Question

Write a report on trade, employment and wages in Vietnam in recent years. According to the macroeconomic theory and analysis.

Not less than 2800 words.

Answer 1

The economic reform in Vietnam, can be divided in 4 periods:

1. 1986-1988- emphasized the importance of broadening the opportunities and choices for everyone and to promote economic development and standard of living.

2. 1989-1995 - price liberalisation, devaluation, and unification of the exchange rate, reducing subsidies, encouraging private sectors including FDI.

3. 1996-1999 - stagnant economic reforms

4. 2000-2008 - strong economic reform, liberalise investment and trade, and to further integrate into world economy.

Growth, employment, and wages:

1. 1986- 1988 - high inflation, bad harvest in agriculture, low GDP, GR.

2. 1989-1996 - high export rate which contributed to GDP.

3. 2000-2007 - industrial and service sector mainly contributed to GDP.

Vietnam over the past years:

1. Vietnam gained enormous successes, including high economic growth and rapid shift in economic structure which in turn facilitated the industrial upgrading process in line with industrialisation and modernisation.

2. Vietnam benefitted in terms of job creation from policy reform and international economic integration, and of shift in employment structure by reform.

3. People's income was significantly improved.

4. The employment structure shifted away from agriculture to fishery sector, towards construction services.

However, economic growth rests heavily on expanding scale, particularly in fixed assets, while impact of technological progress and improvement of labour skills are still limited.

Key findings:

The benefits from reforms and economic integration were uneven across different labour groups. Along with its international economic integration process, Vietnam's economy becomesore vulnerable to external shocks.

The southeast Asian country Vietnam of roughly 100million people has a low unemployment rate worldwide, usually around 2%, as Vietnam's economy creates many jobs, including jobs with starvation wages. There has been strong growth in GDP with consequent employment gains and improved labour productivity, supporting poverty reduction efforts. There has been a downward trend in labour force participation rates and also employement to population ratios. Contributing to this shift are youth remaining in school longer and adults taking earlier retirement.

One of Vietnam's advantages is making them as a preferred destination for investors is their competitive minimum wages as compared to the other countries. Thisnis despite Vietnam increasing its minimum wages every year (see graph). Wages increase often leads to an increase in the consumer spending and consumption. However as Vietnam grows it's exonomy and wages see a rise, it will have to maintain the balance between inflation, wage levels, and productivity to avoid disrupting the overall labour market.

A high minimum wages may reduce formal employment and deter FDI in Vietnam. It is inevitable that the wages will keep growing, and it's expected Vietnam to prioritise balance in growth to capitalise on regional investments, and invest in expanding domestic industrial and services infrastructure and capability.

In the past few years, a growing number of comoanies have relocated their operations from China to Vietnam in an attempt to escape the rising costs and an increasingly complex regulatory environment. Given the recent trade war between China and the US, alongside Vietnam's recent CPTPP ratification, and the signing of the EU Vietnam FTA, the country Vietnam is steadily becoming more and more open to international trade and investment. It's indeed an ideal export hub to reach other Asean markets. It's emerging as the clear leader in low cost manufacturing and sourcing, with the countrys manufacturing sector accounting for 25% of Vietnam total GDP in 2015.

Currently the regional comprehensive economic partnership (RCEP) is also under negotiation. When these trade agreements, come into force, Vietnamese exports will be freely accessible to many of the world's largest markets with few tarriff or restrictions.