 |
 Welcome to MDE |
| Overview |
| Curriculum |
| Facilities |
| Organization |
| Students |
| Applications |
| Fees, Loans, Scholarships |
| Theses |
| Seminars |
| Services |
| International Cooperation |
| MDE News |
| Alumni |
 |
|
| Tiếng Việt | English |
|
Goto: |
|
Unemployment is not only an economic but also serious social problem of all countries, and especially of developing countries. Labour is one of main inputs of production process and it is more important in labour-surplus economies as Vietnam, unemployment is synonymous with the waste of resources. Moreover, unemployment causes labours dispirited psychology and is one of causes of social disorder, and unemployment also lends itself to poverty and inequality problems of economic development. Vietnam has been on the economic transformation from a centrally planned to a market economy since 1986. It accomplished considerable achievements such as maintaining high growth for a long time. Vietnam has partially alleviated poverty, rose living standard of people in a stable political foundation. However, Vietnam is still facing to high rate of urban unemployment and especially underemployment. Therefore, explaining unemployment is quite necessary to find causes and to control it
This thesis pursues two objectives. First, the thesis highlights main causes of unemployment in developing countries in comparison with developed countries. Second, basing on the characteristics of labour market of Vietnam and on the lights of economic literature on unemployment, the thesis analyses the causes of unemployment in Vietnam, mainly in urban area since 1989. As a result, this analysis implies some suggestions and comments for policy-makers to improve employment status and to reduce unemployment rate. There are four main questions to be answered here: 1. Which causes does unemployment in developing countries result from? 2. What are distinct characteristics of labour market in Vietnam? 3. What are main causes of unemployment in Vietnam? 4. What is policy implication for improving employment status and reducing unemployment in Vietnam?
The remainder of the thesis is organised as follows: Chapter II: Conceptual And Theoretical Framework gives main causes of unemployment in developing countries Chapter III: Characteristics Of Labour Market In Vietnam gives a comprehensive look on labour market in Vietnam. These characteristics are drawbacks causing unemployment in Vietnam. Chapter IV: Causes of Unemployment In Vietnam is carried out basing on the background of chapter II, and chapter III. In this chapter, general causes of unemployment in developing countries are considered in Vietnam. Chapter V: Policy Implication is presented basing on the findings in chapter IV, which may be suitable for Vietnam to improve employment status and to reduce unemployment, ensuring stability and economic growth.
- The demand for labour is the amount of labour that the firm would choose to hire at each level of the real wage. The labour demand curve has negative slope. If relationship between changes in output levels and changes in the capital stock is fixed, rise in capital stock will make labour demand curve shift upwards. It means that at each level of the real wage the amount of labour demanded is higher. If technology is changed, suppose that producer uses more capital to invest in more capital-intensive technology, labour demand curve will be steeper, as a result, the amount of labour demanded does not increase substantially even equalling zero at each level of the real wage. - Supply of labour is the amount of labour that it is willing to be supplied by a person at a given wage rate. Labour supply curve has positive slope.
This model assumes that for any price level, the nominal wage is fully flexible and adjusts to keep the supply of labour and demand for labour equilibrated. Thus, the real wage is determined so as to clear the labour market, or labour is always fully employed.
* Limitations of the Competitive Model for Developing
Countries In developing countries, especially in the modern manufacturing sector and in public-sector employment where most of the desirable jobs are located. Money wages are typically inflexible downward because they are largely determined by rigid institutional forces
The Keynesian model believes that nominal wages do not adjust quickly in response to changes in price to maintain labour-market equilibrium., and the economy always is below potential output level. The Keynesian prescription for reducing or eradicating unemployment is quite simple: increase aggregate demand
* Limitation of the Model In Developing Countries - In most
developing countries, structural and institutional constraints on the supply
side (particularly are the immobility of labour supply, shortages of capital,
raw materials, intermediate products,…) defeats the Keynesian's policies on
employment, expanding aggregate demand through deficit-financed government
expenditure may merely result in higher prices and chronic inflation.
