The impacts of education on earnings in the case of vietnam luận văn thạc sĩ

ABSTRACT The labor market, earnings and the return to education have been strongly impacted after Vietnam transiting into the market economy from planned economy especial since the Doi M

UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES

VIETNAM - THE NETHERLANDS

PROJECT FOR M.A IN DEVELOPMENT ECONOMICS

THE IMPACTS OF EDUCATION ON EARNINGS

IN THE CASE OF VIETNAM

BY NGUYEN XUAN CUONG

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

CHAPTER I: INTRODUCTION

1.1 Introduction 3

1.2 Problem statements 4

1.3 Research objectives 4

1.4 Research questions 5

1.5 Research hypothesis 5

1.6 Data and methodology 5

1 7 Thesis structure 5

CHAPTER II: LITERATURE REVIEW 2.1 Definition 6

2.2 Theoretical framework 6

2.2.1 Mincer's Early Work on experience, 1958 7

2.2.2 The Schooling- Earning Function 8

2.2.3 Theory of human capital 10

2 3 Empirical studies 12

2.4 Comments on the theories and empirical studies 15

2.5 Modeling 16

CHAPTER III: ECONOMIC, EDUCATION AND LABOUR MARKET IN VIETNAM 3.1 Economic in Transition 17

3.2 Population and labor force 18

3.3 Education achievements 21

3.4 Education expenditure 21

3.5 Employment and income 22

3.5.1 Employment 22

3.5.2 Incotne 23

3.6 Factors affect on earnings 25

3.6.1 Education 26

3.6.2 Experience 26

3 6.3 Gender 28

3.6 4 Region 28

3.6 5 Economic sectors 28

CHAPTER IV: DATA AND METHODOLOGY 4.1 Statistic analysis 29

4.2 Regression model of earning function 32

4.3 Regression results 35

4.4 Estimate coefficients 35

4.4.1 Gender disparity in returns to education 40

4.4.2 Economic sector disparity in returns to education 42

4.4.3 Regional disparity in returns to education 44

CHAPTER V: POLICY IMPLICATIONS AND CONCLUSIONS 5.1 Conclusions 46

5.2 Recommendations 47

5.2.1 Recommendations for employees 47

5.2.2 Recommendations for policy makers 48

5.3 Limitations and areas for further research 48

LIST OFT ABLES

Table 1: Vietnamese's population 19

Table 2: Literacy of population age 15 and over by area, region have certificate 20

Table 3: School enrollment trend in Vietnam 2000 - 2004 21

Table 4: The proportion education expenditure in GOP 2000- 2005 22

Table 5: Education expenditure of Vietnam comparing with other countries 22

Table 6: Monthly average income per employee in local state sector at Current prices by region (thousand VND) 25

Table 7: Descriptive statistic 32

Table 8: Average earnings by education Level by Region and Sex 32

Table 9: Description variables used in the model 34

Table 10: Vietnam Earning function oo oo oo ooooOOOOooooOOOOooooooOOOOoo 38 Table 11: Vietnam Extended earning function o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o o 38 Table 12: Vietnam: Earnings functions by Gender 41

Table 13: Vietnam: Extended Earnings functions by Gender 0 0 0 0 0 0 0 0 0 0 0 0 42

Table 14: Vietnam: Earnings functions by sector of employment (both sexes) 43

Table 15: Vietnam extended earning function by economic sector 43

Table 16: Vietnam: Earnings function by Region oo oo o o o o O o o o o o o o o o o o o o o o o o o o o o o o o o 45 Table 17: Vietnam: Extended earnings function by Region 0 0 45

The impacts of education on earnings

In the case of Vietnam

ABSTRACT

The labor market, earnings and the return to education have been strongly impacted after Vietnam transiting into the market economy from planned economy especial since the Doi Moi policy was carried out To exam the impacts, in this paper we attempt to analyze the returns to education on earnings in 2004 by analyzing the monetary benefits of schooling in Vietnam Our estimates demonstrate that there is increasing returns of earning on schooling which consistent with human capital theory and our observation to Vietnam labor market

economic sectors regions Card (Card 1999) survey the literature on the causal relationship between education and earning

This Paper focuses on Vietnam Since Vietnam has successful in economic reform when the economy was transfen-cd from centrally planned to market economy in

