Future of Work

Viet Nam’s openness to trade changes national job distribution, types and quality

An interview with ILO Viet Nam Labour Economist, Valentina Barcucci

Comment | 11 February 2020

ILO Viet Nam Labour Economist, Valentina Barcucci
Recently people talk a lot about the future of work. It is also the topic of the 2019 National Labour Forum organized by the Ministry of Labour, Invalids and Social Affairs (MoLISA) and the International Labour Organization (ILO). Why is that?

It is a top concern of countries across the world, and a top concern of our constituents (Government, workers’ and employers’ organizations) in Viet Nam.

It is globally recognized that we are living in times of extraordinary, fast change influenced by drivers such as technological advancements and globalization trends. These elements will increasingly affect economies and labour markets across the world, including Viet Nam’s, and call for an upgrading of labour markets and labour market institutions. While we cannot predict the future, we know one characteristic of this future: change will be the only constant, and it will be increasingly fast-paced. One example that we often hear in this regard is that of technology. Technological change is certainly not a new fact. However what is happening is that the time between when a new technology is discovered and applied in a laboratory, and when it is applied in a factory, is becoming shorter. And since new technologies in factories imply a transformation of production lines and practices, as well as a change in skills required to operate them, there is a lot of attention on what is coming.

A similar story can be told about international integration, or globalization. Geopolitics and other elements are influencing globalization trends. We often hear that the world is increasingly interconnected, and certainly we tend to have this perspective in Viet Nam because THIS country is increasingly connected, but the trends related to globalization are actually more complex than that. One interesting trend that has been observed throughout 2019 for example is that of slowbalization, as it has been called. Geopolitics is seen as a key factor influencing a move towards regionalization (the intensity of regional trade versus global trade), and technology is one of the factors influencing reshoring (decisions to bring back home production that had previously been moved overseas where costs were lower). These dynamics have profound implications on economies and labour markets. Viet Nam is characterized by a remarkable level of international integration and by the ambition to become upper middle-income country quickly, and modernize its economy and society further. Therefore, the overall globalization trends and the trading decisions of large economies are tremendously relevant to Viet Nam.

Other issues such as environmental challenges or migration are also part of the dynamics that are bound to have an impact on Viet Nam’s economy and labour market now and in the future.

The other question is why we called the Forum ‘The Choice of Viet Nam’.

There is a certain anxiety regarding the impact of the trends and issues I have just mentioned. Why that? Because what I have mentioned – technological change, globalization, environmental damage – these are huge drivers of change. These are global dynamics, and countries may feel like they do not have any control over them. Yet, the impact of these dynamics will be strong on individual countries. And this creates a sense of hopelessness. That is understandable, but somewhat misplaced because it comes from the assumption that countries are passive recipients of the impact of global dynamics. And this is simply not true.

Together with MoLISA and our social partners (workers’ and employers’ organizations) in Viet Nam, we wanted to emphasize that Viet Nam retains the opportunity to choose policies that can shape the impact of these global forces, and can use the opportunities that they offer.

For example, Viet Nam’s recent adoption of a new Labour Code has marked the beginning of a new and ‘future-looking’ chapter for Viet Nam’s world of work. There, Viet Nam has chosen to embrace the opportunities offered by international integration in terms of access to markets, but to do so by aligning its legislation to the ILO’s Fundamental Principles and Rights at Work. That is, for example, by giving workers a stronger voice in enterprises.

As you mentioned, Viet Nam’s economy is very open to trade and integration in international markets. What is the impact of this openness on jobs?

Indeed, since the Doi Moi, Viet Nam’s openness to trade has expanded in a remarkably steady manner. If we look at trade as share of GDP since 1986, we see that it has been increasing in an almost perfectly linear way, from something like 20 per cent until more than 180 per cent in 2018. The steadiness of this trend indicates remarkable policy determination. The opening up of Viet Nam and its trade agreement with ASEAN, its bilateral trade agreement with the US and its joining the WTO have coincided with a rise in the competitiveness of Viet Nam’s economy – meaning that its exports became increasingly diverse and making them required more knowledge.

What does this mean for the labour market? First of all, it means a redistribution of employment away from the less export-intensive sectors and towards the more export-intensive sectors. In the early 2000s, most Vietnamese were employed in agriculture. Then we observe that while Viet Nam’s economy was opening to trade, the ‘new’ sectors that were increasingly involved in trade, those that were increasingly exported, started employing a larger and larger share of the employed population, while a smaller and smaller share of the employed worked in agriculture. Agriculture remained an exporting sector and grew as total exports over time, but shrunk in relative terms as other sectors came in. In 2018, less than 40 per cent of employed Vietnamese worked in agriculture.

