
The Red River Delta region is characterized by a higher concentration of wealth and infrastructure, as highlighted by the World Bank and Vietnam's Ministry of Planning and Investment (2016) This disparity stems from insufficient direct human capital investment, which the United Nations 2030 Agenda (2015) identifies as a barrier to sustainable growth.
The importance of research in Vietnam
Research gaps
1.2.1 Limitations in current human capital research in Vietnam
Research on Human Capital (HC) in Vietnam has advanced our understanding of its macro-level contributions to economic growth, yet significant gaps exist at the micro-level, focusing on individuals and households Many studies prioritize general indicators like GDP growth and national education investment, overlooking the complex processes of HC accumulation and its effects on household resilience and individual livelihoods This macro perspective neglects crucial micro factors, including the benefits of education, vulnerability to shocks, and the multidimensional quality of life, which are vital for crafting effective policies in Vietnam's rapidly evolving economy Given Vietnam's unique status as a developing nation facing industrialization, global integration, and environmental challenges, the absence of micro-level analysis is particularly concerning.
As Vietnam shifts from an agricultural economy to one driven by industry and services, the need for micro-level research is becoming increasingly urgent, particularly regarding disparities in human capital (HC) between urban and rural areas and various sectors (Phat, 2015) While macro-level analyses indicate improvements in Vietnam's Human Development Index (HDI) (UNDP, 2019), they fail to clarify how investments in HC at the individual and household levels lead to concrete economic and social outcomes, especially amid climate-related challenges and technological disruptions (Vo, 2024; Frey & Osborne, 2017) This study aims to fill these gaps by examining micro-level dynamics through comprehensive datasets like the Vietnam Household Living Standards Survey (VHLSS) (GSO Vietnam, 2019) and the Vietnam Labor Force Survey (LFS) (GSO Vietnam, 2022), offering evidence-based insights into the significance of HC in Vietnam's development (Son, 2012).
The research gap 1 in this study is Vietnam has few quantitative studies on the rate of return from human capital
In Vietnam, there is a notable research gap regarding comprehensive, quantitative studies on the rate of return (RoR) of investment in human capital (HC), particularly in rural areas and various economic sectors While global data suggests an average RoR of 8–10% for each additional year of education, as indicated by Becker's (1964) human capital theory and Mincer's (1974) earnings equation, specific estimates for Vietnam are limited Oostendorp and Doan (2013) report a 7% RoR per year of schooling in urban areas, yet the RoR in rural regions, which constitute over 60% of the population, and differences across sectors such as agriculture and manufacturing remain largely unexamined.
2018) This gap is important as Vietnam's labor market is developing, with only 27% of workers classified as skilled in 2022 and informal employment dominating at around 80% (GSO Vietnam, 2022)
Vietnam's economic diversification is hindered by a lack of specific Return on Investment (RoR) data in rural and sector-specific contexts, limiting insights into how education and skills impact earnings (Son, 2012) Agriculture, which employs nearly half of the workforce, faces challenges as the returns on human capital in this sector remain inadequately measured The rise of Industry 4.0, demanding advanced technological and digital skills not captured in traditional RoR evaluations, complicates government efforts to optimize educational investments (Schwab, 2016) To bridge this gap, there is a pressing need for quantitative, micro-level methods to assess changes in RoR, which can guide workforce development strategies tailored to Vietnam's diverse labor market.
The research gap 2 in this study is clarifying the impact of natural shocks on HC investment in rural households
The impact of natural disasters, including floods, storms, and droughts, on human capital (HC) investment activities among rural households in Vietnam remains unclear Over 60% of Vietnam's population resides in rural areas, where reliance on agriculture heightens vulnerability to climate-related shocks that disrupt livelihoods and hinder HC accumulation (Vo, 2024) Research by Vo (2024) and Arouri, Nguyen, & Youssef (2015) indicates a 15–20% decline in welfare and a notable reduction in education spending following such disasters; however, the long-term effects on HC investments in health and education are still not well understood The existing literature presents mixed findings, with some studies suggesting that adaptive responses can mitigate negative impacts (Bui et al.).
2014), while the mechanisms driving household decision-making over time remain poorly understood
Vietnam faces increasing instability due to climate change, with the World Bank (2022) warning that environmental hazards could drive 10 million people into poverty by 2050 Rural households, earning an average of 4 million VND per month compared to 8 million VND in urban areas, and with only 15% having some education versus 39% in cities (GSO, 2022), are particularly vulnerable in developing human capital (HC) Khai and Nguyet (2024) highlight the necessity for in-depth research to understand the impacts of shocks and recovery mechanisms, as broader macro-level approaches fail to address crucial micro-level dynamics (Collins et al., 2017) Such research is vital for creating effective interventions that safeguard HC investments in Vietnam's disaster-prone rural areas.
The research gap 3 is no studies have comprehensively assessed HC in micro level
Vietnam's assessment of human capital is limited by a lack of multidimensional frameworks, relying heavily on traditional indicators like years of schooling and income (Hanushek & Woessmann, 2008) While earlier models by Becker (1964) and Mincer (1974) emphasize economic returns, they overlook crucial elements such as soft skills, health, and technological literacy, which are essential in today's economy (Deming, 2023) With only 23% of Vietnamese workers receiving formal training and limited technology access in rural areas (GSO Vietnam, 2019), these single indicator models fail to encompass the full range of human capital This narrow perspective, criticized globally, disregards non-economic benefits like wellbeing and resilience, particularly in developing nations.
Vietnam's shift towards Industry 4.0 necessitates multidimensional frameworks that prioritize essential skills like digital literacy and problem-solving (Frey & Osborne, 2017) Health, often overlooked in human capital research, plays a crucial role in productivity, yet its integration into development strategies remains insufficient (Bleakley, 2010) The stark contrast in secondary school completion rates—54% in urban areas versus 27% in rural regions (General Statistics Office of Vietnam, 2019)—underscores the urgent need for comprehensive approaches that address education, skills, health, and resilience Deming (2023) asserts that implementing such frameworks can bridge theoretical and empirical gaps, promote Vietnam's sustainable development goals, and enhance human capital assessment.
