| POLICY RESEARCH WORKING PAPER 2389

# Summary findings

Since Vietnam's adoption of the _doi moi_ or renovation policy in 1986, the country has been undergoing the transition from central planning to a socialist marketoriented economy. This has translated into strong economic growth, led by the industrial sector, which expanded more than 13 percent a year from 1993 to 1997. Vietnamese policymakers are concerned, however, that employment growth has lagged.

To address this concern, Belser compares new employment data from the Vietnam Living Standards Survey (VLSS 2), completed in 1997-98, with data from the first household survey undertaken in 1992-93.

He shows that in 1993-97, industrial employment grew an average of about 4 percent a year, which is low compared with industrial GDP growth. This slower growth was attributable to the capital-intensive, importsubstituting nature of the state sector and foreign investment, which dominate industry.

The more labor-intensive, export-oriented domestic private sector is still small, although growing quickly.

In the future, growth promises to become more laborintensive. Before the Asian crisis there were signs of an emerging export-oriented sector. Using previous statistical analysis (Wood and Mayer 1998) as well as factor content calculations, Belser estimates that given Vietnam's endowment of natural and human resources, Vietnam could triple its manufacturing exports and create about 1.6 million manufacturing jobs in export sectors in the near future.

After examining Vietnam's labor regulations, Belser concludes that there is no need for basic reform of the labor market. At current levels, minimum wages and nonwage regulations (even if better enforced) are unlikely to inhibit development of the private sector or hurt export competitiveness.

But a restrictive interpretation of the Labor Code's provisions on terminating employment could hurt foreign investment, reduce the speed of reform in the state sector, and slow the reallocation of resources to the domestic private sector.

- - This paper a product of the Vietnam Country Office, East Asia and Pacific Region was prepared as a background paper for the Vietnam Development Report 2000, "Vietnam: Attacking Poverty," a joint report of the Government of VietnamDonor-NGO Poverty Working Group. Copies of this paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contactHera Sutrisna, roomMC9-242, telephone 202-458-8032, fax 202-522-1556, email address hsutrisna@worldbank.org. Policy Research Working Papers are also posted on the Web at www.worldbank.org/ research/workingpapers. The author may be contacted at pbelser@worldbank.org. July 2000. (35 pages)

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent._ Produced by the Policy Research Dissemination Center