UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS -------------------- EFFECT OF PUBLIC TRANSFER ON LABOR SUPPLY DECISION OF HOUSEHOLDS IN VIETNAM BY NGUYỄN THỊ THANH HẰNG MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, NOVEMBER 2014 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS -------------------- EFFECT OF PUBLIC TRANSFER ON LABOR SUPPLY DECISION OF HOUSEHOLDS IN VIETNAM A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS BY NGUYỄN THỊ THANH HẰNG Academic Supervisor: DR. TRƯƠNG ĐĂNG THỤY Ho Chi Minh City, November, 2014 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com DECLARATION This is to certify that the thesis entitle “Effect of public transfer on labor supply decisions of rural households in Vietnam”, which is submitted by me in partial fulfillment of the requirement for the degree of Master of Art in Development Economic to Vietnam – The Netherlands Programme. The thesis comprises only my original work and due supervision and acknowledgement have been made in the text to all materials used. Nguyễn Thị Thanh Hằng i LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENT I would like to express my sincere appreciation to following persons without whom this thesis could not be finished.
My supervisor, Dr. Trương Đăng Thụy, whose detailed and useful guidance, comments and advises have enabled me to go through my research question formation, data mining and thesis writing up. Particularly, for his necessary push-ups, encouragements and patience during my writing process, I am indebted. All lecturers and instructors from Vietnam-Netherlands Programme, for valuable knowledge and instructions that I have received during the period of my studying here.
My boss and my colleagues, for their supports of sharing my workloads and for their encouragement. My friends: Nguyễn Thị Mỹ Hòa, my K18 classmates: Nguyễn Thị Ngọc Linh and Nguyễn Trường Toan, for their unconditional supports in methodologies, Stata application and paper formatting and valuable encouragements during my thesis process. My family: my parents, my parents –in-law, my husband, with my special gratitude, for all supports, scarification and love that they gave me. ii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABBREVIATION AFDC Assistance for Dependent Children AFDC-UP Assistance for Dependent Children-Unemployed Parents IPSARD Institute of Policy and Strategy of Agriculture and Rural Development CIEM Central Institute of Economic Management GSO General Statistics Office of Viet Nam HIV Acquired Immune Deficiency Syndrome IFAD International Fund for Agricultural Development ILSSA Institute of Labor Science and Social Affairs OLS Ordinary Least Square OXFARM Oxford Committee for Famine Relief N.O Non-government Organizations VARHS Vietnam Access to Resources Household Survey VHLSS Vietnam Households Living Standard Survey VND Vietnam Dong WB World Bank UNDP United Nations Development Program UNICEF Children’s Right and Emergency Relief Organization iii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT This paper examines the effectiveness of public transfer of poverty alleviation programs on the labor supply behavior of rural households in Vietnam.
The labor supply decision is analyzed by employing the individual labor supply model on the basis of data from VARHS. Analysis results show that the public transfer that the farm households receive in 2008 discourages the working efforts of households’ members in 2010. Though this effect is negative and statistically significant, its value is quite small with the marginal effect of public transfer (2008) on labor supply (2010) around 0.0007 which means for each additional VND 1000 of public transfer that an household receives would lead to an decrease in number of working days of it members by 0.0007day per year. And from the results of each laborer in the households, it is concluded that the transfer the households get in 2008 lead to a reduction of working time of the households by 4.219 days/year/household and 2.411 days/year/household on average.
Keywords: public transfer, rural households, individual labor supply model. iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CONTENTS DECLARATION. Data and Methodology. 6 CHAPTER 2 :LITERATURE REVIEW AND THEORY BACKGROUND.
Individual Labor Supply Theory. The Agricultural Household Model. Unitary and Collective Household Labor Supply Models. Review of empirical studies.
Labor supply behavior. Factors affecting labor supply decisions. 24 CHAPTER 3 : METHODOLOGY AND DATA DESCRIPTION. Specification of the Labor Supply.
Vietnam Access to Resource Household Survey (VARHS). 37 CHAPTER 4 : ESTIMATION RESULT.3 Hypothesis testing result. 61 Appendix 1:Correlation matrix of labor supply function’ variables:. 67 Appendix 2:Two-stage Estimation results for labor supply function:.
68 Appendix 3:Alternative results of labor supply function. 69 v LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 2.1: The Budget Line And Indifference Curve.2: Substitution Effect And Income Effect .3: The Backward Bending Characteristic Of Labor Supply Curve .4: Effect Of Non-Labor Income. Twelve provinces that VARHS is implemented.1 The association of working day and wage rate. The association between working day and children in the household.
The association of an individual’s working day and the public transfers that the households receive in 2008 and 2010. The association between household’s gross nonlabor income and number of working day of a household laborer. 47 LIST OF TABLES Table 1-1. Percentage of people living in poverty line.
Key hypothesis of dependent variables. Descriptive Statistics Data of Variables. 41 Table 4-1: Comparing mean working days of different groups. 47 Table 4-2: Two-step estimation results for labor supply function.