Research objectives and questions
This study aims to investigate and analyze human capital (HC) challenges in fostering individual and household development in Vietnam through a microeconomic lens The objective is to gain a comprehensive understanding of the factors influencing human capital and its impact on economic growth at the individual and household levels.
Human capital (HC), encompassing education, skills, health, and experiences, plays a crucial role in fostering economic and social outcomes at both individual and household levels, particularly amid Vietnam's rapid economic transformation and global integration By focusing on the micro level, this study addresses the shortcomings of macro-oriented analyses and seeks to provide evidence-based insights for enhancing workforce development and household resilience in Vietnam's evolving socio-economic landscape This objective aligns with Becker's human capital theory, which identifies HC investment as a vital driver of individual productivity and social advancement.
This study analyzes the variations in the rate of return on capital (RoR) across different employment structures in Vietnam, focusing on the differences between workers with and without a college degree Utilizing micro data from the Vietnam Labor Force Survey (GSO Vietnam, 2022) and building on Mincer's earnings framework, it estimates an RoR of 8–10% for each additional year of education (Psacharopoulos & Patrinos, 2018) By understanding the specific benefits of sectors such as manufacturing and rural agriculture, this research aims to inform education and training strategies that support Vietnam's economic transition from agriculture to an industrial and service-oriented economy (Phat, 2015) Additionally, it expands on the urban-focused findings of Oostendorp and Doan (2013) by addressing the lack of rural and sectoral RoR data, thereby contributing valuable insights to Vietnam’s workforce development strategies (Doan, Le & Tran, 2018).
Assessing the impact of natural shocks on human capital (HC) investments among rural households in Vietnam reveals significant challenges posed by natural disasters like floods, storms, and droughts With over 60% of the population in rural areas, these communities often experience climate-induced disruptions that hinder livelihoods and HC accumulation (Vo, 2024) Research indicates a 15–20% decline in well-being following such disasters, alongside substantial reductions in education spending (Vo, 2024; Arouri, Nguyen, & Youssef, 2015) Although several studies utilizing secondary data have begun to illuminate these effects and inform disaster response strategies (Bui et al., 2014), the causal mechanisms and long-term consequences remain underexplored This aligns with Schultz's (1961) assertion that investing in sustainable HC is essential for achieving long-term happiness (Nussbaum, 2011).
A novel and effective method for estimating the multidimensional Human Capital (HC) index at the household level in Vietnam is introduced, utilizing Principal Component Analysis (PCA) to incorporate education, health, skills, and economic status The application of discrete PCA, which is adept for binary or categorical data, ensures methodological rigor in assessing variables that are not entirely continuous Traditional single indicator methods, such as years of schooling, fail to encapsulate the complexity of HC, a limitation highlighted in Deming's multidimensional framework Utilizing data from the 2018 Vietnam Household Living Standards Survey, this index offers a holistic evaluation of household well-being that transcends income-based assessments This approach, inspired by recent studies, responds to the necessity of evaluating Vietnam's dynamic HC amidst technological and environmental changes, thereby informing sustainable development policies.
This study focuses on a central research question and three specific inquiries, each accompanied by detailed sub-questions, to thoroughly investigate human capital (HC) issues in Vietnam through a microeconomic lens.
Human capital analysis in Vietnam at the micro level reveals critical issues affecting individual and household development, particularly amid economic integration, technological advancements, and environmental challenges Understanding these dynamics is essential for addressing the complexities of human capital in the country.
It aims to connect macro-level insights with micro-level realities, drawing on foundational HC theories (Becker, 1964; Goldin, 2016)
This article investigates the relationship between the rate of return on human capital and the employment structure in Vietnam, focusing on how investments in human capital lead to economic returns across various employment sectors, drawing on the foundational theories of Becker.
- What is the rate of return on human capital (HCR)?
- What methodological approach is best suited to analyze the return on human capital? Evaluates methods like Propensity Score Matching (PSM) for causal inference (Caliendo & Kopeinig, 2008)
- How does the relationship between HCR and employment structure differ between workers with and without a university degree over time in Vietnam?
Examines temporal and sectoral variations (Oostendorp & Doan, 2013; Doan, Le,
The impact of natural shocks on the human capital investment of rural Vietnamese households is a critical area of study, as it explores how environmental disruptions influence these investments This research aims to fill existing gaps in the literature by analyzing the effects of such shocks on the human capital development within rural communities in Vietnam.
- What approach to analyze investment in human capital in the face of natural shocks? Assesses methods like Difference-in-Differences (DiD) and PSM with database (Angrist & Pischke, 2009)
Natural shocks significantly affect rural households' decisions related to education and health investments, highlighting the importance of quantifying these impacts and identifying resilience factors (Vo, 2024; Khai & Nguyet, 2024; Arouri, Nguyen, & Youssef, 2015) Additionally, the development of a multidimensional human capital index at the micro level is essential, as it addresses the limitations of single-indicator measures and promotes a more comprehensive assessment of human capital (Hanushek & Woessmann, 2008).
- How many components constitute multidimensional human capital? Identifies key dimensions (Deming, 2023; Bleakley, 2010)
- How can a composite index addressing multidimensional human capital at the household level be generated? Proposes PCA with VHLSS data (Abraham &
- What are the advantages of using a composite index over single-indicator measurements in analyzing household well-being? Compares effectiveness for policy insights (Jolliffe & Cadima, 2016; Ray & Sinha, 2015).
Research methods
This study employs a mixed-method approach, emphasizing quantitative techniques to analyze human capital (HC) at the micro level in Vietnam, while also incorporating qualitative synthesis for theoretical grounding Econometric and statistical methods assess the influence of HC on income, employment structure, and household resilience Propensity Score Matching (PSM) is utilized to control for selection bias and estimate the causal relationship between education and earnings across various employment types, using data from the Vietnam Labor Force Survey (LFS) Additionally, Difference-in-Differences (DID) methodology evaluates the effects of natural shocks on rural communities.
