Rural urban micration and urban unemployment, the case of ho chi minh city

VIETNAM- THE NETHERLANDS PROGRAMME FOR M.A in DEVELOPMENT ECONOMICS RURAL- URBAN MIGRATION AND URBAN UNEMPLOYMENT, THE CASE OF HO CHI MINH CITY IN PARTIAL FULFILLMENT OF THE REQUIREMENT

VIETNAM- THE NETHERLANDS PROGRAMME FOR M.A in DEVELOPMENT ECONOMICS

RURAL- URBAN MIGRATION AND URBAN UNEMPLOYMENT, THE CASE OF HO CHI MINH CITY

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS IN DEVELOPMENT ECONOMICS

Supervisor: PhD, Professor of Economics Nguyen Thi Canh

HO CHI MINH CITY, JANUARY 2008

.-ACKNOWLEDGEMENTS

I would like to thank more than those respectable name that I will mention following Without them, I can not get knowledge as today and this thesis may not even have existed

First, I would like to express my special thanks to all organizations and member those found this programme All lectures and staff of the project help me having useful lessons, interesting seminars and new information

Next, I wish to express sincere appreciation to my academic supervisor PhD, Professor of economics Nguyen Thi Canh for his helpful guidance and assistance during the writing of this thesis I also deeply thank to Nguyen Hoang Bao PhD for his valuable suggestion and ideals about earlier research design of this thesis, thank to

Mr Danh class 13 in Master of Arts in Development Economic Programme for his valuable support in extracting database

Following, I send my thanks to Librarian, Mrs Nguyen Kim Chi, who helps help me

in finding necessary document and reference books Thank to Le Thanh Loan PhD Statistic Office Department of Ho Chi Minh City who provides secondary data for this thesis Many thanks go to my classmate, who shared with me joys and hardness during the time I study in this program

- - -

-AIDS FDI HCMC

GSO GDP MARD MOLISA MPI UNFPA UNDP STis

UN SOEs VHLSS VND VLSS

Ministry of Planning and Investment United Nations Population Fund United Nations Development Program Sexually Transmitted Infections United Nations

State- Owned Enterprises Vietnam Living Standards Survey Vietnam Dong (Vietnamese Currency) Vietnam Household Living Standards Survey

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ABSTRACT

This study explores the link between migration and wage level, which affect employment at destination area and the relationship between labor market performance and the probability of unemployment in Ho Chi Minh City The paper base on standard economic theories to present that the difference migration and wage level at destination, while an effect unemployment differentials on migration

The empirical evidence present based on the 2004 Vietnam Migration Survey, which conducted by GSO and UNFP A Results find that relate between migration and urban unemployment in Ho Chi Minh City, recent migrants do well at finding formal employment, and are much less likely to be unemployed

TABLE OF CONTAIN

CHAPTER 1: INTRODUCTION

1.1 Problem statement 10

1.2 The research objective of the thesis 11

1.3 Main hypothesis to be tested 11

1.4 The scope and limitation of the thesis 11

1 4.1 The scope of the thesis 11

1.4.2 The limitation ofthe thesis 12

1.5 Methodology 12

1.6 Data source 12

1.7 Research framework 12

CHAPTER 2: LITERATURE REVIEW 2.1 Migration and factors affect on migration 14

2.1.1 Migration definition 14

2.1.2 Factors effect on migration 16

2 1.3 The effects on origin and destination areas 17

2.2 Migration and urban unemployment in developing countries 18

2.2.1 Migration in developing countries 18

2.2.2 Urban unemployment in developing countries 20

2.3 Migration theories overview 23

2.3.1 Lee's migration theory 23

2.3.2 The dual economy development model 24

2.3.3 The Harris- Todaro model 26

2.4 Economic impacts 28

2.4.1 Migration and economic development 28

2.4.2 The relationship between the wage differential and employment 29

2.5 Summing up 31

CHAPTER 3: MIGRATION AND URBAN UNEMPLOYMENT IN VIET NAM THE CASE OF HO CHI MINH CITY 3.1 An overview migration in Vietnam 33

3.1.1 History and the trend of internal migration in Vietnam 33

3.1.1.1 Historical development of migration in Vietnam 33

3.1.1.2 The trend of internal migration in Vietnam 35

3.1.2 Internal migration in VietNam 37

3.1.3 Employment and migration in VietNam 39

3.2 Migration in Ho Chi Minh City 41

3.2.1 Overview migration in Ho Chi Minh City 41

3.2.2 Structure of migrants in Ho Chi Minh City 42

3.2.3 A profile of migrants Ho Chi Minh City 44

3 2 3.1 Age Structure 44

3.2.3.2 Sexual 44

3.2.3.3 Place ofOrigin 45

3 2 3 4 Education level 48

3.2.3.5 Working status and income 49

3.3 Migration and urban unemployment, the case of Ho Chi Minh City 51

3.3.1 Reasons for out- migration and motivation for migrating to HCM City 51

3.3.2 The migration and wage differential 53

3.3.3 Employment and unemployment in Ho Chi Minh City 55

CHAPTER4:METHODOLOGY 4.1 Introduction 59

4.2 The econometric design 59

4.3 Description of the data 61

4.4 Variables description in model 62

4.4.1 Dependent variables 62

4.4.2 Independent variables 62

4 4 2.1 Individual characteristic variables 62

4.4 2 2 Occupation variable 63

4.4.2 3 Migrant status variable 63

CHAPTER 5: ECONOMETRIC ANALYSIS AND RESULTS 5.1 Descriptive analysis 66

5.2 Results of regression model 71

5.2.1 The wage model 71

5 2.1.1 Estimate coefficients 71

5.2.1.2 Comment on results 73

5.2.2 Unemployment model 74

5.2.2.1 Results ofregression 74

5.2.2.2 Comment on results 75

5.3 Summary 77

CHAPTER 6: CONCLUSION AND POLICY IMPLICATIONS 6.1 Conclusion 78

6.2 Policy implications 80

REFERENCES 82

LIST OF TABLES

Table 2.1: Rural-urban migration as a percentage of urban population growth, selected

developing countries 21

Table 2.2: Rates of urban and rural unemployment as a percentage ofthe active population in Africa, by country and year 22

