MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS THE EFFECTS OF FDI ON THE LABOR MARKET OF ASEAN COUNTRIES Specialization: International TradePolicy and Law HO THI HONG NGAN Hanoi - 2019 Luan van MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY MASTER THESIS THE EFFECTS OF FDI ON THE LABOR MARKET OF ASEAN COUNTRIES Specialization: International Trade Policy and Law Full name: Ho Thi Hong Ngan Supervisor: Dr Nguyen Thi Viet Hoa Hanoi - 2019 Luan van i DECLARATION I hereby declare that this master thesis is the scientific research of my own which made on the basis of theoretical studies, field surveys and under the direction and supervision ofDr. Nguyen Thi Viet Hoa. The research contents and results of this thesis are completely honest. These data and documents for the analysis, review and evaluation were collected from various sources which are fully listed in the reference list.
I am fully responsible for the content of this master thesis as well as this declaration. Hanoi, 21 February 2019 Author Ho Thi Hong Ngan Luan van ii ACKNOWLEDGEMENT During the completion of this master thesis, I received the guidance and valuable help from the lecturers, siblings and friends. With great respect and deep gratitude, I would like to express sincere thanks to: Dr. Nguyen Thi Viet Hoa who wholeheartedly helped, supported and encouraged me from the initial to the final level of this dissertation.
She provided me with comprehensive guide from choosing the topic, outlining the thesis and editing this research. Professors and lecturers from FTU as well as World Trade Institute in the Master of International Trade Policy and Law Intake Four, who not only spread profound knowledge and information in the fields of economy and law but generated strong motivation for me while I was taking this course as well. Last but not least, I would like to express my sincere thanks to my family, my colleagues and my friends, who have always by my side encouraging, supporting, contributing valuable ideas and giving me favorable conditions for me to complete this scientific research. Luan van iii TABLE OF CONTENTS DECLARATION.
ii LIST OF ABBREVIATIONS. vi LIST OF FIGURES. viii SUMMARY OF THESIS RESEARCH RESULTS. ix CHAPTER 1: INTRODUCTION.
Scope of research .8 CHAPTER 2: THE THEORETICAL FRAMEWORK OF THE EFFECTS OF FDI ON THE LABOR MARKET. Fundamentals of FDI. The concept of FDI. Characteristics of FDI.
Classification of FDI. Fundamentals of labor market. The concept of labor market. Composition of labor market.
Functions of labor market. Characteristics of labor market. Classifications of labor market. Theoretical framework of the effects of FDI on the labor market .28 Luan van iv CHAPTER 3: EFFECTS OF FDI ON THE LABOR MARKET OF ASEAN COUNTRIES.
Current situation of FDI into ASEAN countries. ASEAN is one of the most attractive destinations for foreign investment of the world. Major Powers in the world invest more in ASEANdue to the strong internal force. Current situation of the labor market of ASEAN countries.
Abundant and young labor force. Lack of skilled workers. Facing a lot of difficulties. Effects of FDI on the labor market of ASEAN countries.
Effects of FDI on labor cost. Effects of FDI on labor demand………………………………………. Other effects of FDI. Effects on productivity.
Effects on inequality. Effects on working environment .58 CHAPTER 4: RECOMMENDATIONS FOR VIET NAM ‘S LABOR MARKET. Perspectives of attracting FDI into Viet Nam. Top investment destination in ASEAN.
Focus on the quality of FDI projects. Some experiences from ASEAN countries. Recommendations for attracting FDI to strengthen the positive effects of FDI on the labor market of Vietnam. Promote the investment environment of Vietnam to attract FDI inflow.
Hold annual meetings/seminars to exchange and learn between Vietnamese and foreign businesses and vice versa to increase joint ventures. Encourage the use of Vietnamese labor at all levels of management in the FDI enterprises. Introduce foreign universities / vocational schools to invest in Vietnam to improve the quality of education in Vietnam. Promulgate legitimate policies to protect the right of labor force.
Raising awareness of the workers about MRAsand exploring the possibility of extending MRAS to more sectors. Reducing protection for domestic labor in AEC .82 Luan van vi LIST OF ABBREVIATIONS Abbreviation Full name ADB Asian Development Bank AEC ASEAN Economic Community ALMM ASEAN Labor Ministers Meeting ASEAN Association of Southeast Asian Nations CIT Corporate income tax CLMV Cambodia, Laos, Myanmar, Viet Nam CMS Centre for Multilateralism Studies EU European Union FDI Foreign Direct Investment GSO General Statistics Office IMF International Monetary Fund ILO International Labor Organization M&A Merger and Acquisition MNEs Multi-national enterprises MSEs Micro and Small Enterprises MoLISA Ministry of Labor – Invalids and Social Affairs MOMT Ministry of Manpower and Transmigration MRAs Mutual Recognition Agreements NTC National Training Council Organization for Economic Cooperation and OECD Development OLS Ordinary Least Square Luan van vii SMEs Small and Medium – Sized Enterprises SOEs State – Owned Enterprises PCI Provincial Competitiveness Index TNCs Transnational Corporations TVET Technical and Vocational Education and Training UN United Nation UNCTAD United Nations Conference on Trade and Development USA United States of America VBF Viet Nam Business Forum VCCI Viet Nam Chamber of Commerce and Industry WTO World Trade Organization Luan van viii LIST OF FIGURES Figure1. Classification of FDI. The labor market.
