UNIVERSITY OF ECONOMICS INSTITUTE OF SOCIAL STUDIES HO CHI MINH CITY THE HAGUE VIETNAM THE NETHERLANDS VIETNAM - THE NETHERLANDS PROJECT FOR M.A IN DEVELOPMENT ECONOMICS THE IMPACTS OF EDUCATION ON EARNINGS IN THE CASE OF VIETNAM BY NGUYEN XUAN CUONG MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, NOVEMBER 2008 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co CHAPTER I: INTRODUCTION 1.6 Data and methodology. 5 CHAPTER II: LITERATURE REVIEW 2.1 Mincer's Early Work on experience, 1958 .2 The Schooling- Earning Function .3 Theory of human capital .4 Comments on the theories and empirical studies. 16 CHAPTER III: ECONOMIC, EDUCATION AND LABOUR MARKET IN VIETNAM 3.1 Economic in Transition .2 Population and labor force .5 Employment and income. 23 UAN VAN CHAT LUONG download : add luanvanchat@agmail.6 Factors affect on earnings.
28 CHAPTER IV: DATA AND METHODOLOGY 4.2 Regression model of earning function .1 Gender disparity in returns to education .2 Economic sector disparity in returns to education .3 Regional disparity in returns to education. 44 CHAPTER V: POLICY IMPLICATIONS AND CONCLUSIONS 5.1 Recommendations for employees .2 Recommendations for policy makers .3 Limitations and areas for further research. 48 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co LIST OFT ABLES Table 1: Vietnamese's population. 19 Table 2: Literacy of population age 15 and over by area, region have certificate.
20 Table 3: School enrollment trend in Vietnam 2000 - 2004. 21 Table 4: The proportion education expenditure in GOP 2000- 2005. 22 Table 5: Education expenditure of Vietnam comparing with other countries. 22 Table 6: Monthly average income per employee in local state sector at Current prices by region (thousand VND).
25 Table 7: Descriptive statistic. 32 Table 8: Average earnings by education Level by Region and Sex. 32 Table 9: Description variables used in the model. 34 Table 10: Vietnam Earning function.
ooooOOOOooooOOOOooooooOOOOoo 38 Table 11: Vietnam Extended earning function. ooooooooooooooooooooooooooooooooooooooooooooooooooo 38 Table 12: Vietnam: Earnings functions by Gender. 41 Table 13: Vietnam: Extended Earnings functions by Gender. 42 Table 14: Vietnam: Earnings functions by sector of employment (both sexes).
43 Table 15: Vietnam extended earning function by economic sector. 43 Table 16: Vietnam: Earnings function by Region. ooooOooooooooooooooooooooooooo 45 Table 17: Vietnam: Extended earnings function by Region. 45 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co The impacts of education on earnings In the case of Vietnam UAN VAN CHAT LUONG download : add luanvanchat@agmail.co ABSTRACT The labor market, earnings and the return to education have been strongly impacted after Vietnam transiting into the market economy from planned economy especial since the Doi Moi policy was carried out.
To exam the impacts, in this paper we attempt to analyze the returns to education on earnings in 2004 by analyzing the monetary benefits of schooling in Vietnam. Our estimates demonstrate that there is increasing returns of earning on schooling which consistent with human capital theory and our observation to Vietnam labor market. 2 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co ------·-------- CHAPTER I: INTRODUCTION 1.1 INTRODUCTION The human capital theory views earnings of a \vorkcr as returns to his or her knowledge capital that have developed through years of schooling and work experience. Early works of Becker and Chis,vick (Becker and Chiswick.
1966) laid the foundation of this literature and later Mincer (Mincer. 1974) proposed an empirical approach to distinguish the contribution of schooling and experience in wage earnings. The well-known model of Mincer is "Human capital earnings function; include the log of individual earnings as the explained variables. and schooling and experience are as explanatory variables.
Recent studies of education and earning were almost embedded in the framework of Mincer and combined with different contexts with additional important of the household and community characteristics. and other observable attributes such as gender. 1999) survey the literature on the causal relationship between education and earning. This Paper focuses on Vietnam.
Since Vietnam has successful in economic reform when the economy was transfen-cd from centrally planned to market economy in 1996, the economic transition has led to certain issues in the labor market, education was dctennined important in earnings, the higher the level of education one get, the higher is that person receives starting salary and the steeper the rise in earning during working life. In centrally planned economics this relation was limited, in Lao people's democratic Republic (Phanhpakit and Education and Earnings in Lao PDR 2006) or in China (Xie and Human. 1996) but they ten to increase as market economy such as in Hong Kong (Tony Chan, 1996) and Czech Republic and Slovakia (Chase. This paper examines the returns to education in Vietnam on the basis of earnings data were collected by Vietnam Living standard Survey in the year 2004 (VLSS 2004), It is to attempted to estimate differential returns to schooling for Vietnamese, male and female, rural and urban areas and also between the public and private sector.
It is hoped to provide a bench mark to examine the effects of market liberalization and education reform In Vietnam. 3 UAN VAN CHAT LUONG download : add luanvanchat@agmail.2 Problem statements Since 1996, from the centralized planning economy changed to market oriented economy, Vietnam has a strong development with more openness and further integrated into the World economy, Vietnam has strong integration into the global economy, exchanging goods, services, Capitals, technologies have increased rapidly and strongly leads to change Vietnam's society and economy. In the year 2006 Vietnam officially became to the World Trade Organization member (WTO) that helped to create more new opportunities to promote export goods and services which Vietnam has advantages, this circumstance helped Vietnam absorbs Foreign Direct Investment (FDI) especial in capital and technologies. With the integration into the World economy, Vietnam has more chances to involve in the international labor division process, the sector which Vietnam has competitive advantages.