HC investment (Angrist & Pischke, 2009) PCA constructs a multidimensional HC index integrating skills, education, and health from the 2018 VHLSS (Abraham & Mallatt, 2022; Jolliffe, 2002)
The qualitative synthesis contextualizes findings about Vietnam's socioeconomic realities, such as rural vulnerability and skills needs, drawing on seminal works such as Becker (1964), Schultz (1961), and Deming (2023) (Goldin, 2016; Nussbaum,
Grounded in a positivist philosophy, this methodology guarantees empirical rigor and replicability, utilizing comprehensive data sets and contemporary techniques to deliver precise insights into human capital dynamics and their policy implications.
Research contributions
This study enriches human capital theory by expanding its scope to include micro- level dynamics, environmental interactions, and multidimensional measurement, addressing the limitations of previous frameworks
Firstly, it builds on Becker (1964) and Mincer (1974) by examining individual-level
The return of human capital (HC) in Vietnam highlights significant disparities within employment structures, as noted by Psacharopoulos and Patrinos (2018) and Son (2012) This micro-level perspective contrasts with macro studies, such as those by Hanushek and Woessmann (2008), which offer comprehensive insights into the economic outcomes of a transitioning economy, as discussed by Phat (2015).
The article expands on human capital (HC) theory by incorporating environmental interactions, specifically examining how natural shocks influence rural HC investments This approach builds on Schultz’s (1961) focus on health and capabilities, as discussed by Bleakley (2010) and Arouri, Nguyen, & Youssef.
2015) This advances previous work on welfare degradation (Vo, 2024) by quantifying causal effects and resilience, meeting the requirements for environmental considerations in the HC framework (World Bank, 2022)
The article introduces a comprehensive multidimensional Human Capital (HC) framework that transcends traditional single index metrics by integrating soft skills, health, and technological adaptability (Deming, 2023; Frey & Osborne, 2017) Utilizing Principal Component Analysis (PCA), this composite index effectively counters critiques of unidimensionality (Ray & Sinha, 2015), offering a robust tool tailored for Vietnam's unique digital landscape and vulnerability to disasters (Abraham & Mallatt, 2022).
This study provides useful implications for Vietnamese policymakers on resource allocation and rural resilience With 73% of the workforce unskilled (GSO Vietnam,
Investing in education and training is essential for enhancing productivity, as highlighted by Psacharopoulos and Patrinos (2018) By aligning vocational training programs with the higher profits observed in industrial sectors, Vietnam can work towards its goal of achieving high incomes by 2045, as outlined by the World Bank and the Vietnam Ministry of Planning and Investment (2016).
Analyzing natural shocks reveals gaps in rural health and education, facilitating targeted interventions like subsidies or insurance for post-disaster recovery The multidimensional health capital (HC) index offers a holistic measure of well-being that extends beyond income, emphasizing the need to prioritize rural health and urban skills to foster equity during the transition to Industry 4.0 These insights are crucial for advancing Vietnam's sustainable development goals by enhancing health capital and minimizing disparities.
Research structure
This framework enables an in-depth examination of the research context, theoretical foundations, methodologies, empirical results, and policy implications, effectively responding to the objectives and questions presented in Section 1.3 The initial section includes details about the author, supervisor, table of contents, and an abstract.
This chapter introduces the study within Vietnam's socio-economic landscape, highlighting the nation's economic transition and persistent challenges, including low labor quality and climate vulnerability It emphasizes the critical need for micro-level human capital research to address these issues, as outlined in the World Bank's 2022 report Additionally, it references the "Vietnam 2035: Towards Prosperity, Creativity, Equity, and Democracy" report, underscoring the importance of strategic planning for the country's future development.
The Ministry of Planning and Investment of Vietnam (2016) identifies gaps in understanding the role of human capital (HC) at both individual and household levels This study employs a mixed methods approach, emphasizing its theoretical and empirical contributions while outlining the structure of the research.
This chapter synthesizes the basic HC theories and empirical studies, identifying gaps relevant to Vietnam It reviews the influential works of Becker (1964), Schultz
(1961), and Mincer (1974), which established HC as a driver of income and productivity, along with modern perspectives such as Deming’s (2023) multidimensional framework (Becker, 1964; Schultz, 1961; Mincer, 1974; Deming,
In 2023, insights from Autor (2014) on skills and inequality, alongside Heckman et al (2006) on cognitive and non-cognitive abilities, enhance the discourse on human capital (HC) in Vietnam This chapter critiques the lack of micro-level analyses, rural shock assessments, and comprehensive multidimensional HC measures It concludes with a conceptual framework that connects HC to individual and household outcomes, as discussed by Son (2012) and Doan et al (2018).
Chapter 3 is Research Methodology Review
This chapter employs positivist philosophy to establish the methodological rigor of the study, focusing on mixed methods designs that highlight quantitative techniques such as Propensity Score Matching (PSM), Differences in Differences (DiD), and Principal Components Analysis (PCA) The application of these methods is illustrated through datasets like the Vietnam Labor Force Survey (GSO Vietnam, 2022), the Thailand-Vietnam Socio-Economic Panel (TVSEP), and the Vietnam Household Living Standards Survey (GSO Vietnam, 2019) Key references include Caliendo and Kopeinig (2008) for PSM guidance, Angrist and Pischke (2009) for causal inference, and Jolliffe and Cadima (2016) for PCA applications, alongside a detailed explanation of data selection and the analytical framework.
Chapter 4 is an essay on Human capital returns across Employment structures
Addressing specific objective 1, this chapter examines the rate of return (RoR) to HC across employment sectors in Vietnam Using PSM with LFS data (2013–2017–
The chapter analyzes the return on investment (RoR) gap between workers with and without university degrees in agriculture and manufacturing sectors in Vietnam (GSO Vietnam, 2022) These findings are framed within Mincer's income equation (1974) and compared to global estimates (Psacharopoulos & Patrinos, 2018) This analysis aligns with the work of Oostendorp and Doan (2013), who investigate the effects of wage employment in Vietnam and its implications for workforce development.
Chapter 5 is an essay on the Impact of Natural shocks on Human capital investment in rural areas
This chapter investigates the impact of natural shocks, like floods and storms, on health care investments in rural Vietnamese households Utilizing Difference-in-Differences (DiD) and Propensity Score Matching (PSM) with TVSEP data, it estimates the causal effects on education and health expenditures following disasters The findings build on existing research regarding welfare losses and resilience, offering valuable insights into rural vulnerability and adaptive capacity, in line with the frameworks established by Chambers and Conway.
