Labour Market Situational Report
Dubbed as one of the new tiger economies of the Southeast Asia region, Vietnam at the moment is the fifth largest economy in the region in terms of gross domestic product (GDP), behind Indonesia, Thailand, Singapore and Malaysia. However, within this decade, the victor of the Vietnam War, boosted by its large population, will become the second-largest economy. But in order to reach the country’s potential, it needs to keep its house in order first.
The first major issue of its labour market is the low quality of employment, both in formal and informal sectors. This issue is more prevalent in the manufacturing sector where the proportion of workers employed without degrees or certificates only dropped marginally from 85.2% in 2011 to 82.3% in 2019. The average monthly salary of workers employed in the manufacturing sector is also not so much better than the national average. The manufacturing sector which contributes about 24.78% to the country’s gross domestic product (GDP) is a sector of the economy that constitutes mostly of unskilled labour and about 23.4% of the manpower are skilled. This situation put downward pressure on the overall average salary in the country.
The labour-intensive manufacturing sector should quickly embrace rapid digitalisation to reach the level of sophistication that would require highly skilled employees akin to the service sector of Vietnam. Understandably, the Vietnamese manufacturing sector’s selling point is the cheap labour cost in order to attract foreign enterprises to set up shop in the country, however, this low-cost-labour-intensive model will not work well in the long run as the main ingredient in sustaining this model is a high number of population. Countries in Africa, South Asia and even its neighbour Indonesia will surely offer better propositions from a low-cost labour economic model standpoint.
The second issue with the labour market is the gap in educational attainment between the urban and rural areas. Over the past ten years, Vietnam’s labour force has achieved significant progress in terms of educational attainments, however, the gap among regions has remained quite high. In the 2019 Population and Housing Census, the proportion of the urban population that is educated above upper secondary is 31.7%. However, that was not the case for rural inhabitants. Only 12.5% of the rural population had the opportunity to attain education better than upper secondary. This disparity is also reflected in the capital flows destination where 75.63% of foreign investments in 2022 flowed to the highly urbanised region of Red River Delta (where Hanoi is situated) and Mekong River Delta (where Ho Chi Minh is located). Low education attainment correlates with low levels of income and this predicament does not bode well with the potential of the company as one of the rising stars of the region. In order to further prop up the growth of the country, Vietnam needs to maximise the potential of its economic contributor (population aged 22-56) to counter the spending of the economic burden and create an economic surplus to spur economic growth. Empowerment of TVET institutions is the ‘low-hanging fruit’. According to the Asian Development Bank, three main things that TVET institutions need to do. Firstly, the management of TVET institutions needs to be centralised with regular assessments of the respective management team. Apart from that, the curriculum of TVET needs to be standardised and based on the needs of the industry. Strong industry-TVET institution linkages are important to make this happen. Lastly, to ensure the high quality of TVET institutions, 30 quality accreditation organisations will be set up by 2030 that consist of teachers, TVET managers, researchers in TVET and experts, and people experienced in manufacturing, trading and service.
Thirdly, although Vietnam is technically a young state since its post-Cold War reunification but the country is rapidly turning into an aging nation. In the country, the group aged 50 and above is larger than the labour force group aged 15 to 24 years old, where the former grew at a CAGR of 4.72% compared to the former’s -1.99% negative growth. Apart from increasing the productivity of the economically productive units (aged 50 and below), the Government need to start to transform the aged population to be income-generating and lighten the burden on the country’s social security.
The Vietnamese government is currently developing a ‘National Strategy for 4IR’, a comprehensive roadmap intended to offer high-level guidance for areas like improving higher education and vocational training. Instead of releasing the roadmap, the government passed a resolution committing to actively participate in Industry 4.0, which includes a commitment to upskill the country by incorporating digital skills into educational initiatives and creating high-quality human resources.
Vietnam is also blessed to receive a substantial amount of funds from other countries in order to accelerate the nation-building of the nation including the upskilling of its workforce. From 2010 to 2020, Vietnam is the top recipient of foreign aid in the region, on average, receiving 1.88% of the world’s total net official aid.
During the recent US President’s visit to Vietnam, President Joseph Biden announced a new USD100 mil funding from the United States Agency for International Development (USAID) channelled towards Vietnam. The new money will be used to overcome the legacies of war; support Vietnam to compete in a global digital economy by strengthening the higher education system and expanding a skilled workforce; foster digital development; strengthen global health security; build resilience in Vietnam’s Mekong Delta region to withstand the impacts of climate change, and more. As for the development of a skilled workforce via the new, five-year Innovative Workforce Development activity, which USAID intends to award the following year, USAID will assist the National Innovation Centre of the Ministry of Planning and Investment (MPI) in its efforts to help Vietnam’s workforce take advantage of opportunities in the expanding digital economy. The activity will improve Vietnam’s legal and regulatory framework to safeguard intellectual property and encourage its commercialization, as well as address gender and urban-rural disparities in digital access and the development of digital and Information and Communication Technology (ICT) skills.
Labour Market Situational Report