1996, the economic transition has led to certain issues in the labor market, education was dctennined important in earnings, the higher the level of education one get, the higher is that person receives starting salary and the steeper the rise in earning during working life In centrally planned economics this relation was limited, in Lao people's democratic Republic (Phanhpakit and Education and Earnings in Lao PDR 2006) or in China (Xie and Human 1996) but they ten to increase as market economy such as in Hong Kong (Tony Chan, 1996) and Czech Republic and Slovakia (Chase 1998) This paper examines the returns to education in Vietnam on the basis of earnings data were collected by Vietnam Living standard Survey in the year 2004 (VLSS 2004), It is to attempted to estimate differential returns to schooling for Vietnamese, male and female, rural and urban areas and also between the public and private sector It is hoped to provide a bench mark to examine the

1.2 Problem statements

Since 1996, from the centralized planning economy changed to market oriented economy, Vietnam has a strong development with more openness and further integrated into the World economy, Vietnam has strong integration into the global economy, exchanging goods, services, Capitals, technologies have increased rapidly and strongly leads to change Vietnam's society and economy

In the year 2006 Vietnam officially became to the World Trade Organization member (WTO) that helped to create more new opportunities to promote export goods and services which Vietnam has advantages, this circumstance helped Vietnam absorbs Foreign Direct Investment (FDI) especial in capital and technologies With the integration into the World economy, Vietnam has more chances to involve in the international labor division process, the sector which Vietnam has competitive advantages According to integration to the World economy, Vietnamese have chances to access to advanced technologies and modem management techniques with increasing labor productivity and increasing wages Accompany with that more challenges face low skilled workers; lower earnings, since the gape of earning between skilled and unskilled are bigger

1.3 Research objectives

The object of this studying is aimed to exam the impact of education on earnings during the transition period, and it is also aimed to identify difference of educations impact between gender, economic sectors, and regions To get these objects, the rates

of returns to education instrument and data which survey in the year 2004 are used Although, there were many previous researches have mentioned about the education and earnings in Vietnam, But each research has difference interpretations which based on the characteristics of the economy at each previous This research focuses

on the impact of education on earnings in the case Vietnam has almost moved to market economy and integrated the World economy Moreover, the research focuses

on the following objectives:

To analyze the necessary or the important of education, especially higher education

on the economy, and identify what the factors affect earnings most strongly

To evaluate present quality of Vietnam's education as well as how much education satisfies the labor market

Education has positive relationship with earnings

Experience has positive relationship with earnings

Male has higher earnings than female

Working in urban earn higher than in rural

1.6 Data and methodology

Most of data is collected from secondary Vietnam Living Standard Survey 2004 The research method is used both descriptive and multivariate analysis In the multivariate analysis an econometric technique will be applied, and the basic of human capital earnings functions by Mincer is used to calculate the rate of return to education Sampling frame will be created from VLSS database

CHAPTER II: LITERATURE REVIEW

2.1 Definition

2.1.1 Income: '"Income refers to all cash inflow streams to an individual from all sources"

(Tony Chan, Stephanie Kent, Sum Lam, Shirley Li, ECON 374 Hong Kong Economy Term Paper)

2.1.2 Wage: "Wage refers to the monthly or yearly compensation from her/his

employment'' (Tony Chan, Stephanie Kent, Sum Lam, Shirley Li, ECON 374 Hong Kong Economy Term Paper)

2.1.3 Earnings: "Earnings refers to the compensation per unit labor input, or, m more

familiar words, the ability an individual can earns using a fixed amount of labor (Tony Chan, Stephanie Kent, Sum Lam, Shirley Li, ECON 374 Hong Kong Economy Term Paper) It is the best estimated to the productivity of labor and we will take this denotation throughout our paper"

2.1.4 "Education: is fundamental to enhancing the quality of human life and ensuring social

and economic progress'' (Micheal P Todaro, Stepphen C Smith, Economic Development, Eighth Edition)

2.1.5 Human capital: "Productive investments embodied in human persons This includes

skills, abilities, ideals, and health resulting from expenditures on education, on job-training programs, and medical care" (Becker, 1993)

the-2.2 Theoretical framework

There are many different theories of the education and earning, each theory has different interpretations of different variables but most theories was built around a core model of returns to education or human capital earnings function, 3 different earnings model are introduce as followings:

