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  1. “The informal sector in Vietnam:new analysis and impact of the current crisis”Jean-Pierre ClingMireille Razafindrakoto, François Roubaud (IRD-DIAL)DIAL Développement, Institutions & Analyses de Long termeIRD Institut de Recherche pour le DéveloppementFaculty of Development Economics, College of Economics, VNU, October, 8th, 2009

  2. Outline • Introduction • Employment & the informalsector in Vietnam • Employment, working conditions and income in the informalsector in Hanoi & HCMC • Comparisonwithotherdeveloping countries • Impact of the crisis • Conclusion

  3. (1)  New data on employment and the Informal sector in VietnamIRD-DIAL/GSO-ISS project (2006-2010) Measurement of the scope of the informal sector and analysis of its characteristics 1. Diagnosis of existing surveys, instruments or analysis. 2. Elaboration of a specific survey or tools adapted to the Vietnamese context  Support for the design of LFS 2007 & 2009 questionnaire  Implementation of a specific survey on Informal sector in HN and HCMC (Dec 2007 -January 2008 & october 2009) Assessment of the LFS (GSO &MOLISA in 2007) and proposals for the future 3. Survey analysis

  4. The main economic approaches of the informal economy Source: Based on Roubaud (1994)

  5. (2) (2) Employment and informalsector in Vietnam

  6. VIETNAM Income structure by source and quintiles, national level, 2004 Labor income is the main source of income in Vietnam Source : own estimates based on VHLSS 2004

  7. VIETNAM As well the main source of income inequality in Vietnam Inequality of per capita household income by income source Shorrocks’ decomposition method Source : own estimates based on VHLSS 2004

  8. Wage workers’ sharein Vietnam Share of wage workers income in the budget of households (expenditures) (région, quintiles) Sources : VLSS 1998, VHLSS 2002 et 2004 ; Our own estimates.

  9. VIETNAM The poorer the household, the higher the proportion of informal sector workersin Vietnam (2004) Employment structure by institutional sector and by income quintiles Source : own estimates based on VHLSS 2004 Note: quintile 1 is the poorest; quintile V the richest

  10. (2) The broad picture Employment by institutional sector Source: LFS2007, GSO ; authors’calculation

  11. The broad pictureEconomic weight of the informal sector in Vietnam • 12.4 million jobs (23% of the occupied labour force; 50% of non agricultural jobs8.4 million production units (micro-entreprise; average size: 1.5)228.767 billion VND (20% of GDP; 25% of non primary GDP)

  12. The broad picture: Share of informal sector in total employment, and poverty rate by province

  13. (2) Share of the informal sector in terms of employment (1998-2006) Sources : VLSS 1998, VHLSS 2002, 2004 et 2006; authors’calculation

  14. (2) Main characteristics of employment by institutional sector Source: LFS2007, GSO ; calculs des auteurs

  15. Some characteristics of The Informal Sector jobs • 2/3 in rural areas but first source of jobs creation in urban areas • (32% vs 24% for public jobs) low level of educationGender balanced (49%)

  16.  Informal Employment in Viet Nam • 86% of main jobs (39.6 millions)The main part in Agriculture and the Informal sectorBut also in the formal sector: 13% of public jobs; • 17% in foreign entreprises; 57% in domestic entreprises

  17. (3) (3) Employment and labour conditions in the Informalsector in Hanoi and HCMC

  18. The broad picture Employment by institutional sector - Source: LFS2007, GSO ; authors’calculation Informal Sector: first source of employment (around 30% of total empl.; 35% of non-agricultural empl.; 52% of private non-agricultural empl.in Hanoi, 42% in HCMC) • In average more than 1/3 of households draw entirely or partly their income from informal production units

  19. (3) Characteristics of the informal production units Source: HB&IS survey, Hanoi (2007), Ho Chi Minh City (2008), GSO-ISS / IRD-DIAL.

  20. (3) Characteristics of jobs by institutional sector (Hanoi & HCMC) Source: HB&IS survey, Hanoi (2007), Ho Chi Minh City (2008), GSO-ISS / IRD-DIAL.

  21. (3) Precarious jobs in the informal sector Source: HB&IS survey, Hanoi (2007), Ho Chi Minh City (2008), GSO-ISS / IRD-DIAL.

  22. (3) Long working hours and low remuneration Source: HB&IS survey, Hanoi (2007), Ho Chi Minh City (2008), GSO-ISS / IRD-DIAL.

  23. (3) Distribution of income (Hanoi)Thousands of VND Source: HB&IS survey, Hanoi (2007), Ho Chi Minh City (2008), GSO-ISS / IRD-DIAL.

  24. (4) (4) Comparisonwith OtherDeveloping Countries

  25. (4) Comparison with other countries Labour structure of the informal sector Sources: phase 2 of 1-2-3 Surveys: PARSTAT (2001-2003), EESI (2005), Madagascar (2001) and Informal Sector Survey (ISS), Hanoi (2007), Ho Chi Minh (2008), GSO-ISS / IRD-DIAL.

  26. (4) Comparison with African countriesDemographic characteristics of workers in the informal sector Sources: phase 2 of 1-2-3 Surveys: PARSTAT (2001-2003), EESI (2005), Madagascar (2001) and Informal Sector Survey (ISS), Hanoi (2007), Ho Chi Minh (2008), GSO-ISS / IRD-DIAL.

