Migrants and non migrants wage differentials in southeast provinces of vietnam

Monthly average income classified by characteristics of migrant and non-migrant workers .... • LIST OF TABLES Table 3.1: Definitions and notations of variables Table 4.1: Distribution o

VIETNAM- NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

MIGRANTS AND NON-MIGRANTS WAGE DIFFERENTIALS IN SOUTHEAST

PROVINCES OF VIETNAM

A thesis submitted in partial fulfilment of the requirements for the degree of

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

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-CERTIFICATION

I hereby certify that the substance of this thesis has not been submitted for any degrees

and is not being currently submitted for any other degrees

I also certify that, to the best of my knowledge, and any help received in preparing the

thesis and all sources used have been acknowledged in the thesis

Phan Thi Hong Nhung Date: June, 2010

ACKNOWLEDGEMENT

This research is impossible completed without the valuable guidance, encouragement and advice from numerous individuals including Vietnam-Netherlands program lecturers, friends and my family members I would like to express my special thanks to all people to what they have done for my thesis completion

First of all, I would like to send my deepest gratitude to my supervisor, Dr Nguyen Huu Dung who always gives valuable instructions, advice and comments during my completion of the thesis

I also send my special thanks to Associate Professor Nguyen Trong Hoai for his lectures in econometrics, Mr Truong Thanh Vu, the lecturers of Vietnam-Netherlands project, for their kind help and instructions in data analysis by Stata software and Mr Le Cong Tam- MDE 12, Phan Thi Lien- MDE 14 for their support in the process of data mining

Many especially respectful thanks are sent to my family for encouraging and providing me with an opportunity to pursue my desires in higher learning

And finally, I would like to express my special thanks to my friends in MDE class 14 for their supportive friendship from the beginning day I joined the VNP program, and their continuous support during my research completion

Above all, please sympathize for me and do know that I would be so grateful for those who support me a lot in this thesis completion if I forget to mention their names

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-ABSTRACT

This study examines the wage differentials between migrant workers and non-migrant workers Based on data from Vietnam Migration Survey in 2004, earnings equations with and without Instrumental Variable (IV) are estimated for migrant workers and non-migrant workers From these results, the study compares the wage structure for migrant workers and non-migrant workers Oaxaca decomposition of the wage differentials of the two groups workers are carried out Results, which are controlled for observed characteristics and selection bias, indicate some main points The wage differentials between non-migrant and migrant workers are mostly due to the difference in structural factors Besides, there are differences in endowment factors

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CONTENTS Certification · · · · · · · · · · · · .1

Acknowledgements ···· 11

Abstract 111

Content table 1v

List of Tables viii

List of Figures x

List of Abbreviations xi

CHAPTER 1: INTRODUCTION 1.1 Problem statement 1

1.2 Research objectives 3

1.3 Research questions 3

1.4 Thesis structure 3

CHAPTER 2: LITERATURE REVIEW 2.1 Definition of migration 5

2.2 Reviews oftheoretical framework 6

2.2.1 Related to migration 6

2.2.1.1 Human capital theory 6

2.2.1.2 Harris- Torado model for migration 8

2.2.2 Related to wage determination and wage differentials 9

2.3 Previous empirical studies 12

2.4 Chapter remarks 18

CHAPTER 3: RESEARCH METHODOLOGY 3.1 Empirical model 19

3 1.1 Earnings function 19

3 1.2 Earnings differentials measurement 21

3.2 Definition of variables used in study 22

3.2.1 Dependent variable 22

3.2.2 Independent variables 23

3.3 Datasource 27

3.3.1 Introduction ofthe data set 27

3.3.2 The reliability of the data set 28

3.3.3 Detail ofdata 28

3.4 Estimation strategy 30

3 5 Chapter remarks 31

CHAPTER 4: OVERVIEW OF MIGRATION IN HO CHI MINH CITY, BINH DUONG AND DONG NAI PROVINCE 4.1 A profile of migrants and non-migrants in HoChiMinh City, Dong Nai and Binh Duong 32

4.1.1 Age structure 32

4.1.2 Gender 33

4.1.3 Education level 34

4.1.4 Type of activity 35

4.1.5 Earnings 36

4.1.6 Duration of residence 38

4.1.7 Type ofoccupation 39

4.2 Earnings ofworkers 40

4.2.1 Monthly average income classified by gender and regions 40

4.2.2 Monthly average income classified by types of occupation and regions 41

4.2.3 Monthly average income classified by sectors and regions 42

4.2.4 Monthly average income classified by education levels and regions 43

4.2.5 Monthly average income classified by characteristics of migrant and non-migrant workers 44

4.3 Chapter remarks 46

CHAPTER 5: DETERMINANTS OF EARNINGS AND WAGE DIFFERENTIALS OF MIGRANTS AND NON-MIGRANTS 5 1 Determinant of earnings 4 7 5 1.1 Estimation results of model 1 with OLS and 2SLS 4 7 5.1.2 The effect of year since migration on migrant's earnings (model 2) 50

