Future of Work

Higher-skilled labour force necessary for Viet Nam’s further economic development

On the occasion of Labour Day, ILO Viet Nam Labour Economist, Valentina Barcucci, shares her thoughts on how Viet Nam’s labour market has changed and needs to be modernized.

Comment | 01 May 2019

We hear a lot that the Vietnamese economy has been changing and that has changed its labour market as well. What does this mean in practice? How do people work today in comparison to how they did it in the past?

This question has several possible answers, since there are many ways of looking at Viet Nam’s economy and observe what has changed, and the same applies to the labour market.

However, for the purpose of this conversation we can single out one element that can be considered one of the symbols of Viet Nam’s change: trade openness. If we look at exports for instance, the volume and composition today are significantly different from what they were twenty-five years ago1 . In the mid-nineties, the relatively largest share of exports (almost one-half of the total) consisted of coffee, rice and other agriculture products. Textiles followed, with almost one-third of the total exports.

Export composition today is significantly more complex than it was then. Agriculture and textiles have become smaller in relative terms. Electronics has emerged, together with other industries, as well as services. Although the volume of exports in both agriculture and textiles have grown remarkably in absolute terms, they have shrunk in relative terms because Viet Nam today exports a much wider variety of products and services to international markets.

If what the country exports changed, we expect to observe change on the labour market as well, to mirror such shift. An analysis of Viet Nam’s labour market today vis-à-vis that of twenty years ago confirms this prediction. In the year 2000, almost two-thirds2 (65.3 per cent) of the employed labour force was in agriculture. Twenty years later, those two-thirds are reduced to a little more than one third (37.2 per cent3 ). That additional third is roughly split between services and industry. While in 2000 agriculture was by far the biggest employer in the country, today services and agriculture are virtually equal (37.3 and 37.2 per cent respectively), followed closely by the industry sector (25.5 per cent of employment). 4

One interesting indicator used in labour market analyses is the status in employment, which is often referred to in Viet Nam as type of employment. This indicator tells us for example how many women and men in the employed labour force work as contributors to their family’s establishment. Significant shares of contributing family workers are often found in the rural economy. It is interesting to notice that the total share of contributing family workers in employment has more than halved in 20 years. On the other hand, since the industry sector has become a much larger employer, it is not a surprise to hear that the share of employees in total employment has more than doubled in 20 years.

This analysis also shows that one element has not changed as significantly as others, and that is women’s disadvantage on the labour market. Women remain overrepresented among contributing family workers, which typically are not paid. And even if women are relatively more likely to be in wage employment than men, female employees are on average paid 10 per cent less than men5 .

Another subject that is often talked about is technology and its effect on the labour market. Can you tell us more about this?

The discussion about technology and the future of work in Viet Nam has centred on automation, substitution of workers with machinery, and the challenge of reskilling workers. For the purpose of this conversation, I would like to take the opportunity to highlight additional elements to the debate on technology and its impact on labour markets.

In particular, the recent report from the ILO’s Global Commission on the Future of Work has highlighted the role that technology can play in promoting or harming decent work.

Technology can free workers from hard physical labour, which may be dangerous or dirty. It can also reduce the risk of injuries. Digital technology, through a combination of sensors and artificial intelligence, can bring opportunities to improve work safety. Sensors can collect data on workers’ hazardous movements and help identify high-risk situations. It can even facilitate the monitoring of working conditions.

At the same time, the report highlights that technology creates new challenges to decent work as well. Workers in the platform economy, for instance, are exposed to decent work deficits stemming from the fact that the legal and social status of such workers is not easily defined. Workers are not covered by labour law and social protection provisions, such as minimum wages, limits on working hours, occupational safety and health, and social security.

The report also points at another potential consequence of digital technology on decent work, and one that is less discussed. New technologies generate large amounts of data on workers. In theory, by asking a worker to wear a bracelet, information systems could monitor their every movement. This represents a threat to workers’ privacy.

These aspects that I have just mentioned illustrate how the implications of technology for the labour market are a lot wider and multi-faceted than automation. They also show how workers’ organizations are very much relevant in the digital era too.

What is the biggest challenge to the sustainable development of Viet Nam’s labour market, if you can name one?

In my view, one of the biggest challenges is the temptation to do more of the same. Viet Nam has a vision for the country to reach upper middle-income status by 2030, and then move up to high-income status. The main challenge there is that the set of strengths that have led Viet Nam to becoming a lower middle-income country are not per se what it takes to push the country to the next level.

The low value-added manufacturing that accounts for most of the current FDI has been instrumental to fuel economic growth. To secure further economic development, a higher value-added industry, more innovation and a higher-skilled labour force are necessary. The quality of Viet Nam’s basic education is very high, and basic education is indeed what the country has needed to sustain low value-added manufacturing. However, employers now will be demanding more highly-skilled talent, which will require a better-performing TVET (technical and vocational education and training) and higher-education systems.

