THE ROLE OF HUMAN CAPTITAL IN SUSTAINABLE POVERTY REDUCTION IN VIET NAM

Poverty, poverty reduction and sustainable poverty reduction Sustainable poverty reduction is a status that one can achieve the satisfactory level of basic human demands such as income,

SUMMARY OF DISSERTATION

ON THE ROLE OF HUMAN CAPITAL IN SUSTAINABLE

POVERTY REDUCTION IN VIET NAM

Subject: THE ROLE OF HUMAN CAPITAL IN SUSTAINABLE POVERTY REDUCTION IN VIET NAM

Major: Labour Economics

Code: 62340201

Supervisors: 1 Ass Prof Dr Pham Thuy Huong

2 Ass Prof Dr Nguyen Vinh Giang

Peer reviewers:

1 Ass Prof Dr Le Thanh Ha

2 Dr Luu Bich Ngoc

3 Dr Nguyen Manh Hai

FOREWORD

Justification: Educated supporting and vocational training may improve human capital for the poor in terms of qualification and specialist knowledge However, how the effectiveness of these programs is and what strategies can be applied to enhance human capital in the sustainable poverty reduction are the significantly practical and scientific questions that have not studied yet

Research objective: The overall objective of this dissertation is to assess the role of human capital in poverty reduction and to propose strategies aim at enhancing human capital in sustainable poverty reduction

Structure of this dissertation:

Introduction

Chapter 1: Theoretical issues about the role of human capital in sustainable poverty reduction;

Chapter 2: Research methodology;

Chapter 3: Situation of the role of human capital in the sustainable poverty reduction in Viet Nam for the period 2000-2010;

Chapter 4: Solutions to enhance the role of human capital in sustainable poverty reduction to 2020;

Conclusion

The key results of the dissertation are summarized in the below chapters:

Chapter 1: Theoretical issues about the role of human capital in

sustainable poverty reduction 1.1 Human capital

Human capital comprises one’s knowledge, skills and ability gained over working and learning Human capital is considered as a livelihood asset

Figure 1.1: The elements of human capital

The important feature of human capital is that its elements are tightly connected and that are difficult to separate It has individual

characteristics but also community feature; internal and external effect; qualitative and quantitative ones

Human capital significantly suffer the impact of various factors including demography, culture and social, economic, infrastructure, natural environment, economic, policy, institution, education and family

In this dissertation, human capital is analyzed through two groups: the first group refers to the knowledge gained from formal education and the second group is specialist knowledge/experience and specific skills in terms of production, expenditure and risk mitigation and adaptation

The subjective and natural conditions

Ability to apply

learned knowledge

into practice

Skill Knowledge

Ability

Human capital

Knowledge measured by qualification

1.2 Poverty, poverty reduction and sustainable poverty reduction

Sustainable poverty reduction is a status that one can achieve the satisfactory level of basic human demands such as income, living standard and can maintain that level even when facing to risks or shocks In other words, poverty reduction is either sustainable out of poverty or non-returning to poverty Poverty and sustainable out of poverty is the outcomes

of livelihood

Poverty reduction is assessed through the major criterias: (i) basic needs satisfaction, (ii) income improvement and maintenance; and (iii) escape from poverty and non-returning poverty

Figure 1.2: Criterias of sustainable poverty reduction

Sustainable poverty reduction endures the impact of internal factors including livelihood capitals, livelihood activities and strategies and external factors comprising market, institution, policy, technology, poverty assistance, infrastructure and natural environment…

1.3 Position and relationship of human capital and poverty reduction

Livelihood capital is human own materials or properties that can be used during their lifetime It is relatively classified into five categories: human, financial, natural, physical and social capitals

Livelihood activities are the combination of human capitals during one’s lifetime

Livelihood result is the output of livelihood activities which is

measured through the change of livelihood capitals after a certain time

The external factors encompass natural environment, economic, policies, institutions, markets, particularly risks, shocks and negative impacts

socio-Figure 1.4: The simple livelihood model

1.4 The role of human capital in sustainable poverty reduction

“The role” is understood as a function and an impact The theory is developed basing on the livelihood model

Human capital comprises knowledge and skills which are placed in the central of the model and are intimately connected with other livelihood capitals It affects to sustainable poverty reduction through income, out of poverty status and non-returning to poverty Two roles of human capital in the framework are below

