Academic journal article Journal of Southeast Asian Economies

Globalization and Labour Markets in Boom and Crisis: The Case of Vietnam

Academic journal article Journal of Southeast Asian Economies

Globalization and Labour Markets in Boom and Crisis: The Case of Vietnam

Article excerpt

I. Introduction

Like the rest of East Asia, Vietnam suffered a sharp decline in economic growth rates in 2008 and 2009 as the region felt the impact of the global financial crisis (GFC) which spread from the United States and Europe to most countries on the globe. The impact of the crisis on the everyday lives of the Vietnamese depends partly on how labour markets were affected through adjustments in employment and wages, in addition to the macroeconomic effects and the decline in social spending and private transfer payments to poorer households. In part too, the labour market impact in Vietnam depends on how integrated the country is with developed economies in both financial and commodity markets and how it was travelling prior to the crisis.

In regard to the pre-crisis period, Vietnam was growing rapidly with strong domestic demand and low rates of unemployment, although it had become more vulnerable with respect to macroeconomic stability in the years leading up to the GFC. The government had more policy levers to pull, at least early on in the crisis, compared with equally exposed but slower growing economies experiencing higher unemployment and other labour market problems.

The institutional environment also affects the adjustment process. With respect to the labour market, institutions affect both the flexibility of employment and wages in response to demand shocks. They also determine whether mechanisms are in place to soften the blow on those who lose their jobs, or suffered a significant decline in incomes, as well as how quickly losers can be absorbed back into more productive jobs. On these scores Vietnam faced a number of challenges on the eve of the GFC.

This paper examines the impact of the crisis on the Vietnam labour market against the backdrop of overall growth performance and labour market dynamics before the crisis. It examines these issues in the context of Vietnam's considerable exposure to international trade and capital flows, which could be expected to be affected most by the global slowdown. We suggest that the impact on labour has probably been milder than might have been expected for a country quite heavily exposed internationally. This can be attributed to the timely stimulus package of late 2008, the tight labour market before the crisis, the competitive nature of Vietnam's key exports and the private sector's capacity to compete globally despite cutbacks in the demand for key export commodities. The paper also examines some aspects of the institutional environment that can both help and hinder labour market adjustment in the face of cutbacks in demand.

The organization of this paper can be briefly outlined as follows. The second and third sections of the paper deal with economic growth patterns and labour market adjustment in the boom years leading up to the crisis, including some of the longer term challenges faced as the economy began to move into middle income status. The fourth examines the impact of the GFC on economic growth and exports of key commodities, and then turns to some of the impacts and likely impacts (in absence of hard data) on the labour market. In this section, we also look at institutional factors which are likely to fashion the response of employment and wages to the economic downturn.

II. Growth and Structural Change Leading up to the GFC

The remarkable turnabout in economic fortunes and accelerated growth of the Vietnam economy is well known following Doi Moi in 1986. From growth rates of 3-4 per cent in the second half of the 1980s, GDP growth accelerated to an average annual rate of 7-8 per cent for the next twenty years, touching on 9 per cent just before the GFC in 2008. (1) After it weathered the storm of the Asian financial crisis in 1998, economic growth in Vietnam has been second only to that in China in the Asian region (Figure 1).

Three features stand out and are relevant to how the country has managed the GFC, and they also help understand the labour market response. …

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