Table 2.3: Percentage of open urban unemployment in four African countries 23

Table 3.1: Decrease and increase population by internal migration region, VietNam: 1994 - 1999 3 9 Table 3.2: The structure of the labor force 40

Table 3.3: Population and migration increase rate by period 43

Table 3.4: Percentage of distribution age structure of Ho Chi Minh City population and that of migrants 45

Table 3.5: Percentage distribution of migrant sex ratio by some age group 45

Table 3.6: Percentage distribution of place of previous origin of migrants by area of current residence 46

Table 3.7: Percentage distribution ofresidence status of migrants in HCM City 47

Table 3.8: Percentage of distribution of population rate in schooling by ages 49

Table 3.9: The rate of population of dropout of school of children over the age 5 and educationallevel 49

Table 3.10: Percentage distribution of employment of migrants in 2004 by economic sectors 51

Table 3.11: Monthly average income (dong) in 2004 51

Table 3.12: Percent of migrants citing specified reason for move by area of current residence and sex 53

Table 3.13: Monthly income of rural to urban migrants by working skill, education 55

Table 3.14: Distribution of employment of migrants in 2004 by economic sectors 56

Table 3.15: Unemployment rate of labor force of working ages in urban area 57

Table 4.1: Description variables used in the model 64

Table 5.1: Characteristics ofboth migrants and non-migrants affect to their wage 68

Table 5.2: Percentage distribution of occupation of employed population by migration status 70

Table 5.3: Regression result ofunrestricted model (14 variables) 71

Table 5.4: Regression result ofunrestricted model (12 variables) 72

Table 5.5: Probability of Unemployment: Logit regression for Migrants and Non-migrants 75

1.1 PROBLEM STATEMENT

CHAPTER 1 INTRODUCTION

In the past 20 years, Vietnam has been remarkably successful in ensuring high levels

of economic growth and in reducing poverty This goes hand in hand with important shifts in population distribution and mobility

The economic reforms carried out in 1986-affected migration in three main ways In agriculture and the introduction of the household contract system have released farmers from the land In cities, the household registration system continues, but no longer limits the acquisition of essential goods and access to employment In the emerging industrial sector, Vietnam's incorporation into the global economy, it has resulted in flows of foreign direct investment attracting migrant workers where such industries, services

The migration from rural to urban areas has been an important part of the urbanization process and created structural changes population among regions, especially make labor market adjustment from agriculture to manufacturing and services sector in modernization and industrialization process in Vietnam

Todaro and Harris (1970), the migration of rural to urban areas is an important part of the problem urban unemployment and underemployment in almost every contemporary big city in developing countries Rural to urban migration mainly caused the labor force in rural to become scarcely Simultaneously created urban unemployment for unskilled and skill labor in formal and informal sector

Ho Chi Minh City is the largest economics central in Viet Nam The city and its surroundings have lured more investors than any other area in Viet Nam By at the end 2006, Ho Chi Minh City had toped about attracting FDI account to 26,9% of project, 24,1% total registered capital (reported by MPI, 10-2006)

This thesis will to what find is relational migration and under what circumstance? In addition, how to it is relate to urban unemployment in Ho Chi Minh City? Should local government intervene and create conditions to attract high skill employment as migrants Moreover, what should be their policy to reduce unemployment situation in

•

urban area The thesis tries to find the determinants of migration effects to unemployment To do so, we use instrumental variables and cross - section data techniques which is used to this thesis

1.2 THE RESEARCH OBJECTIVE OF THE THESIS

The main objective of this thesis will be analyzing the feature of migrants that relate

to urban employment, the case of Ho Chi Minh City The finding mainly factors an economic behavioral of rural - urban migration and the determinants of urban unemployment Additionally, fulfill these alternative policies design to alleviate urban unemployment The thesis focuses on addressing the following issues:

To analyze the personal characteristics effect on finding job in Ho Chi Minh City

To explore the link between migration and wage level which affect employment level at destination area

What is the labor market performance of migrants in term of their wages and the probability of unemployment?

1.3 MAIN HYPOTHESIS TO BE TESTED

In the context of significant migration that take opportunities and challenges for the country's development and urban area related to non - migrants and migrant's employment and unemployment, this study expect to find out the relationship between the migration and unemployment in urban sector

1 Individuals seek to maximize their incomes moving to places where the wages are higher Therefore, the main engines of the decision are wages differentials, which result from geographical differences in demand and supply in urban labor markets How does the relationship the migration and wages at destination?

2 How the link between migration and unemployment status at urban sector, in which based on human capital model, the key issue is whether being a migrant has a distinctive effect on the probability of being unemployed

1.4 THE SCOPE AND LIMITATION OF THE THESIS 1.4.1 The scope of the thesis

The place to choose in research is Ho Chi Minh City because it is the biggest city in

•

Viet Nam with high proportion of the population residing in urban area Migration flow come from all part of country Ho Chi Minh City where economic opportunities are often more favorable in the cities than in the other areas

The main source data took from the 2004 VietNam Migration Survey The survey carried out in interviews 4,998 migrants and 5,008 non-migrants of Vietnam In Ho Chi Minh City, the survey is carried out at six districts, which included Tan Binh, Binh Tan, Binh Chanh, Go Vap, Thu Due and district 12; the survey includes in the following areas:

Respondents' background Social - economic, demographic, and facilitating factors related migration

Activities and current living condition The objective to do research is the determinants of internal migration into Ho Chi Minh City and probability of unemployed at destination In the research, I am trying

to find out how do the relationship characteristics of individual, wage level and unemployment at Ho Chi Minh City However, this thesis did not mentioned to migration process so we cannot show the whole picture of migrant and non -migrant's background related wage and unemployment

1.4.2 The limitation of the thesis

The thesis does not aim to provide an overall picture the social - economic and health

of migrants in Ho Chi Minh City It attempt to evaluate and find out relationship between migration and wage, probability of unemployment in the difference between migrants and non- migrants in Ho Chi Minh City