2.2.1 Mincer's Early Work on experience

Mincer introduced "Investment in Human capital and Personal Distribution" in 1958, this study is one of the early theory studied the effect of labor market experience or

on the-job-training on the determination and distribution of earnings Mincer's model

provided an analysis of the manner in which on- the-job training influences differences in earnings across individuals and how this determines the inequality and skew ness of earnings, this model based on rational economic behavior by individuals in labor market which is now called an experience -earning profile, with assumption of a linear relation between earnings and age It is only in later work; he identified and emphasized the important distinction between age and labor market experience, and the concave shape of the experience -earnings profile And he wrote that "formal training "is more difficult to measure than informal on-the job training Mincer's model showed that within an occupation earnings inequality increases with the steepness of the age-earnings profile, and this profile is steeper for occupations requiring more skills, whether acquired in school or on the job He also showed theoretically and empirically that inequality increases with age, schooling level and income His theory showed that "the greater the average amount of training in the group, the greater the inequality in its income distribution'', whether the group is defined by industry, race, gender, marital status or city size

While there have been numerous studies over the years of rates of return from formal education or from specific formal job training programs, the literature in economic is vertically devoid of studies of magnitude of and rates of return from investment in on-the-job training, especially experience or merely learning by doing, this may be due to, at least in part, to the difficulty of measuring the cost of the investment in on-the-job training

Until 1962, Mincer estimated the magnitude of on-the-job training, the rate of return from on-the-job training and the implications of on-the-job training for the distribution of earnings Here he noted explicitly that earning profiles imply a decline

in on-job-training investment with age, which is attributed to the decline with age length of the remaining working life Among other findings, Mincer estimated of dollar magnitude of on-the-job training increase with the level of schooling Although at the margin schooling and on -the job training can be alternative ways of acquiring skills, overall school and experience investment are positively correlated across individuals This is the first empirical demonstration of positive relationship

Estimating of the value of the forgone earnings component of investment in job training made by workers were obtained by comparing earning streams of workers that differ by level of schooling Rates of return from earnings streams were computed By assuming that rate of return from schooling and on-the-job training were the same, and subtracting investment in schooling from total investment, Mincer was able to estimate the investment in training These estimates suggested that for males the dollar value of investments in on-the-job training was the same as the value of investment in schooling Investment in schooling had increased over time in term of years and dollar value, and investment in labor market experience did not seem to be any less and may have even increased in dollar value during the same period

on-the-Mincer estimated the rate of return from on-job training for different occupations, he assumed that their alternative employment would be operatives, and by comparing earnings as apprentices and as journeymen in contrast to those of operatives, Mincer computed the rate of returns from on-the-job training He estimated that the rate of return from investment in on-the-job training were about 9 to 13 percent, this estimation also discusses in on-the-job training by women compared to men, and showed that the average female expects to spend less than half her working life in the labor force and has higher probability of dropping out of labor force for child-rearing Mincer noted that for reasons employers are more reluctant to invest in firm specific training for women than for men

2.2.2 The Schooling - Earning Function

Becker and Chiswick (Becker and Chiswick, 1966) presented an alternative approach

to estimating rates of return to human capital and determinant of the distribution of earnings by formulating as below:

investment (Cij) in the t period With kj is as investment (forgone earnings and direct costs) in year j relate to the earnings would have been if there were no investment in year j, kj = Cj/Ej-1,

By using mathematical induction, (I) become:

i=l

The natural earnings are expressed in the terms of the rate of return from the investment (rij) the investment ratio (kij) and the number of periods of investment (n) The product rk is referred to the adjusted rate of return, r'

If r' is constant for all levels of investment, equation ( 4) could be rewritten:

LnEi,j = LnEO + r ni + Ui'

I

Where Ui is the error term which measures difference across individuals in the omitted variables that influence earnings, including other forms of human capital and luck

By separating formal schooling from other human capital, and assuming ~ is the

If

same for all levels of schooling, and putting difference in r' i across levels of schooling, on-the-job training and other effects in the residual (U' i), equation ( 4) should be:

Ln Eij = LnEiO + r' iSij +U' i

Then the regression of LnEij on Sij gives an estimate of r' =rk

- - - -

-By creating separate variable say, for year of primary, secondary, and higher education were created, the rate of return for distinct level of schooling could be obtained

2.2.3 Theory of human capital

In 1974, Jacob Mincer (Mincer, 1974) published his study ''Schooling, Experience and Earning", this book extended the analysis from Mincer's early work, and it reflects the advances in and the spirit of human capital theory which carried out by Mincer In the Mincer's study, it showed that '"the inclusion in the earnings function

of even crude measures of post school investment's in additional schooling lends a great deal of scope to the analysis of income distribution" and named the term ''the human capital earnings function"

Discussion of investment in human capital, Mincer noted that full-time investment which primarily acquired in schools precedes part-time investment which is generally conducted on the job Moreover , for several reasons investments in on-the-job training would decline relate to earning potential and in absolute value as experience increases, these factors include the finiteness of working life, that is profitable investments are more profitable if made sooner rather than later, and the rising opportunity cost of investment as more skill is acquired In other words to extent that the stock of human capital due to prior investment in training increases the productivity of new investments in on-the-job training, additional investments are encouraged Mincer showed that the concave experience earnings profile that observe

in the data is implied by declining investment ratio, he also showed that there is an important distinction between age-earnings profiles and experience-earning profiles, where experience is the years since leaving school If individuals differ in their level

of schooling, they differ in the age at which post-school (on-the-job training) investments begin, and hence the two profiles differ Mincer showed that, the correlation between schooling and on-the-job training investments are tend positive, not because they are complements, but because they are reflect the dominance of individual differences in factors determining the scale of total human capital accumulation Research suggested that there is a positive correlation in dollar investments among all form of human capital (schooling and on-the-job training)

even though at the margin various types of human capital can be substituted for each other to attain the same earnings In the case of absence of direct information on investments in on-the-job training or on the years of labor market experience Mincer suggested that subtracting the age of completion of schooling from reported age

To establish human capital earning function, he expanded the earnings function;

LnEit- LnEiO + rsks si + (rl·ko) Ti - - - T (2)

Where rj is the rate of return from investments in on-the-job training The logarithm

of gross earnings can be expressed as a quadratic function of years of labor market experience To analyze earnings, (2) was rewritten:

Where Ei, Si, and Ti are earnings, years of schooling and years of potential post school labor market experience (age minus years of schooling minus six), b's are the regression coefficients and it is assumed that Ui is a normally distributed homoskedastic residual The above function provides two estimates of the rate of return from on-the-job training If the there are estimates of K0 and T*, the rate of return from on-the-job training can be estimated from the coefficient ofT or T2,

These two estimates tend to differ in part because the data are for earnings net of current investments, but perhaps more importantly because investment ratio (kt) is

In the Mincer research ( 197 4 ), he showed that the explanatory power of the schooling-earnings function is only 7 percent and the explanatory power of the function with the quadratic experience profile is 29 percent which is increased to 53 percent when dummy variables are used for schooling and the log weeks worked variable is added to the equation The explanatory power is increased even further when the analysis is computed at the overtaking age, that is, at the number of years of experience where the variance in earnings by experience level is smallest Thus, the human capital earnings function provides a high explanatory power for earnings in spite of simple measures of investment in human capital, namely, years of schooling and years since leaving school

2 3 Empirical studies

Up to now, there are many studies the impacts of education on earnmgs which different titles such as: Human capital earning function, returns to education, earning and education or education, experience and earnings and each study used difference model with based on real situation as well as if s condition in order to has visual result All of these studies are mainly research the impacts of education on earnings or the effects of education and experience on earnings In my research, I introduced some of these empirical researches as below:

Studying education and earnings in Lao PDR, Phanhpakit used function as below to estimate the average rate of returns to different levels of schooling:

Lny = c +a 1 Seci+ a2 Posti+ P Exi + y Ex~+ 9Xi + Jd

Where Seci and Posti are secondary and postsecondary education by individual i, and

xi is dummy variable indicating female, marital status and regions The omitted category for level of education is primary education

Estimating the rate of return to schooling per year for each academic year from age

11 to 18 with the completed primary education of 5 years, they used the model as below:

Returns to schooling by education levels:

For Vientiane capital, the rate of returns to schooling increased from 3.5 percent for