5 1.3 Determinants of earnings for migrants and non-migrants (model 1) 52

5.2 Wage differentials with Oaxaca's method 55

5.3 Charter remarks 57

CHAPTER 6: CONCLUSION AND POLICY IMPLICATION 6.1 Conclusion 59

6.3 Limitation ofthe research 63

REFERENCES

APPENDICES

• LIST OF TABLES

Table 3.1: Definitions and notations of variables

Table 4.1: Distribution of age structure by current residence, migrant status and gender

Table 4.6: Distribution of duration residence of migrants m current residence by household registration status

Table 4.7: Distribution of types of occupation by current residence, migrant status

Table 4.8: Monthly average income classified by gender and regions

Table 4.9: Monthly average income classified by types of occupation and regions

Table 4.10: Monthly average income classified by sectors and regions

Table 4.11: Monthly average income classified by education levels and region

Table 4.12: Monthly average income classified by characteristics of migrant and migrant worker

non-Table 5.1: Estimation results of model 1 with OLS and 2SLS

Table 5.2: Testing for endogeneity

Table 5.3: The correlation matrix between the explanatory variable and its instrument

Table 5.5: Estimating results ofmodell for migrants and non-migrants

Table 5.6: Earnings differentials between migrants and non-migrants by Oaxaca's method

• LIST OF FIGURES

Figure 4.1: Percentage of employed by current residence and migration status

Figure 4.2: Monthly average earnings (thousand VND) by current residence, migration status, age group

:the United Nations Population Funds

CHAPTER!

INTRODUCTION 1.1 Problem statement

Since the year of 1986, Vietnam has gone through a process of Doi Moi toward a

market- oriented economy Besides, it is widely recognized that urbanization is inevitable and that population movements are integral features of the process of growth, which make many changes on Vietnamese labor market One of the outstanding changes is that increasing the participation level in labor force of migrants

In fact, migration is an inevitable result of development because Vietnam has been developing fast after reforms in the last 1980 Therefore, the increasing migration level is not amazed Comparing the data of general investigation in 1989 and 1999 shows that migration level rises about the third (GSO, 2005) The increasing portion of migration moves primarily to the urban areas, especially big cities as Ho Chi Minh City and HaNoi, and adjacent industrial zones to these cities such as Binh Duong and Dong Nai industrial parks In this thesis, Ho Chi Minh City and Binh Duong, Dong Nai provinces are selected

to study about migrants and non - migrants wage differentials Because they are one of potential economically centers with economic - cultural - social development strongly Hence, these provinces are places where attract lot of migrants

Migration is a mainly contributive source to urbanization The analysis of urban development factors in Vietnam via using data of general population survey in 1999 shows that, in urban areas, migration contributes more 1/3 growth of population at these areas At the same time, migration contributes above 50 percent growth of population in big cities as HaNoi and Ho Chi Minh City (GSO, 2005)

Like many other cities and industrial zones, migration also causes the earnings differentials An earnings gap can be observed between migrants and non - migrants Therefore, there are several considerations to examine wage differentials among labors, especially between migrants and non - migrants Lower returns to migrants in these areas labor market could be due to many different reasons Probably, important crucial reasons are the migrants' lack of specific knowledge, skills or experience Moreover, the demand for some particular skills acquired in homeland might be nonexistent Another explanation, probably most applicable to migrants from poor countryside, is that the quality of the schooling and experience obtained in the homeland is lower than the quality

of schooling and experience in big cities A number of studies show that this is also the case in other cities (Bratsberg and Ragan, 2002; Friedberg, 2000; Schoeni, 1997) All of above problems mentioned an emergent issue, which is whether the earnings gap exists in Vietnam, especially in big city and industrial parks such as Ho Chi Minh City and Southeast Industrial Zone (including Binh Duong and Dong Nai provinces) In the case the wage gap exits, what factors contribute to this problem? From that issue, government should propose which policies to reduce this gap and to attract the talents in these areas

1.2 Research objectives

The aims of this thesis are:

•!• To provide a better understanding of the demographic and socio - economic characteristics of migrant and non-migrant workers in Ho Chi Minh, Binh Duong and Dong Nai

•!• To investigate the determinants of earnings of migrants and non-migrants

•!• To examine factors contributing to migrant and non- migrant wage differentials

in the study area

In order to achieve the above objectives, this research will answer the following questions: ( 1) Are there differences in demographic and socio - economic characteristics of migrants and non-migrants?