Chapter 6 is an essay on creating a Composite Human capital index
This chapter develops a multidimensional Household Capability (MHC) index using Principal Component Analysis (PCA) with the Vietnam Household Living Standards Survey (VHLSS) 2018 data It incorporates various factors such as education, health, skills, and economic status, building upon the frameworks established by Abraham and Mallatt (2022) and Deming (2023) The MHC's effectiveness is evaluated against single index measures, utilizing the methodological insights of Caselli and Ciccone (2019) to underscore its significance in assessing household welfare in Vietnam, as noted by Son (2012).
Chapter 7 is a conclusion and limitations
The concluding chapter integrates key findings by connecting them to theoretical advancements, particularly enhancing Becker's (1964) Human Capital theory, while also offering practical recommendations such as targeted education subsidies and disaster prevention strategies, as supported by the UNDP (2024) and the World Bank.
In 2023, this chapter outlines policies aimed at improving health care (HC) and equity in Vietnam It concludes by addressing limitations, including data constraints and methodological assumptions, while offering recommendations for future research to emphasize the broader implications of the study.
This structure ensures a coherent progression from theoretical foundations to empirical insights and actionable policy outcomes, providing a solid framework for exploring the multifaceted role of HC in Vietnam.
LITERATURE REVIEW
Main research concepts
This section explores the fundamental concepts of human capital (HC) research at the micro level in Vietnam, integrating foundational theories with current studies It defines HC and its components, analyzes the rate of return (RoR) on HC investments, and investigates the factors influencing HC investment decisions Additionally, it expands on the concept by presenting a multidimensional HC framework, all within the socio-economic context of Vietnam.
Human capital (HC) at the micro level encompasses the knowledge, skills, health, and capacities of individuals and households, significantly improving their productivity and income potential within specific socio-economic contexts like Vietnam In contrast to macro-level HC, which analyzes these attributes across broader populations or economies, this research emphasizes the individual and household outcomes, aligning with Becker's perspective.
Human Capital (HC) theory, established by Becker in 1964, encompasses education, work experience, and health In Vietnam, these elements are influenced by the rural-urban divide and the transition from an agricultural to an industrial economy This shift, highlighted by the World Bank and Vietnam's Ministry of Planning and Investment, reveals that individual literacy and household skills significantly impact livelihoods Notably, data from GSO Vietnam in 2022 indicates that 73% of the workforce lacks training, underscoring the importance of developing human capital for economic growth.
This concept goes beyond economic metrics to include social and developmental aspects Bourdieu (1986) emphasized HC as a form of cultural capital, while Coleman
Social capital is crucial in Vietnam, particularly in rural communities that depend on networks for resilience (Woolcock & Narayan, 2000; Ellis, 2000) Health, a vital aspect of human capital, significantly impacts productivity and development, as highlighted by Bleakley (2010) in developing nations As Vietnam progresses towards the Fourth Industrial Revolution (Schwab, 2016) and addresses various shortages (Ray & Sinha, 2015), the importance of micro-level attributes becomes evident However, challenges in human capital accumulation persist, particularly in rural regions (Son, 2012; Doan et al., 2018).
The rate of return (RoR) on capital (HCR) measures the economic benefits, such as increased earnings or wages, gained from investments in education, training, and health Becker (1964) introduced this concept, estimating an annual RoR of 11–13% for education in the U.S., often surpassing returns from physical capital Mincer (1974) further developed this idea with his earnings equation, which connects years of schooling and experience to logarithmic earnings growth, a model refined over the years According to Psacharopoulos and Patrinos (2018), the global average RoR for each additional year of education is 8–10% across 139 countries, with developing economies experiencing higher returns due to skill shortages However, these returns can vary significantly, as noted by Autor and Handel (2013), with task-specific skills affecting wages differently across various industries.
This study analyzes individual rates of return (RoR) in Vietnam, focusing on variations based on employment structure—agriculture versus industry—and geographical location—rural versus urban—using data from the Vietnam Labor Force Survey (GSO, 2022) Notably, vocational training for rural farmers can lead to significant income increases, distinct from broader macroeconomic productivity improvements (Oostendorp & Doan, 2013; Doan & Gibson, 2012) Research indicates diminishing returns to education amid Vietnam's economic transition (Doan et al., 2018; Liu, 2006), with agriculture employing nearly 50% of the workforce but only contributing 18% to GDP (World Bank, 2022) This disparity, alongside technological advancements (Brynjolfsson & McAfee, 2014; Frey & Osborne, 2017), underscores the necessity for micro-level RoR analysis to guide effective workforce development policies (Blundell et al., 1999; Goldin, 2016).
Human capital investment (HCI) at the micro level involves individuals and households intentionally allocating resources like time, money, and effort to improve education, health, and skills This investment includes personal spending on education and healthcare, collective household decisions for children's education, and support from community networks, such as remittances for training In Vietnam, rural households tend to prioritize education over health following natural disasters, contrasting with macro-level investments like government spending.
Key factors influencing Human Capital Investment (HCI) decisions encompass economic and social incentives, environmental shocks, and resource accessibility In developing regions, higher wages and employment opportunities significantly stimulate investment (Blundell et al., 1999; Psacharopoulos & Patrinos, 2018) In Vietnam, cultural values emphasize education and minimizing opportunity costs, aligning with Bourdieu's (1986) concept of cultural capital (GSO Vietnam, 2019; Doan et al.).
Natural disasters significantly impact investments in rural health and education, leading to notable declines in spending following such shocks (Arouri et al., 2015; Bui et al., 2014; Vo, 2024) To mitigate these effects, government subsidies and infrastructure improvements, including schools and clinics, are essential, particularly in rural areas where 27% of the population is uneducated (Vo, 2024; World Bank, 2023).
Vietnam's urban-rural disparities and vulnerability to climate change exacerbate these dynamics, requiring micro-level analysis of household resilience (Khai & Nguyet, 2024; Son, 2012)
Micro-level multidimensional human capital (MHC) for households in Vietnam encompasses various dimensions, including education, health, economic status, and emerging factors like soft skills and technological adaptability, creating a composite index that reflects overall household well-being Unlike traditional unidimensional human capital, which focuses solely on individual attributes such as years of schooling, MHC emphasizes the interdependence and diversity within households.
