Dynamics of wage inequality over the prolonged economic transformation: The case of Vietnam

Abstract

This study explores changes in wage inequality in Vietnam during a prolonged period of economic transformation. We found that wage inequality increased in the earlier period of 1998–2010, but declined considerably in the following period of 2010–2020. The change in economic structure and increased supply of higher educated workforce have substantially contributed to changing wage inequality. Overall changes in increasing wage inequality over the former period was mainly due to changes in labor market, job and workers’ observed characteristics. In the latter period, however, the decline in wage inequality was related to changes in the returns to job and workers’ observed characteristics. A rapid rise in supply of higher educated workers, which exceeded the demand for skilled labor, in the later stage of economic transformation also contributed to declining returns to education and the decline in wage inequality.