EDUCATIONAL and FAMILY BACKGROUND DETERMINANTS TO EMPLOYMENT’S WAGE IN VIETNAM Academic Supervisor: Dr. Nguyen Van Phuong Student: Tang Thi Bich Hien ACKNOWLEDGEMENT First of all, I would like to thank Dr. Nguyen Van Phuong, my Academic Supervisor, for his valuable comments and assistance. Without his support and encourage, my thesis would not be finished.
I would like to special thank Prof. Nguyen Trong Hoai, our respectable Dean, who has been interested in our studying during the Master course. Supports from the Vietnam-the Netherlands Programme for MA in Development Economics’ staff and classmates are fully acknowledged. ' Hochiminh city, Mar 2011 Tang Thi Bich Hien DECLARATION I declare that “Educational And Family Background Deteririinants to Employment’s Wage In Vietnam” is my own work, that is has not been submitted to any degree or examinations at any other universities, and that all the sources used or quoted are indicated and acknowledged by complete references.
ABSTRACT Data from the Vietnamese Household Living Standards Surveys are used to estimate the determinants impact on employee’s wage. The analysis suggests that educational attainment strongly affects the wage. The additional level of schooling years positive changes the wage. It also found that wages have increased according to worker’s age, and a married person is paid higher than other person.
The findings recommend that parents got better education have positive interaction to their children’ wages when they enter labour market. TABLE OF CONTENTS ACKNOWLEDGEMENT. TABLE OF CONTENTS.iv LIS LIST OF TABLES.v: LIS LIST OF FIGURES.vi LIST OF ACRONYMS.vii CHAPTER 1: INTRODUCTION.1 Research goals and objectives. CHAPTER 2: LITERATURE REVIEW.2 Previous empirical studies.6 CHAPTER 3: OVERVIEW OF VIETNAM LABOUR MARKET.l Employment by age and gender.2 Employment divided by regions.3 Employment with education and training.4 Employment by status.23 CHAPTER 4: THE MODEL.
1 Statistics descriptive analysis of VHLSSs.32 CHAPTER 6: ESTIMATING RESULTS.2 Test of education attainment dependence.3 Test of family background dependence.4 Measurement of goodness-of-fit. 46 Regression results 46 Definitions 49 LIST OF TABLE Table 3. 1: Labour force participation.2: Labour force divided by sex, regions (%).3: Labour force classified by education (%).4: Distributions of status in employment by sex.1:Mean of wage, age, parents’ education and employees’ siblings.2: Group of determinants by binary characteristics in year 2008 by percentage. 1: Models of Log Hourly Wages.35 Table Al: Construction of Duncan index variable.51 Table A2: Youth labour force participation rates (%).52 Table A3 : Labour force classified by sexes and regions.53 Table A4: Unemployed workers by age-bands (person).54 Table A5: Distributions of status in employment by sex.55 LIST OF FIGURE Figure 3.
l : GDP growth rate (%).2: Workforce classified by age-bands (person).3: Employed worker’s skills (%).24 LIST OF ACRONYMS GDP Gross Domestic Product GSO General Statistics Office ILO International Labour Organization MOLISA Ministry of Labour, Invalids and Social Affairs UNDP United Nations Development Programme VCCI Vietnam Chamber of Commerce and Industry VHLSS Vietnamese Household Living Standards Survey WTO World Trade Organization CHAPTER 1 INTRODUCTION The Doi Moi reforms are widely credited with improving incentives for production and growth. Economic integration and the transition to a socialist- oriented market economy provide both challenges and opportunities for the people in Vietnam. Under Doi Mot Renovations, the opening up of Viet Nam to a coiilpetitive global marketplace, with rapid changes in information technologies, capital flows, mass media and culture. The transition to a market economy in Viet Nam involved a drastic modification of young men and women’s transition from school-to-work.
Today, many youth enter the labour market resulting in labour is a critical aspect of Vietnam's development strategy in overcoming persistent poverty and enhancing further economic growth as set out in a number of documents, such as the country's ten year national strategy for socio-economic development (2001- 2010) with its second five year socioeconomic development plan (2006-2010). One of main objectives for Vietnam is to further strengthen its economy and prepare the country for further integration into the world community that need numerous skilled employments. Meanwhile, education has played an important role in preparing knowledge for an employment prior to joining labour market. The linkages between the education and training system and the labour market have to be strengthened to close the gap between the skills in demand and the skills offered on the labour market.
It is said that a person’s successes in seeking a job after quitting school is remarkable affected by the period he have stayed at school. As a result, individuals with high levels of education are able to find work more easily, to command higher wages within a given occupation, and also to improve their chances of upward occupational mobility. Harmon and Walker (1995) suggest that educational attainment is the main observed determinant of occupational status, which directly influences earnings. Vietnam has been viewed as labour endowment but low productivity because of unskilled or semi-skilled employment.
Consequently, being employment or unemployment is not large distance. For example, if an employment gets higher education, he enables to adapt easily with changes of technology in a firm, so that he has more opportunities to be hired again. Additionally, Hamilton et at. (2000) proves that workers who receiving more training will receive higher income because their training costs are lower than others without or less training.