  27. Linkage with the formal sector and competition Sources: Enquêtes 1-2-3, Phase 1: PARSTAT (2001-2003), : HB&IS survey, Hanoi (2007), Ho Chi Minh City (2008), GSO-ISS / IRD-DIAL. • IS has no direct linkages with the formal sector (no system of sub-contracting by enterprise) • High level of competition beetwen HB themselves

  28. Access to credit and to other support structures • Very low demand for bank loans or for credit from MFO • Moreover, no other support structure (public or private), to provide technical assistance, capacity-building, access to market, information, etc.

  29. (4) Prospects of informal production units Source: 1-2-3 Surveys Phase 2: PARSTAT (2001-2003), EESI (2005), Madagascar (2001) and ESI GSO/ISS-IRD/DIAL. Hanoi and HCMC

  30. (5) (5) Impact of the crisis

  31. (5) Employmentforecasts in the informalsector in Vietnam by 2015 (not takingintoaccount thecrisis 2008/09: followingpast trends) • Sources: LFS2007, GSO; RGPH1999-2009, GSO; Projection of population by age, United Nations, 2009. • Hypotheses: • 1. Population growth rate (RGPH2009) : a) slowdown (1,2%/year) ; b) urbanisation (urbai3,4% ; rural 0,4%) • 2. Demographicdivident (the15-65 yearoldshare in total population growsfrom59% to 68% between 2000-2015) • 3. Activity rate constant by age group • 4. Extrapolation of pastsectoremploymenttrands 2003-2007 (agriculture : -1%/year ; publicsector: -0,4% ; foreigncompanies : +18,7% ; domesticcompanies : +14,4% ; formalHBs : +1,1%) • 5. Constant unemployment rate (2% ; slightdecrease in the past) •  The informalsector (residual) : growth of employment and of share in total employment

  32. (5) What impact of the crisis on employment? • The macro-economic impact of the crisis is still difficult to evaluate because of the lack of data (GDP, employment, etc.). • World Bank, Taking Stock, June 2009 • Premières estimations de l’impact sur l’emploi à partir de calculs d’élasticité emploi/production (PNUD; VASS; IRC): According to UNDP, the elasticity of employment to GDP growth is 0.24 (2005-2007) Therefore, a growth of around 8.5% is needed to absorb the growth of the active population (2%/year that is around 1 million jobs+200 000 agricultural jobs lost). With less than 5% GDP growth in 2009, UNDP forecasts that the urban unemployment rate could rise from 4,6% to around 7% in 2009 (8% according to EIU).

  33. (5) Evolution of GDP and of the unemployment rate Source: GSO

  34. (5) Evolution of employment and unemployment in Vietnam in 2009 Source: GSO; *Forecasts; ** Incl. Formal HBs

  35. (5) Evolution of employment and unemployment in Vietnam in 2009 Analysis based on GDP and active population growth : 1/ GDP growth forecast is 5% (maximum) 2/ Considering the relationship between unemployment and GDP growth on the LT, the unemployment rate could rise from 2,4% to 3% 3/This represents an increase of unemployment by 300 ,000. 4/ The active population increases by around 1 million/year and total employment therefore increases by 700,000 in 2009 (=1 million-300,000). 5/ Considering an employment/production growth of 0.19 in the formal private sector(source : PNUD) and a 6% production growth forecast in this sector, job creations in the formal sector reach around 100,000 jobs (+1,2%). 6/ The residual of 600,000 jobs (=700,000-100.000) corresponds to employment growth in the informal sector which employs most new entrants on the labour market. 7/ Employment growth in the informal sector in 2009 would reach around 5% in 2009/2008.

  36. (5) What impact of the crisis on the informal sector? • The UNDP methodraises a problem: itdoes not takeintoaccount the informalsector. • Variation of the demand for goods (+/-) • Variation of supply of labour (+). • Global impact global (employment/incomes): verynegative • Under the hypothesis of a 5% growth in 2009, around900.000 new entrants would not find a job in the formalsector(supposingthat agricultural and public employment are stable and that the number of years of schoolingdoes not vary) • Increase of informalemployment and (limited) increase of unemployment. • LFS surveys (national) and IS surveys (Hanoi and HCMC) 2009 willbringsome major information on thissubject • ...wewillbe able to decidebetweentwo alternative results • (increase of unemployment vs increase of informalsectoremploym.)

  37. (6) Conclusion (…) • Main messages: • Predominent weight of IS in employment • The IS is the sector where average incomes are the lowest (except from agriculture) • It is a marginal sector, not integrated to the rest of the economy • Public policies do not cover the informal sector (micro-finance, etc.) • Impact of the crisis: not much increase in unemployment but reduction of wage incomes in the private sector. • Two contradictory impacts of the crisis on the informal sector: •  Increase of employment in IS • Reduction of demand & more competition •  Decrease of income, more precariousness

  38. (…) Conclusion Some policy recommendations • In the short run: need for a support policy for the informal sector (impact of the crisis) • Medium & long run: public support would help to improve the business environment, reduce vulnerability and support expansion and higher productivity • Improved access to credit •  Incentives to increase registration? •  Need for training • Monitoring system • Need for more analysis

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