FDI flows into ASEAN member states in 2017. Intra-ASEAN investment, 1995-2016. EU FDI flows in ASEAN, 1995-2015. FDI in ASEAN.
EU services FDI flows in ASEAN, 2000-2016. Labor force in ASEAN member states in 2017. Labor force growth. Employment share of ASEAN in 2017.
Minimum wage in ASEAN, 2018. Monthly wage of Vietnamese workers in Q2, 2018. Monthly average wage of Laotian workers, 2017. Productivity growth rate of Viet Nam (in percentage).
The gap in absolute productivity between economic sectors (times). Capital, attracting labor and raising productivity, 2006-2016. Indonesian government employment programs. Labor market conditions in ASEAN.
Best Places to Work in Viet Nam in 2016, 2017. Attracting FDI to Viet Nam (1988-2017). FDI in Viet Nam by sectors (2018). ASEAN Leaders Statement on Human Resources and Skills Development for Economic Recovery and Sustainable Growth.
Priority areas for FDI attraction .70 Luan van ix SUMMARY OF THESIS RESEARCH RESULTS In some certain aspects, the author has answered all the questions which have been raised when considering about the topic.The characteristics of foreign direct investment and labor market have been listed and analyzed carefully. The effects of foreign direct investment (FDI) on the labor market of ASEAN countries are quite mixed and need to be further analyzed by in-depth models. In general, FDI has brought positive impacts on the labor market of ASEAN countries, but these effects are not well adapted due to both subjective and objective reasons. The labor force of ASEAN still faces a lot of difficulties in taking advantage of huge FDI capital from outside.
Therefore, some solutions have been proposed to help ASEAN labor force in general and Vietnamese labor in particular get access to this type of investment and gradually raise their capabilities to work abroad. Luan van 1 CHAPTER 1: INTRODUCTION 1. Research Rationale Today, in countries with transitional economies, including Vietnam, in parallel with the expansion of business freedom, the development of commodity and service market and securities market, labor market is also being formed. Economic development is an indispensable goal of all countries to improve the quality of life of the people.
In order to develop economically, especially in the market economy, it is necessary to develop different types of markets, as the market is the living environment of the commodity economy. The labor market is formed and developed in the market economy. It has relationship with other types of markets: capital market, science and technology market, information market, monetary market, etc. The labor market displays the relations between the employee and the employer, on the principle of agreement through employment.
Under the ASEAN Economic Community (AEC) blueprint signed in 2007, ASEAN will “facilitate the issuance of visas and employment permits for skilled ASEAN and skilled workers engaged in trade activities, cross-border investment” especially in the four priority areas (air, information technology (e-ASEAN), health and tourism) as well as logistics. In order to achieve this goal, functional agencies in each country have come to recognize each other's education and qualifications and grant "ASEAN experts" certification through the creation of curricula and acknowledgment of ASEAN. In particular, ten ASEAN countries have signed Mutual Recognition Agreements (MRAs) under which ASEAN experts will be allowed to seek employment anywhere in ASEAN. In 2005, MRA for technical advisory services was the first to be signed, followed by MRAs in nursing, surveying, architecture, medicine, dentistry, accounting and tourism.
A total of eight expert certificates have been created. Individuals wishing to look for work abroad can obtain "expert" certification through the MRA system and continue to apply for a job visa. Luan van 2 In addition, the ASEAN Movement of Natural Persons Agreement was signed in 2012. Through this agreement, foreign nationals seeking immigration to a country to carry out work related to current job may be granted a work visa upon completion of certain conditions.
Although overall progress has been made in the region, it is not easy to apply these complex frameworks and countries' laws have not been updated, limiting the practical implementation of the system. The AEC, a framework for the region's economic integration, focuses on a free labor market that allows skilled professionals to work anywhere they like across the region, which has a population of 620 million people. The four objectives of the AEC are: (1) a single market and production base; (2) a competitive economic region; (3) equitable economic development; and (4) fully integrated region in the global economy. The free labor market, which began to take shape in 2015, has freed up eight professions, including medicine, dentistry, nursing, engineering, architecture, natural resources and geographical exploration, accounting and tourism, allowing professionals in these areas to move between countries in the region to work.
ASEAN has about 300 million people of a working age, 70 percent of whom are from Indonesia, the Philippines and Vietnam. A common labor market that the AEC is aiming at will provide opportunities for skilled workers in the ASEAN region to find suitable jobs enabling them to develop their careers and provide a rewarding source of income as well as other benefits. Currently, in ASEAN, market economy development is placing higher requirements on the development of the market in general and the labor market in particular (because the labor market is a decisive market). In fact, in recent years and now, although the labor markets of these countries have changed positively: labor supply as well as labor demand has gradually increased, labor quality has been improved, gradual decline in unemployment, with the increasing demand of economic development, the labor market of most of the countries in ASEAN is facing many shortcomings.
Due to the varying economic conditions among the ASEAN countries, workers often move from low-income countries to higher- income countries in search of higher incomes. It is easy to see a lot of Cambodian Luan van 3 workers in the construction industry of Singapore or Vietnamese workers in Thailand restaurants. Indonesia and the Philippines have a large workforce and are now facing high unemployment and low incomes. For these reasons, they tend to move to their neighbors (Push Force).
On the other hand, Thailand and Malaysia have high living standards and low unemployment rate, attracting workers from the remaining six countries (Pull Force). The biggest concern for ASEAN enterprises is the shortage of skilled workers. This seems to be the most serious problem in finance, ICT and other professional services.