(2) What are the determinants affecting earnings of migrants and non-migrants?

(3) What factors contribute to migrants and non - migrants wage differentials in Ho Chi Minh city and Binh Duong, Dong Nai provinces?

The paper is organized as follow:

+ Chapter 1 includes research problems, the need for doing an investigation of wage differentials between migrants and native, research questions, objectives

+ Chapter 2 is for reviewing of literature on theories related to migration, theoretical background of wage determination, wage differentials and empirical evidences

+ Chapter 3 provides methodological framework In this chapter, the variables, models and data will be specified in detail

+ Chapter 4 provides an overview understanding of the demographic and socio economic characteristics of migrants and natives in Ho Chi Minh city, Binh Duong, and Dong Nai provinces Besides, it also shows the relationship between earnings and educational levels, types of occupation, gender and sectors

-+ Chapter 5 analyses and presents determinants of earnings and factors that contribute to migrants and non- migrants wage differentials in Ho Chi Minh city, Binh Duong and Dong Nai provinces

+ Chapter 6 gives some conclusions and policy implications of the results, limitations

of the research, and suggestions for future research

CHAPTER2 LITERATURE REVIEW

The purpose of this chapter is to present basic concept/definitions, related theories and previous empirical studies on the earnings differentials of migrant and no-migrants The first part introduces some definitions of migration The second part concentrates on theoretical framework related to migration, wage determination and wage differentials The final one presents previous empirical evidences on the studies of wage differentials

Migrant problem is referred much in the publications, scientific documents, or means of public communication, but there is no a united definition of migration In general, migration is considered as the movement of people from this place to another However, definitions of migration differ among scholars

According to Lee ( 1969), he said that "no restriction is placed upon the distance of the move or upon the voluntary or involuntary nature of the act, and no distinction is made between external and internal migration" This definition showed that those who visit their friends or relatives would be added to the migrants Hence, it would result in an exaggeration of the number of migrants Similarly, Borjas (2001) defines that "migration

is the move from one geographic area to another Residential migration occurs when the household (or person) changes its place of residence by moving from one neighborhood to another within the same local area Internal migration occurs when the household moves across larger geographically distinct units-such as counties, metropolitan areas, states, or provinces-but remains within the same country International migration occurs when the household moves across national boundaries."

In study of Mangalam (1968), migration was defined as the changing of the place

of residence permanently or for a temporarily appreciable duration However, they give no answer to the question of which kind of migrants could be considered permanent or temporary

Meanwhile, definition of migration is referred little on documents in Vietnamese According to Vietnamese dictionary, migration is 'living in other place' Resident Act of Vietnam defines that an immigrant is an individual who arrives in city from other provinces and now is living and working in city, but they have not had permanent address yet Conversely, a non- migrant person is defined as an individual either was born and grown-up in that city, at the present, this person is living and working at here, or arrives in city from other provinces and now is living and working in here, but they have already had permanent address

However, based on the aforementioned objectives, the major study unit will be migrants to three areas: Ho Chi Minh city (HCMC), Binh Duong and Dong Nai provinces Therefore, in order to capture and reflect socio - economic characteristics of migrants in

2004, this paper will use definition of GSO in the Migration Survey in 2004 According this survey, migrants include those who are in the age group 15- 59, and moved from the province registered to stay to another within the five years before the survey (from 1999

to 2004) and have resided in the household in the study area for one month and over Note that for HCMC, those who moved from one quarter to another within a city have not covered by this definition Conversely, non- migrants include those who are in the age group 15 - 59 and not determined as migrants

2.2.1 Related to migration

The Human Capital Theory of migration originated in neo -classical economics states that people migrate for purpose of increasing their earning capacity to an optimal point (Sjaastad, 1962)

The human capital theory assumes that people desire to maximize their net real income over their productive life and can at least roughly compute their lifetime income streams in the present place of residence as well as in all possible destinations Therefore,

in the human capital view of migration, migration is considered as investment decision It means that individuals and families look at the net present value of a movement to make a decision whether migrates or not