MHC offers a broader framework compared to individual-level human capital by accounting for resource-sharing dynamics among households In Vietnam, the sharing of common resources strengthens resilience against shocks like floods, highlighting the interdependence found in rural communities.
The collective health and education status of a household significantly influences its resilience, a perspective often overlooked by individual data analysis (Caselli & Ciccone, 2019) Utilizing principal component analysis (PCA) allows for a balanced understanding of these dimensions, offering actionable insights that can guide targeted interventions (Jolliffe & Cadima, 2016; Vyas & Kumaranayake, 2006; Abraham & Mallatt, 2022).
The MHC provides a more nuanced understanding of educational disparities in Vietnam, revealing that secondary school completion rates are significantly lower in urban areas at 54% compared to 27% in rural regions, as highlighted by the World Bank and GSO Vietnam Unlike macro indicators like the Human Capital Index, which often overlook regional differences, MHC effectively captures the impact of contextual factors such as natural disasters and technological changes For instance, MHC can track resilience gaps in real time after hurricanes, offering insights that static macro-level indicators fail to provide.
Household-level MHC serves as a vital link between macro-structural trends and individual agency, reflecting Sen's capabilities approach by recognizing human capital as a collective resource that enhances opportunities In Vietnam, MHC addresses policy requirements, highlights disparities between rural and urban regions, and offers targeted intervention strategies.
Human capital includes various attributes that individuals and professions seek to improve productivity, income potential, and overall well-being This overview highlights its essential elements, utilizing relevant theories and empirical insights within the socio-economic framework of Vietnam.
Theoretical basis
This section outlines the theoretical foundations of human capital (HC) research at the micro level in Vietnam, integrating classical theories by Schultz, Becker, and Mincer that emphasize the economic aspects of HC It also incorporates the Sustainable Livelihoods Approach (SLA), which situates HC within a broader asset framework to enhance household resilience Additionally, contemporary perspectives such as the capabilities approach and social capital theory expand the understanding of HC to include non-economic factors and social dynamics Collectively, these frameworks offer a comprehensive perspective on the diverse role of HC in Vietnam's changing socio-economic landscape.
2.2.1 Classical theories of Human capital
Classical human capital theories by Theodore Schultz, Gary Becker, and Jacob Mincer characterize human capital as an economic investment that produces measurable returns, establishing a basis for the micro-level analysis in this study.
Schultz's theory of Human capital
Theodore Schultz (1961) introduced Human Capital (HC) as an investment in individuals, positing that education, healthcare, and training enhance productivity and social welfare Unlike physical capital, HC is inherently linked to people, making investments in education and health crucial for economic growth, particularly in agricultural economies transitioning to industrialization Schultz's findings on the significant impact of these investments on agricultural productivity are particularly relevant to Vietnam, where the rural economy is predominant yet faces health and education disparities His focus on health, alongside education, underscores Vietnam's urgent need to tackle rural vulnerabilities worsened by climate shocks, emphasizing the critical role of HC in development.
Becker's theory of Human capital
Gary Becker's human capital theory, established in 1964 and 1975, posits that education and training are rational investments that enhance income and productivity He differentiates between general human capital, which encompasses transferable skills, and specific human capital, which refers to skills tailored to a particular firm Becker estimates that the returns on education in the U.S range from 11% to 13%, frequently surpassing the returns on physical capital investments.
1964) Becker's focus on individual decision making aligns with the micro perspective of this study, providing a framework for analyzing returns across Vietnam's employment sectors, such as agriculture and manufacturing (Oostendorp
Becker's analysis focuses on economic outcomes and highlights urban-rural disparities in Vietnam, emphasizing the importance of skills development (Son, 2012; Doan et al., 2018) However, it lacks consideration of the social and cultural factors that are explored in later theories (Bourdieu, 1986).
Jacob Mincer (1974) developed the human capital (HC) theory through his earnings function, which connects years of schooling and work experience to logarithmic earnings growth This model, refined by Heckman et al (2003), estimates global returns of 8-10% for each additional year of schooling, with work experience further enhancing skill acquisition In Vietnam, where informal employment constitutes a large part of the workforce, Mincer's framework serves as an effective tool for assessing the financial benefits of human capital across various sectors While this approach aids in analyzing the impact of employment structures, it primarily focuses on economic returns and overlooks resilience and broader social implications.
Classical theories view human capital (HC) as an economic asset, highlighting the measurable returns from education, health, and experience However, these theories primarily focus on individual economic outcomes, overlooking important non-economic factors and the dynamics at the household level To address these limitations, approaches such as the Sustainable Livelihoods Approach, the Capabilities Approach, and Social Capital Theory offer more comprehensive frameworks for understanding human capital's role in broader social and environmental contexts.
The sustainable livelihoods approach (SLA), pioneered by Chambers and Conway
Human capital (HC) is a vital component among five interdependent capital assets—physical, natural, financial, and social capital—that households utilize to sustain livelihoods and improve resilience to shocks Key elements of HC, such as education, skills, and health, dynamically interact with these assets to boost adaptive capacity and diversify income sources, particularly in rural areas facing environmental challenges.
The interaction between various forms of capital significantly boosts asset utility, as illustrated by human capital enhancing physical assets like tools through skill development, natural capital such as land through agricultural knowledge, and financial capital by enabling investments in education and health Additionally, social capital, exemplified by community networks, plays a crucial role in minimizing investment costs and risks, particularly in rural Vietnamese households that depend on kin support.
2019) For example, post-disaster recovery in Vietnam benefited from social media- supported HC, which helped minimize educational and health losses (Arouri et al., 2015; Vo, 2024)
Human Capital (HC) significantly enhances livelihoods by fostering a shift from subsistence farming to wage employment or entrepreneurship In rural Vietnam, households with greater HC demonstrate increased resilience to welfare declines after floods, effectively managing substantial income shocks The Sustainable Livelihoods Approach (SLA) highlights the importance of resilience, especially in Vietnam, where agriculture is vital for many in the context of frequent climate challenges By connecting classical HC theories to real-world livelihood outcomes, the SLA underscores the micro-level dynamics critical to understanding rural Vietnam's socio-economic landscape.