Adversely, he will become unemployment if his company makes changes in technology. By finding contribution of education on employment’s wage. we can stress the impact of schooling to individual at initial stages. On other hand, children are affected by their family background.
Father, mother and siblings create an environment that help a member better, otherwise adversely effect by their interactions. Meghir (2005) finds that one of factors is parents’ education. Practically, parent with good education and pay more time for children can be instructor that encourage them to better study and confident in choosing a work. If we combine two ideas above, we can find an interesting relationship between wage and family background of a person after quitting school.
Within this framework, the purpose is to determine the extent to which parents’ schooling outcomes feed through into children’s schooling. The determinants effect on wage of an employee is obtained by running ordinary least squared model. I have utilized data of VHLSS 2006 and 2008 for my thesis. The next section will introduce previous relevant empirical studies.
Section III will present about Vietnam labour market. Section IV explores the model and introduces the data in Sections V. The empirical findings are reported in Section VI with several sensitivity tests are undertaken, and Section VII provides concluding comments.1Research goals and objectives 2 The goal of this research is to exairiine how much of the correlation in wage can be explained by education and family background by: i.Employment characteristics: age, martial status, ethnicity as demography and level of education attainment of observed person, experience, urban, region.Family background characteristics: father’s education, mother’s education, number of siblings. The thesis aims to establish a model for examining the relationships of wage on the basis of employment and family background characteristics.
Resu Its from this study can be evidences that education directly affect wage and strengthen the impact of family to outcomes of a person. From the results, policy recommendations are suggested.2Research questions In order to reach the goals and objectives, this research is to answer the following questions: i. How do employment characteristics affect wage? ii. How do family background characteristics affect wage? Specially, the thesis aims to answer questions below: i.
Is the educational attainment level a key factor of wage? ii.Does family background affect an employee’s wage? CHAPTER 2 LITERATURE REVIEW 2.1 Theoretical frameworks The Mincer model (1974) has received a lot of attention because of focus on human capital earnings. That function also reflects the advances in and the spirit of human capital theory that had been carried forward by Mincer and others in the intervening years. In his discussion of investment in human capital, Mincer notes that full-time investment, which is primarily acquired in schools, precedes part-time investment which is generally conducted on the job. Moreover, for several reasons investments in on-the-job training would decline relative to earning potential and in absolute value as experience increases.
These factors include the finiteness of the working life, that profitable investments (i., investments where the internal rate of return exceeds the discount rate) are more profitable if made Sooner rfither than later, and the rising opportunity cost of investment as more skill is acquired. On the other hand, to the extent that the stock of human capital due to prior investments in training increases the productivity of new investments in on-the-job training, additional investments are encouraged. If the interest cost of funds schedule has a non-negative slope, optimal investment occurs in the downward sloping portion of the marginal rate of return schedule. Mincer shows that the concave experience earnings profile that we observe in the data is implied by declining investment ratios (i., investment relative to potential earnings).
According to Mincer, there is an important distinction between age-earnings profiles and experience-earning profiles, where experience weans years since leaving school (Mincer and Polachek, 1974). If individuals differ in their level of schooling, they differ in the age at which post-school (on-the-job training) investments begin, and hence the two profiles differ. Mincer demonstrates that there would tend to be a positive correlation between schooling and on-the-job training investments, not because they are necessarily complements, but because “it reflects the dominance of individual differences in factors determining the scale of total human capital accumulation. Individuals who invest more in human capital, invest more in both forms of it” (Mincer 1974, p.
That is, those with greater ability and a lower interest cost of funds would tend to have these characteristics for both schooling and on-the-job training. Research suggests that there is a positive correlation in dollar investments among all forms of human capital, even though at the margin various types of human capital can be substituted for each other to attain the same earnings. He recognizes that age is relevant if only because of the depreciation of human capital with age, but in the absence of a mechanism for measuring experience independent of age, experience is to be preferred. On the other hand, to the extent that schooling raises weeks worked by lowering job turnover, unemployment and absenteeism, controlling for weeks worked biases downward the partial effect of schooling.
To construct the human capital earnings function, Mincer needed to make assumptions that the investment in on-the-job training in each year declines as years of experience increase. Concerned with “mathematical simplicity and statistical - tractability” he shows the development of four functional forms, one for each of the four cells defined by dollar investments (C,) vs. “time equivalent” investments (k,=C,/E.i , and linear vs. exponential forms of declines in investments (Mincer 1974, pp.
Largely due to data availability (that is, the data on schooling and potential experience are available in years), time equivalent investment ratios are preferred, and for simplicity the assumption of a linear decline is preferred to the exponential decline in investment, even though the latter would have greater consistency with economic theory. The investment ratio/linear decline specification is that k t= k -(K /T*)T„ where k, is the investment ratio in the T, year of on-the-job training, k is the ratio in the initial year and T* is the number of years of positive net investment in training 5 beyond which k, = 0. Next, if LnE„ is the log of earnings of person i in year t and r k is the same for all levels of schooling. And then the logarithm of gross earnings (i., earnings in year t if there is no further investment in on-the-job training E„ ) can be expressed as a quadratic function of years of labor market experience).
where r, is the rate of return from investments in on-the-job training. This function has become the basis for economic studies of education in developing countries and has been estimated using data from a variety of countries and time periods 2.