The 2004 VietNam Migration Survey designed as a micro-level study of migration in selected areas that are major destinations for internal migrants in Viet Nam These areas include rural areas, industrial zones and large cities The main objective of the survey is to expand the knowledge base on migration outcomes within VietNam The focus of the survey is on decision making related to migration and outcomes of migration The results of the Vietnam Migration Survey 2004, data of Ho Chi Minh

City, will be analysis and evaluate

1.6 DATA SOURCE

The study uses primary and secondary data source from Vietnam Migration Survey

2004 by General Statistic Office and UNFPA conducted 2004

The 2004 Viet N am migration survey was collected information on various aspects of respondents' background, migration history, details of last move, activities and current living condition, health and STis, AIDS and family planning in migrants and non -migrants

Other information sources from report, articles and newspaper

Chapter 5: Econometric analysis and Results

Chapter 6: Conclusion and Policy implications

Migration to urban and related problem is common issues in developing countries such as employment, environment and housing shortage Main goal is to minimize the negative effects of this process and complete this process with least problems Because migration and urbanization, which is one of the first steps of modernization, will certainly occur together with some mistakes and troubles Therefore, due to migration towards cities several different settlements occurred and still are occurring

in the centers and surroundings of cities

Lee ( 1969) pointed out that the migration process is selective because differentials such as age, gender, and social class affect how persons respond to push and pull factors, and these conditions shape their ability to overcome intervening obstacles According to Lee, the "push factor" could be more important than the "pull factor", which the difficulties in rural areas, such as poverty, unemployment, land shortages

are driving forces that urge the farmers to leave their native areas the homeland to find a new place to settle and to work The "pull factor", which refer to job or income opportunities outside the farmers' homeland that are so attractive that they cannot stay

at home By these means, the job and income opportunities in urban areas are pulling factors that pull the people to the urban areas to settle and finding jobs for themselves Larson and Mundlak (1997) suggest that rural to urban migration is beneficial for the remaining agricultural workers are increased and so is their income The same amount

of output produced by fewer labors raises the income level of the households This reduces the rural urban income differential and acts as a disincentive to rural to urban migration for raising the family income The rural sector can also benefit from benefit from remittance send by the migrants, Williamson (1988) shows that remittances in Africa and Asia equal 1 0 to 13 percent of the urban incomes of rural migrants

Therefore, the centrality of the phenomenon is to recognize that economics issues are mainly causes to affect rural and urban migration process This process will in tum itself tend to alter the pattern of sectoral and geographic economic activity, income distribution and even population growth

For the case of Vietnam, the movement of people who leave the countryside for gaining better social - economic opportunities in the cities (including towns at the country level) will considered as rural - urban migration With frequent fluctuation and prolonged depressions in the prices of agriculture communities associated with the greater global integration, it is more difficult for rural people to make a living on small farms Not surprisingly, migrating (especially to the cities) is the aspiration in life for the overwhelming majority of non - farm people and especially youth who have many opportunities to find job in urban areas Despite often living in crowded conditions and working overtime, migrants can hope to earn much higher incomes than on their farm or in rural employment

2.1.2 Factors effect on migration

The factors influencing the decision to migrate are varied and complex Because migration is a selective process-affecting individual with certain economic, social,

educational and demographic characteristic, the relative influence of economic and non-economic factor may vary not only between regions and areas but also within defined geographic areas and population Migration were effected by difference in economic opportunities and living conditions between places (rural and urban sectors), people's awareness of those differences and desires to improve their live by moving and their ability to act upon those desires The main factors influencing desires to migrate include difference in employment opportunities, wages rate and living conditions Moreover, nature of migration decisions and the relevance of both origin and destination conditions to these decisions Factors are in influencing out-migration from rural areas in the context of household and community-level contextual factors That are affected income-earning opportunities of household members at the level of the household farm or business (e.g., the amount and quality

of land available); or through their effects on economic opportunities in the community

Decision to migrate

Individual/household

characteristics (Age, education, marital status, previous migration, work experience of member, family

size/composition, land/assets, migration network)

Adapted to Richard E Bilsborrow, Migration, population change, and the rural environment, p78, ECSP report, Issue 8, 2002

2.1.3 The effects on origin and destination areas

The production structure of an economy also affects the migration decisions of individual For instance, in Vietnam, the change in the agricultural structure has had important consequences for developing the rural sector That is cause for migration to urban areas The flow of rural migrants to urban areas, the effect on destination area is less clear, if urban industries cannot absorb all migrants, there will be higher urban unemployment However, some companies will prefer to employ migrant labor Rural migrants have fewer expectations of job opportunities and generally receive lower wages Moreover, there is also some evidence that the destination areas will benefit from rural to urban migration, when rural migrants do unpleasant jobs, contribute to economic growth and as consumers in the urban economy

2.2 MIGRATION AND URBAN UNEMPLOYMENT IN DEVELOPING COUNTRIES

2.2.1 Migration in developing countries

In many developing countries, rural poverty manifested in low agricultural incomes, low productivity and underemployment is pushing many migrants out of rural sector towards sectors with greater employment opportunities Some recent studies in developing countries have observed increasing unemployment in rural sector and a further widening of the gap between rural and urban income (see, as example, Todaro,

1969, 1997) The pressure of population in terms of higher people/land ratios have been hypothesized as an important cause of increasing poverty and of rural out -migration, with given technology, there is only a certain proportion of the labor force, which can be absorbed by agriculture, and indeed as technology advances, demand for rural labor may diminish, thereby creating further unemployment As the population grows, increasing numbers of people must move to the urban centers for employment opportunities, unless difficult to imagine radical improvements can be made in agricultural intensity and rural systems In fact, population pressure is not the only nor even the principal cause of the increasing unemployment and poverty of the rural population; at least as important are the low rate of investment in agriculture, fragmentation of land ownership, inequalities in the distribution of land and other

productive assets One o the mam reasons for this is the fact that much farm technology is imported from labor scare countries and favors the use of capital relative to labor (Lucas, 1997)