However, some migration studies drew on the theory of investment in human capital developed by Becker (1975) Human capital theory assumes that individuals invest in human capital in order to maximize their net wealth Becker employed the investment framework primarily to analyze educational attainment and the rate of return

to education for individuals

Chiswick (1978) extended Becker's human capital framework substantially through its application to studying labor market aspects of immigration This modified human capital model has since been instrumental in analyzing the process of immigrant adjustment in the host-country labor market Chiswick (1978) was the first to argue that, for the same number of years of schooling, the ability to convert schooling into earnings might differ between the foreign-born and the native-born This argument implied that immigrants would be unable to transfer completely the human capital accumulated in their home country to the labor market of the destination country To analyze this aspect of immigration, Chiswick developed the phrase 'international transferability of skills' International transferability of skills can be viewed as a function of similarities in the labor markets of the home country and the host country, schooling and language being

and an internationally transferable component The importance of these two components differs by the level and the type of education attained by immigrants In general, more the skills acquired through schooling in the origin, greater the transferability to the destination and hence the smaller the decline in value of skills upon migration

2.2.1.2 Harris - Torado model of migration

Research on migration has an extensive record in the economics literature, starting with important contributions by Sjaastad (1962) and most remarkably by the early works

of Todaro (1969) and Harris and Todaro (1970) and the long list of authors who have subsequently expanded on their framework According to the Harris-Todaro (HT) model, migration takes place from rural to urban areas as people compare expected earnings in the urban sector with the wages that they earn in the rural sector and decide to move if the former is greater In this framework, migration is seen as a cost-benefit process and will take place until the expected net gain for the marginal migrant equals zero

The burden of the Todaro model was to explain why masses of workers moved from the countryside to the city in the face of sizeable urban pools of unemployed and underemployed To accomplish this, the model focused attention on the present value of expected earnings rather than current wage rates The rate of rural - urban migration was 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 modem (UM) sector Suppose that P(t) represents the probability of securing a job in the UM sector in period t; Yu and Yr represent average real income in the UM and rural sectors, respectively; Cis the one-time cost of the move; and r is the migrants time preference rate

of discount So, the Todaro's basic behavioral equation can be shown as:

n

V(O) = j[ P(t)Y, (t)-~ (t)]e-' 1

.dt-C(O)

t=O

Even though there might exist an urban pool of underemployed and unemployed labor, a potential migrant would decide to make the movement toward city if the expected

UM earnings, properly discounted by the probability factor, exceeded the expected stream

of rural earnings Todaro defines the probability ofbeing selected for a job during period t

as being equal to the ratio of new modem sector employment openings in period t relative

to the number of accumulated job seekers in the urban traditional sector in time t

The H-T model predict that, in response to the creation of extra urban jobs, additional rural laborers attracted by the increased employment probability will swell the urban labor force until the new ratio of jobs to urban labor force is restored to the earlier ratio However, for this as well as for similar paradoxical results to hold, it must be assumed that the urban wage rate is fixed

2.2.2 Related to wage determination and wage differentials

In the human capital theory, wage determination has based on the marginal productivity theory of which labor capital theory is an extension The marginal productivity of a worker is determined by her/his human capital Under competitive

capital such as education, on the job training It is noted that more human capital will increase marginal product of a worker or, on other hand, higher productivity, and then higher wages

Almost studies, both of developed and developing countries, have been executed to provide insight view as well as explain logic about wage differentials based on the human capital theory However, according to Mincer (1974) and Becker (1975), theory of human capital postulates that earnings of different categories of workers, they are male or female, black or white, unionized or non - unionized depend on the level of human capital endowment of these individuals Besides educational attainment, job training and job's experience, part of the earnings differentials, in the short run, can also result from market imperfections such as unions and collective bargaining or other artificial distortions It is common to find workers with identical background and skills receiving differentials treatment in terms of wages and other rewards This suggests that unobservable personal characteristics are also positively valued Therefore, the theory of discrimination hypothesizes that wage differentials can exit if market differentiates and treats distinct categories of workers on the basic of race, gender or other characteristics (Becker, 1957)

Meanwhile, in his study on gender differentials in earnings, Oaxaca ( 1973) found that the wage differentials rise from the effects of discrimination and the effect of individual characteristics Oaxaca (1973) argues that discrimination against females can

be said to exist whenever the relative wage of males exceeds the relative wage that would have prevailed if males and females were paid according to the same criteria Besides, according to Cotton ( 1988), a meaningful explanation of wage differentials can be found when the theories of human capital and discrimination are combined together The resulting combination suggests that average wages of two groups could differ not only because of differences in productivity and skills, but also because of differences in the treatment received by a group of workers against the other group, despite level of skills

Neumark (1988) extends Oaxaca's methodology to derive an alternative estimator ofwage-based discrimination based on the assumption that within each labor category, the underlying utility function is homogenous of degree zero with respect to labor inputs from each category The author observes that the effect of discrimination is to redistribute wages only within each type of labor and that the resulting estimate of wage discrimination is sensitive to differences in the distribution of characteristics