Hypothesis testing result of the labor supply function specification. 55 vii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1 INTRODUCTION 1. Problem Statement For long, social assistance is believed to be an effective method for poverty alleviation. Facing the fact that around 1.4billion people in developing countries living below poverty threshold (i.25/day, World Bank, 2008), among which three out of every four people living in rural area and thousands of children dying each day due to poverty (IFAD, 2011; UNDP, 2007; Unicef, 2007) has put hard pressure on governments of many countries, especially developing countries, to reduce the poverty, and improve the people living standard.
Among policy recommendations, public transfer programs to vulnerable people, alleviating their vulnerable situations is one of the policy option commonly adopted by governments. Public transfer programs such as cash aids to the poor, educational support for children, pensions for elderly, tax deduction for households below poverty line, insurance support and other conditional cash transfer programs has proved to be very effective in many countries. The transfers have been very useful and effective in improving the living standard of beneficiaries (Saxena et al., 2004; Case and Deaton, 1998; Schubert, 2005; Barrientos and DeJong, 2006), reducing poverty rate (Shalom et al, 2011), increasing school enrollment of targeted children (Barrientos and De Jong, 2004; Slavin, 2010), supporting investments in agricultural activities (Frize, 2002; Schubert, 2005) or improving health status of program recipients (Barriestos and De Jong, 2004). A typical example of successful transfer program is the case of Mexican Progresa program which was too impressive that has attracted many countries to pursue similar programs.
It reduced the poverty gap by 36%, increased school enrollment of children (especially of secondary students), improved health status of program participants ( with reducing by 25% illness of new-born babies and 18% adult reported illness-day) Page 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail. Another example is Old age pension program in India (Saxena, 2004) which successfully helped to smooth consumption, support agricultural production improvement of participating households. It was also evidenced to reduce the rate of hunger-related death and elderly abandoning significantly. Sharing similar result, Frize (2002) has found that cash transfer program in Tuskana actually helped the agricultural households to alleviate poverty by support them cash to invest in livestock or set up small shops to improve their living.
In addition, the production capacity of program participants in Zambia has increased thank to more cash-more chances to invest in agriculture subsectors and the living standard of them also improved due to smooth consumption objective of the transfer (Schubert, 2005). Even in a developed country like US, the Benefit System was also successful in reducing the poverty rate from 29% to13. With those optimistic examples, public transfer seems to be the most suitable choice on the way of poverty alleviation. However, is public transfer completely perfect? Although most transfer programs bear good intention, some scholars has found that such programs do have many problems themselves.
First, transfer programs also have problem with targeting, rather than focusing on the poorest targeted individuals/ households, some programs has chosen middle-income households or not the poorest households (Farrington et al, 2006); or they limit the chance to access to the program of the impoverished individuals/ households by creating the so-called “deserving poor” where the programs put priority on households with limited labors or households having adopted or disabled children. Second, lacking of transparency and strong-managed delivery system, cash transfer programs could be a good chance for corruption (Wilding and Ayalew, 2001; Khogali and Takhar, 2001). The last but not least argument against transfer programs is that it distorts the free market allocation of resources. Distorting free market allocation of resources of public transfer refers to the case that government payment distorts the nature of economic means of acquiring wealth on the free market.
In the free market, the earning of one person is up to the willingness to Page 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com pay for his/her good and services of the other people in the market. Wealth creation depends on the voluntary choices of individuals and the extent to which they serve each other. However, government transfer payment distorts the situation: wealth becomes available, and the man who earns wealth is the one who is able to gain favor of the government rather than effort to produce and exchange. Therefore, it distorts the allocation of earnings and moves the market equilibrium away from the efficient equilibrium that maximizes social welfare.
In the case of poverty support payment, the eligibility of one person for receiving money is due to his/her poverty rather than working effort. Hence, rather than encouraging people to work, government transfers encourage people to maintain their poverty situation or gain eligibility for getting payment. For example, the payment depends on the household’s monthly income, and then household members could reduce working, increase leisure to maintain their eligibility for supporting money (Boskin, 1977; Pellechio, 1978). Since working effort is a critical means to escape poverty, this behavioral effect of transfer payment distorts the means to get better life.
Thus, to a certain extent, poverty support seems to increase poverty. Although Vietnam becomes a middle-income country, the poverty rate of the country is still high. In 2008, the reported poverty rate of Vietnam is accounted for 14% of total population, around 3.3% urban population living under poverty line, and that of rural area is 18. The poverty percentage in ethnic minorities compared with Kinh and Hoa is much higher with 50.3% population living under poverty line (Table 1.
That fact makes the poverty alleviation objective becomes a challenge for the government. Percentage of people living in poverty line Source: Oxfarm, 2011 Page 3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Like other countries, transfer from the government is also used as a tool for sustainable poverty alleviation in Vietnam. Localized supporting programs with two key Periodic National Targeted Program for Poverty Reduction and Program 135 (Socio- economic Development of the Most Vulnerable Communes in Ethnic Minority and Mountainous Areas in Vietnam) which combined many different policies and programs have been set up for the objective of poor household assistance and community economic development.