Returns to education in Vietnam: A changing landscape

Using data from the Vietnam Household Living Standards Survey (VHLSS), this paper examines the returns to education in Vietnam in 2002, 2008, 2010, 2012 and 2016, and how these returns have changed over time. The returns to educations of men and women displayed a linear pattern in 2002, 2008 and 2010, with earnings rising with increased levels of education. The 2002 to 2010 period was one which saw particularly rapid increases in both the growth of educated labour supply and the returns to schooling for both males and females. The results also suggest that there existed substantial excess demand for male and female graduate labour over the period. However, the situation changed radically during the 2010 to 2012 period, despite the economy continuing to grow, the supply of educated labour expanded at a much slower rate and the wage premiums to education declined. Consequently, during 2010 to 2012 any excess demand for educated labour was eliminated in both the male and female labour markets. The results show that the nature of labour demand altered rapidly during the 2010 to 2016 period, with the relative demand for educated labour slowing substantially, which suggests that the trajectory of the Vietnamese economy has not recently been driven by a growth in higher value-added firms demanding ever higher quantities of educated labour. The periods 2012 to 2016 saw some stabilisation in the labour market, with the returns to education remaining relatively unchanged, albeit at a much lower level compared to 2010, and increases in the supply of educated workers to the labour market much lower than before. The study raises important policy questions regarding the future direction of policy approaches to both skills and FDI in Vietnam.