II years of schooling to 5 I percent for 13 years (Vocation level) and started decline 2.4percent for I5 years and increased again to 6 percent for I8 years of schooling (University level)

For other provinces, the rate of return decreased from 2.7 percent for I1 years to 2 percent for I8 years of schooling

LnY +Po+ PIS+ PzS2 +P3t +P4t2

Where Y, S, T are the monthly employment income, years of schooling and years of work, and to estimate the percentage of increasing in earning by studying one more year and it is exactly equal to the return on schooling, they used the function;

~ 1 represents the returns of schooling if one studies the first year and ~ 2 represents the marginal increase in returns to schooling If ~ 2 is zero, it means that return to schooling is constant

Return to work experience, to estimate the percentage increase in earnings of accumulating one more year work experience, the author used the function:

The two coefficients ~3 and ~4 capture three variables, rp k0 and T are return to the-job training, investment in human capital at time 0/earning at time 0 and total working life And the results of the estimation they got:

on-There is no uneducated person in Hong Kong could earning 5.29500 in 1996, the return to first-year schooling is 6.63 percent and marginal increase of return to schooling is 0.36 percent

Increased in earning by accumulating first year's work experience is 16.3 percent and decreased return nature of work experience on earning is 0.378 percent

And to estimate the returns to schooling in Russia and Ukraine Yuriy Gorodnichenko, Klara Sabirianova Peter used the basic Mincerian earnings function with standard set covariates available for both countries as:

In Russia, the returns to schooling in 1996 were 8.1 Percent comparing to in 2002 were 9.2 percent, while in Ukraine was only 4.5 percent in 2002 The gender wage gap in Russia fell from 53 percent in 1998 to 4 7 percent in 2002

2.4 Comments on the theories and empirical studies

There are many factors impact on earnings, the main factors that affect on earnings could be extracted from the theories as follows:

The main facts affect on earnings is education; earnings are depended on education; education increases skills, increase productivity, increase outcome and increase earnings

Earnings are affected on experience; as education, experience increase skill, increase productivity, increase outcome and increase earnings

By using difference methods of research, all of the theories were mention a bow shown that, education is the main factor affects on earnings

Mincer's early work, experience was one of the earliest theories studies the factors affect on earnings, these theories besides studied the returns to experience or investment on-the-job training, it was also studied the returns to education Its shown that both experiment or investment on-the-job training and education increased skills and increase earnings (within an occupation earnings inequality increases with the steepness of the age -earnings profile, and this profile was steeper for occupations requiring more skill, whether acquired in school or on the job) Moreover, these theories shown that the returns on experience between women and mane are difference, these results were true up to now Although Mincer's research would not explained all of factors affect on earnings, in other words, Mincer's early models were a code to study the returns to earnings, its not a sufficient model to apply all of the economies, because earnings of individuals are not only affected by experiment and education, but its also affect by other factors which we will discuss below Mincer's early theories have limited but its foundation for other model

The rate of returns to human capital theory by Becker and Chiswick, in their theory education was separated into many level and earnings of level could be calculated separated

The human capital earnings function by Jacob Mincer is a sufficient function and is a really perfect function to analyze the return to education, up to now, this function is a

basic function that many studies based on to calculate the rate of returns to education

in many difference economies This function has several distinct characteristics:

It is an identity based on the optimizing behavior of individuals, and represents the outcome of a labor market process

It is readily adaptable to the inclusion of other variables that affect earnings

The coefficients of the regression equation have economic interpretations, they are pure numbers and their standard errors can be estimated This permits comparisons across time, space and demographic groups

Although earnings are positively skewed and the inequality of earnings rises with the level of schooling, by using the natural logarithm of earnings as dependent variable, the residuals are closer to being normally distributed and homoskedastic This function could be extended to calculate human capital earnings in Vietnam

Base on these above theories and empirical studies, the model of the impacts of education on earning is suggested as below:

Earning function with years of schooling

Lnyi = ao +Ji1 Sci+ fi 2 Exi + fi 3 Exe + 9Xi + 11i

Where Sci is schooling education by individual 1, and Xi is dummy variable indicating female, region, and economic sectors

