Study 1: Trade, Growth, Employment, and Wages in Vietnam

Transcription

1 Study 1: Trade, Growth, Employment, and Wages in Vietnam Research Project: Globalization, Adjustment and the Challenge of Inclusive Growth: Furthering Inclusive Growth and Industrial Upgrading in Indonesia, the Philippines and Vietnam Research Group Dinh Hien Minh (Team leader) Trinh Quang Long. Nguyen Anh Duong Trinh Thi Hue Hanoi Horison Hotel, July 03,

2 Definition of inclusive growth Inclusive growth: the sort of growth which ensures that all peoples, with the poor in particular, acquire maximum access to growth-induced economic opportunities. Defined by ADB as the sort of growth aiming at (i) creating opportunities; and (ii) making the opportunities accessible to all. Main outcomes of inclusive growth: (i) high and sustainable growth; (ii) abolishing institutional impediments and improving access of all social groups to opportunities; (iii) improving capacity for individuals and different social groups so that they can actively participate in the growth process; (iv) management of risks arising in the development process ; Main components of inclusive growth: (i) creating employment opportunities and improving productivity; (ii) improving capacity via investment in basic social services such as education, health; (iii) providing social safety nets and targeted intervention. 2

3 Outlines 1. Overview of VN s economic reforms since Growth, employment, and wages 3. Total factor productivity and employment elasticity to GDP growth 4. Key findings and conclusions 3

4 Previous studies: mainly focus on one or several aspects of the development strategy which pursues inclusive growth in combination with industrial upgrading. Research objectives This study seeks to clarify the interactions between growth, shift in economic structure, job creation, and wages, using the criterion of high and sustainable growth - one of the three key components of inclusive growth in the context of economic integration and industrial policy reform. Specifically, the study analyzes whether high growth in Vietnam brings about job creation, productivity improvement, shift in labor structure, and higher income for labors in line with industrial upgrading or not. 4

5 1. Overview of VN s economic reforms since 1986 Economic reform in VN can be divided into four periods: : The 6 th Party Congress proposed a comprehensive economic reform in 1986 initial step in getting familiar with principles of mkt economy : Developing mkt-oriented economy, to industrialize and proactive integrate into world economy The comprehensive reform package in 1989 includes: - price liberalization; - devaluation and unification of the exchange rate; - Budget reform: reducing subsidies for SOEs; - encouraging private sector - Trade and foreign investment reforms The reforms were decisive and bold from the beginning : stagnant and inconsistent economic reform

6 1. Overview of VN s economic reforms since 1986 (cont.) Strong economic reform, with many policies to promote private sector development, liberalize investment and trade, and further integrate into world economy. - Legal framework for market economy is further improved. - WTO membership marks VN s deeper integration into world economy In summary: Key structural reforms in the past 20 years: SOE reform, promoting private sector development, banking reform, and trade reform (trade and investment liberalization) as well as proactive economic integration, aiming at industrialization and modernization of VN The above changes in economic policies created economic opportunities as well as risks, thereby affecting growth, shift in economic structure, employment creation, and wages in VN. 6

7 2. Growth, employment, and wages 2.1 Economic growth Growth (%, 1994 prices) GDP Agriculture Industry Manufacturing Services Share (%, current prices) GDP Agriculture Industry Manufacturing NA Services Source: Authors calculations from data of General Statistics Office (GSO) and SNA Department (GSO). 7

8 2. Growth, employment, and wages (cont.) 2.2 Employment Number of employees (Thousand persons) Overall 27,398 28,478 28,941 33,761 34,493 35,976 37,610 44,172 45,037 Sector I 19,976 20,657 20,895 23,874 24,196 24,792 24,481 23,919 23,625 Sector II 3,801 4,006 4,036 3,888 4,021 4,300 4,929 8,825 9,386 Sector III 3,621 3,815 4,010 5,999 6,276 6,884 8,200 11,428 12,027 Share (%) Overall Sector I Sector II Sector III Growth (%) Overall Sector I Sector II Sector III

9 2. Growth, employment, and wages (cont.) 2.3 Income and wages At current prices Overall Sector I Sector II Sector III At comparable prices (in 1994) Overall Sector I Sector II Sector III

