# ]) _How near is the labor-intensive future?_

How long will it take to create these jobs ? This all depends on Vietnam's ability to recover from the Asian crisis. Prior to the Asian crisis export growth was very strong. As pointed out in section I of this paper, had light manufacturing exports continued to grow at their five-year-average pre-crisis rate of 45% per year, Vietnam might have been able to export an additional $1.2 billion of light manufactures in 1998 alone. This means that around 300,000 direct jobs would have been created in the manufacturing export sector (see Appendix II on the employment effects of the Asian crisis).

If such a high export growth rate had been sustained, Vietnam might have tripled its exports in only about 3 years. Thus, labor-intensive exports would have directly absorbed more than 500,000 workers per year (on average). Even when allowing for the jobs that would have been lost due to increased imports, this compares very favorably to the roughly 200,000 workers that have annually entered employment in industry between 1993 and 1997. It also shows that prior to the Asian crisis Vietnam was on the way towards more laborintensive growth. However, even if exports grow at only half their pre-crisis rates, 5 to 6 years would be enough for Vietnam to triple its earnings from manufacturing exports. In this case, manufacturing exports would generate on average around 300,000 direct jobs every year. This suggests that even at reduced export growth rates the future promises to be more laborintensive than the past.

## **III. Labor regulations and private sector development**

In the future, as Vietnam will move ahead on the road of reform and pursue further international integration, it will have to ensure the redeployment of labor both from the public to the private sector and from protected sectors into sectors in which it has a comparative advantage. In addition, it will have to create the conditions for a rapid development of the private sector. Thus, this section looks at whether Vietnam's new Labor Code implemented in 1995 and related Decrees are consistent with these objectives. Three types of labor regulations are looked at: minimum wages, non-wage compensation, and laws regulating employment termination. The analysis is mainly based on new VLSS data and on two case studies, one in export-oriented companies in Haiphong and another at ABB Transformers, a joint venture located in Hanoi.

### **_III.L Minimum wages_**

How do minimum wages affect labor costs and private sector employment growth? This depends on the degree of enforcement and on the extent to which the minimum wage is binding. In developing countries, enforcement is often possible only in very visible companies, including medium and large export-oriented firms (see Agrawal, 1996). In exportoriented sectors, effective minimum wages tend to increase production costs, hurt exports and therefore reduce employment. They may also deter foreign investment; in principle, since many developing countries compete to attract export-oriented foreign investors, a small difference in labor costs can have a large impact on the location of investmnent. In theory, a high minimum wage may also reduce employment -although to a lesser extent- in the inward oriented formal sector, where higher prices can be passed on to consumers but where employers tend to adopt less labor-intensive production. Thus, a high minimum wage may

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