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Causes and types of unemployment in Vietnam

In the last few decades, international interest in the theme of finding a balance between work and family responsibilities has grown significantly. It is now recognized that the conflicts between work and family life have negative effects on the quality of people’s life (notably on the welfare of women and children), and on working conditions, in particular, worker’s productivity and health.

In Vietnam, recent developments in the labor market can be encapsulated into the following seven major components (not necessary in order of importance):

The major growth in population between 1997 and 2007 has added a large number of labors to the country’s labor force, placing pressure on the Vietnam labor market. However, future population growth is not expected to be as high as the previous decade.

There has been strong growth in GDP with consequent employment gains and improved labor productivity, supporting poverty reduction efforts.

There has been a downward trend in labor force participation rates and also employment-to-population ratios. Contributing to this shift are youth remaining in school longer and adults taking earlier retirement.

A very large component of total employment falls into the category of being vulnerable and lack to have a decent work.

There have been significant shifts in labor market with a decreasing proportion in agricultural employment, and rising employment in the industrial and services sectors.

Unemployment is not presently a problem in the country, with the unemployment rate remaining stable and very low over the past decade.

While Vietnam still remains a large population in rural area, it is gradually shifting major number of residents from rural area to urban area.

Table of Contents

Executive Summary…………………………………………………………2

The definition of Unemployment…………………………………………………5

Causes of Unemployment………………………………………………………..6

Types of Unemployment…………………………………………………….8

The demand for labor & supply for labor………………………………………..10

Case Study………………………………………………………………………11




Unemployment is not only an economic issue but also a serious social problem of all countries, and especially of developing countries such as Vietnam, Cambodia, Laos … Labour is one of main inputs in production process and unemployment is synonymous with the waste of resources. Unemployment also impacts to poverty and inequality problems of economic development. Moreover unemployment is one of main factor in determining how healthy an economy is. Therefore, explaining unemployment is quite necessary to find causes and to control it.

Literature Review

The definition of unemployment

“The number of people who are actively looking for work but are currently without a job” [1] .

But not everyone without a job is counted as unemployed, it does not include children and pensioners. The economists usually explain unemployment as: “People in the working age are currently without a job and available for work at current wage rates” [2] .


Unemployment Rate = (Unemployed Workers / Total Labor Force) x 100

The unemployment rate is expressed as a percentage:

Example: The unemployed workers in Vietnam are 1.320.000 people and the total labor force is 44.000.000 people.

(1.320.000 / 44.000.000) x 100 = 3% (unemployment rate)

Causes of Unemployment

In the set up of a modern market economy, there are many factors contribute to unemployment. Causes of unemployment are varied and it may be due to the following factors:

Rapid changes in technology




Fluctuating business cycles

Changes in tastes as well as alterations in the climatic conditions. This may in turn lead to decline in demand for certain services as well as products.

Attitude towards employers

Willingness to work

Perception of employees

Employee’s values

Discriminating factors in workplace (may include discrimination on the basis of age, class, ethnicity, color and race).

Ability to look for employment

These causes of unemployment can be divided into two broad categories disequilibrium and equilibrium unemployment.










No. of workers

Average (real) wage rate








No. of workers

Average (real) wage rate




Types of Unemployment [3]

Frictional or Search Unemployment: Unemployment due to the natural friction of the economy, represented by qualified Individuals, who change jobs, with transferable skills.

For example: A first-time job seeker may lack of skills or information for finding the company that has the job available and suitable for him or her. As a result this person does not take other work, temporarily holding out for the better-paying job.

Structural Unemployment: Unemployment due to structural changes in the economy that eliminate some jobs and create others for which the unemployed are unqualified.

For example: In the technological revolution, computers may have eliminated jobs, but they also opened up new positions for those who have the skills to operate the computers.

Classical or Real Wage Unemployment: is a form of disequilibrium unemployment that occurs when real wages for jobs are forced above the market clearing level.

For example: The Vietnam government increases the minimum wage for employees from 1,3 million to 1,5 million per month. Because of that, the firms will cut some of their workers to keep their profit. As a result, some workers will become unemployed.

Demand Deficient or Cyclical Unemployment: Unemployment due to contractions in the economy.

For example: The U.S recession in 2008, many firms closed down or bankrupt leaded to 2.6 million laborers were unemployed, the unemployment rate rose to 7.2% in U.S

Seasonal Unemployment: Unemployment due to seasonal trends.

An example of this is Skiing instructors. In winter, they teach people how to ski, but once the snow is gone they’re out of a job.

Hardcore Unemployment [4] : is the unemployment of people that are unable to get jobs due to severe disabilities or other problems that are unable to be corrected.

