CHAPTER 6

LABOR MARKETS
Lecturers: PhD. Hoàng Hương Giang
 CONTENTS
• Employment and growth

• Labor market

• Relationship between unemployment and inflation

• Vietnam’s labor policy implementation in practice

 EMPLOYMENT AND GROWTH

• Employment and growth

• F(Y) = F(K,L,T, R)

• Laborers contribute economic growth significantly, specifically laborers participate in the

market

• The number of jobs and employees’ income are macro factors affecting social-economic
stability of a country or a territory
 LABOR MARKET

Aging group

Employment

Adult group (working age)

Workforce Unemployment

Housemate, student,
invalid etc.

Children
 LABOR MARKET STRUCTURE

Participation, re-
participation in
labor market

Participation, re-
participation

Unemployment Employment
No participation in
labor market Thất nghiệp Đang có việc làm

Leave labor Jobless, not desire to

market work

Leave labor market,

jobless, retire 20
 LABOR MARKET
• Structural unemployment is a category of unemployment caused by differences
between the skills possessed by the unemployed and the jobs available in the market

Wage Labor
Structural
unemployment Supply

WF

minimum
WE wage

Labor
Demand
LD QE LS Labor
quantity
 LABOR MARKET
Cause of structural unemployment
○ Minimum salary: Formed by the government
○ Trade Union: salary negotiated by the Trade Union is higher than that by laborers.
○ Living wage: Wage paid by employers is higher than the average level in the
labor market to encourage laborers working effectively
○ Unexpected regulatory outcomes: Some policies target to support the
unemployed (release the burden of unemployment cost) leading to encourage
unemployment.
○ The changes in economic structure, advanced technology, international
competition
○ If the unemployed realizes that their skills are not accepted by the market in 6
months -> they need retraining or working in other sectors with new skills
 LABOR MARKET
• Natural unemployment is a status that an economy normally endures, including:
Structural unemployment and Frictional unemployment but excluding Cyclical
unemployment.

• Frictional unemployment (Thất nghiệp ma sát ): unemployment status that laborers

terminate their current jobs and wait for new jobs which are suitable to their expertise
and interest.

• Cyclical unemployment: the gap between real unemployment and natural

unemployment caused by business cycle
 UNEMPLOYMENT AND INFLATION
• Inflation
• Inflation: The increase in price level in an economy in a specific period (1 month, a
quarter, a half of a year, a year)
• Deflation: The decrease in price level: the decrease in price level is -5%
• Disinflation: The decrease in inflation: the inflation reduced from 5% to 3%
• Galloping inflation: the increase in price is from two-digital up to 200% per year
• Hyperinflation: inflation rate is higher than 50%/month
HYPERINFLATION IN ZIMBABWE

•The government had to print so much money to finance serious budget

deficit
GERMAN CONSUMPTION IN HYPERINFLATION
 VIETNAM’S LABOR POLICY IMPLEMENTATION IN PRACTICE

• Viet Nam minimum salary:

• Regional minimum salary is regulated annually

• Trade Union: negotiating with entrepreneur representatives to ensure salary level

and welfare for employees
• Private sector: annually, Vietnam labor Federation negotiates with VCCI for salary increase
• Public sector: The assembly passes planning budget and promulgates Resolution on salary
increase - sticky salary

• Living wage: Entrepreneurs pay employees to improve productivity -> Should we

have ceiling salary due to income disparity? (personal income tax)
 VIETNAM’S LABOR POLICY IMPLEMENTATION IN PRACTICE

• Unexpected policy outcomes:

• Social-economic goals in the next period

• Orientation and resource allocation for sectors

• Labor demand for sectors

• Training and Retraining

• Requirements: Master planning and targets need quantifying and being clear
 VIETNAM’S LABOR POLICY IMPLEMENTATION IN PRACTICE

• Labor Code 2019: For employees

• Increasing retirement age: up to 62 years old for male, up to 60 for female
• Employees have one more day off in independent holiday
• Employees can unilaterally terminate their labor contract but they have to ensure to notify their decision
to the employers by 30 days for definite term contract and by 45 days for indefinite term contract
• Being authorized for others to receive salary
• The government will not directly interfere in the paid jobs: the salary is based on negotiation among
parties
• The paid for employees must be attached with/clarified in detailed payroll
• Labor relation must be recognized in reality
• Having a right of collective agreement
 POLICY FOR LABOR MARKET
• Employers are a party in legal labor relation, including state agencies, social organizations,
enterprises in various sectors, foreign organizations operating in Vietnam’s territories,
individuals and households hiring laborers – Clause 2 Article 3 Labor Code 2019
• Employers’ rights and responsibilities (Read Labor Code 2019)
 VIETNAM’S COMMODITY POLICY
• Current situation of the implementation of commodity policy
• The liberalization process and taxation policy:

• Negative approach (Nguyên tắc chọn bỏ) applied to commodities (list of prohibited or
restricted services)

• Positive approach (nguyên tắc chọn cho) – applied to services (list of permitted sectors)
 Vietnam’s Free Trade Agreement Network

www.dezshira.com 24
 Tariffs: An Introduction

Countervailing Measures
Preferential Tariffs
MFN Tariffs

Applied at a rate Imposed by countries Tariff

Tariff Type Rate
Applied in accordance below a country’s to fight unfair trade Example
with a country’s obligations under the practices, such as
obligations to the WTO. national subsidies or Countervailing
WTO. 79%
Rates are subject to dumping. Duty
Applied evenly to all
countries the terms of a specific Normally applied on
FTA. specific goods.
MFN 5%

• All tariffs are applied to individual products

Preferential
• Preferential tariffs and Countervailing measures are only applied to specific 0
Tariff
countries
Assessing Exposure of Door Knobs to US Tariffs
Door Knobs
GSP

HS 8302.41

Exporting country Tariff regime Applied tariff (as reported) US GSP

MFN duties (Applied) 3.50% All counties will provide significant tariff relief compared to tariffs
Cambodia
Preferential tariff for GSP countries 0% currently applied to Chinese exports.
MFN duties (Applied) 3.50% US GSP provides tariff reductions for developing countries. Many countries
India
Preferential tariff for GSP countries 0% assessed will qualify for US GSP.
MFN duties (Applied) 3.50%
Indonesia
Preferential tariff for GSP countries 0%

Philippines
MFN duties (Applied) 3.50% What about Vietnam?
Preferential tariff for GSP countries 0%
MFN duties (Applied) 3.50%
Thailand
Vietnam and China are both ineligible for US GSP because of a cold war
Preferential tariff for GSP countries 0% era line in GSP which disqualifies communist countries from receiving
Viet Nam MFN duties (Applied) 3.50% assistance.
 Treatment of Vietnamese Goods
Lowest Tariff Exposure Additional
GSP Considerations (Beyond Tariff Analysis)

Country Input Import liability Export Liabilities

Business Environment
China 0% 25%
Cambodia 0% 0% Labor

India 5.0% 3.5%

Logistics
Indonesia 0% 0%
Infrastructure
Philippines 0% 0%
Malaysia 0% 0% Domestic taxation

Myanmar 0% 0%
Trade Connectivity
Thailand 0% 0%
Domestic Suppliers
Viet Nam 0% 3.5%
 DISCUSSIONS

• Volker policy in 1970 and unemployment rate: Lesson for vietnam

• Greenspan policy: Supply shock and employment
• Vietnam pre-1986: monetary policy and inflation rate
• Trump’s immigration policy: Pros and cons