And earning function with education level

Lnyi = ao +fi1 Seci+ fi 2 Posti+ fi 3 Exi + fi 4 Exe + 9Xi + Jli

Where Seci and Posti are secondary and post secondary education by individual i, and Xi is dummy variable indicating female, region, and economic sectors

After recovering from East Asian Financial Crisis, Vietnam's economy had spectacular development which an average growth in GOP of 7.1 percent per year from 2000 to 2004 (GES Vietnam, 2007) The GOP growth was 8.4 percent in 2005, the second largest growth in Asia, and over 8 percent in 2006 November 2006, Vietnam became the 150th member of the World Trade Organization, after 11 years

of preparation, including 8 years of negotiation Vietnam's access to WTO should provide an important boost to Vietnam's economy and should help to ensure the continuation of liberalizing reforms and create options for trade expansion

In agriculture, from an imported country, Vietnam is now not only the second largest rice exporter in the world but also the world's largest Robusta coffee, cashew nuts and pepper exporter Vietnam has the highest percent of land use for permanent

crops, 6.93 percent of any nation in the Greater Mekong Sub-region (GES Vietnam, 2007)

Paralleling its efforts to increase agricultural output and after applying industrialization and modernization policy Vietnam has sought with some success to invigorate industrial production Industry more and more contributed high percentage

in GDP, 32.5 percent of GDP in 1999 and 41.8 percent in 2006 (GES Vietnam, 2007) Nevertheless, foreign direct investment (FDI) much of it gravitated to the new industrial zones in the south has gone some way towards transforming the industrial landscape of Vietnam

In addition, Vietnam has achieved some success in increasing exports of some intensive manufactured goods in recent years

labor-Mining is a key industry in Vietnam; Coal IS a main export for Vietnam The chemical plants in Vietnam are starting to grow stronger Some manufacturing also improves the economy

3.2 Population and labor force

Vietnam has a large size of population which ranks thirteenth worldwide, and the second among Southeast Asian countries, the population has increased quickly, from

66 million in 1990, 72 million in 1995, 77million in 2000 and 83 million in 2005, the average growth rate of population was 1.65 percent The proportion of female in population is higher than that of male Vietnam is an agriculture nation; the population is almost in rural area Although in recent years, due to the development

of the economy, the process of urbanizing is quickly, these elements lead to migrating from rural to urban is big, lead to change the population structure between rural and urban area, from 19,51 percent in 1990 to 20,75 percent in 1995, 24,18 percent in 2000, and 26, 88 percent in 2005(GES Vietnam, 2007)

The percentage of young in the population has increased In recent years, average increased of group age from 5-14 years 12 percent and group age 15-19 increased by

I 0.8 percent

Table 1: Vietnamese's population

Females 33813.9 34428.1

1993 m - r -69644:51 34o2i.31 35616.2

1994 7o-82~f5T ··· · 3463i2r··· 36191.3

By residence Urban

12880.3 13227.5 13587.6 13961.2

Rural 53136.4 54014.9 54862.5 55683.3 14425:61 56398:9·1

1995 I 71995.5 35237.4 I 36758:1T i493iil 57057.4 - i996- - 1 7:fi56.7T 35857.3 37299.4 15419.9 57736.8

2005 ··· - - · · · s3to65T 40846.2 42260.1 22336.8 I 60769.5

Source: General Statistic Office 200 7

-

-Table 2: Literacy of population age 15 and over by area, region have certificate

General

Without schooling

Without

lower secondary

2.75

0.13 0.04

37.20 I 12.43 I 1.62

23.74 20.28 20.90

- - - -

-3.3 Education achievements

After nearly 20 years of Doimoi, Vietnam has a big achievement in education, education and training has been expanded and developed in quality and quantity Types of schools and classes and education modes have been diversified, including all types of public and private, formal and non-formal education The school network cover almost residential areas which providing conveniences to the learners, education for remote and far areas, especial for ethnic minority people also improved The size of education also has been developed, almost population for 15 year of age or upper are literate, almost provinces and cities have achievement the national standard for literally education and primary education, the average number

of years attending schools of the population was 7.3 The number of college and university students increased quickly, from 899,5 thousand students in the years

2000 to 1387,1 thousand students in the year 2005 and 210,9 thousand students graduated and 111.6 people were trained 1•

