Vietnam’s Export Growth: Driving Wage Increases, Job Creation, and Reducing Labor Inequality

The study reveals that Vietnam's export growth significantly boosts wages and employment, particularly benefiting lower-income and less-educated workers, while also reducing labor market inequality. Both direct and indirect export exposure contribute to these positive labor market outcomes, highlighting the broad impacts of trade across the economy.

A study conducted by researchers from Nanyang Technological University, the World Bank, and the International Institute for Applied System Analysis sheds light on how export dynamics influence labor market outcomes in Vietnam, a nation that has exemplified the success of an export-led growth model. The research focuses on determining whether the benefits of export growth are confined to industries directly involved in exporting or if they extend throughout the economy via intricate supply chain linkages. To address this, the researchers combined data from UN COMTRADE, input-output tables from the Global Trade Analysis Project (GTAP), and labor force surveys conducted annually in Vietnam from 2010 to 2019. This approach allowed them to develop a comprehensive measure of workers' exposure to export shocks, which encompasses both direct exposure such as increases in exports within the worker’s industry and indirect exposure resulting from rising exports in industries that rely on inputs from the worker’s industry.

Wages and Employment Gains from Export Exposure

The findings of this study provide valuable insights into the broader implications of export expansion on Vietnam’s labor market. The results indicate that both direct and indirect exposure to export growth significantly improve workers' wages and employment prospects. In particular, the study found that export exposure tends to reduce inactivity in the labor market and mitigate income inequality. These positive effects are particularly pronounced for lower-income workers and those with little to no formal education. This suggests that as Vietnam continues to integrate into global value chains, the benefits of export growth are being distributed more equitably across different segments of the workforce. Interestingly, the research highlights a decrease in the wage premium for attending college, coupled with a narrowing of the gender wage gap. This indicates that the advantages of higher education, while still relevant, are becoming less pronounced as lower-income and less-educated workers experience more significant gains in wages due to export exposure. Furthermore, these trends suggest a reduction in income disparities across different demographic groups, contributing to a more inclusive labor market.

Employment Shifts and Informality Reduction

One of the key aspects explored in the study is the differential impact of direct and indirect export exposure on employment. The research reveals that direct exposure to export growth predominantly benefits unskilled workers, leading to an increase in their employment rates. This finding is consistent with the notion that industries directly involved in exporting tend to employ a higher proportion of unskilled labor. However, the study also finds that indirect exposure has a significant impact on employment outcomes, particularly in reducing informality and increasing female labor force participation. The reduction in informality is particularly noteworthy, as it suggests that the benefits of export growth are extending beyond formal sectors and reaching workers in more precarious employment situations. The increase in female labor force participation further underscores the inclusive nature of the gains from export expansion, suggesting that trade can play a role in promoting gender equality in the labor market.

Sectoral and Demographic Variations

The study also examines how the effects of export exposure vary across different economic sectors and demographic groups. For instance, while workers across all educational levels benefit from trade, those with no formal education see the most significant relative gains in wages. On the other hand, college-educated workers, although benefiting from wage increases, experience a relative decline in the employment rate as export exposure rises. This finding suggests a more competitive environment for highly skilled workers, while lower-skilled workers gain more opportunities in the labor market following an export-driven boost. Moreover, the study finds that employment improves across all economic sectors, with the most substantial gains observed in the household farm sector, followed by the household business and private sectors. Wage increases are also significant in these sectors, though the foreign sector shows little change in wages despite an increase in employment, possibly due to multinational corporations' adherence to pay scales aligned with their home countries.

Impact Across Income Levels

In terms of income levels, the study finds that the most significant wage improvements occur among workers in the lowest income quantiles, aligning with the observation that sectors most affected by trade tend to employ more labor from this demographic. However, enhanced employment opportunities are observed across all income levels, though the effect diminishes as income rises. This suggests that while trade benefits workers across the spectrum, those at the lower end of the income distribution experience the most substantial gains in both wages and employment opportunities.

Implications for Inclusive Economic Growth

Overall, the study provides a nuanced understanding of how export growth influences labor market outcomes in Vietnam, highlighting the importance of considering both direct and indirect effects of trade. By capturing the complex interactions between export dynamics and labor markets, the research offers valuable insights for policymakers and stakeholders aiming to navigate the challenges and opportunities presented by globalization. The findings underscore the potential of trade to contribute to more inclusive economic growth, particularly in developing countries where labor markets are often segmented and inequality remains a pressing concern.