An example would be a blind, mute, physically or mentally illness. They are unable to find a job, having to rely on government welfare. It can be seen, that although this man might be interested in seeking a job and thus classified as “unemployed”, there is no possibility of him finding a job.

Hidden Unemployment [5] : The unemployment or underemployment of workers that is not reflected in official unemployment statistics because of the way they are compiled.

An example of this is discouraged workers – people who have given up active search for jobs perhaps because they have been out of work for a long time and have lost both the motivation to apply for jobs and also the skills required.

The poverty trap can also act to increase hidden unemployment. Jobless workers may not apply for jobs because of financial disincentives created by the interaction of the income tax and state benefits system.

Full employment exists when the unemployment rate is equal to the natural unemployment rate. The natural rate of unemployment measures the unemployment when the labor market is in equilibrium. * Full employment does NOT mean zero unemployment.

Demand for Labor and supply of Labor:

Demand for labor increases market wages and more workers enter the market. But this higher cost of labor will mean that employers will use less labor because it’s more expensive. Moreover, companies must pay competitive wages in order to obtain workers [6] .

Supply of labor is the number of total hours that workers wish to work at a given real wage rate. Realistically, the labor supply is a function of various factors within an economy. For example: overpopulation increases the number of available workers, it will drive wages down and can result in high unemployment [7] .

The four basic laws of supply and demand are:

+ If demand increases and supply remains unchanged then higher equilibrium price and quantity.

+ If demand decreases and supply remains the same then lower equilibrium price and quantity.

+ If supply increases and demand remains unchanged then lower equilibrium price and higher quantity.

+ If supply decreases and demand remains the same then higher price and lower quantity.

Case study: Vietnam’s unemployment

Vietnam is a developing country has had to recover from the devastations of war in the last 35 years. In 1986 the government has introduced the “Doi moi” policy (renovation), which has creating good effect in the economy. In order to modernize the economy and produce more competitive, raising the export; Vietnamese governors have changed the policy to increase economic liberalization and ordain structural reforms [8] . The economic has been transformed from a centrally planned to a market economy since 1986. It accomplished considerable achievements such as maintaining high growth for a long time. Vietnam has partially alleviated poverty, rose living standard of people in a stable political foundation. However, Vietnam is still facing to high rate of unemployment and especially underemployment.

The Vietnam’s unemployment is contributed by several factors: the natural increases in population, national economy, monetary and inflation. These factors can intensify the growth in unemployment.











Whole country










By regions

Red River Delta










North East










North West










North Central Coast










South Central Coast










Central Highlands










South East










Mekong River Delta










Unemployment rate of labor force of working age in urban area by region [9]

Employment Situation in period 2001 – 2005 [10]

According to the Ministry of Labor, Invalids and Social Affairs, in the period 2001 – 2004, the government created jobs for 5.9 million workers, reaching 78.6% of the plan period from 2001 to 2005. Labor structure continued to move in a positive way: Increases in industrial areas – construction (17.4%) and commercial areas – services (24.7%), reduction in the labor area agriculture (57.9%). Urban unemployment rate fell to 5.6% (down 0.2% compared to 2003), the percentage of working time in rural areas is 79% (up 1% compared with 2003). In total more than 42 million workers employed in the country, with 57.9% working in the sector 1 (agriculture, forestry and fisheries), 17.4% work in the sector 2 (the industry and construction) and 24.7% work in the sector 3 (Service). In the whole country, 10.3% having jobs in the state sector, 88.2% are working in sectors outside the state and 1.5% work in sector invested abroad (oversea).

According to survey results reported in the labor force aged 15 and over: 94.6% urban employment and unemployment 5.4%; rural areas is 98.9% with 1.1% unemployment. The unemployment rate in the age of the labor in urban areas in 2004 was reduced to 5.6%, not significantly reduced compared with 2003 (5.78%), rural area 1.1%; labor time is used up. In 2005, the government created new jobs for 1.6 million workers, reduced unemployment in the urban labor down 5.31% and the proportion of time employer in rural areas to 80.7 %.

Vietnam generates 6.5 million new jobs in 2006-2009 period [11]

The government generated around 6.5 million new jobs between 2006-2009, achieved more than 81 per cent of the target set for the 2006-2010 period, accorded to the Ministry of Labor, War Invalids and Social Affairs. It said more than 90 per cent of the new jobs were created in the non-State economic sector. More than 323,000 people were sent to work abroad over the past four years. The Ministry said the result has helped reduce the rate of unemployment in urban areas to just above 4.6 per cent in 2009, one year ahead of its plan on bringing the rate fewer than 5 per cent in 2010.