- The creation of additional modern sector urban jobs through increased aggregate demand is likely to attract many additional migrants from rural area. Because urban wages are typically much higher than average rural incomes, every urban job created may induce three or four new job seekers to migrate from the countryside. Then, the creation of additional urban jobs through traditional Keynesian demand-oriented policies, in fact, causes urban unemployment to rise.
This model shows that economic growth depends on the rate of saving or investment. For a given aggregate capital-output ratio (Y/k), the growth rate of national output and employment could be maximised by maximising the rate of saving and investment.
* The Limitation of The Model The model shows that the growth rate of national output will always be accompanied by the same growth rate of employment. However, in fact, the growth rate of employment can be determined as the following: the rate of growth in output (Q) minus the rate of growth in labour productivity (Q/N) approximately equals the rate of growth of employment (N).
- To minimise the cost of producing a desired level of output, producers have to choose combination between capital and labour in production process. If capital is cheap relative to labour, the producers will use capital-intensive technology. Alternatively, if labour is cheap relative to capital, the producers will use the labour-intensive technology. - In developing countries, most of them face with labour surplus and they lack capital so that labour is relatively cheaper than capital. And then, the appropriate technology chosen should be labour-intensive technology. However, in fact because of a variety of structural, institutional, and political factors (such as the pressures of trade union, minimum wage laws, and the high wage policies of multinational corporations), actual labour price in the market is higher than its shadow price. Simultaneously, the price of capital is kept artificially low by real interest rates; low or negative effective rates of protection on capital good imports, overvalued exchange rate. And then, the net result of these distorted factor prices is the encouragement of inappropriate capital-intensive methods of production .
- In the Lewis model, the underdeveloped economy consists of two sectors: (1) a traditional, overpopulated rural subsistence sector characterised by zero marginal labour product- a situation that permits Lewis to classify this labour as "surplus" in the sense that it can be withdrawn from the agriculture sector without any loss of output- and (2) a high-productivity modern urban industrial sector into which labour from the subsistence sector is gradually transferred. - The speed with which the expansion of industrial sector occurs is determined by the rate of industrial investment and capital accumulation in the modern sector, and employment growth rate is similarly accompanied.
* The Limitation of The Model - If capitalist profits are reinvested in more sophisticated labour-saving capital equipment (resulting from distorted price), the growth rate can be high but the rate of new job creation is low. - The model assumes that surplus labour exists in rural areas while there is full employment in the urban areas. But most contemporary research indicates the reverse is more likely true in many developing countries.
- In theory, economists tend to define unemployment in terms of an individual's willingness to be employed at some prevailing market wage, but not employed. - In Vietnam, the unemployed people include economically active population aged 15 years old and over who were not engaged in doing any job while they want to get job to do during a week before the survey (that it was carried out in September, first, every year) and : + they have been seeking jobs during the last four weeks; or have not been seeking jobs during previous four weeks because they have not known where to find jobs, or because they have sought jobs for a long time but still found no job.
+ or they wanted to take more working hours but could not
find any job to do during a week just before the survey (MOLISA(b), 1998,
p.35).
Given these definitions, the unemployment rate (u) is measured as the ratio of the number of the unemployed to the number in the labour force: u = U/L
- Underemployment: this concept shows people working less than they would like to work. In Vietnam, the underemployed people include people whose total number of actual working hours in a week just before the survey was less than forty hours; or less than the stipulated total number of working hours and they want to take more working hours (except for a case that their working hours were less than eight hours per a working day and they want to take more working hours but they could not find any job to do). And then underemployment rate is the percentage of the total underemployed in comparison with the total economically active population - The visibly active but underutilised: people who would not normally be classified as either unemployed or underemployed by the definitions just given but who in fact have found alternative means of "marking time", including these: + Disguised underemployment: many people seem occupied on farms or employed in government on a full-time basis even though the services they render may actually require much less than full time. + Hidden unemployment: many people are engaged in second-choice non-employment activities, because job opportunities are not available either at the levels of education already attained or, for women, due to social mores.