Apart from the role of productivity endowments, several theories can explain the existence of wage differentials between locals and migrants The point of departure is Becker's (1957) view based on employer's tastes: some employers dislike people from other ethnic groups - model as a utility loss derived from hiring them and in competitive labor markets, if the share of prejudiced employers is sufficiently large, migrant workers might earn a lower wage than non - migrant workers might Theories of statistical discrimination also offer a framework for understanding the existence of wage gaps between migrant and non - migrant workers based on the lack of information or informational asymmetries (Arrow, 1973; Phelps, 1972) If there is no perfect information

on certain characteristics of immigrants (for example, quality of education) or firms have less knowledge about them, employers will tend to base their hiring and pay decisions on observable characteristics of workers, like the ethnic group they belong to Another interesting perspective of looking at this issue is the idea of monopolistic discrimination, which occurs when employers are able to exploit monophony power (the ability of the employer to affect the wage rate of its employees) in a labor market, inspired by Robinson's (1933) work on imperfect markets For example, even when migrants and natives are equally productive (have equally marginal products), if the supply curve for migrants is less wage elastic than for natives, the profit-maximizing monopolistic employer will pay migrants lower average wages than natives, although the migrants and natives- specific marginal costs of labor will be equal This occurs because the employer facing upward sloping supply curves for both migrant and native workers will employ

each type of labor at a level at which the gender - specific marginal costs of labor equals the common marginal product

Drawing on this framework, Barth and Dale-Olsen (2009) suggest that (apparently) unexplained wage differentials are associated with the existence of monopolistic employers and different labor supply elasticity across population Other things being equal, those collectives with more rigid labor supplies earn less than otherwise If immigrant workers are employed in sectors where firms have some market power and their labour supply is less elastic than the local one (for example, because of a lower access to unemployment benefits and so on), their pay will be lower

In Vietnam, Long (2006) showed that the wage differentials is mostly due to the differential in characteristics rather than return gap or environment gap In these workers characteristics, education is the most important element accounting wage differentials

Meanwhile, using data from Institute of Economics Research Ho Chi Minh City on spontaneous migration in HCMC, Trang (1997) found that only woman migrants are discriminated The income difference between migrant and non - migrant workers by females mainly resulted from the fact that female migrant workers concentrate in low -paid occupations rather than they have lower educational level Conversely, male migrant workers not only have higher productivity but also are in advantageous employment position compared to male non - migrants Finally, she asserted that one of the main reasons which contributes to the income difference between migrant and non - migrant workers is structured differences reflects extend of labor market discrimination

Regarding to wage differentials between men and women, Oaxaca's (1973) supposed that discrimination against females can be said to exist whenever the relative

wage of males exceeds the relative wage that would have prevailed if males and females were paid according to the same criteria He formalizes this notion by proposing the concept of a discrimination coefficient (D) as a measure of discrimination:

(Wm/Wt)o

where (Wm/Wr) =the observed male-female wage ratio

An equivalent expression in natural logarithms is:

(1)

(2)

Oaxaca used ordinary least squares estimation of a wage equation for any given group of workers to provide an estimate of the wage structure applicable to that group The wage equation to be estimated separately for each race-sex group has the semi-log functional form:

i=l, ,n where

Wi =the hourly wage rate of the i-th worker,

zi =a vector of individual characteristics,

Let

1 are the average hourly wages for males and females, respectively

From the properties of ordinary least squares estimation, we have:

Pm and Pr =the corresponding vectors of estimated coefficients

Upon substitution of (5) and (6) into (4), we obtain:

(10)

Based on equation (2) and the assumption that the current female wage structure would apply to both males and females in a non-discriminating labor market, it can be shown that:

~n(~J ~~zp, (I I)

Thus, equations (11) and (12) represent the decomposition of the wage differentials into the estimated effects of differences in individual characteristics and the estimated effects of discrimination, respectively

Finally, he found that the sex differential to be quite large The effects of discrimination are approximated by residual left after subtracting the effects of differences

in individual characteristics from the overall wage differentials However, one difficulty with his formulation of the wage equation is that it controls for what many would consider

to be major sources of discrimination Another difficulty with the residual approach is that

it does not take into account the effects of the feedback from labor market discrimination

on the male- female differences in the selected individual characteristics

For wage functions in China, Meng and Zhang (2001) find that the rate of return to education is around 1% higher for rural migrants than for urban residents, job training is important for urban residents but not for rural migrants, and marital status is positively related to rural migrants earnings but not to the urban residents Among the 50% of the migrant and non-migrant earnings gap, a large portion of it is likely to be due to discrimination However, Yao (2001a) finds that among the 135% wage gap between locals and migrants, observed variables (types of firms, villages and characteristics of the worker) can explain most of them For a local worker, the most important wage attributes are marital status and political affiliation, and for a migrant are age, education and years in current job The different findings on the explanations of income gap of Meng & Zhang and Y ao, which considers earnings to reflect both the characteristics of workers and of the

jobs Meng and Zhang (2001) control only personal characteristics and Yao (2001a) control both