Underemployment in Rural area [12]

According to statistics of the Ministry of Labor, Invalids and Social Affairs, from 1990 to 2003, they recovered land area of 697.410ha to serve the purpose of establishing industrial parks. On average, each year the country lost about 50 thousand hectares of agricultural land for non-agricultural needs. 1ha land on average will be revoked for 13 agricultural workers lost their jobs; but only Red River Delta is 15 people. In 2006-2010 period, the total area of agricultural land will be withdrawn for the construction of industrial zones, urban areas, build economic infrastructure – social, public needs and national interests are 192.212ha. Following that, there will be 2,498,756 unemployed rural laborers. The notable point among laborers, who lose their jobs, are people at the age of 35 and over. They will be influenced more than others, they often have primary responsibility for income generation and family. At their age, studying new skill and changing new job is very hard.


Creating sustainable jobs is crucial for the expansion of people’s choices. Unemployment and underemployment will reduce the country’s growth potential through the erosion of people’s capabilities. Job creation remains one of the most challenges for the country in the years to come. This is due to a number of reasons. First, the labor force continues to increase at a rate of three percent annually, which means that every year, another 1.4 million people will enter the labor market. These are young, often unskilled workers with minimal experience, who live in rural areas where land is scarce and opportunities for non-farming jobs are very limited. Secondly, structural reform measures, including the SOE (State owned enterprise) reforms, will be accompanied by a considerable number of lay-offs. Thirdly, underemployment, of up to 25-30 per cent in rural areas, is also a serious problem in other sectors where the distinction between underemployment and unemployment is often blurred.

The tax collection will be channeled into an unemployment fund

Vietnam has no unemployment insurance. A new unemployment insurance system was scheduled to come into effect in 2010 (The agency will offer support to laid off workers through a campaign on labor laws, especially the unemployment insurance policy) [13] . Employees will have to pay 1% of their monthly salaries while employers will pay another 1% of the same amount. The fund is aimed at helping the unemployed, who will each receive 60% of the last drawn monthly salary. They will be entitled to the payment for a maximum period of 12 months [14] .

Unemployment, especially among young people, is a serious problem in many countries today. What is your idea about job-creation projects currently run in Vietnam?

Leaders off all countries in the world are confronting a serious problem: unemployment. Unemployment leads to social degeneration. In developing countries, unemployment becomes major crucial. In Vietnam, the government is trying to solve unemployment which has increasing in recent years. The unemployment is particular concentrated among young workers, who are often untrained labors, living in urban areas. The following measures have been applied:

Young jobless people from 18-35 are taught in certain careers suitable to their abilities and their interests.

People whose knowledge is weak are sent to evening continuation classes.

After learning a career, they will be introduced to some companies in the city. Up till now, a number of unemployed people have been able to get jobs.

Moreover a great number of young people were sent abroad to learn different careers. After the course, they will return to their country and will be qualified for some jobs offered to them.

The job-creation projects currently run in Vietnam can reduce unemployment in some extents. However, there are still lots of young people who are out of work and having a precarious living, and therefore crime cannot be avoidable. To reduce unemployment in our country, the government should pay close attention to the following matters:

Improving business environment, this contributes significantly to job creation.

The law enforcement should be stricter.

Private sector is still facing a number of economic constraints Ĭ further reforms are needed.

For young people have limited knowledge: Open more career schools or encourage them to move to new economic zones where conditions of living should be favorable to them from the outset.

The training program should be effective from the beginning to the end, each student, before graduated, must have a goal.

The training program should be planned to a letter, not on a large scale but to an extent previously scheduled.

The vocational training program should be introduced in the high school’s curriculum. The students should be taught knowledge and skills at the same time so that they are able to find a job suited to their ability and capacity after leaving school.

Graduated students should be given offers from firms, government offices or be introduced to foreign companies after leaving school.

Excellent students should be granted scholarship.

If once these proper measures are strictly applied, the number of unemployment people will probably diminish and less youth people may offend, which destroy human dignity, to satisfy their wants.


The problem of unemployment that exists in Vietnam today is the cumulative result of some factors, the industry developed inadequately before independence, the rapid growth of population. The decay of small scale and cottage industries leading to greater pressure on land, the low level of investment cause the government lacks of the secondary’s expansion and tertiary sectors of the economy, etc.

Unemployment can be kept in low rate by raising level of investment in Vietnam economy and accelerating the process of industrialization planning should also be employment oriented. Lower the growth of population, so the unemployment will be controlled.

The key to job guarantee legislation lies in the world guarantee; Vietnam has scheme for the poor – all often instruments for the state to display its generosity whenever political expediency demands it.

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