10 2. Growth, employment, and wages (cont.) 2.3 Income and wages Wage in some industries, from enterprises survey Wage per employee per month (in thousand VND), at 2002 prices Agriculture and forestry 797 1,035 1,171 1,374 1, % Fishery % Mining and quarrying 1,732 1,810 2,020 2,371 2,442 41% Mining and quarrying (exc. Crude oil) 1,295 1,422 1,670 2,012 2,097 62% Manufacturing 1,145 1,206 1,177 1,186 1,280 12% Production and distribution of electricity, gas, and water 2,055 4,183 2,057 2,085 2,488 21% Construction 1,064 1,217 1,101 1,192 1,231 16% Trade, repairs of automobiles, household goods 1,104 1,226 1,259 1,327 1,393 26% Hotelling and restaurants 1,360 1,346 1,282 1,337 1,382 2% Transport, warehousing 1,686 1,921 1,733 2,051 2,287 36% Finance and credit 2,216 2,688 2,619 3,656 4,033 82% Other business services 2,370 1,967 2,021 2,051 2,039-14% Overall 1,249 1,381 1,308 1,401 1,511 21% 10

11 2. Growth, employment, and wages (cont.) 2.3 Income and wages Classification of manufacturing sub-industries (according to UNIDO) Agricultural-input-intensive industries (Foodstuff production and processing) Labor-intensive industries (Textiles, Garment, tanning and dying of animal skins; Tanning and primary processing of leather; production of suitcases, handbags; Processing wood and products from wood, bamboo; Production of beds, wardrobes, tables, chairs and other products) Capital-intensive industries (Production of tobacco products; Paper and paper products; Chemicals and chemical products; Glass and products from glass, ceramic; Metal production; Production of metal products; Recycling; Production of rubber and plastic products; Production of coal, refined crude oil and fuels; Publication, printing, copying) Machinery-intensive industries (Production of office equipments and computers; production of machinery and electric equipment; production of raio, televisions and telecommunication equiment; Production of machinery; Production of health equipment, precision equipment; optical equipments; Production of other means of transport) 11

12 2. Growth, employment, and wages (cont.) 2.3 Income and wages Wage in some industries, from enterprises survey Average wage by manufacturing sub-industry (thousand VND/employee/month) Agricultural-input-intensive industries 1,088 1,129 1,091 1,162 1, % Labor-intensive industries , % Capital-intensive industries 1,430 1,537 1,417 1,480 1, % Machinery-intensive industries 1,500 1,607 1,469 1,616 1, % Manufacturing 1,145 1,206 1,177 1,186 1, % 12

13 2. Growth, employment, and wages (cont.) 2.3 Income and wages Average income by gender, and by education level Average wage, 1000VND/month Income gap by Average growth gender (wage of rate of wage, female/wage of male) (%) Female Male Female Male Female Male Overall By education level 6.4 No education Primary school Secondary school High school , Technical college ,051 1, Intermediate school ,076 1, College ,830 1, University or higher ,918 2, By ownership form Household Private and public ,046 1, State FDI ,082 1, FDI ,036 1,

14 2. Growth, employment, and wages (cont.) Income of employees in manufacturing sub-industries (2004) Agricultural-inputintensive industries Labor-intensive industries Capital-intensive industries Machinery-intensive industries Overall Export firms Firms not engaged in export Number Income Number Income Number Income 4,482 1, ,378 3,870 1,035 5, ,202 1,088 3, ,090 1,598 1,153 1,832 6,937 1,463 2,006 1, ,754 1,638 1,548 14

15 Export and job creation in 2004 (the number of additional employees in the year) Agricultural-input-intensive industries Overall Export firms Firms not engaged in export Labor-intensive industries Capital-intensive industries Machinery-intensive industries

16 2. Growth, employment, and wages (cont.) In summary: - High economic growth; the rapidly growing industrial sector made important contribution to economic growth, thereby helping shift economic structure towards sectors with higher value added. - Many jobs were created, and the employment structure was also shifted towards more employees in high-income sectors (such as export enterprises in manufacturing sub-industries). - Even in agriculture forestry fishery in times of VN s most active economic integration, labor productivity and income were significantly improved. 16