Due to the over-population problem in most developing countries, especially in Asia, Africa, and the continuing high levels of demographic fertility, the pool of landless in addition, near - landless increases from generation to generation Progressive fragmentation of land has pushed many of the landless and near- landless peasants to move to cities in search of non - agricultural jobs

While these factors have led to rural - urban migration among the very poor, especially those of the rural middle and upper classes, with low education level and an awareness of the economic and social opportunities available in urban centers, some migrants to further their education while others migrate as they become dissatisfied with the prospects of rural life

The concentrated growth of industrial infrastructure in the cities m developing countries after independence has encouraged migration streams from rural regions by providing job opportunities for those migrants Until recently, governments have also favored a policy of concentrating public and social services investments in urban areas, particularly major urban areas Similar investments in the rural areas neglected

In most of the developing world, migrants from rural to urban regions target primate cities This phenomenon is due to the concentration of services, industrial zone, and other social economic and cultural services in prime cities and large metropolitan regions The development of transport system has found to reduce the role of distance

on inhibiting migration in developing countries (Greenwood et al., 1981 ) Transportation and communication system not only reduce the cost of migration but also reduce cultural gap between the origin and destination sectors, making migration eas1er

Migration exacerbates these rural - urban structural imbalances in two direct ways First, on the supply side, internal migration disproportionately increases the growth rate of urban job seekers relative to urban population growth, because of the high

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proportion of well - educated young people in the migrants group Their presence tends to swell the urban labor supply while depleting the rural countryside of valuable human capital Second, on the demand side, urban job creation is generally more difficult to accomplish than rural job creation because of the need for substantial complementary resource inputs for in the industrial sector Moreover, the pressures of rising urban wages and compulsory employee fringe benefits in combination with the unavailability of appropriate, more labor-intensive production technologies means that a rising share of modem-sector output growth is accounted for by increases in labor productivity Together this rapid supply increase and lagging demand (what many now refer to as "jobless growth") tend to convert a short-run problem of resource imbalances into a long-run situation of chronic and rising urban surplus labor

2.2.2 Urban unemployment in developing countries

The economic explanation of human mobility treat the decision to migrate as an investment decision involving an individual's expected costs and returns- monetary and non- monetary overtime (Siaastad, 1962) This approach assumes that migrants have access to precise information about the economic conditions at both ends of the migration process An alternative model (Todaro, 1976) suggests that the decision to migrate built on a perception of an expected stream of income, which depends on urban wages, and the probability of obtaining employment However, Todaro assumes also that urban in - migrants are able to upgrade and move from the informal or traditional sector to the modem sector

Other studies have shown that in the cities of developing countries where an informal sector exists the rate of rural to urban migration was often high Poor peasants were often attracted to the unskilled jobs and cash income this sector provided, as poor people from the countryside often had low levels of education and lacked vocational skills The informal sector did not hinder a poor person's chance for employment; rather it attracted unskilled laborers who were preferred for low wage employment Some studies have shown that if land distribution created wider disparities, the

possibility of improving the living standards of poor people decreased and because of this, the rate of rural-urban migration increased

In developing countries, the extent of government concern and even alarm at the trends in urban population growth in the world Almost all countries dissatisfied with the size and growth of their urban population believed that internal rural-urban migration was the dominant factor contributing to city growth

Table 2.1: Rural-urban migration as a percentage of urban population growth, selected developing countries

growth due to migration

instance, in most African countries, the supply of workers far exceeds the demand, the result being extremely high rates of unemployment and underemployment in urban areas These statistics are from the 1960s (more recent detailed data for these countries are nearly nonexistent)

Table 2.2: Rates of urban and rural unemployment as a percentage of the active population in Africa, by country and year

Urban Rural

Note: na = Data not available aMen only

Source: Paul Bairoch (1973), Urban Unemployment in Developing Countries Geneva: International Labour Organization, 1973 Page 49 Josef Gugler (1976), Internal Migration: The New World and the Third World Eds A Richmond and D Kubat Beverly Hills, CA: Sage, 1976 Page 185 Todaro M.P, 1997 No 104

considerably below current levels (for some 1980s data), high rates of open urban unemployment

Table 2.3: Percentage of open urban unemployment in four African countries

Source: International L abour Organization ( 1989), World Labour Report, 1989 Geneva:

anization Tables 1.7 and 1.12 Todaro M.P, 1997 No 104 International Labour Org

The substantial numbe rs of the urban labor force who were underemployed in

part-service activities had been included, the overall figures for both openly unemployed and underemployed) would have most countries (Todaro, 1997)

time, informal-sector urban surplus labor ( exceeded 30 percent in

2.3 MIGRATION T HEORIES OVERVIEW

For some decades, va rious approaches have been trying to analyze and provide

ding for the phenomenon of migration There are multitudes of empirical studies, which are concerned with the determinants

d of internal migration

fundamental understan theoretical as well as both of international an

2.3.1 Lee's migratio n theory

Lee (1969) classified Factors associated wit

all factors associate with migration into four major groups:

h the area of origin, Factors associated with the area of

g obstacles and personal factors According to him, in every factors Some of them attract people to move to, some other eople, and there are neutral factors Between the origin and

destination, Intervenin area there are various factors tend to repel p destination, areas are different people in dif

many intervening obstacles However, regional factors affect ferent ways For example, the cost of transporting household

e to some people but prohibitive to others goods may be negligibl

Alternatively, Lee also already divided the forces exerting an influence on migrant perception into "push" and "pull" factors The former are negative factor tending to force migrants to leave origin areas, while the latter are positive factor attracting migrants to destination areas in the expectation of improving their lot Lee hypothesized that factors associated with origin area conditions would be more important than those associated with destination sector would These forces associated with the area of origin and of destination are governed by personal factor "which affect individual thresholds and facilitate or retard migration" (Lee, 1969) Lee's approach reflected in a broad range of studies, particularly sociological studies dealing with migrant selectivity It is actually not a theory but a conceptual framework for classifying factors in migration decisions