Liveliho

od capital

Human capital Natural capital

Financial capital

Physical capital Social capital

Livelihood output Livelihood strategies

External factors

1) The role of human capital in poverty reduction and returning the poverty

non-The role of human capital in poverty reduction is considered as a role of livelihood capital Its results (out of poverty and non-returning to poverty trap) is produced through the following mechanism:

- Determine other livelihood capitals and directly affect to the satisfactory degree of human basic needs;

- Determine household livelihood strategies;

- Determine livelihood activities and approaches to integrate with other livelihood capitals in livelihood activities

- Determine adaptive capacity to external factors

- Determine ability to apply new science and technology into livelihood activities in order to increase labor productivity;

These impacts result in higher human capital, more efficient livelihood strategies, more effective livelihood activities, higher adaptive capacity and better livelihood capital

Indeed, the role of human capital in poverty reduction is only effective if it could adapt to realistic condition including other livelihood capitals and external impacts

2) The role of human capital in term of impact on the income Human capital influences household income through different mechanisms The most essential effect is increase labor productivity It also impacts on the income through labor environment, meaning higher quality labor working in higher income sector In addition, human capital affects to household size and dependent rate which consequently impact on average income of a household People earning high income do frequently give less birth

Figure1.5: Research model

Chapter 2: Research methodology

2.1 Approaches and analysis methods

- Increase income

- Out of poverty and non-returning

to poverty

- Degree of basic need satisfaction

HUMAN CAPITALS:

- Official education: Knowledge and qualification

- Experience and skills:

+ Experinence and skills regarding to production: understanding of production, science and technology and how to carry out activities

+ Financial management skills: capital management, expenditure plan + Capacity to cope with risks and shocks

Role Relationships Specific relationship Methodology, data and tools

1 Role of human

capital over the

income

1 Relationship between education, specialist knowledge and income

- The qualification of head of a family and their income

- Labors‘ qualification and working environment

- the qualification of the head of family and the dependent rate

- Labor’s qualification and employment sectors

Method: quantitative analysis Data: VHLSS 2004, 2006, 2008, 2010 Tools: STATA and Mincer model

2 Experience, skills and income

- production experience, skills and income

- Expenditure management skill and income

- Experience and skills to cope with risk and income

Method: quantitative analysis Source of data:

+ Secondary studies and reports + Primary data: houshold survey Tool: STATA

2 Role of human

capital in sustainable

poverty reduction

3 Relationship between education,speciali

st knowledge and sustainable poverty reduction

- Education level and poverty rate

- Education level and degree of poverty

Method: quantitative analysis Source of data: + Household survey + VHLSS 2010 và 2012 Tool: STATA, education impact assessment model and household poverty reduction

4 Experience and skills of

sustainable poverty reduction

- Experience and skills of production and poverty status

- Experience and skills of financial management and poverty status

- Experience and skills to cope with risk and poverty status

Method: quantitative analysis Source of data: Household survey Tool: STATA

3 Role of human

capital in basic

demand satisfaction

5 Education level and livelihood capitals

Education level and other soical indexes: type of house, water supply, toilet, mean of transportation and communication

Method: quantitative analysis Source of data: Household survey Tool: STATA

2) Methodology and Model

Descriptive analysis is applied to analyse the relationship between education level and income; experience, skills and income; education level and sustainable poverty reduction; experience, skill and sustainable poverty alleviation

Mincer model: the equation ln = a0 + a1S + a2t + a3t2 + other variables is applied to analyse the relationship between qualification and wage of paid labour or income of sefl agricultural and non-agriculture labour, where: Yt is the gross income of a year t; S is the number of school years; t is the number of potential experience gained year; t2 is the square

of potential experience year; ao is the coefficient; a1 is the estimated value

of the benefit of official education; a2 is the added percentage value of income along with increase year of experience; a3 is the value of decrease

in marginal income according to year of working experience

Probit Impact assessment model of the relationship between education level and poverty reduction of a household is developed and applied to analyse the relationship between education level, specialist knowledge and sustainable escape from poverty The hypothesis is that Y equivalent 1 if household is poor; and equivalent 0 if household is non-poor Depending on the feature I of household which is defined by independent variables, the probability of Y=1 would be low or high or the probability that a household fall into poverty would be low or high Supposingly, the feature I of a household is defined as follow: I = β1 +β2X2i

(where X2i is an independent variable) Hence Y=1 if I < I* (the limitation level) and Y=0 if I> I* Due to the fact that I could not be observed, it is hypothesised that I* = I + u (where u is a random factor of the model), then Ii* = β1 + β2X2i + ui.