While trade has driven up the complexity of goods, as well as the complexity of jobs, and pushed growth, the share of returns that workers have seen is still relatively limited."

ILO Viet Nam Labour Economist, Valentina Barcucci

Secondly, a very important impact of trade is that an increase of economic complexity of the overall economy should mean that Viet Nam has been creating relatively more complex jobs. If we look at employment growth over the last two decades, we see that in fact, it is mostly medium-skilled jobs and to a more limited extent high-skilled jobs that have been growing.

Thirdly, it means a shift in the type of jobs too, and their quality. In 2018, 44 per cent of working Vietnamese were employees. The share of employees was 33 per cent in 2009. Ten years earlier, the share was lower than 20 per cent. This is a very fast increase, and trading sectors have certainly contributed significantly to it, which is a positive result. Being an employee, or in wage employment as we call it, comes with a wage, a relatively reliable income. It should also come with social benefits, which is what we call ‘formal employment’. To some extent this has been the case in Viet Nam, where we see that the share of informal employment has been decreasing on the overall labour market. However, the vast majority of employment remains informal in Viet Nam. And the fact of being an employee per se does not protect a worker from being informal. There are roughly 13 million employees who are not part of the compulsory social insurance programme (or of any programme for that matter) in Viet Nam, who are therefore informal.

So, although trade has certainly been a push towards some relative improvements in Viet Nam’s quality of jobs, by leading to increased formalization for instance, other indicators seem to suggest that trade may also be associated with harder working conditions. For instance, initial macro ILO assessments show that working hours seem to be higher in trade intensive sectors when compared to non-trade intensive sectors. We can interpret this finding as an effect of the high competition on international markets.

Another indicator that we can use to look at the impact of trade on job quality is wages. An initial ILO assessment looked at wages in trade-intensive sectors and found that they are higher than in non-trade intensive sectors (when controlled for skills). However, we can say that while trade has driven up the complexity of goods, as well as the complexity of jobs, and pushed growth, the share of returns that workers have seen is still relatively limited. The share of GDP that goes into the pockets of Vietnamese workers, in the form of wages and social protection transfers, has been decreasing.

In other words, workers have seen an increase in their wages in trade-intensive sectors, but that increase represents a lower and lower share of the overall economic prosperity to which they have contributed.

So what does this all mean? It means that trade has had a dramatic, and measurable impact on Viet Nam’s labour market. It has literally shaped sectors and type of jobs. It has brought significant benefits in terms of job quality. However, it has also brought challenges, such as that of meeting the requirements of international competition, whose burden workers carry disproportionately. The Government of Viet Nam is working on a number of fronts (social protection, skills development, employment, and of course Viet Nam has just adopted the new Labour Code) which can influence the impact of trade on Vietnamese workers, by increasing redistribution, preparing the labour force with stronger skills, giving workers a stronger voice in enterprises. This is an illustration of how, while trade is a global, strong force, the way Viet Nam engages in trade and the impact of it on workers is a choice.

We hear a lot that the Viet Nam does not have the right skills, and that the country needs more high-skilled people if we want to keep growing and become an upper middle-income country. Is it true in your view?

The concept of ‘right skills’ is not deterministic. It’s an issue of supply and demand, and whether they match of not. Jobs are characterized by a certain level of complexity. Occupations such as managers or professionals (which include for example doctors, engineers,…) are related to the generation and use of knowledge. They require significant knowledge in order to be performed. We can call these ‘high-skilled’ jobs. At the opposite end of the spectrum, you have ‘low-skilled’ jobs, which can be performed with a background of basic education. At any given time, an economy will have a bit of high-skilled, medium-skilled, and low-skilled jobs, and they need some of all. Advanced economies, or knowledge economies, typically have a relatively higher share of high-skilled jobs compared to economies characterized by limited industrialization. This is what we call the demand side of skills.

Then there is the supply side. The supply side is the worker, with the level of knowledge and skills that she or he has. What is the way that we use to measure what level of knowledge and skills a worker has? One way is to look at the highest level of education completed by the worker, since this gives us an idea of the level of knowledge and skills. Now, demand and supply do not necessarily match. In other words, the fact that a job per se would require a certain amount of knowledge and skills does not automatically imply that the person who is actually performing that job has that level of knowledge and skills. For instance, an enterprise can have several jobs for machine operators, which may require vocational education at the upper secondary or post-secondary levels. Imagine if the enterprise manager did not find workers with that level of education. In that case, the manager may decide to hire workers with a lower level of education, for example with general basic education but no vocational education. What is happening in a situation like this is a qualification mismatch, meaning that the level of qualification of workers does not match the level that would be needed by the jobs that they have. They are actually doing the job anyway, but they may be less efficient, and maybe less effective, than another worker who has the right qualification level.