The final element in Lee's model is the notion of "inventing obstacles" interposed between origin and destination These constitute "friction" in the migration process (transport costs, migration controls) and may reduce or retard migration Lee's approach reflected in a broad range of studies, particularly sociological studies dealing with migrant selectivity It is actually not a theory but rather a conceptual framework for classifying factors in migration decisions

2.3.2 The dual economy development model

Theoretically, migration is defined as simply a process of personal movement from one area to another However, economist consider rural to urban migration as a process of labor movement from less - developed to more advanced areas The first well - known economic model of development to include as an integral element the process of rural - the agricultural sector where the labor force is suffering from unemployment and underemployment transfer modernization areas where many employment opportunities are being generated and also suffering from a labor shortage Lewis ( 1954 ) This model considers migration as an equilibrating mechanism, which through transfer of labor from the labor surplus to the labor deficit sector, eventually brings about wage equality in the two sectors The model based on the concept of a dual economy, comprising subsistence, agriculture sector characterized by unemployment and a modem industrial sector characterized by full

employment to equilibrium

In the subsistence sector the marginal productivity of labor is zero or very low and workers are paid wages equal to their cost of subsistence, so wage rates exceed marginal products Because of high productivity or labor union pressure, wages in the modern urban sector are much higher With such differences in wage rates, migration occurs from the subsistence to the industrial sector This increases industrial production as well as the capitalist's profit Since this profit assumed to reinvest in the industrial sector, it further increases the demand for labor from the subsistence sector The process continues as long as surplus labor exists in the rural sector is greater than

or equal to the rate of labor out - migration, but it must end eventually if the rate of growth of demand for labor in the area exceeds rural population growth

Despite the appeal of the dual economy model, most observers have found it unsatisfactory because of a number of shortcomings First, migration did not included solely by low wages and underemployment in rural areas Second, the assumption of near - zero marginal productivity and surplus labor in agriculture has been widely criticized on empirical grounds Third, the model assumes a high rate of expansion of employment opportunities through continuous investment of the rural surplus in the urban sector In fact, the rate of growth of employment in the modern industrial sector has generally not been sufficient in developing countries to absorb the increasing labor supply resulting from both natural population increases in the urban sector and net rural -urban migration Consequently, the net effect of rural - urban migration has been to shift underemployment from the rural to the urban sector

The dual economy explains convincingly the causes of migration because of wage rate differences, many other theorists have brought out it unsatisfactory because of a number of shortcomings (Todaro, 1976) First, although the wage rate differences are

an important reason for migrants to move from a rural to an urban sector, the movement of people from rural to urban sector should not to be seen as simply a case

of wage differences Second, many people believe that the assumption of zero marginal productivity and labor surplus in rural sector are not very realistic Third, the

assumption that the rate of job generation in urban sector is high enough to absorb the labor from rural sector is not true in many cases Fourth, there is the possibility that urban investors might invest their industrial profits in new technology and labor -saving machinery, thereby killing the demand for further rural labor transfer In general, industrialization in urban sector creates a high demand for labor, but nowadays under the strong threat of competition, many firms have not employed labor intensity technology, but capital intensity instead, therefore the demand for labor in urban sector is not always high enough to absorb labor from rural sector

2.3.3 The Harris- Todaro model

Todaro ( 1969), Harris and Todaro (1970) set up a seminal framework of migration between rural and urban areas They hypothesize that individuals migrate to urban sectors with the aim of obtaining employment in the formal sectors and that informal sector employment is a transitional phase during which migrants are searching for formal sector job In their decision to migrate, potential migrants balance the probability of unemployment against the real income differentials between urban formal sector and the rural area The decision to migrate depends on expected rather than actual urban-rural real wage differentials, where the expected differential is determined by the interaction of two variables, the actual urban-rural wage differential and the probability of obtaining employment in the urban sector (Todaro, 1969)

Migration rates in excess of job-opportunity growth rates are not only possible but also rational and even likely in the face of wide urban-rural expected-income differentials High rates of urban unemployment are, therefore, inevitable outcomes of the serious imbalance of economic opportunities between urban and rural areas In the Todaro approach, migration rates in excess of the growth of urban job opportunities are not only possible but also rational and probable in the face of expected large positive urban - rural income differentials High rural - urban migration can continue even when high urban unemployment rates exist and known to the potential migrants The approach therefore offered a possible explanation of a common paradox that migration keeps on happing even with rising urban unemployment In early dualistic

According to this model, migration proceeds in response to urban - rural differences

in expected income rather than actual earnings Expected gains measured by the difference in real incomes between rural and urban work and the probability of a new migrant are obtaining an urban job The rate migration held to be a function of the difference between the present values of expected urban earnings and expected rural earnings, with the size of the flow of expected urban earnings significantly affected

by the probability of obtaining employment in the urban sector (UC) Suppose that P(t) presents the probability of securing a job in the UC in period t, Yu

and Y1 represent average real income in the UC and rural sector, respectively; Cis the one time cost of the move; and r is the migrants time preference rate of discount The expected net income from migration given by:

Migration takes place only if V (O) is positive In other hand, migration takes place only if there gain from moving only if:

Todaro defines the probability of selected for a job during period t as being equal to the ratio of new urban sector employment in period t relative to the number of accumulated job seekers in the urban traditional sector in timet

There are several policy implications of Todaro's model:

a) Any increase in urban income Yu or decrease in rural income Yr will enhance urban migration

rural-b) The more job-opportunities we create in urban areas, the stronger is the migration

In consequence, the solution to urban unemployment problem does not only depend

on the expansions of industries

c) Any decrease in migration costs will increase the rural depopulation In other words, to reduce the migration flow, it is necessary to increase the opportunity cost of migration