Though both the inter-occupational and intra-occupational discriminations exist, Meng and Zhang (200 1) find that discrimination within the occupation is more serious in China They find 82% of hourly wage differentials between urban and rural migrant workers are due to unequal payment within the occupation

Besides migrant/non-migrant wage differentials, there also exist sectorial wage differentials in China Gordon and Li ( 1999) give a theoretical analysis the sector wage differentials The sectorial wage differentials are also found within the migration population Education is not important for migrants in the formal sector, but is important for other sectors; rural work experience has significant positive effect on migrant wages in the formal sector and wage-earned informal sector

In Vietnam, usmg data from collecting and gathering from related empirical studies, statistic year books and from sample survey in Mekong Delta, Tuan's study (1996) found that the total earnings disparities is about 0.9372, in which the main cause of the wage differential between migrants and non - migrants in the Mekong Delta is due to the differences in structural factors Meanwhile, using data from Institute of Economics Research Ho Chi Minh City on spontaneous migration in HCMC in 1996, in Trang's study ( 1997), earnings equation is also used to take into account other factor that may be

of importance for the comparison of earnings between migrants and natives

where:

lnY: logarithm of monthly earnings

EDU: education level

A: age group

SEX: sex

STAY: duration of migrants' residence in HoChiMinh City

Other variables: such as time worked occupation, urban-rural, etc

Then, the Oaxaca decomposition technique has been used in Trang's study to decompose the earnings differential into two proportions: one due to differential productivity - related characteristics and the other due to structural differences in the earnings equation:

where:

lnY,, lnfm: the mean lnYofnative and migrant worker

Xn,Xm: the average monthly earnings of native and migrant worker

b 111 bm: coefficients of Xn,Xm

In general, the study found that the variable schooling is highly significant Average income of migrants does not differ much from that of non-migrants Besides, Trang found that only woman migrants are discriminated against The income difference between non-migrants and female migrant workers mainly resulted from the fact that female migrant workers concentrate in low-paid occupations rather than they have lower educational level Meanwhile, male migrant workers not only have higher productivity related endowments but also are in advantageous employment position compared to non-migrants However, in the study of Trang and Tuan exits a limitation is that not correct selection bias in earnings model

While based on data from "Population, Labour Force and Migration Survey" in Pakistan, Ather M (1998) regressed wage equations with and without selectivity

also uses wage regression models as augmented Mincer's earnings equations controlling for human capital and various other characteristics However, to correct for selectivity bias, which ordinary least square (OLS) may not be consistent because of non-randomness

of the sample, the Heckman's two-stage approach is applied in the study

Next, he applies an Oaxaca (1973) wage decomposition to wage differentials for natives and migrants In terms of Oaxaca's method, his study finds that the earnings differentials has been decomposed into amount attributable to personal characteristics or the endowment effect, and the differential attributable to coefficients or the structural effect The analysis reveals that nearly 76 percentage of the difference in earnings can be attributed by the different endowments

This chapter presents definitions of migration and a rev1ew of literature on methodologies for impact analysis, namely, theoretical background related to migration, wage determinants and wage differentials The methodologies for impact analysis are introduced through Mincer's wage model and Oaxaca's wage differentials methods

The extended Mincerian earnings model is still widely used to study and estimate determinants of wage Meanwhile, Oaxaca's wage differentials method is used to calculate the distance of wage between migrants and non-migrants After exploring and analyzing many previous studies, the extended Mincerian earnings model and Oaxaca's wage differentials method, which are proposed as fundamental theory, will be specified to apply for estimation the wage difference of migrant and non-migrant workers in Ho Chi Minh city, Binh Duong and Dong Nai provinces

CHAPTER3 RESEARCH METHODOLOGY

The aim of this chapter is to present the methodology applied to address the research questions The first section is for specification of the empirical model The second part is

to explain specific variables in suggested models The next part is for introduction of data source The final part presents the estimation strategy applied in this study

3.1 Empirical model

3.1.1 Earnings function

The earnings function developed by Mincer ( 197 4 ), already known in the literature,

is a benchmark to estimate the average private rate of returns to education and other factors as follow:

Turning to immigration, the earnings function most often estimated when studying the labor market assimilation of immigrants Based on Mincer's equation, Chiswick ( 1978) proposed the standard equation to reflect the earnings of immigrants and natives:

Here, log earnings is regressed on years of schooling, S, potential experience and potential experience squared, Exp and Exp 2 years since migration and years since migration squared, Ysrn and Ysrn 2 and finally an indicator variable for immigrant status

M ~1 gives us the relationship between income and schooling, i.e the familiar returns to schooling estimate According to Chiswick, years since migration and years since

, migration - squared variables have positive effect on wage, so it is necessary to give them

into earnings equation of migrants

Based on the reviewed models, the conceptual model for the determinants of earnings is specified in general form as follows:

(3) Y = F (highest educational qualification obtained, experience, duration of residence, gender, occupation, sectors)

Based on conceptual model, the regression models in this study are specified in actual variables as follows to answer the research questions:

To address the research question 2, determinants of earnings for workers, migrants and non - migrants are examined via Model 1 :

(4)

In addition, to investigate the effect of years since migration, the variables Ysm and its

square form Ysm 2 are included in the model, and examined separately for migrants That model is denoted as Model 2: the effect of years since migration to migrants' earnings (only data for migrants):

where Ysm is the number of years elapsed since an immigrant's arrival in three provinces:

HCMC, Binh Duong, Dong Nai; Gen is a dummy variable indicating gender of worker,

Occ are dummy variables indicating occupation of individual, Sec is a dummy variable

signifying sector of employment

3.1.2 Earnings differentials measurement

Regarding to research question 3, to analyze the sources of migrant - native earning differentials, we apply a decomposition analysis proposed by Oaxaca ( 1973 ) Therefore, the earnings of migrant and native evaluated at means may be written as a function of the form:

In Wm and In Wn denote mean value of predicted log wages of migrant and native,

xm and xn denote a vector of observable productivity characteristics for the two group, while bm and bn are the estimated parameters from the wage equation

Mean difference in the predicted log wage for the two groups is:

The difference between migrant and native coefficient vectors is:

Substituting (9) in (8) and rearranging yields:

or

The left-hand side of this equation is the earnings differentials between the two groups, which has been into two portions The first component is the first term of the right-hand side of equation (1 0) stands for the difference in constant terms The second portion explains the earnings disparities that remain after taking control for the different productivity - related to characteristics of the individuals of the two groups This portion

of earnings differentials reflects the differences in the observed characteristics of workers between two groups of migrants and natives, and is called the earnings disparities due to the differences in endowments The third portion in the right-hand side of equation (1 0) represents the difference in the coefficients of explanatory variables The first and the third components constitute the total structure differential

In sum, equation (1 0) states that the mean difference of the migrant and native log wage is the results of:

( 1) the difference in average endowments or the "explained" factors

(2) the "unexplained" or structural factors in the labor market

This section is to describe variables used in empirical model by their meanings, measurement units, and the expected effects to the earnings of workers

3.2.1 Dependent variable

In equation (4) and (5), the dependent variable LnW denoted the natural logarithm

of earnings for an individual measured by monthly income from all sources Mincer (1974) claimed that weekly earnings were preferred as a dependent variable in the

-model His argument was that individuals with more education tend to work more, and will receive higher earnings compared to whose with less education However, in the literature on the human capital earnings function, a variety of earning measurements have been used to estimate the rate of return For example, the alternatives of annual or monthly earnings have been used as the dependent variable, depending on data availability Consistently, the earnings variable in above equations makes use of the logarithmic form because the distribution of log earnings is very close to a normal distribution, especially log monthly wages (Card, 1999) Moreover, according to Friedberg (2000), creating an hourly wage might introduce more noise than signal to the data Therefore, this study uses monthly earnings as the dependent variable

3.2.2 Independent variables

The schooling level of individual worker, the School variable, in the model is the number of years of an individual's schooling It is expected that the higher the level of schooling obtained the higher the earnings of workers Hence, the coefficient of this variable is expected to bear a positive sign

square of individual The theoretical justification for the inclusion of the experience term

as explanatory variables is that more experience is associated with higher wage Besides,

in the model, number of years of work experience is squared to capture the declining effects of experience as individual ages As a result, [3 2 is expected to be positive, while fJ 3

is expected to be negative due to its relation in quadratic form

• There is a number of measures to calculate workers' experience in facing with the

lack of this information in the data set An alternative is the "potential experience" proposed by Mincer (1974) measured by the number of year individual X could have worked after completing schooling Assuming that he/she starts schooling at 6 years old and begins working immediately after Si years of schooling, EXPi is equal to A-S-6 (Age- Years of Schooling- 6)

The Ysm and Ysm 2 variables represent the number of years elapsed since an immigrant's arrival in new residence It captures the rate at which the immigrant- native earnings gap into the labor market in there Therefore, it is expected that a positive sign on

Ysm coefficient and a negative sign on its square coefficient A positive coefficient on