- Frictional unemployment arises because labour market are inherently dynamic, because information flows are imperfect, and because it takes time for unemployed workers and employers with job vacancies to find each other. And these people who are unemployed are called "between jobs".
-
Structural unemployment shares many of the same features as frictional
unemployment but is differentiated by being long-lived.
Structural unemployment arises when changes in the pattern of labour
demand cause a mismatch between the skills demanded and supplied in a given
area or cause an imbalance between the supplies of and demands for workers
across areas.
-
Demand-deficient unemployment is associated with fluctuations in business
activity (the "'business cycle"), and it occurs when a decline in aggregate
demand in the output market causes the aggregate demand for labour to decline
in the face of downward inflexibility in real wages
- Unemployment resulting
from capital-intensive growth: increases in labour productivity as a result
of the substitution of capital for labour in production processes not only
can waste valuable domestic financial resources and foreign exchange reducing
total factor productivity, but also curtail the growth of new employment opportunities.
Moreover, capital-intensive growth also results in widening rural-urban income
gap exacerbating overmigration from rural to urban area.
- Unemployment resulting
from overmigration:
a. UnemploymentIn spite of the high growth rate of GDP, the employment growth rate has averaged about 2.9 % annually, lagging behind labour force growth of 3.3 % annually. As a result, the unemployment rate has increased from an estimated 3.4% in 1989 to over 6% in 1996 b. Labour Underutilisation- Underemployment in Vietnam is prevalent, especially in rural area- in 1996 and 1997, it is 26.58% and 25.47% respectively. In Vietnam, labour is mainly transformed into informal sector. However, now the role of informal sector in job creation seems to have reached its limits, labour absorption from agricultural sector can be slower. - Hidden unemployment is quite evident in Vietnam and shows a bad trend, expressed by the low and slightly-decreasing rate of participation (whole country 1996: 74%, 1998: 71.4%; urban area 1996: 64.9%, 1998: 63.7%) - Disguised underemployment mainly in agricultural activities manifested by low labour productivity (it is only equal to 1/2 of the whole labour productivity; and 1/5 of the industrial labour productivity)
Population in working age continues growing at high rate. The annual growth rate of population in working age of: the period of 1990-1995 is 2,64%, the period of 1995-2000 is 2.8%, the period of 2000-2005 is 2.44%. So, Vietnam is still facing with the high growth rate of labour force in coming years.
- Reforms in agricultural sector towards market-based economy has obtained substantial achievements. In 10 years (1986-1996) agriculture output has grown by 4% per annum. This creates the annual growth of about 2.1% in employment - Underemployment and disguised underemployment in rural area is still high resulting from the three reasons: first, the rural workforce continues to grow fast, compared to the limited arable land available; second, full employment period for the agricultural workforce is very short by seasonal structure of agricultural production while non-agricultural production lines and services make up a very low ratio in the rural economic structure, 80% of the rural workforce still has to cling to farm work; third, a flow of labour from several sources returns to the countryside, bloating rural labour redundancy.
4.1. Slow Growth of Industrial Employment Over past
years (1991-1997), while the share of industry sector's contribution to GDP
grows by 6.83% but the share of its labour force decreases by 1.08%. It seems
that the rapid growth in industrial sector results from excessive investment
in capital-intensive industries or technologies.
4.2. The Role of Rural Industry in Creating Employment Rural industry plays a important role in creating employment and reducing underemployment in rural areas. Although rural industrial output accounts for only 20-25% of total industrial output, it creates about 2.2 million employment- approximately 50% of total industrial employment. Moreover, 7.5% of the economically active population (about 2 million people) having agriculture as their main occupation also have a secondary job in industry and construction. However, rural industry has been facing to some constraints resulting from government policy.
- From 1990 to the present, artificial growth, mainly from spontaneous migration, has accounted for up to 35% of annual population increases in large municipalities. The proportion of migrants who are economically active is quite high. - Economic difficulties and a shortage of jobs in rural areas are the most important reason for relocating to urban areas.
