# **I.  INTRODUCTION**

1. Vietnam’s work force will increase from 39 million to at least 50 million over the next decade.  Over a million additional workers each year.  Unemployment figures in Vietnam are already significant—particularly in urban areas.2  Underemployment in rural areas also remains a significant concern.  For Vietnam’s economic policy makers, the challenge is two-fold: not only to close the gap between supply and growing demand for jobs, but also to do so while continuing and building on the broad-based standard of living increases witnessed throughout the last decade.  In other words, growth in both quantity and quality of employment.

2. The Vietnamese state and foreign-invested sectors—the country’s two most important enterprise sectors in terms of contribution to GDP—are both primarily focused on capital-intensive projects and frequently aimed at domestic markets. As a result, neither has proven a significant source of new jobs. State enterprises, in particular, are presently more focused on increasing efficiency in order to deal with pressing issues such as non-performing commercial debt rather than on expanding their respective labor forces.

3. The domestic private sector is already Vietnam’s leading employer. The vast majority of its jobs, however, are in agriculture or with household enterprises and do not provide workers with predictable wage incomes or other common benefits of formal employment such as pensions or insurance. Furthermore, jobs in the informal sector tend to generate minimal income for workers, as productivity is low. This is consistent with the experience of informal sectors in other developing countries. Nevertheless, the two sectors do provide extremely important safety nets that fill in where the formal sector has failed to create more stable and secure wage jobs.

4. Vietnam’s fastest growing source of relatively well-paid, relatively stable wage employment is its domestic private companies. While the domestic formal private sector remains small, Vietnam’s government and donors increasingly see labor-intensive private companies as the key to addressing pressing employment and other social issues. The rationale is that capital constraints on Vietnam’s private companies force them to be the formal enterprise sector most concentrated on Vietnam’s comparative advantage of labor. Employment created per unit of investment in the private sector is significantly higher than in the state or foreign enterprise sectors.<sup>3</sup> 5. The apparent early success of the new Enterprise Law, in terms of the sudden increase in formally registered local private firms since implementation in January 2000, has fed optimism regarding domestic private companies’ ability to fill the vacuum and produce much needed additional jobs. Information on actual developments regarding employment creation in the private sector, however, continues to be sparse and incomplete. This study gathers available macro-level facts and figures and supplements them with limited, targeted survey and case study research, while calling for greater focus on the quality and transparency of future statistics gathering, processing, and publication.

> 2 In 2000, unemployment among people of working age in urban areas was 6.4 percent.

> 3 CIEM/UNDP, “Domestic Private Sector Update: Improving Business Regulations and Regulatory Processes”, June 2001, p. 13.

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