2.2.3 Modern theories of Human capital
Modern HC theories go beyond economic profit to include human development, social interactions, and adaptability, addressing contemporary challenges such as globalization, technological change, and climate vulnerability
This approach redefined human capital (HC) by broadening the definition of freedom and opportunity, emphasizing the importance of education, health, and skills over income alone (Sen, 1999) According to Robeyns (2005), HC is essential for enhancing individual capabilities, such as employment and overall well-being, rather than simply fulfilling economic functions.
Nussbaum (2011) introduced a normative perspective by connecting capabilities to human dignity, a viewpoint missing in traditional models In Vietnam, this framework highlights the importance of human capital (HC) in safeguarding rural households against shocks and alleviating poverty, with projections indicating a decline to 4% by 2023 (Khai & Nguyet, 2024; World Bank, 2023) This approach aligns with development objectives that prioritize equity and resilience within Vietnam's socio-economic landscape (UNDP, 2024; United Nations, 2015).
Social capital theory, advanced by Bourdieu (1986), Coleman (1988), and Putnam
Social capital, enriched by networks, trust, and relationships, plays a crucial role in facilitating access to resources and collective action (Bourdieu, 1986; Putnam, 2000) Coleman (1988) highlights that social capital enhances educational attainment through community support, a mechanism particularly evident in Vietnam, where family networks help mitigate educational costs following disasters (Coleman, 1988; GSO Vietnam, 2019) Additionally, Woolcock and Narayan (2000) assert that social capital contributes to increased income in developing contexts, thereby complementing the economic advantages of human capital (HC) In Vietnam, this theory underscores the importance of relationships in reducing HC erosion and bolstering rural resilience (Arouri et al., 2015; Collins et al., 2017).
Emerging theories, including Deming's multidimensional human capital framework, emphasize the integration of technology adaptability and soft skills like teamwork to address the challenges of Industry 4.0 Digital literacy is increasingly crucial as automation reshapes labor markets, while adaptability is essential for ensuring work sustainability in this evolving landscape.
In Vietnam, where only 23% of the workforce is educated (World Bank, 2022), recent studies highlight the importance of prioritizing skills for technological and economic change, addressing gaps in traditional models (Do et al., 2022; Phat, 2014; Frey & Osborne, 2017).
2015) They are consistent with the call to develop innovative HC in dynamic contexts (Dakhli & De Clercq, 2004; UNDP, 2019)
Empirical researchs
This section synthesizes empirical research on human capital (HC) globally and in Vietnam, focusing on three main areas: HC returns, the impact of natural shocks on
The article explores HC investment and multidimensional HC measurement, offering a global perspective for comparative empirical analysis It also emphasizes Vietnam-specific findings and gaps, underscoring their significance to the study's focus on rural dynamics and resilience.
2.3.1 Empirical studies in the world
Empirical research underscores the significant impact of human capital (HC) on economic growth, personal income, and social outcomes worldwide A meta-analysis by Psacharopoulos and Patrinos (2018) across 139 countries revealed an average return on investment (RoR) of 8–10% for each additional year of education, with even higher returns of 12–15% in low-income countries due to skill shortages In the United States, Becker (1964) estimated the RoR in education at 11–13%, a figure supported by Autor (2014), who found that college graduates earn 65% more than their high school counterparts Moreover, Hanushek and Woessmann (2008) linked cognitive skills to economic growth, estimating that a one standard deviation increase in test scores can boost GDP by 1.5% Additionally, Heckman et al (2006) noted that non-cognitive skills, such as perseverance, contribute 5–10% to income disparities, broadening the economic implications of human capital.
Health significantly contributes to human capital (HC), as evidenced by Bleakley (2010), who found that malaria elimination in Latin America led to a 10–15% increase in wages due to improved health and education Globally, health investments have been shown to enhance productivity (Schultz, 1961; World Bank, 2018) Additionally, the importance of technological adaptability is underscored by Frey and Osborne (2017), who estimated that 47% of US jobs are at risk of automation, emphasizing the necessity of digital skills Acemoglu and Autor (2011) further demonstrate that task-specific skills influence wage disparities, reflecting the dynamic nature of HC While these findings reveal the economic and social advantages of HC, it is essential to consider regional differences, necessitating context-specific research to address varying socioeconomic realities (Caselli & Ciccone, 2019; Goldin).
In Vietnam, empirical HC research shows urban-rural disparities, resilience challenges and measurement gaps, demonstrating a micro-level focus on rural households and multidimensional dynamics
Research on Return on Human capital
Oostendorp and Doan (2013) report a 7% return on investment (RoR) per year for education in urban labor markets from 2002 to 2008, which is lower than the 12-15% average for developing countries (Psacharopoulos & Patrinos, 2018) Doan and Gibson (2012) highlight that returns differ by industry, with technical training offering higher returns, while Liu (2006) observes a decline in educational returns during Vietnam's economic transition Notably, women experience a slightly higher RoR of 7.5% compared to 6.8% for men, potentially due to labor market selectivity (Oostendorp & Doan, 2013) However, unexplored sectoral differences and vertical trends limit understanding of 73% of Vietnam's unskilled workforce (World Bank, 2022; Doan et al., 2018), underscoring the necessity for micro-level analysis of both rural and urban employment structures (Son, 2012).
The impact of Natural Shocks on HC investment
Rural households in Vietnam are significantly impacted by climate risks, leading to disruptions in human capital (HC) investment Research by Arouri et al (2015) and Bui et al (2014) indicates that natural disasters can decrease household income by 10–15%, which in turn restricts their ability to spend on essential areas such as education and health.
