inspectors with too few means cannot do much to enforce labor laws on a broad scale. At the central level, VSS has currently 15 inspectors to make sure that companies and workers pay their contributions. At district level, VSS has on average 6 full-time employees to collect revenues, distribute entitlements and inspect compliance. This is far too few to ensure the application of the Labor Code's progressive provisions.

A similar picture emerges from information collected at firm level. Evidence from MPDF (1999) shows that many of the country's larger private sector manufacturers hire workers without signing any contracts that require social insurance payments. The survey found that 6% of firms generally sign no contracts at all with their workers, while another 23% of firms sign only daily or monthly contracts. Furthermore, in the whole private manufacturing sector, seasonal and part-time workers (for whom no social security contribution need to be made) represent around 30% of the total labor force. A case study in Haiphong shows that among export-oriented manufacturers many companies appear to make some contributions to social insurance. But, here again, often less than 100 percent of the workforce is covered. In addition, the level of contribution is often lower than stipulated by the Labor Code: both firms and workers agree to pay respectively 15% and 5% of the mandatory minimum wage rather than of actual wages (Belser, 1999).

This suggests a low level of confidence in the social insurance system. In principle, workers should have an incentive to pay their contributions since they derive important benefits in case of workplace accident, occupational disease, or retirement. In practice, however, workers appear to prefer a higher take-home pay. There are at least three reasons that can explain such an attitude. The first is the fact that pensions are not adjusted for inflation. For private sector workers, the replacement rate of pensions is 75% of nominal wages. Thus, workers may expect their future benefits to be small in real terms. The second reason, is the low level of confidence workers have in Vietnam's new social security institutions. Anecdotal evidence suggests that workers perceive non-wage benefits as a tax rather than as an insurance against risk. The last reason has to do with workers low wages. It has been observed in other countries that the demand for benefits typically grows with the level of earnings. When income is low workers have little interest in benefits. They need cash to pay for their basic needs (Filer et al., 1996). It is worth pointing out, however, that even in high-income countries workers often resist social insurance contributions (although admitting the necessity of such insurance mechanisms).

# _III.III. Employment termination and dispute settlement_

Labor markets have an important role in the success of economic reforms by ensuring labor mobility. To exploit its comparative advantage in labor-intensive manufactures, Vietnam will have to ensure the redeployment of workers from protected capital-intensive public enterprises to sectors in which it has a comparative advantage. Job security and other regulations that reduce employment flexibility tend to make such adjustment more difficult. In addition, complex procedures for terminating employment and high mandatory severance payments tend to discourage employers from hiring workers in the first place. In Vietnam, issues of labor mobility are particularly important in State enterprises undergoing reforms or equitization (i.e. privatization). But it also applies to joint ventures between State enterprises and foreign investors, where most workers are on life time contracts. If employment levels cannot be adjusted in these enterprises, such form of foreign investment may rapidly dwindle.

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