Ysm means more duration of residence worker receive higher earnings because he/she has

s stable life and a negative Ysm 2 means the effect of additional duration of residence on earnings diminishes as more duration of residence is acquired

There are three set of dummy variables represented for gender of the worker ( Gen),

occupation ( Occ), and working sector (Sec) included in the two models to control for differentials in immigrant and native status:

+ Gen is a dummy variable for gender; it is equal to 1 for male, and 0 for female + Occ are dummy variables indicating occupation of workers, divided into 3 groups: Professionals (Occl), Staffs (Occ2), and Elementary occupations (Occ3)- the base

+ Sec is a dummy variable signifying sector of employment that is dtvtded mto 2 sectors: State(= 1) and Non- State(= 0)

3.2.2.5 Instrumental variable

To get a better estimation of the endogenous variable (schooling level) in the model, a parent education variable is used as an instrument variable in the estimation In earnings equation, labor economists have used family background variables as IV s for education, for example, parent education variable According to Wooldridge (200 1 ), when

we faced with the problem of endogenous explanatory variables in multiple regression models, we have so far discussed three options: (1) we can ignore the problem and suffer the consequences of biased and inconsistent estimators; (2) we can try to find and use a suitable proxy variable for the unobserved variable; or (3) we can assume that the omitted variable does not change over time and use the fixed effects

For illustration, consider the problem of unobserved ability in a wage equation for working adults Unfortunately, the first option, the results of our estimates may be too large in magnitude, often occurs, which makes it very difficult for us to draw any useful conclusions Meanwhile, the second option, the proxy variable solution can also produce satisfying results, but it is not always possible to find a good proxy Consequently, the fixed effect method is useful in the above options; however, if using this method in our model, we have to assume that individual ability does not change over time and does not correlated with other explanatory variables However, many believe ability is positively correlated with schooling For this reason, the fixed effect method is not applied in this research Therefore, recently, most researchers have used Instrumental Variable (IV) estimation to avoid this bias Consequently, this study also used parental education

(Edufather/Edumother) as instruments for the subset of individuals reporting father and mother education and alternatively spouse education as an instrument for another subset

of married wage - workers

The table below summary the definition of variables use din the models (independent variables as well as the dependent one), their meanings, and expected signs

of their estimated parameters

The number of years of schooling completed

Working experience: the number of years of working Square

Occupation dummy variable

is used to control for the job

of migrants and native

Occl

+ Occ2=1 ifstaffs, Occ2

0 otherwise Occ3=1 if elementary

0

Occ3

otherwise

Sector Sector dummy variable is Sector = 1 if state, Sec

used to control for the

+ 0 conversely

immigrants and native

education <*J household head of schooling + Edumother

completed

(*)This variable is used in Instrument Variable regression method to detecting bias ability of coefficients

of SCHOOL due to omitting innate ability variables from the model

3.3.1 Introduction of the data set

The data source used in this study is drawn from a cross-sectional data from Vietnam National Migration Survey 2004 It is undertaken by Vietnam General Statistics Office (GSO) under the framework of the VIE/Ol/P12TK Project funded by the United Nations Population Funds (UNFPA) The survey was conducted in 2004 in 5 high in-migration regions of Vietnam including Hanoi, Northeast Economic Zone, The Central Highlands, HoChiMinh City and Southeast Industrial Zone (GSO & UNFPA, 2005)

The survey covers several aspects of individuals including households' and individuals' background, migration history and details, activities and current living condition, and health Individuals chosen for interview include both migrants and non-migrants (as defined by GSO & UNFPA (2005) in section 3.1.6) and between the ages of

15 and 59 The number of migrants and non-migrants surveyed of each region are approximately equal And non-migrants chosen for interview are those living in the same area with migrants (GSO & UNFPA, 2005)

3.3.2 The reliability of the data set

The data set is reliable as it is executed by Vietnam General Statistics Office with technical support from UNFP A The procedures in which the data set is accomplished are

as follows:

• Sample design is done in four steps

• Design of questionnaires which include three types of questionnaires: Sample A for Household, Sample B for migrants and Sample C for non-migrants

• Testing and pilot surveys are carried out Questionnaires are modified based on the results of testing survey and the remarks of foreign and domestic experts Then pilot surveys are carried out and questionnaires are modified the second time before starting the formal survey

• Interviewers, supervisors, field editors and office editors are trained for the survey

• Data collecting is carried out under the supervision and support of the officers from GSO

• Data processing is done carefully with the support of the software CSPR025, Visual FoxPro and SPSS and under strict supervision to make sure the errors are minimized

B-to the number of years that individual completed In the cases of individuals completed