2.2 Source of data

1) Primary data

Household survey: a survey of 270 households classified into three

categories: chronic poor, returned poor and sustainable out of poor The sample of each group is 90 The survey is conducted in 6 provinces including Yen Bai, Ha Noi, Nghe An, Kon Tum, Quang Nam and Tra Vinh Sample is randomly selected from the given list of communes

In addition, 25 deep household interviews, 20 case studies and 4 group discussions with officers, representatives of those were out of poverty and those returned to poverty circle were implemented

2) Secondary data

Vietnam Household Living Standards Survey in 2002, 2004, 2006,

2008 and 2012 is conducted by General Statistics Office The main survey sample is 45,000 households in 3,000 communes and a sub-survey sample

is 9,000 household applied for the module of household expenditure The household size, the information and the quality of the survey can adapt to the research objectives in terms of income, employment status, education and training, house and property etc

Other secondary sources of data includes relative reports, statistics and studies

Chapter 3: Situation of the Role of Human Capital in Sustainable Poverty Reduction in Vietnam for the period of 2000 to 2010

3.1 Poverty situation and poverty reduction in Vietnam 2000 – 2010

The poverty rate decreased dramatically from 37% in 1998 to 12%

in 2010 However, rate of people falling back into poverty remains high by 30% compared to the rate of people out of poverty and The rate of people

in chronic poverty is also high, accounting for 9% of households Significantly, 90% of poor households usually lives in rural areas Those people are frequently affected by several risks Almost 50% of the rural households face risks, especially natural disasters In addition, the living assets of poor households including house, land, savings, income,

production tools, living facilities are limited and their human capital is low,

in particular low people’s average educational level, low number of laborers holding professional and technical qualification and shortage in specific knowledge and necessary work skills

Lack of unfavor environmental conditions, lack of development potentials, and limitation in human capital are considered as the major root causes of poverty and falling back into poverty

3.2 Role of human capital in household income

1) The role of general education and professional knowledge over income

Statistical analysis shows a clear correlation between households‘ educational and professional level and their average incomes, the higher level of education, the higher income could gain The figure 3.2 give a clear relationship of how education impact on income of a family in two year

2002 and 2010

Figure 3.2: income and educational level

Several researches have come to the conclusion that the higher number of schooling years is, the more profitable education/rate of return could gain For example, in 2004, profitable rate of a year of primary education is 2.66%; secondary education 5.7%; highschool education 8.8%; vocational training 9.6%; professional training 10.7% and university education 12.1%

Additionally, people with high education usually work in areas of high productivity so they could earn higher income Agriculture is the sector with lowest productivity, according to the 2010 Census 78.2% of agricultural laborers have not yet completed their first grade, 64.6% worker

in this sector have no qualification, only 3% get undergraduate degree and 0.6% people finish post-graduate program

Moreover, according to the 2010 Census, there was a relation ship between the education level of head of household and dependency rate of members in the family The higher level of heald of family is, the lower dependency rate would be - never receiving any education (0.82); holding

no qualification (0.69); primary school (0.57); secondary school (0.44); completing highschool (0.43) Hence, a person with low education not only earns lower income but also has lower average income due to the fact that they have to feed more family member than one with high education

Analytical result of the correlation coefficients between professional qualification and increasing labor income in various sectors indicates the following points:

The correlation of professional qualification and increase income

of salary paid employees is positive It means that if one has high professional qualification, their income will increase The study found that the positive impact of professional qualification on salary paid employees‘ income has upward trend over the years

In contrast, the correlation between professional qualification and income of agricultural farmers, shows opposite, increase qualification will decrease income It means enhancement of qualification does not always a solution for income improvement, particularly in the case of self-employees

in non-agricultural sector

Table 3.7: Summarize the correlative coefficients between the

professional qualification and income of self-employee in

non-agricultural sector

College, University and higher

Table 3.8: The correlation coefficient between education qualification and average income of self-employee in agriculture sector

College, University and higher