Assessing the impact of the European Union-Vietnam free trade agreement on labor market and employment in Vietnam

Abstract

PurposeThis study investigates the impact of the European Union-Vietnam Free Trade Agreement (EVFTA) on Vietnam’s labor market and employment outcomes, considering the potential distributional consequences across various groups of workers and regions.Design/methodology/approachA comprehensive quantitative framework is employed, combining the gravity model of trade to estimate the EVFTA’s effects on trade flows, the CISAF_M1 model to simulate sectoral employment impacts and econometric models to analyze the effects on wages and decent work. The analysis draws upon a rich dataset spanning the period before and after the EVFTA’s implementation.FindingsThe EVFTA has significantly boosted Vietnam’s exports to the EU, leading to substantial job creation in labor-intensive sectors such as textiles, apparel and footwear. The agreement has also contributed to wage growth and improved access to social insurance for workers in export-oriented industries. However, the impact on other aspects of job quality is less clear. The distributional analysis reveals that the EVFTA’s employment effects have been relatively balanced across gender but have favored younger and less skilled workers as well as those in rural areas.Originality/valueThis study provides a comprehensive and nuanced assessment of the EVFTA’s impact on Vietnam’s labor market, addressing a gap in the literature on the employment effects of new-generation free trade agreements in developing countries. The findings highlight the importance of considering distributional aspects when evaluating the socioeconomic implications of trade liberalization and offer valuable insights for policymakers aiming to promote inclusive growth in the context of deepening international economic integration.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-03-2024-0236