The country will need a new growth model to move out of the risk of a lower middle-income trap and achieve modernization, industrialization, as well as sustained growth. This calls for a modernized labour market too. One made of graduates from a high-performing skills development system in which employers believe and invest time and resources. One that offers programmes for life-long learning and inclusive access to TVET and tertiary education, irrespective of household income. A labour market that grants universal social protection, and where labour market institutions are ready to adapt to the change unfolding on the labour market itself.

Viet Nam is recently seen as one of the countries with lowest labour productivity in the region. How would you comment on that and what should Viet Nam do to improve the situation?

Labour productivity represents the total volume of output produced per unit of labour during a given time reference period6 . In a nutshell, this indicator looks on one hand at the economic value produced by the whole economy, and on the other at how many workers (either in paid or self employment) the economy has needed to produce such value.

We said before that one of the biggest challenges for Viet Nam is that the country’s further economic transformation cannot be based on the same model of growth and development as before. Labour productivity is another example illustrating this.

A major element that has contributed to productivity growth in Viet Nam over the last two decades is the shift from farm to factory. As I mentioned earlier, roughly one third of the labour force has shifted from agriculture to industry and services over twenty years. However, Viet Nam is probably close to having exhausted the marginal contribution to productivity growth from this transition. It is important now to find new sources.

The size of enterprises in Viet Nam represents a barrier to productivity growth. In many industry and services sectors, such as manufacturing, there are a few highly-productive, large firms, but the majority are rather small. Viet Nam has millions of household enterprises, and data shows that it has 400,000 micro enterprises. According to the General Statistics Office, the number of large enterprises is much smaller, at 7,000 only.

The driving forces behind improvements in labour productivity are many, and several of them are linked to enterprise size. For instance, the accumulation of equipment, improvements in organisation of production as well as in physical infrastructure, and the generation of new technologies, all drive productivity up. These improvements are easier to adopt by large enterprises with more substantial economic means. Workers’ skills also play a critical role, and small enterprises find it more difficult to invest in skills development than larger firms. Finally, health and safety of workers, good working conditions, giving workers a voice and providing training are important factors to improve productivity. This is true for enterprises of all sizes, though working conditions in Viet Nam are often worse in smaller companies and enterprises supplying the domestic market.

Today is Labour Day. Do you have any advice for Vietnamese workers and employers to best seize the opportunities of the changing world of work?

My advice to representatives of workers’ and employers’ representatives is to keep engaged. They have a critical role to play in informing the vision of the Future of Work, and in making that vision come true. One practical example is skills development. The government of Viet Nam is making significant efforts to reform the TVET system and its governance. While the government has the overarching responsibility for a well-educated population and labour force for the good of the country’s economy and society, employers and workers representatives have essential roles to play too. Employers are the ones who are in touch with the labour market’s needs for skills. It is the employers’ vacancies that represent what is happening on the labour market in terms of skills needs. On the other hand, workers’ representatives are the ones who will make sure that skills development is not an exercise aimed at preparing workers for a specific job in a specific enterprise, but an opportunity to access decent work. Each of the tripartite partners have roles and responsibilities in skills development. And this is just one example.

I would like to also encourage workers’ and employers’ representatives to engage in monitoring development and evaluating if the vision for Viet Nam’s future is actually materializing. Viet Nam is very advanced in adopting the Sustainable Development Goals framework. Out of its 158 indicators, 23 are related to employment and labour issues. The ILO is the custodian agency for 13 of them. The involvement of workers and employers in the monitoring of these indicators will ensure that reports give a full reflection of the implementation of SDGs related to labour, employment and business environment in Viet Nam. For this to be possible, it is important to embed the involvement of workers and employers in the institutional mechanisms for SDG monitoring.

Today is Labour Day. It is a special Labour Day, since this year marks the 100-year anniversary of the ILO. One hundred years ago the ILO was founded, after a destructive war, to pursue a vision based on the premise that a peaceful and prosperous society can be established only if based on social justice. That premise is still very much valid today. Today we discussed how Viet Nam has changed as an economy and as a society. Yet, we observe that having good jobs, which allow a life of dignity, can pay for good education for the children, grant support when sick and in older age, as well as give a sense of stability and personal fulfilment, is still a priority for women and men in Viet Nam. It is with this in mind that I hope Viet Nam will take its next steps into the Future of Work.

 1- Atlas of Economic Complexity, Center of International Development, Harvard University.
 2 - ILO calculations based on Labour Force Survey data (GSO)
 3 - ILO estimates based on Labour Force Survey data
 4 - ILO estimates based on Labour Force Survey data
 5 - ILO calculations based on Labour Force Survey data (GSO)
 6 - ILOSTAT definition