Why is this relevant to Viet Nam?

First of all, what is the demand-side of skills in Viet Nam? More than half of Viet Nam’s jobs are medium-skilled (if measured based on the standard classification of occupations ISCO-08). Around 36 per cent of jobs are low-skilled, and 12 per cent are high-skilled. The average lower middle-income country (so the average country at the same income level as Viet Nam) has a larger share of low-skilled jobs than Viet Nam and a smaller share of medium-skilled jobs. One can say that this is good news, as low-skilled jobs are typically associated with worse job quality indicators, and one for all earnings. The largest share of jobs in Viet Nam are medium-skilled, and then it has a relatively small share of high-skilled jobs.

However, Viet Nam does not want to stay at the current income level. It aims at becoming an upper middle-income country by 2030. Now, it turns out that upper middle-income countries have on average almost twice the share of high-skilled jobs that Viet Nam has. Of course, that is an average, and if we looked at actual countries one by one, we would find significant diversity among them. But it is worth noting that the share of high-skilled jobs in Viet Nam is low also compared to the average of lower middle-income countries. So in a nutshell, Viet Nam is characterized by a rather large ‘middle’ and a small ‘top’ when it comes to occupations.

Now, do workers have the level of knowledge and skills, the level of education, matching the demand? Remember we just talked about the fact that Viet Nam has a rather large ’middle’. It turns out that more than one-half of all workers who are in middle-skilled jobs do not have the matching level of qualifications. They have a lower level of qualification. This means that the example I mentioned above (the manager hiring a machine operator that only has basic education) is actually very frequent. It is actually the majority of cases.

The mismatch is less pronounced when it comes to high-skilled jobs. The majority of individuals who have a high-skilled job (managers, professionals, technicians) have a matching level of education.

To summarize, we observe a mismatch between the level of skills required by certain jobs and the level of education of workers who have those jobs. This is apparent on medium-skilled jobs, which represent more than one-half of all jobs in Viet Nam. For the moment, we find less of this problem in high-skilled jobs. However, as the economy keeps creating more medium-skilled and high-skilled jobs, this is likely to change and the mismatch may increase. And I am not saying this to be negative but because there is a structural gap between the speed of labour market demand, and the speed of the education market. The need for new skills appears very quickly on the labour market, and new occupations (whether they are standardized or not) are created. It takes time before the education system can put together a response.

We often say that women in Viet Nam carry a double burden. Do you agree with this statement?

Most definitely. The double burden comes from carrying responsibilities at work and responsibilities at home. At work, Vietnamese women are among the most active in the world. Being ‘active’ in this context means ‘being active on the labour market’, either by being employed or by seeking employment. Globally, 47.9 per cent of working-age women are active on the labour market, almost thirty percentage points less than men (74.9 per cent). The picture in Viet Nam looks quite different. In the first quarter of 2019, 71.1 per cent of working-age women were active on the labour market. The gap to men’s rate (82.4 per cent) was only 11.3 percentage points.

At home, they are remarkably active too, and discharge the vast majority of household responsibilities. Starting from this year, we can measure that. Viet Nam’s labour force survey has incorporated questions on how male and female respondents use their time. This change brings Viet Nam’s labour force survey in line with some of the most updated international standards. For instance, early results using this methodology in Viet Nam are showing that in early 2019 women spent on average 11 hours a week preparing food, while men spent 0.7 hours. Employed women worked almost 39 hours a week on their jobs, plus an additional 23.5 hours at home. Men worked 40 hours a week on their jobs, but only less than 11 hours a week at home. This is a quantification of the double burden women carry in Viet Nam.

In my experience, too much of the national discussion on gender-based inequality still portrays women as a group to be protected, rather than empowered."

ILO Viet Nam Labour Economist, Valentina Barcucci

I see several issues with this situation. First, the fact that women are almost as likely as men to be active on the labour market, or work as many hours as men, is by no means a sign that women in Viet Nam enjoy equal opportunities. The quality of employment held by women illustrates this statement. Women make up as much as 65 per cent of contributing family workers, which can be considered the most vulnerable type of employment. Workers in this category support household income-generating activities, are by definition informal, and typically unpaid. This is partially a consequence of the double burden women carry. It is often unrealistic for women to raise children, shoulder a disproportionate amount of household care responsibilities, and pursue a career at the same time, or take the time to upgrade their skills. Maternity protection benefits, whose role is to ensure that women’s reproductive roles do not compromise their equal opportunities, are not universally accessible. Women who are covered by the statutory social insurance scheme enjoy quite generous maternity protection. Conversely, women who are not covered by the mandatory scheme, including informal workers, have no maternity protection.