17 2. Growth, employment, and wages (cont.) Shift in employment structure by economic activity was slower than shift in economic structure -> labor productivity in industry construction, and services was higher than that in agriculture forestry fishery -> income gap between employees in different economic sectors was large, despite some reduction in recent years. Reforms and integration impose further risks: VN under both external and internal risks: - SOE reform - Volatility of world prices - Global crisis 17

18 3. Total factor productivity (TFP) and employment elasticity to GDP growth Total factor productivity (TFP) TFP is the additional output due to improving the efficiency in using labor and capital, via factors such as technological renovation, production rationalization, improvement of management and labor skills. In a more efficient economy, TFP is higher. Only when economic growth is induced by TFP growth can economic growth be regarded as stable and sustainable, and embody quality this is the requirement of inclusive growth 18

19 3. Total factor productivity (TFP) and employment elasticity to GDP growth (cont.) Formula for TFP growth in the economy, using growth accounting framework: GR TFP = GR GDP (α. GR K + β GR L ) Of which: GR TFP denotes TFP growth; GR GDP is growth in gross domestic product (GDP); GR K denotes growth of capital stocks or fixed assets; GR L is growth of employed labors; α and β are the respective shares of capital and labors (α + β =1). These paramaters can be estimated in the growth accounting framework. 19

20 3. Total factor productivity (TFP) and employment elasticity to GDP growth (cont.) Data for calculating TFP growth (1) GDP growth or GDP at comparable prices (Y) to calculate GDP growth; (2) growth in stock of capital/fixed assets, or the stock of capital/fixed assets or fixed assets at comparable prices to calculate its growth; (3) growth in employment or the number of employees to calculate employment growth; and (4) income of employees and value added of the economy as a whole, or GDP at factor costs. 20

21 3. Total factor productivity (TFP) and employment elasticity to GDP growth (cont.) Formula for calculating fixed assets: Kt = Kt-1 + It Dt Of which: Kt is stock of fixed assets at time t; Kt-1 is stock of fixed assets at time t-1; It denotes new investment in fixed assets at time t; Dt denotes depreciation of fixed assets in year t And resting on certain assumptions: - Capital/fixed assets as defined by the General Statistics Office (GSO); - Capital/fixed assets are homogeneous. That is, all components of fixed assets have the same marginal productivity and depreciation rate. - Depreciation of fixed assets was 5% in 1986, 1987, and 5.5% in 1995; for other years, the rate is based on actual depreciated amount calculated by the SNA Department (GSO); - New fixed assets in year t is equal to capital investment or accumulation of fixed assets in the year (GFCF) 21

22 3. Total factor productivity (TFP) and employment elasticity to GDP growth (cont.) The year 1995 marked the start of computations of fixed assets. Fixed assets in 1995 was calculated at the depreciation rate of 5.5% and depreciated value of fixed assets at 1994 prices (depreciation of fixed assets at current prices divided by deflator of investment). The values of fixed assets at 1994 prices of the years subsequent to 1995 were calculated as Kt = Kt-1 + It Dt, and of the years prior to 1995 as Kt-1= Kt It + δ. Kt-1; 22

23 3. Total factor productivity (TFP) and employment elasticity to GDP growth (cont.) The shares of employed labors (β) and capital (α) were calculated using the Income Generation Account. The shares of production factors are the proportions of returns to those factors in GDP at factor costs. GDP at factor costs = Wages and social insurances; + mixed income; + depreciation of fixed assets; + net surplus. β coefficient is calculated as: β = wages and social insurances/ (value added at basic prices mixed income) under the assumption that the share of labor in value added is the same as that of labor in mixed income. 23

