for the Vietnam Development Report 2000 , " Vietnam : Attacking Poverty " , Joint Report of the Government of Vietnam – Donor - NGO Poverty Working Group Vietnam : on the road to labor - intensive growth ?

Since the adoption of the doi moi or renovation policy in 1986, Vietnam has been undergoing a transition from central planning to a socialist market oriented economy. This has translated into strong economic growth, led by the industrial sector which has expanded at more than 13% per annum over the period 1993-97. There is a concern, however, among policymakers in Vietnam that employment growth has lagged behind. This paper examines this concern using new employment data from the Vietnam Living Standard Survey (VLSS 2) which was completed in 1997-98. Data from this survey can be compared with information from the first household survey undertaken in Vietnam in 1992-93. Part I of the paper shows that over the period 1993-97 industrial employment has grown at an average of about 4% per year, which is low compared to industrial GDP growth. This is mainly due to the capital-intensive and import-substituting nature of the State sector and of foreign investment, which dominate industry. The labor-intensive and export-oriented domestic private sector, although growing quickly, is still small. In the future, however, growth promises to be more labor-intensive than in the past. Prior to the Asian crisis there were signs of an emerging export-oriented sector. Using previous statistical analysis by Wood and Mayer (1998) as well as factor content calculations, part II of the paper estimates that given Vietnam's endowment of natural and human resources there is scope for Vietnam to triple its manufacturing exports and create around 1.6 million manufacturing jobs in export sectors in the near future. Part III of the paper looks at Vietnam's labor regulations. It concludes that there is no need for fundamental labor market reforms. At current levels, minimum wages and non-wage regulations (even if better enforced) are unlikely to inhibit the development of the private sector or hurt export competitiveness. A restrictive interpretation of the Labor Code's provisions on employment termination may nonetheless hurt foreign investment, reduce the speed of reforms in the State sector, and slow the reallocation of resources to the private sector.