The Todaro model has tested empirically using aggregate information with country level characteristic He presents a survey of early contributions: variables such as income, unemployment, urbanization in both destination and origin countries as well

as distance act as major determinants of out- migration

2.4 ECONOMIC IMPACTS

2.4.1 Migration and economic development

Migration viewed favorably in the economic development literature Internal migration thought to be a natural process in which surplus labor gradually withdrawn from the rural sector to provide needed labor for urban industrial growth The process deemed socially beneficial because human resources shifted from locations where their social marginal product often assumed zero to places where this marginal product was not only positive but also rapidly growing because of capital accumulation and technological progress

Migrant has clearly contributed to economic development through the kinds of sub sectors such as construction, processing and manufacturing, services but precise estimates on this contribution are not available Based on data from Bangladesh,

China, Vietnam and the Philippines (Dang, 2003) concludes that migration is a driver

of growth and an important route out of poverty with significant positive impacts on people's livelihoods and well-being In the case of China, Murphy (2005) notes that migration has made major contributions to development, by accelerating economic growth, building up cities and establishing rural-urban linkages and return flows Research by Chinese scholars estimates that labor migration from rural to urban areas contributed to 16 per cent of total GDP growth in China over the past 18 years They argue that migration has remained one of the key reasons that China has been able to sustain GDP growth rates above 8 per cent over the past 25 years A cheap and literate workforce has given China a competitive advantage relative to other countries It has also noted that migration has stimulated the transport sector

The economic role of that migration plays in local and national development and its impact on poverty reduction needs to be recognized and make more explicit in the planning process Given the nature of migration processes, the government needs to recognize and identify indirect measures that can help alleviate poverty in source areas

In Viet Nam, development strategies have not considered voluntary or spontaneous migration Issued by different agencies and at different levels, these policies and strategies are often inconsistent and even in conflict with each other They barely recognize the role which internal migration has played in contributing to the development of areas of origin and of destination, as well as to the well-being of individual migrants and their families

2.4.2 The relationship between the wage differential and employment

The most commonly stated for rural to urban migration the inequality between the rural and the urban sector real wage rates A larger wage gap between the two areas results in a greater incentive for rural workers to migrate to the cities Migration can even take place when there in no certainly of employment, as long as the probability

of finding a job is high enough

Follow Todaro (1969) and Arellano (1981) the flow of migration presented as directly

related to the probability of finding a job and to the wage differential

The probability of finding a job defined as the ratio between the number of new openings and the number of unemployment workers This means that the potential migrant sees his job opportunities as if he was competing with the unemployed for the new jobs available

According to Bardhan and Udry (1999), at this fixed wage there are also a fixed number ofurbanjobs, Nu The remainder ofthe labor force finds themselves as urban unemployed or working in the rural sector at the applicable wage rate W R· The typical rural worker is a utility-maximizing individual who has a choice to produce the agricultural good or migrate to the urban sector in search of waged employment The rural worker is enticed to migrate to the urban area in search of work if their expected urban income exceeds their guaranteed rural wage That is, the choice to migrate depends on a comparison of the expected income from remaining in the rural sector with the expected urban wage

Rural expected income given by: E(WR) = WR

Because income guaranteed in the rural sector, the expected urban wage, which is taken to be the ratio of number of urban jobs N u to the total urban labor force Lu This gtves

Therefore, migration occurs when: wu( ~:) > W,

The most commonly stated reason for rural to urban migration 1s the inequality

between the rural and the urban sector real wage rates In the migration decision, the returns to labor in the rural sector compared with the going wage rate in the urban and the number of job vacancies in the urban area A wage gap between the two sector results in a great incentive for rural workers to migrate to the cities Migration can even take place when there is no certainly of employment, as long as the probability

of finding a job is high enough

There are various reasons for the rural urban income divide The simplest of these is the existence of an institutionally fixed urban minimum wage imposed by the Government or negotiated by trade union The efficiency wage theory suggests that the wage differential is the result of company policy Employers are willing to pay a wage premium to urban employee to avoid adverse selection This policy choice minimum shirking on the job and reduces labor turnover (Stiglitz, 1974) If a worker can expect a higher than average wage rate from his employer, he will be more concerned about keeping his job

2.5 Summing up

Generally, migration considered as a natural response to the differences in social and economic opportunities between the rural and urban areas People will move from labor - abundant and capital - deficit to areas where labor is in short supply and capital is rich Moreover, migration is regarded as beneficial to development and enhancement of the economic welfare of not only original regions - thanks to increased labor productivity, declining pressures on wages, employment opportunities but also destination areas - because of the enlarged size of labor workforce and market which allow scale economies to be achieved, and capital and resources to be more efficiently exploited

The factors influencing the decision to migrate could categorize in the following broad areas:

• Social attraction factors of life in urban areas, including the available infrastructure and public services in urban areas such piped water, electricity, sewage disposal system

• High level of unemployment and poverty in rural areas due to the seasonal natural of job opportunities in the agriculture sector, and land fragmentation and pressure due to overpopulation problem, finding of job opportunities in urban areas Other aspects of the agrarian structure and rural life such as the price of agricultural products and inputs will also function as potential push factors for migration

• Differences in wages between rural and urban areas will be crucial, as will be the ability of the urban economy (including the informal sector) to absorb unskilled labor migrants Migration knowledge about urban wage levels and their expectations about being able to access these higher wages will also influence the migration decision

• Finally, there is a set of more individual - scale personal factors such as education, skill level, psychological characteristic such as openness, ambition, etc., which may condition whether an individual migrates and, if they do, the character of that migration experience Evaluation of alternatives depends mainly on individuals' abilities to estimate the expected benefits in the area of destination and compare them with losses in rural area

CHAPTER3

MIGRATION AND URBAN UNEMPLOYMENT IN VIETNAM

THE CASE OF HO CHI MINH CITY

3.1 AN OVERVIEW MIGRATION IN VIETNAM

3.1.1 History and the trend of internal migration in Vietnam

3.1.1.1 Historical development of migration in Vietnam

Population movement also occurred during the French colonial period (1858-1954) The availability and exploitation of low-cost, unskilled labor were a major concern of the French Movement took four main forms: rural to urban migration of landless people; low-cost labor movement between rural villages and the colonial plantation/mining zones; international movement of laborers to other French colonies; and circular movement of agricultural workers between rural areas during the transplanting and harvesting seasons The last category seems to have accounted for the largest volume of movement in the period of French colonial rule (Thompson, 1968)