24 24 0,21 1,92 12,59 8,48 0,41 0, ,53 1,91 10,68 8,23 0,45 0, ,68 2,26 10,64 8,44 0,46 0, ,31 2,50 10,66 7,79 0,51 0, ,06 2,28 10,46 7,34 0,51 0, ,06 2,38 9,78 7,08 0,51 0, ,27 3,02 9,12 6,89 0,57 0, ,42 4,54 8,71 6,79 0,56 0, ,12 2,11 7,99 4,77 0,57 0, ,49 2,14 9,88 5,76 0,60 0, ,00 2,17 9,56 8,15 0,60 0, ,36 2,21 9,32 9,34 0,61 0, ,01 2,19 8,61 9,54 0,64 0, ,30 2,35 7,85 8,83 0,60 0, ,13 2,34 6,48 8,08 0,61 0, ,85 2,39 3,62 8,70 0,63 0, ,54 2,46 1,95 5,81 0,64 0, ,51 1,46 1,80 5,09 0,64 0, ,02 3,45 6,89 4,68 0,65 0, ,79 2,61 7,09 6,01 0,64 0, (0,85) 2,53 7,81 3,63 0,63 0, (1,20) 2,37 7,00 2,84 0,64 0, GR TFP GR L GR K GR GDP BETA ALFA

25 3. Total factor productivity (TFP) and employment elasticity to GDP growth (cont.) TFP growth in Hình 1: Tốc độ tăng năng suất các nhân tố sản xuất giai đoạn (1.0) (2.0)

26 3. Total factor productivity (TFP) and employment elasticity to GDP growth (cont.) In general, TFP growth in recent years were slow and contributed only 15% to economic growth; in 2007, the contribution was very low (~ 2.5%). VN s economic growth was largely induced by expansion of production scale, via increasing fixed assets and employment, particularly fixed assets; the impacts of factors such as technological renovation, improvement of labor skills, meanwhile, were still limited. -> The positive impact of TFP growth on economic growth was small; as such, such a growth performance can be regarded as unsustainable. 26

27 3. Total factor productivity (TFP) and employment elasticity to GDP growth (cont.) Employment elasticity to GDP growth Econometric estimation of employment elasticity Elasticity t-statistic R 2 Durbin-Watson statistic Sample Vietnam By economic activity Agriculture Industry Manufacturing Services Vietnam By economic activity Agriculture Industry Manufacturing Services

28 4. Key findings and conclusions High economic growth, and rapid shift in economic structure. In particular, the economic structure was shifted towards higher share of sectors with more value added, which was in line with VN s industrialization and modernization 28

29 4. Key findings and conclusions (cont.) Together with economic growth, employees received higher wages. This was the key source of improvement of employees living standard. The rise in wage was slower than economic growth, but faster than that in labor productivity; Income of VN s people was significantly improved; GDP per capita in 1990: <100 USD, in 2006: 726 USD, in 2007: 835 US and in 2008: 1,061 USD. VN seemed to realize the goal of becoming a medium-income country before schedule. 29

30 4. Key findings and conclusions (cont.) Economic growth, however, rested heavily on expanding production scale increasing fixed assets; the impacts of other factors such as technological renovation, improvement of labor skills, were still limited; Shift in employment structure was slower than that in economic structure -> labor productivity in agriculture is still low low income in agriculture, exhibiting a large gap with that in other industries; 30

31 4. Key findings and conclusions (cont.) Labor skills are still inadequate the economy in general and industry in particular can not create sufficient jobs, and the majority of employees still work in agriculture. Similarly, skilled labors are limited in number, while the demand for them was high as the economic structure shifts toward higher shares of sectors/industries with higher income, and because of the demand for high-quality growth 31

32 4. Key findings and conclusions (cont.) Benefits from reforms and integration differ across employee groups. Those in services, FIEs, SOEs, management staff, those with medium- and highskills can benefit better from growth. The income gap between economic industries increased. The economy was vulnerable to external shocks. (For instance: economic growth fell in due to regional financial crisis, and in 2008 due to financial crisis and global economic recession since late 2007). These were the major risks to job creation and income improvement in VN; 32

33 4. Key findings and conclusions (cont.) Strategy for VN s inclusive growth in may incorporate the following features: Economic growth is attached with job creation and improvement of human resources; Effective implementation of policies to develop agriculture, rural areas, and farmers; Furthering the role of education-training. This stems from the increasing demand for skilled labors in sectors, economic industries with higher salaries. Establishing funds for social safety, to mitigate the risks from losing opportunities when the domestic and external economic environment exhibited unfavorable development. 33

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35 Thank you! 35