Table 3: School enrollment trend in Vietnam 2000 - 2004

Education expenditures are mainly subsided from two sources, Government subsidies and private sector In private sector is come from tuition fee

Expenditure on education in Vietnam in period from 2000 to 2005 was very high comparing with the household and nation income, the proportion education expenditure in GOP was 8.3 percent In this expenditure private sector financed 40 percent; the rest was subsidized by Government

Table 4: The proportion education expenditure in GDP 2000-2005

Sources VtetNumNet, 13/0212006

Table 5: Education expenditure of Vietnam comparing with other countries

By the year 2004, the population of working age was nearly 51 millions, comparing

to the year 2001 it increased to 5, 5 and every year it increased 1.4 millions For the same period, employed labor increased to 4,9 millions; from 3.85 millions in 2001 to 4.34 in 2004, average increased annual of new job was 1.2 millions (GES, 2004)

-In recent years, the Vietnam's economy in growth stability and rapidly lead to the number of new jobs were increased rapidly, employment growth rate increased very high, higher than labor force, the number of new jobs generated annually has exceeded increasing of labor force Unemployment rate continuously reduced from 6.3 percent in 2001 to 5.6 percent in 2004 (GES 2004), during this period the status

of underemployment and labor time using in rural areas has been remarkable improved

Also in this period, the number of people worked in agriculture, forestry - fishery sectors absolutory reduced, news jobs were increased mainly in services and industries sectors and this circumstance was prevalent in developing countries such

as Vietnam, especial in the beginning process of industrializing Although Vietnam has a big successful, it is still has a big change in economy and employment, agriculture sector employed the main labor force which occupied nearly 60 percent

of the labor force in the year 2004, at this time constructions and industries occupied 17.4 percent (GES, 2007)

In none- farm sectors, about 90 percent of labor worked in small and medium size enterprises, private enterprises, individual businesses and trading households The number of workers employed by registered enterprises increased from 3.5 millions in the year 2001 to 5.18 million people in the year 2004 increased 410.000 people annually, of which 143.000 people worked in small and medium size enterprises (GES, 2004)

Employees were mainly outside the state sectors, average 89 percent, in state sector was 9.5 percent, the rest are in the foreign investments In recent years, FDI have increased, employees also increased, from 0.6 percent in 2000 to 1.1 percent in 2002, and 1.6 percent in 2005 (GES, 2007)

3.5.2 Income

Before 1990s Vietnam was one of the poorest countries in the World, although since Vietnam opened the door and joint the World's economy, Vietnam's economy has developed, accompany with that GDP increased quickly, increased average of 7.5 percent from 1990 to 2005, Vietnam's GDP per capita has increased at an average

When economy developing, jobs have been created more, unemployment decreased, wage also increased rapidly in the 1990s Average hourly wages increased by I 0.5% per year in real terms between 1993 and 2004 (VLSS 1993- 2004) Wage growth was considerably faster than the growth in household income per person in the same period, which grew at 8.7 percent per year, and monthly average income per employee in whole country at current price increased from 359.1 thousand VND in

1995 to 651.5 thousand VND in 2000, and to 1297.1 Thousand VND in 2005 (GES, 2007)

Although, wage level has increased annually, although the wage still has some problems; wages were low, especial in agriculture sector as well as in sectors which using low skilled labors To increasing income for worker, Vietnam government regulated minimum wage; minimum wage rate of 350.000VND per month applicable for domestic enterprises and three rates for foreign enterprises (foreign direct investment), in which 656.000VND per month for region 1, 556.000 VND per month for region 2 and 487.000 VND per month for region 3 In special cases, when enterprises face extreme business difficulties, they are allowed to apply the minimum rate from 417.000VND per month to 487.000 VND per month for certain period of time

In recent years, Vietnam has a big integrated into the World economy, the economy has a big reformed, the Government reduced intervention to the wage payment mechanism of enterprises, labor market become more flexible and more dynamic, the wage rates were gradually determined by supply and demand relation, in other words the wage rates has bargained between employees and employers, including with that nominal wage rapidly increases and disparity of wages between SOEs and FDI enterprises was narrowed down

Table 6: Monthly average income per employee in local state sector at current prices

by region (thousand VND)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Whole country 359.1 401.5 470.4 517.0 554.4 651.5 738.3 817.4 979.7 1068.5 1297.1