- The SOE sector shows high
inefficiency with redundant labour (labour surplus in SOEs in late 1980s was
as high as about 20-30%, even 50% in some enterprises)
- The reform process following
the direction of market-oriented economy leads to laying off workers, total
employment of SOE sector decreases rapidly (from 8.7 million workers in 1989
to 5.2 million workers in 1996). This process remain continuing because SOEs
are still facing to inefficiency
- The informal sector developed strongly: it accounted about 34.44% national income (year 1989-1990); up to 1993 it occupied about 53.8% GDP (including private-agriculture production) it played a very important role in solving employment (1985:58.2% labour of non-agricultural production is in informal sector, 1994 is 74%). - However, informal sector has been reaching its limit in terms of the share of employment
- Mobility in terms of institutional sectors: the rate of laid-off labour absorption of the private sector and individual sector for labour having left the state sector have been diminishing, while the rate of the unemployed and the non-active have been increasing. This reflects the decreasing level of labour mobility. The shift of labour from others to the state sector is quite low. It is commonly understood that the recruitment of state sector remains largely a function of personal contacts and other factors not related to skills or ability - Mobility in terms of occupation: People changing employment are divided in to four groups of reasons: + Group 1: including people who changed employment due to resolutions 111 and 176 + Group 2: including people who changed employment due to the loss of the previous employment + Group 3: consisting of all people who quit their previous employment because it did not meet their expectation or they found better employment. + Group 4: including all people who quit their employment for reasons of joining the army, marring, having children, studying, or improving their health. Change in employment has increasing trend. However, there is no evidence on the level of labour productivity because there is not data on people changing employment that found new employment. + Mobility in terms of space: The period of time required so that migrants find a job in the city is relatively short. However, the outlet of migrants is mainly informal sector. It has been known that informal sector reaches it limits, it can cause bad influence on labour mobility in terms of space
- In Vietnam, Labour markets are heterogeneous according to enterprise characteristics particularly state, private, and FDI enterprises dividing labour market into segments. This discrimination mainly are wage differentials, recruitment rules and labour contracts, social insurance and trade union. - The above-mentioned discriminations make each institutional sector have various attractive features for the job searchers. As a result, although employment in other sectors is available while employment in this sector is unavailable, the searchers accept to be unemployed and wait for employment in this sector, or the searchers are to prepare to wait long periods in the hope of gaining higher wages, better social insurance,... in this sector.
- Young unemployment is relatively high in Vietnam (15-24, urban: 10.62 and 13.54 in 1996 and 1998 respectively) - The reasons of high young unemployment: first, the rate of changing employment in young people is high; second, "luxury unemployment": young job searchers of the richer families can refuse jobs in informal sector or casual, less well-paid jobs; then, they are unemployed; third, no skill is an important cause of young unemployment (the unemployed aged 15-24, the unskilled take account nearly 90% for whole country, and over 80% for urban area)
The model to estimate change in rate of frictional unemployment over years caused by change in the number of the job searchers and the searchers' expectations * Assumption: - if all things are constant such as market information on employment, the searchers' expectations, the probability of finding employment of the searchers is also unchanged, the number of the unemployed is determined by the number of the job searchers. If market information on employment and the searchers' expectations are changed, the probability of finding employment is also changed, and of course they affect the rate of frictional unemployment. - The percentage of people who changed employment by reason of wanting to change previous employment to labour force or the employed over years can be regarded as the trend of change in the searchers' expectations - The number of people who search employment (S) is equal to the total of the number of the unemployed in the previous year (U), people of losing previous employment (LO) and people who join labour market (J). + People who lose previous employment: only people who change employment by the reason of resolutions 111, 176 and losing previous employment (they are generally called people who lose previous employment, LO) is included in the number of people searching employment + People who join labour force: the number of the job searchers by people joining labour force (J) is equal to rise in labour force * The model: - Known that: Si=Ui-1+LOi+Ji Then: Si-1 = Ui-2+LOi-1+Ji-1 Si = Ui-1+LOi+Ji - If all things are unchanged, the number of the unemployed in year i is Uui-1 (ui-1.Li) (ui is the unemployment rate of year i). And now the growth rate of the percentage of frictional unemployment due to higher increase of the searchers (ISi) is examined. Suppose that the searchers' expectations are unchanged, it means that the probability of finding a job remains constant. As a result, the number of the unemployed is: T1= Ui-1.Si/Si-1 (*) Then: ISi = (T1/Li-ui-1)/ui-1 + In which, the growth rate due to the increase in people who lose previous employment (ISLOi) is: T2= [Ui-1.(LOi+Ui-2+Ji-1)/Si-1]-Ui-1+Uui-1 Then: ISLOi= (T2/Li-ui-1)/ui-1
+ The
growth rate due to the increase in the number of the unemployed of year i-1
in comparison with year i-2 (ISUi) is: T3= [Ui-1.(LOi-1+Ui-1+Ji-1)/Si-1]-Ui-1+Uui-1 Then: ISUi= (T3/Li-ui-1)/ui-1 + The increase due to the increase in labour force of year i in comparison with year i-1 (ISJi) is: T4= [Ui-1.(LOi-1+Ui-2+Ji)/Si-1] Then: ISJi= (T4/ Li-ui-1)/ui-1 - And now the growth rate of frictional unemployment due to the searchers' higher expectations (HE94) is also examined. It has been known that with the expectations of year i-1, the number of the unemployed of year i is T1 persons, see (*), then, the employed is Li-T1. Then, the additional employment of year i is T5= Li-T1- (1-ui-1).Li-1. It is the number of the searchers of year i finding employment. It has been also known that the searchers' expectations are expressed by the ratio of people who wanted to change employment to the employed. And assume that the searchers finding employment in the case of previous expectations and wanting to change employment in the case of new expectations will be unemployed because they are the searchers at the moment. As a result, the number of the unemployed due to the searchers' higher expectations is: T6= T5.(ri-ri-1)/(1-ri-1) (in which, ri and ri-1 are the ratio of people who want to change employment to employment of year i-1, i respectively) Then: HEi= T6/Uui-1 * Conclusion in this part: change in the number of the unemployed contributes substantially to change in the rate of frictional unemployment, and change in the searchers' expectations contribute not significantly (it does not mean that the searchers' expectations are low, but it is that change in the expectations over years is not significant). While the weakness of information system on employment is weak, the segmentation of labour market, the effect of "luxury unemployment" can cause the searchers' high expectations, the probability of finding employment can be low.
- If the unemployed from
12 months and over are considered as structural unemployment, this type of
unemployment is relatively high, it occupies about 31.51% and 35.87% in the
total unemployed for whole country and urban area respectively in 1998.
- Not being trained is
a reason leading to unemployment, especially young unemployment. The unskilled
occupy the biggest share in the total unemployed (in 1996, whole country:
78.82%, urban 69.62%)
- Unemployment rate of
skilled workers to skilled labour force are quite high in comparison with
others. it can results from the unreasonable structure of training skilled
workers. - For college and university, the unemployment rate is relatively low. However, it is said that many people whose education level is university graduates engage in work not related to the knowledge they are taught or the knowledge in their trained field is unused in their jobs, even doing work of people at middle vocation. This also shows a evidence of structural unemployment. - The situation is more "masters" than "workers". Vietnam lacks a lot of skilled workers. This is really a paradox, because that the skilled workers face to the high unemployment rate, while data also shows the lack of skilled workers in Vietnam. This reinforce the argument on unreasonable structure of trained workers.