Following Vietnam's victory over the French arm1es at Dien Bien Phu in 1954, Vietnam divided into two regions, resulting in the exodus of over 82,000 evacuees from the north to the south Overall, as many as 900,000 people estimated to have moved from the north to the south, and 100,000 from the south to the north (Anh, 2003) Then, during the American war, (1954-75) substantial regional differentials characterized population movement People in the north evacuated from urban centers

to the countryside to avoid bombing, while people in the south forced to abandon their villages to move to urban centers, especially to large cities, to cut off potential contact with the northern army The two opposite processes caused a sharp decline in urban populations in the north and inflated them in the Southern provinces Banister, J (1993) reported a sharp increase, from 20% to 40%, in the proportion of the urban population in the south between 1960 and 197 5

A massive repatriation of southern people to their native villages followed reunification in 1975 At the same time, there was large-scale population movement

from urban to rural areas with the establishment of new economic zones (NEZs) During the 1980s, the government's population and labor relocation policy focused on rural to rural and urban to rural migration

The land-based settlement policies since 1975 continued to reinforce Migration to the three major cities (Hanoi, HaiPhong and Ho Chi Minh City) was discouraged in order

to limit their rapid population growth Migration flow involving changes of residence

to urban places, especially to the largest cities, strictly controlled through migration policies and the household registration system (Ho khau system) Urban to rural and rural to rural migration were explicitly encouraged to avoid what was considered to be over urbanization and to redress the perceived imbalance in population density both between the north and the south, and between the two deltas and the frontier, mountainous areas (Dang, Goldstein and McNally, 1997)

In the last decade, Vietnam has been remarkably successful in ensuring high levels of national economic growth and reducing poverty As data from 1999 population and housing census showed, this goes hand in hand with important shifts in population distribution and mobility (GSO, 2001) Although Viet Nam has a relatively low proportion of urban residents (around 24% of the total population of over 82 million), this proportion increased rapidly during the last time

In the early 1990s, the major form of internal migration in Vietnam was among rural areas These large-scale movements planned, organized and controlled by the government Motivations for the resettlement program included security issues, as well as economic objectives: in the North, population pressure was very high, while in the South and in the Central Highlands population, density was much lower These motivations reflected in the direction of flows: North to South, and into resettlement sites (also known as the New Economic Zones or NEZs) in the South and in the Central Highlands

Non-agricultural job growth was slow, and government discouraged such movements through the household registration system and other policies These barriers became less effective after the introduction of economic renovation in 1986 Dang (1997)

have identified three important features of the renovation that reduced barriers to migration:

(i) Land-use rights assigned to individual households, which raised agricultural productivity and exacerbated a labor surplus in rural areas

(ii) The subsidy system abolished, making the household registration system less effective as a tool to control movement

(iii) Restrictions on private sector involvement in transportation, communication, and trade eased, resulting in lower cost of movement and increased integration among areas

3.1.1.2 The trend ofinternal migration in Vietnam

The economics reform, or Renovation (Doi Moi), introduced in 1986 marked a break with the past and effected migration in three main areas First, the change was significant in the agricultural sector, where decollectivization and the introduction of the household contract system have unbound farmers from their land The increasing commercialization of agriculture has been of major significance in dispersing the rural workforce and encouraging the move away from rural to urban areas Second, in the emerging industrial and technology sectors, Vietnam's incorporation in the global economy has resulted in an increase of foreign direct investment into the country As the result, migrant workers are attracted to areas where foreign investment has created industrial hubs Despite the continuation of the household registration in urban center,

it no longer acts to limit the acquisition of essential goods and access to employment Third, parallel to this process, community - based social networks that connect places

of origin and destinations have expanded, and in tum influence population mobility (Dang, 1997) The development of transport systems, telecommunications and mass media across regions has facilitated spatial mobility and enhanced social contact between rural and urban areas New opportunities have produced difference rates of economic growth, and levels of natural endowments have led to widening differentials in labor demand and labor mobility Migration can open new opportunities for income, employment, education and social services While

economic factors, including higher incomes, appear to be the mam reason for migration, other factors relating to culture, religion, family and marriage also play important in the decision migrate (Dang, 2003 ) Migration grows out of a growing awareness about emerging economic opportunities and income - generation activities The economic disparities between regions generally prove to be the main motive for migration Since Doi Moi, inequalities between and within rural provinces and, even

more, between rural and urban areas have increased The highest levels of rural income inequality are in the big cities, while increasing landlessness and poverty in the Mekong River Delta and Red River Delta linked to the commercialization of agriculture According to survey results showed that, on average, urban income in Ha Noi and Ho Chi Minh City are as much as five to seven times higher than the income

of farming laborers in rural areas (UNDP, 1998) The latest available data suggest poverty rates in rural areas are six times higher than in urban areas (UN, 2003 ), indicating a growing gap between the two areas This gap has placed rural residents at

a disadvantage and encouraged out migration to urban areas

During the five years preceding the 1999 census, more than 4,350,000 people over five years of age moved across provincial boundaries, accounting for 6,5 percent of the total population aged five and above Among these migrants, 55 percent moved within the same province, and 45 percent moved across provincial boundaries within Vietnam (GSO, 2001 ) This indicates that a significant proportion of spontaneous migration occurred outside the settlement programs organized by the government Rural - to - urban migration occurred mainly across the provincial boundaries and over relatively long distances The development of transport and telecommunication facilities, the movement of rural labor to urban and industrial center is easier It

facilitates internal migration and enables such migration to become circular rather than a single permanent move The multi-spatial households with their members working in different locations have become a common feature of settlement and a feasible choice owing to improved means of transport and telecommunication Major cities have become the primary destinations of migration stream Ho Chi Minh City is

centers of migration activity, being the largest recipient of inter provincial migration The city's positive net migration rate of 8,15% is the highest in the country Every year, the city receives around 1,000,000 KT3 and KT4 migrants from other regions (IER, 2002) The figure for Ha Noi was 4,8%, indicating more economic opportunities and better levels of income in Ho Chi Minh City

