POLICY RESEARCH WORKING PAPER 1920

# Summary findings

The transition from a centrally planned to a market economy is likely to have a strong impact on the labor market, on relative earnings, and on returns to education.

Major economic reforms in Vietnam since 1986 (the policy known as _Doi Moi)_ have included a number of measures to liberalize the labor market. It is too soon to asess the full impact of these reforms, but Moock, Patrinos, and Venkataraman analyze the returns to education, on the basis of earnings in 1992-93 (collected in the first Vietnam Living Standards Survey).

This represents one of the first countrywide analyses of the monetary benefits of schooling in Vietnam at a time when the labor market was in transition.

On average, the estimated rates of returns are still relatively low, which is to be expected, since salary reforms were not introduced until 1993. Average private rates of return to primary education (13 percent) and university education (11 percent) are higher than those to secondary and vocational education (only 4 to S percent). Returns to higher education are slightly higher for women (12 percent) than for men (10 percent).

Evidence from other transition economies suggests that returns are likely to increase as reforms in the labor market take full effect. The results support this hypothesis: Returns for younger Vietnamese workers (14 percent) are considerably higher than for older workers (only 4 percent).

Implications for policymaking:

* It is important to monitor future earnings and trends in the labor market, as updates of this analysis could provide more robust estimates of the transition's effects on earnings and returns to education.

* At a time when the Vietnamese government is reassessing its pricing policy, the fact that private rates of return to higher education are relatively high suggests the potential for greater cost recovery.

* Efforts to improve efficiency in secondary and higher education could increase the rate of return by lowering costs.

- This paper a joint product of the East Asia and Pacific, Country Department I, Human Resources Operations Division, and Human Development Network, Education Team-is part of a larger effort in the Bank to analyze the economic benefits of schooling in transition economies. Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Miriam Christian, room G8-058, telephone 202-473-6736, fax 202-522-3233, Internet address mchristian@worldbank.org. The authors may be contacted at pmoock@worldbank.org or hpatrinos @worldbank.org. May 1998. (26 pages)

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