(2024) reports welfare losses of 15–20% following floods in Central Vietnam, along with continued education cuts for low-income families (Vo, 2024) Khai and Nguyet
A study by Khai and Nguyet (2024) found that adaptation strategies, particularly cash transfers, can mitigate educational losses by up to 8% Households with higher initial human capital (HC) tend to recover more quickly, resulting in a reduction of welfare losses by 5–10% (Vo, 2024; Collins et al., 2017) However, the causal mechanisms behind these effects, such as the influence of income versus psychological factors, and their long-term impacts remain ambiguous, as most research relies on cross-sectional data rather than longitudinal studies (World Bank, 2023; Phat, 2015) Additionally, further investigation into rural resilience factors, especially in disaster-prone areas, is necessary (Raihan et al., 2024).
Measuring multidimensional human capital (HC) in Vietnam is still developing, moving beyond traditional indicators like education and income Inspired by Abraham and Mallatt's (2022) Principal Component Analysis (PCA), local initiatives aim to integrate education, health, and economic status Research by Ray and Sinha (2015) indicates that health and skills significantly enhance the impact of HC, yet low technological adaptability—evidenced by only 23% of workers receiving training—limits these multidimensional benefits Ethnic minorities continue to face growing disadvantages, compounded by a lack of comprehensive indicators Furthermore, critical factors such as soft skills and resilience, vital for navigating Vietnam's modernizing and shock-prone economy, remain inadequately quantified Data limitations pose challenges in developing robust indicators, underscoring the necessity for a focus on multiple dimensions in this area of research.
Global empirical research underscores the economic and social advantages of human capital (HC), establishing a benchmark for Vietnam Within the country, studies reveal a modest return on investment (RoR) in urban regions, alongside rural areas facing vulnerability to shocks and emerging multidimensional initiatives The limitations in sectoral analysis, the effects of longitudinal shocks, and the overall measurement of HC necessitate a micro-level approach in this study, utilizing Vietnam's extensive data set to explore the dynamism and resilience of rural HC (GSO Vietnam, 2019; UNDP, 2024).
Approaches to measuring human capital
Measuring human capital is crucial for assessing its impact on individual, household, and societal development Various methodologies exist to quantify human capital, each with unique strengths and limitations This article explores three primary measurement methods—cost-based, income-based, and index-based—rooted in classical theories and empirical research, particularly focusing on their relevance in Vietnam These approaches facilitate a micro-analysis of economic returns, shock effects, and the multidimensional dynamics of human capital.
The cost-based approach to quantifying human capital (HC) views it as an investment asset by aggregating costs incurred during the acquisition process, including both education and training expenses Pioneered by Schultz in 1961, this method incorporates direct costs like tuition and books, as well as indirect costs such as lost income, to estimate HC value Becker further refined this approach in the 1960s and 1970s, emphasizing that these costs represent resources dedicated to enhancing human productivity Kendrick later applied this framework to the United States in 1976, providing a comprehensive estimate of HC stock.
$1.5 trillion in 1969, eclipsing physical capital (Kendrick, 1976) The World Bank
(2018) uses cost-based metrics in the Human Capital Index (HCI), which uses education and health spending to predict lifetime productivity (World Bank, 2018)
The cost-based approach offers valuable assessments of human capital investments and aligns with Becker's investment perspective, aiding in the analysis of education budgets However, it overlooks returns and quality differences, such as ineffective education, and requires detailed cost data often lacking in Vietnam In this context, rural education spending is frequently underreported, and the prevalence of informal training among the untrained workforce limits the method's applicability While this approach has potential for evaluating shock-related human capital losses, comprehensive data sets remain scarce.
The income-based approach evaluates human capital (HC) by examining the financial returns linked to education, skills, and experience Mincer (1974) established this method through his earnings equation, demonstrating a return on investment (RoR) of 10% annually in the U.S Psacharopoulos and Patrinos (2018) reported a global average RoR of 8–10%, with developing countries experiencing a higher RoR of 12–15% due to skill shortages In Vietnam, a study by Oostendorp and Doan (2013) analyzed VHLSS data from 2002 to 2008 and found a RoR of 7% in urban areas, which is below the typical standards for developing nations.
The income-based approach effectively captures the economic impact of human capital (HC) and aligns with Becker's (1964) emphasis on profits, utilizing readily available earnings data (Goldin, 2016) In Vietnam, this approach reveals sectoral and gender disparities (Doan & Gibson, 2012; Liu, 2006) but overlooks non-market benefits like health and resilience (Bleakley, 2010; Sen, 1999) Additionally, selection bias and unobserved factors, such as innate abilities, complicate causal inference (Heckman et al., 2006; Heckman, 1979) Moreover, its focus on monetary outcomes restricts its applicability within Vietnam's rural, informal economy (World Bank, 2023).
Indicator-based approaches create comprehensive human capital (HC) measures by integrating various dimensions such as education, health, skills, and economic status, often utilizing statistical techniques like Principal Components Analysis (PCA) Abraham and Mallatt (2022) support this methodology by combining years of schooling, health outcomes, and economic status for a thorough evaluation in the United States Additionally, Deming (2023) enhances this framework by incorporating soft skills and technological adaptability, addressing the evolving requirements of the modern labor market.
Frey & Osborne, 2017) Globally, Caselli and Ciccone (2019) refine multidimensional metrics to capture HC shares (Caselli & Ciccone, 2019)
The indicator-based approach effectively addresses the multidimensionality of human capital (HC) and transcends the limitations of single indicator models, aligning with Sen's competency framework Principal Component Analysis (PCA) simplifies complex datasets, making it particularly suitable for Vietnam's diverse micro-data, such as the Vietnam Household Living Standards Survey (VHLSS) This method can help bridge the educational gap between rural and urban areas, exemplified by high school completion rates of 54% in urban regions compared to 27% in rural areas, while also incorporating resilience factors However, the approach necessitates robust, multidimensional data, which is often limited in developing contexts, and involves subjective choices in weighting indicators.
Cost-based approaches assess human capital (HC) inputs, while income-based methods evaluate economic outputs, and index-based strategies combine various perspectives to highlight HC's value globally (Kendrick, 1976; Psacharopoulos & Patrinos, 2018) However, in Vietnam, limitations arise from data gaps and a focus primarily on urban or economic dimensions (Son, 2012; UNDP, 2024) This study introduces a hybrid approach that utilizes Vietnamese datasets to overcome these limitations, effectively capturing returns, shock effects, and the multidimensional aspects of HC at the micro level.
