Labour market aspects of state enterprise reform in Viet Nam

Labour market aspects of state enterprise reform in Viet Nam

State-owned enterprise (SOE) restructuring has proceeded more rapidly in Viet Nam than, for example, in China and India. The government tightened the budget constraints facing SOEs virtually simultaneously with price liberalisation. While a large number of mostly small SOEs were liquidated soon after reform began, others were able to adjust through various cost-cutting measures, including sizeable labour force reductions. The government put in place a safety net composed of severance pay and early retirement schemes that, combined with natural attrition, yielded a reduction in the SOE workforce of almost one million people in less than a decade. While the largely voluntary nature of the schemes may have caused some adverse selection and made them more costly than necessary, the benefit has been to avoid social discontent. High private-sector employment growth has been a major contributor to the programme’s success. Still, the process is not complete. Initial restructuring was heavily focused on locally-controlled small SOEs, while many large industrial SOEs still report important labour redundancies. Some are expecting joint ventures with foreign investors to resolve the problem, but others hold little attraction to such investors. Moreover, remaining SOE workers may have greater difficulty finding suitable private-sector jobs. Future labour force restructuring may thus not proceed as smoothly as in the past, especially since the government cannot easily afford to commit additional resources to compensate redundant workers. Loss-making SOEs, meanwhile, cannot mobilise the resources themselves. One relatively non-distortionary way of raising the revenue needed to extend the temporary safety net and complete the process of labour force restructuring would be a small surtax on the land rental income of SOEs.

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