According to integration to the World economy, Vietnamese have chances to access to advanced technologies and modem management techniques with increasing labor productivity and increasing wages. Accompany with that more challenges face low skilled workers; lower earnings, since the gape of earning between skilled and unskilled are bigger.3 Research objectives The object of this studying is aimed to exam the impact of education on earnings during the transition period, and it is also aimed to identify difference of educations impact between gender, economic sectors, and regions. To get these objects, the rates of returns to education instrument and data which survey in the year 2004 are used. Although, there were many previous researches have mentioned about the education and earnings in Vietnam, But each research has difference interpretations which based on the characteristics of the economy at each previous.
This research focuses on the impact of education on earnings in the case Vietnam has almost moved to market economy and integrated the World economy. Moreover, the research focuses on the following objectives: To analyze the necessary or the important of education, especially higher education on the economy, and identify what the factors affect earnings most strongly. 4 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co To evaluate present quality of Vietnam's education as well as how much education satisfies the labor market.4 Research questions From the objects of the research have mentioned above, the main questions could be made: Do education levels significantly determine earnings of wage earners? What factors affect on wage earners, such as; gender, Region, Economic sector and experience? 1.5 Research hypothesis Education has positive relationship with earnings. Experience has positive relationship with earnings.
Male has higher earnings than female. Working in urban earn higher than in rural.6 Data and methodology Most of data is collected from secondary Vietnam Living Standard Survey 2004. The research method is used both descriptive and multivariate analysis. In the multivariate analysis.
an econometric technique will be applied, and the basic of human capital earnings functions by Mincer is used to calculate the rate of return to education. Sampling frame will be created from VLSS database. 7 Thesis structure Thesis is organized into five chapters. The first Chapter is introduction, second chapter is overview of human capital theories and empirical studies, the third chapter is described briefly Vietnam economy, population, employment and education, and the fourth chapter mentions the methodology of study and regression model of the impact of education on earnings and describes variables and data, Chapter five including collusions which based on the results of the regression.
and mentions some appropriate solution to the authorities with concerning on education. 5 UAN VAN CHAT LUONG download : add luanvanchat@agmail.co CHAPTER II: LITERATURE REVIEW 2.1 Income: '"Income refers to all cash inflow streams to an individual from all sources" (Tony Chan, Stephanie Kent, Sum Lam, Shirley Li, ECON 374 Hong Kong Economy Term Paper).2 Wage: "Wage refers to the monthly or yearly compensation from her/his employment'' (Tony Chan, Stephanie Kent, Sum Lam, Shirley Li, ECON 374 Hong Kong Economy Term Paper).3 Earnings: "Earnings refers to the compensation per unit labor input, or, m more familiar words, the ability an individual can earns using a fixed amount of labor (Tony Chan, Stephanie Kent, Sum Lam, Shirley Li, ECON 374 Hong Kong Economy Term Paper). It is the best estimated to the productivity of labor and we will take this denotation throughout our paper".4 "Education: is fundamental to enhancing the quality of human life and ensuring social and economic progress'' (Micheal P. Smith, Economic Development, Eighth Edition).
Human capital: "Productive investments embodied in human persons. This includes skills, abilities, ideals, and health resulting from expenditures on education, on the- job-training programs, and medical care" (Becker, 1993).2 Theoretical framework There are many different theories of the education and earning, each theory has different interpretations of different variables but most theories was built around a core model of returns to education or human capital earnings function, 3 different earnings model are introduce as followings: 2.1 Mincer's Early Work on experience Mincer introduced "Investment in Human capital and Personal Distribution" in 1958, this study is one of the early theory studied the effect of labor market experience or on the-job-training on the determination and distribution of earnings. Mincer's model 6 UAN VAN CHAT LUONG download : add luanvanchat@agmail.com provided an analysis of the manner in which on- the-job training influences differences in earnings across individuals and how this determines the inequality and skew ness of earnings, this model based on rational economic behavior by individuals in labor market which is now called an experience -earning profile, with assumption of a linear relation between earnings and age. It is only in later work; he identified and emphasized the important distinction between age and labor market experience, and the concave shape of the experience -earnings profile.
And he wrote that "formal training "is more difficult to measure than informal on-the job training. Mincer's model showed that within an occupation earnings inequality increases with the steepness of the age-earnings profile, and this profile is steeper for occupations requiring more skills, whether acquired in school or on the job. He also showed theoretically and empirically that inequality increases with age, schooling level and income. His theory showed that "the greater the average amount of training in the group, the greater the inequality in its income distribution'', whether the group is defined by industry, race, gender, marital status or city size.
While there have been numerous studies over the years of rates of return from formal education or from specific formal job training programs, the literature in economic is vertically devoid of studies of magnitude of and rates of return from investment in on-the-job training, especially experience or merely learning by doing, this may be due to, at least in part, to the difficulty of measuring the cost of the investment in on- the-job training. Until 1962, Mincer estimated the magnitude of on-the-job training, the rate of return from on-the-job training and the implications of on-the-job training for the distribution of earnings.