3.1.2 Internal migration in VietNam

In Viet Nam, as in most regions of the world, internal migrants are predominantly young adults; the proportion of the migrant population under 30 years of age is 73 percent in Ho Chi Minh City, 72 percent in the Southeast Industrial Zone and 71 percent in the Northeast Economic Zone In all areas, the age of female migrants is younger than that of male migrants In the Southeast Industrial Zone, in the age group

15 - 24 the percentage of female migrants is higher than that of male migrants (54 percent compared with 40 percent) Corresponding proportions in the Northeast Economic Zone are 58 percent for females and 42 percent for males (GSO and UNFP A, 2004)

The social characteristics of migrants are also highly varied Migration survey data reveal that the proportion of migrants who are never married is over twice that of never - married non-migrants, reflecting in part the younger age of migrants and perhaps a trend of migrants to marry at a later age than non- migrants The areas where the proportion of migrants who are never married is highest are also those areas that have high proportions of migrants who are at young ages The Central Highlands

is primarily a destination for family migration; hence, over three quarters of male migrants and over 80 percent of female's migrants are married In contrast, 50 percent

or more of female migrants in the Northeast Economic Zone and Southeast Industrial Zone are never married (GSO and UNFPA, 2004) It is apparent that these two areas are very attractive destinations for young single females, most of who move to work

in the factories that abound in these areas

Much of the migration in search of better educational opportunities directed to major cities where higher educational institutions are located Rather than return to their

;,

places of origin after graduation, students tend to stay and looking for jobs in urban sectors, especially Ha Noi and Ho Chi Minh City In term of occupation, labor migrants account for a large proportion of workers in the manufacturing and construction sectors, migrants are least represented in agriculture, forestry and fishery

At other extreme, high number of migrants work in the service sector that includes mainly retain trade, transportation, restaurant and personal services Both Hanoi and

Ho Chi Minh City attracted large numbers of migrants from other provinces and regions Ho Chi Minh City was the largest gainer of inter-provincial migration, indicating its higher levels of economic opportunity

In Vietnam, macro processes of economic development and social change have exerted a large influence on patterns of internal migration Economic factors such as incomes and employment opportunities have more of an effect than non - economic factors in determining current migration in Vietnam The decision to migrate appears

to reflect income differentials rather than background variables (such as age, sex, marital status) Although other non - economic factors such as cultural differences, education, religion, family and marriage also contribute, their influence in migration decision-making does not appear to be as strong as economic factors (Dang, 2003) Migration in Vietnam is largely associated with high rates of under- and unemployment in rural areas, particularly in the densely populated Red River Delta in the North High unemployment and under-employment rates attributed to the growth

of modem agriculture that is no longer able to absorb the growing surplus of labor The increase in the working age population continues to bring a heavy employment pressure Each year Vietnam must create 1.5 million new jobs for the expanding labor force The number of youth entering the labor market estimated at 1.4 million each year This figure does not include those who were unemployed the year before but did not find a job (Dang et al, 2005) These young entrants into the labor market confront serious competition in finding suitable and better job opportunities Migration is often associated with changes in education and occupation that individual migrants experience In rural areas, the lack of high educational institutions and manufacturing

work can serve as push factors for out-migration among young students

Table 3.1: Decrease and increase population by internal migration region, Viet Nam: 1994- 1999 (1,000 migrants)

Region of residence Migrants Immigrants Net migrants

Red River Delta 406 257 (156 moving to HaNoi) - 149

3.1.3 Employment and migration in VietNam

Vietnam is well - know for its disciplined, hard - working, fast - learning population This is the country's main asset in its drive for economic development Low wage costs also make it one of the main sources of its international competitiveness Labor force participation rates areas unusually high in Vietnam, both men and for women, whereas unemployment rates are unusually low In Vietnam, a large majority of the working- age population is active, and the most often employed (under table 3.2)

Table 3.2: The structure of the Labor force

Source: V1et Nam Development Report, 2006

Note: All above figures are in percent of the population aged 15 to 64, except for unemployment rates, which are in percent of the active population Employment figures are based on main occupation The last row is based on MOLISA's labor force survey All other figures are from VLSS and VHLSS Household businesses are treated as private enterprises for their hiring of wageworkers, and as a source of non-farm self-employment for the jobs they provide to household members on an unpaid basis

Rapid economic growth has resulted in two, related forms of job mobility From an occupational perspective, an increasingly large share of the population works out of agriculture Individuals working for equitised enterprises and for joint ventures involving the state sector may declare that they work for SOEs Moreover, the form of mobility characterizing the Vietnamese labor market is geographical Some people engage in non - farm employment without leaving the rural areas they live in But for

a large of population, moving from farming to wage employment also entails moving from rural to urban areas Migrants make up a large proportion of urban residents

Migration into large cities, most notably Ha Noi and Ho Chi Minh City, has been happening at faster pace The recent, mid - term population census of Ho Chi Minh City uncovered 420,000 more people living in the city than had been predicted by GSO, 2004

The migration flow puts additional pressures on already overload infrastructure and public services in major cities, local authorities have established implicit to labor movements leading to additional costs by migrants Migration partly driven by the huge geographical dispersion of wage jobs, almost two thirds of those at work in Ho Chi Minh City do it for a wage or a salary and the share is around 60 percent in Da Nang and Hanoi This is where the opportunities for work are

Unemployment rate in Vietnam

-Source: Author's calculation based on data from GSO and MOLISA, 2004

As above figure, the unemployment rate in Vietnam is low by international standards Moreover, for urban areas, unemployment rate is quite low, ranging between 2 and 6 percent depending on the data source used (GSO or MOLISA) In contrast with the pressure urban unemployment in developing countries, the shortage of workers at urban areas where the speed of industrialization have very rapid and it has required