Middle-class jobs put Viet Nam on the road to economic recovery

By Phu Huynh, Labour Economist, International Labour Organization, Regional Office for Asia and the Pacific

Analysis | 12 December 2013
While Vietnamese people still feel uncertain about the country’s economic outlook, they can hope that the rising middle-class workforce may play a role in reinvigorating their vibrant economy.

Viet Nam’s growth has slowed considerably since the onset of the global financial crisis in 2008. While the country has wrestled with macroeconomic instability, it continues to be highly reliant on external trade. Exports account for around 90 per cent of gross domestic product (GDP) in Viet Nam, a ratio significantly higher than its ASEAN neighbours Indonesia, the Philippines and Thailand. But with weak demand from its key trade partners, Viet Nam’s growth prospects remain tentative.

How can Viet Nam revitalize its economy? One approach could be to re-balance its economy towards stronger domestic consumption. This would help to offset volatility in export markets and foster growth that is more sustainable.

A critical step in bolstering Viet Nam’s domestic market would be to accelerate the expansion of its middle class. Evidence from around the world suggests that being middle class is associated with better access to jobs with regular wages, greater investment in health and education and higher household consumption.

Findings from a recent study published by the International Labour Organization on economic class and labour markets in developing Asia and the Pacific show that Viet Nam’s middle class workforce is rising. From only 1 million middle class workers in 2000, they now total an estimated 13 million, or one-quarter of all workers. Despite this progress, however, around 17 million workers still earn too little to escape US$2-per-day poverty. Another 23 million are living just above the poverty line and remain highly vulnerable in times of economic, social or environmental crisis.

A critical step in bolstering Viet Nam’s domestic market would be to accelerate the expansion of its middle class."
The key to furthering this momentum of middle class expansion is to create more quality jobs while increasing productivity and wages. It’s about ensuring that the right polices and strong institutions are in place.

Measures to accelerate change in the country’s economic structure are critical to that end. This would create new opportunities for the nearly 25 million Vietnamese workers to move out of low-productivity agriculture into better jobs in industry and services, where 4 out of 5 middle-class workers are based.

This would also require greater investment to improve access to and the relevance of education and training particularly for rural women and youth. With advanced skills and qualifications, the country’s poor can better compete for the skilled jobs that offer higher wages.

In this context of labour market transition and economic volatility, also important is strengthening social protection systems to support vulnerable families to be more resilient.

This call for enhanced social protection was reaffirmed by the ASEAN Heads of State in Brunei in October 2013.

Viet Nam has successfully established its unemployment insurance scheme in 2009, but greater investment is needed to extend its reach especially to informal workers.

The growth of Viet Nam’s middle class is evidence of recent labour market and social progress. But more must be done to speed up this trajectory. With the right mix of economic and labour market policies, Viet Nam should aim for nothing less than moving all of its working poor into middle-class jobs that can drive balanced and inclusive economic growth.