Source: General staf1St1c office 2007

Although the average wage has increased in the whole country, but wage growth and wage level were distributed unevenly across in different region of the Country Worker in Ho Chi Minh City and HaNoi had had higher wage than the rest of the country and their wage grew much faster Ho Chi Minh City and HaNoi worker's wages were more than 50 percent higher than in all other regions

The divergence of the biggest cities from the rest of the country could be due to the fact that the demographic characteristics of workers and kinds of employment are different in difference parts of the country If the best educated, most productive workers are drown to the main cities, the wage disparity could be due to differences

in workers characteristics rather than difference in wage for the same kinds of workers

Income inequality remained high between regtons, geographies, as its Gini coefficient rose to 0.432 in 2006 from 0.345 in 1990 As a measure of income inequality, the Gini coefficient takes a value of 0 to 1 with values closer to 1

indicating a higher inequality in the distribution of income ( Uromonitor archive 29/7 /2007)

The gap in income was widening between the richest and poorest deciles of total income in Vietnam The poorest two deciles of households accounted for 8.0 percent

of total income in 1990 Their share fell to 5.6 percent in 2006 The richest two deciles accounted for 42.7 percent of total income in 1990, the share increasing to 49.3 percent in 2006 (Uromonitor archive, 29/7/2007);

3.6 Factors affect on earnings

There are many factors affect on earnings; some main factors are listed as below:

3.6.1 Education

Education is the main factor affects on earnings in almost economy, especial, in developed economy, in Vietnam education have strong affects on earning, for example, primary school leavers earned VND 276,000 more per year than those with

no education or Tertiary Ieaver earned VND 912,000 more per year than those with VOTECH (VLSS 1992-93)

Similar to other developing countries when the economy transferred from central economy to market economy, Vietnam need many skilled labor which can be used modem techniques to develop economy especial skilled labor was needed for many international corporations which modem technologies that led them pay higher wag for skilled workers

3.6.2 Experience

In the real of Vietnam, experience affects earnings by two ways:

If workers who working in state sectors (business and non business), their wage could be increased at least once of three years (two years for person who graduated under colleges, and three years for who graduated college or upper)

Experience increases workers skill, increase productivity, increase output, and their wage increased

3.6.3 Gender

Young females receive considerably less education than young males in almost developing country, women's enrollment in primary and secondary education was lower than that of men by at least 10 percentage points (Micheal P Todaro, 1985), and low educated women, low skill, low productivity and low earnings

There were a typical feature that the mean earnings of males were higher than that of females in both surveys, 20-30 percent higher in 1992-93 and 50 percent at university level in 1997-98 survey Moreover, there was little disparity in mean earnings between different education levels in 1992-93 survey Workers, either men or women without education or with primary, secondary education received quite similar earnings This phenomenon in 1992-93 survey may supported our previous suggestion that education had a greater impact on earnings in 1997-1998 rather than before

3.6.4 Region

In the same country, each region has advantage and disadvantage in developing their economy; workers in different region have different earnings In Vietnam workers who work in the south earns higher than that in the North and in the Central

Earnings are apparently higher in urban areas than rural area The gap was more considerable in 1997-98 survey, especially at university level with 26 percent (VLSS 1997-98) Data also revealed a similar comment that education seems to strongly impacts earnings in later survey than the former

3.6.5 Economic sectors

In recent years, Vietnam has attracted more Foreign Direct Investment as well as private enterprises and joint stock companies, besides using big number workers, they willing to pay higher wage for them than that in state sectors

Disparity in mean earnings between workers of different economic sectors was not consistent in two surveys In the first survey 1992-93, the average monthly earnings

in public sector seem to be higher than in private sector, though not much However,

in the second survey 1997-98, private sector workers earned more than public

similar pattern in earnings difference where the mean of monthly earnings in 1992-93 survey was quite similar to workers with different levels of education In contrast, there was a significant change in survey 1997-98, workers with higher education levels earned much larger amount of monthly earnings on average than less educated workers Between upper secondary and lower secondary, the difference was 25 percent higher in private sector and 18 percent higher in public sector University graduates earned a striking 150 percent higher than upper secondary graduates in private sector, and corresponded 50 percent in public sector This may be impllied a changing impact of education on earnings in two surveys