The fact that women need to divide their energy and time between work and the household is likely to be a reason for their absence from decision-making jobs. For example, the percentage of women in political leadership, from national to local levels, has grown sluggishly to around one-fourth over the last thirty years, according to the Institute of Labour Science and Social Affairs. Arguably, such imbalance in key national institutions is likely to affect the ability of Viet Nam’s government to achieve truly gender-responsive policy-making. And businesses are not more inclusive. The share of women in management positions was 27.8 per cent in 2018, with this figure including anything from middle to top management. If we zoom in on the top jobs, the share plummets.

In my experience, too much of the national discussion on gender-based inequality still portrays women as a group to be protected, rather than empowered. The new Labour Code has taken several steps in the right direction. It has removed the exclusion of women from certain jobs, and it has made arrangements to progressively reduce the retirement age gap between women and men, although it does not eliminate it entirely. This protective attitude is portrayed as gender-sensitive, and necessary given women’s double burden. However, too little is done to reduce the burden in the first place, and to ensure that the 35 hours a week of household work that need to be done, are shared equally between men and women, and to remove the idea that women are naturally the designated care givers in the family. This is anachronistic for a country that is increasingly engaged in a profound process of socioeconomic modernization, and fully invested in assessing how the future of work can deliver inclusive and sustainable progress.

What do you think should be top priorities of Viet Nam’s policy-makers in 2020 for a better future of work for all women and men?

The Government’s priorities in the area of employment and labour issues are quite clear in my view. At the end of Viet Nam’s Labour Forum on the Future of Work, MOLISA clearly stated that skills development, industrial relations and social protection are three priority areas for their policy work in the immediate future. Viet Nam is also pursuing an important plan for the ratification of ILO Convention 105 on the Abolition of Forced Labour in 2020. On many of these priorities, the Labour Code adopted last November has introduced changes and progress that will require policy work in 2020 to make the Labour Code provisions’ ‘implementable’, which means applicable in the day-to-day life of workers. So indeed 2020 will be a dense year of work for policy-makers in Viet Nam!

However, the commitment of the Government and of legislators is still not sufficient to ensure that new policies translate into a better future for all women and men in Viet Nam. Representatives of employers and workers have a critical role to play in informing those policies, as their mandate is close to the actual workplace. Think of the promotion of gender equality, for example. Viet Nam may issue a decree on the subject, and enforce it. However, a full change of mind set at the workplace, a shift from the traditional view of leadership as male and in which female leadership is the exception, can only happen if the organizations of employers and workers fully support and embrace such change. They need to become role models themselves, and ensure that their members undergo a change in mind set, away from the idea that women need to be protected and more towards ensuring they have equal opportunities and the power to make their own choices and lead others. Further, change can only happen if individuals at the workplace want and own this objective, and promote it every day in the big and small choices they make. The same could be said on many other areas that are key to the development of Viet Nam’s economy and society.

I did not choose the example of gender equality by chance. This is an area where I see a great opportunity for Viet Nam. At the moment, many indicators of gender equality – as we said earlier –point at significant gender-based inequalities in Viet Nam’s world of work. However, the intensity women participate in the labour market in this country is remarkable. If Viet Nam decided to seriously address inequality of opportunities between women and men, it would be entirely possible to achieve a fully Vietnamese, unique model for gender equality based on a very high engagement of women in economic activity. However, a lot of work needs to be done to remove from people’s mind sets (men’s and women’s) the traditional separation of roles that sees the woman as the natural caregiver. As I said before, this is not in line with the modern society that Viet Nam wants to become, and it is a complete waste of potential talent and potential social progress that we know form research women are better at delivering. If you are interested in learning more about Viet Nam’s labour market and want to try and figure out what you think the priorities are, take a look at our new publication ‘Decent Work and Sustainable Development Goals in Viet Nam’. You will find it on the web page of ILO Viet Nam. If you have questions such as what’s the share of Vietnamese who work? How many are unemployed in Viet Nam? What kind of jobs do people have? How many work in agriculture today, and how many in manufacturing? What’s the quality of jobs in Viet Nam today? But most importantly, if you are interested in what’s new on the labour market, what has been changing, take a look at the publication. The key to figuring out what the future of work may bring is to some extent in the past, and in the trends that have characterized Viet Nam’s world of work until now.