Section 2.4 evaluates the deficiencies in human capital (HC) research pertinent to Vietnam, focusing on theoretical, empirical, and measurement issues The report highlights the shortcomings of current theories in relation to Vietnam's distinct socio-economic and environmental landscape, identifies gaps in empirical studies, and underscores the necessity for suitable HC measurement techniques Addressing these gaps is crucial for a comprehensive understanding of the micro-level impact of HC in Vietnam and for formulating context-specific policies.
Research gaps discussion
While traditional human capital theories by Schultz, Becker, and Mincer provide a foundational understanding, they fail to address Vietnam's unique context characterized by rapid economic transition, a predominance of rural areas, and climate vulnerability These classic models primarily focus on the economic benefits of education and experience, neglecting crucial non-economic factors such as resilience and social networks that are vital in Vietnam Furthermore, rooted in industrialized settings, these theories overlook the adaptability and well-being necessary for a developing country experiencing structural economic changes Given that 73% of Vietnam's workforce is untrained and largely informal, a more comprehensive framework that extends beyond an income-centric approach is essential.
The sustainable livelihoods approach (SLA) integrates human capital (HC) with various assets like social and natural resources, offering a comprehensive perspective; however, its application in Vietnam's disaster-prone rural areas is insufficiently specific, particularly as shocks disrupt HC investments Modern theories, such as Sen's capability approach, recognize HC as essential for expanding opportunities, yet its practical implementation in Vietnam remains limited Additionally, social capital theory highlights the importance of networks and relationships in enhancing livelihoods, further emphasizing the need for tailored strategies in these vulnerable regions.
Networks play a crucial role in enhancing human capital (HC), although empirical evidence in Vietnam is limited (Woolcock & Narayan, 2000) Additionally, Deming (2023) highlights the importance of technological adaptability, aligning with Vietnam's objectives for Industry 4.0 (Schwab).
The theories presented overlook the digital divide in rural areas, where education levels are significantly lower than in urban regions (GSO Vietnam, 2019; Do et al., 2022) This gap highlights the inadequacy of existing frameworks in addressing Vietnam's dual economy, characterized by urban industrial growth alongside rural stagnation Furthermore, the pressing climate risks necessitate a context-specific theoretical synthesis to effectively tackle these challenges (World Bank, 2022; Phat, 2015; Raihan et al., 2024).
Empirical research on HC in Vietnam shows significant limitations, especially in exploring non-cognitive skills, social networks and rural dynamics, which limit a comprehensive understanding at the micro level
Heckman et al (2006) highlight that non-cognitive skills, including perseverance and teamwork, account for 5–10% of global income, yet research focusing on Vietnam remains limited Although studies by Oostendorp and Doan (2013) and Doan and Gibson (2012) explore the advantages of education, they overlook the significance of soft skills essential for the growth of Vietnam's manufacturing and service sectors.
& Doan, 2013; Doan & Gibson, 2012) Deming (2023) highlights their growing importance in modern economies, a gap that has not been addressed in Vietnam's transition to skill-intensive industries (Deming, 2023; Brynjolfsson & McAfee,
2014) This shortcoming hinders the workforce development strategy for Vietnam's largely untrained population (WB, 2022)
The role of social networks in enhancing HC remains unexplored in Vietnam, despite evidence of their buffering effect after disasters (Khai & Nguyet, 2024; Collins et al.,
Woolcock and Narayan (2000) estimate that global returns to social capital could increase by 10–15%, yet Vietnam lacks similar empirical evidence The reliance of rural communities on family networks remains largely observed but not quantitatively validated (GSO Vietnam, 2019; Ellis, 2000) This lack of data obscures the relational dynamics of human capital, which is crucial for understanding family vulnerability to shocks (Arouri et al., 2015; Vo, 2024).
Empirical studies in Vietnam predominantly utilize an income-based approach, emphasizing urban income; however, this method overlooks crucial non-market benefits like health and resilience, particularly in rural, disaster-prone regions.
Heckman (1979) criticized the bias of existing approaches that focus solely on observable variables, overlooking essential underlying human capital characteristics (Heckman et al., 2006) While Abraham and Mallatt (2022) and Caselli and Ciccone (2019) promote the use of multidimensional indicators through Principal Component Analysis (PCA), Vietnam currently lacks comprehensive measures that integrate education, health, and resilience (Abraham & Mallatt, 2022; Jolliffe & Cadima, 2016) Furthermore, specific analyses focusing on rural areas are scarce, despite the fact that 60% of the population resides in these regions, resulting in inadequate understanding of resilience factors and the impacts of shocks (World Bank, 2023; Ray).
Empirical gaps hinder the development of targeted policies for Vietnam's rural and uneducated workforce, underscoring the necessity for micro-level, context-specific research to bridge both theoretical and practical divides.
Conceptual framework
This study's conceptual framework integrates human capital theory with empirical insights to analyze micro-level dynamics in Vietnam, focusing on three key areas: economic returns to human capital, the effects of natural shocks on household investment, and a multidimensional human capital index By combining classical economic theories with contemporary perspectives, the framework delineates the cause-and-effect relationships among human capital components, investments, shocks, and their outcomes, positioning human capital as a central element The research encompasses individuals and households, utilizing three measurement methods to guide future investigations into micro-level human capital issues, as illustrated by the arrows in Figure 2.1, which highlight the identified research concepts.
Study 1: Components of human capital → Returns on human capital (based on income)
Study 2: Natural shocks → Human capital investment → Outcomes (based on costs) Study 3: Multidimensional human capital → Composite index
This conceptual framework combines various analytical and measurement methods to elucidate the complex dimensions of human capital It emphasizes the importance of employing multidimensional measurement approaches to fully encompass all facets of human capital, thereby facilitating more robust policy recommendations.
Figure 2.1 Conceptual framework of the research
HUMAN CAPITAL IN MICRO-LEVEL ANALYSIS
Components analysis Education, training, experience, health, works, skills, social factors
Wage, Income Working hour Number of jobs
Education costs Training costs Healthcare costs
Objective 1 Employment structure Human capital return
Objective 2 Natural shocks Human capital investment
Objective 3 Multidimensional Human capital index