- The model to estimate increase in unemployment rate that migrants cause: + Assumption: it is assumed that increase in employment decreases the unemployment rate, and increase in labour force makes the unemployment rate go up. In which, increase in labour force is caused by migrants and non-migrants. There is no difference in unemployment rate between migrants and non-migrants. + The model: u: the rate of unemployment; U: the number of the unemployed; E: employment; L: labour force ui-ui-1 = Ui/Li-Ui-1/Li-1= (1-Ei/Li)-(1-Ei-1/Li-1)= Ei-1/Li-1-Ei/Li = (Ei-1/Li-1-Ei/Li-1)+(Ei/Li-1-Ei/Li) = A1 + A2 In which, A1 is the decrease in the unemployment rate due to the increase in employment. A2 is the increase in the unemployment rate due to the increase in labour force. Having: Li= Li-1+n+m (in which, m is the increase in labour force due to migrants, n is the increase in labour force due to non-migrants) A2 = [Ei/Li-1-Ei/(Li-1+n)]+[Ei/(Li-1+n)-Ei/Li] = B1 + B2 In which, B2 is the increase in the unemployment rate due to migrants. - The result
of estimation (the case of Ho
Chi Minh city , 1989-1994) shows that the increase in the unemployment rate
due to migrants tends to decline. However, it remains relatively high in comparison
with the increase in the unemployment rate due to increase in labour force
as a whole. Moreover, statistics on migrants is not sufficient. Additionally,
the data on migrants used is the net migration to Ho Chi Minh city, then the
number of actual migrants to the city is much higher. And, the rate of unemployment
in migrants seems higher than the unemployment rate in non-migrants, migrants
can cause much higher increase in the unemployment rate than estimated.
IV. Capital-Intensive Growth and Unemployment
- Evidence of capital-intensive growth in Vietnam: + The share of industrial production rose rapidly, while the share of industrial employment is rather reducing, and employment elasticity to output is very low. + From 1989 to 1996, the share of capital-intensive industry has expanded more rapidly than labour-intensive industry increases rapidly, while light industry declined. - Causes of Capital-intensive Growth: + Distortion in wage: the growth rate of real wage is much higher than the growth rate of labour productivity + Distortion in interest rate (mainly subsidised credit to SOEs) + Distortion in exchange rate: VND overvaluation + High effective rate of protection on domestic production
Chapter V: Policy implication and conclusion
I. Policy
Implications
1. Strategy for Balanced Development and labour-intensive Growth- Removing distorts in price: + Wage policy: restraining the rate at which wages rose, ensuring that the growth rate of real wages must be lower than the growth rate of labour productivity. + Interest rate policy: Liberalising interest rate, interest rate should be seen as the opportunity cost of lending money for a specified period of time or as the price of borrowed money. Especially, it should be ensured that real interest rate is positive. + Exchange rate policy: Devaluating domestic currency, making the level of VND overvaluation against main trading partner currencies lower than 7.5% + Trade policy: Reducing distorts in trade activity including replacement of export and import quotas with tariffs; restricting the protection on capital-intensive industries to make resources direct to export orientation; encouraging all enterprises to participate in export-import activity, not only SOEs; - Strategy for balance development: + Increasing agricultural productivity and farm income: + Generating employment in nonfarm rural activities 2. Strategy for Human Resource Development
- Developing the training-education
system: education-training system should be socialised, encouraging the participation
of private sector in opening schools, training centres,…; requiring the contribution
of the business sector to the fund for human resource development Targeted
public subsidies could be used to improve access to education and training
for the poor. The government should put forward policies to ensure the private's
profits but keep school fees at low level.
- Linking the development
of education and training with demand for educated labourers +The quality of teaching at primary and secondary levels should be improved
to ensure that the country have a "'trainable" workforce.
+Improving the quality of training: establishing fairly competitive
environment in this field. The products of training is evaluated through labour
market.
+ Paying
more attention to vocational training especially in the rural: the "excess"
investment in university and college should be used for training the skilled
workers: Putting forward policies to support the expansion of vocational schools,
defining the sensible standards to restrict the over-participation of students
in university and college. + A proper Co-ordination between the ministries of labour and education
and employers' and workers' organisations in vocational training is necessary,
training plans must be coupled with economic development plans 3. Policies to Restrict Frictional Unemployment- Ensuring the right of free search for job of the employees including improvement of administrative procedures, restreamline of the organisational machinery, facilitating free search for jobs; - Improving information system on employment by promoting centres for employment promotion, supporting non-paid advertisement on employment on TV, newspaper,…; - Restricting the searchers' high expectations by removing the segmentation of labour market |
| << BACK |
