The Impact of Asean Economic Community (AEC)

on Demand of Female Labour in Vietnam

HOA NGUYEN QUYNH, TOAN PHAM NGOC

Received: 3 October 2018

Accepted: 15 November 2018

Published: 15 December 2018

Corresponding author:

Hoa Nguyen Quynh,

Faculty of Planning and

Development, National

Economics University, Hanoi,

Vietnam

Email: hoanq.neu@gmail.com

Toan Pham Ngoc,

Institute of Labour

Science and Social Affairs,

Ministry of Labor, Invalids and

Social Affairs, Hanoi, Vietnam.

ABSTRACT

Using panel data from the GSO’s enterprise surveys for the period 2011 - 2015 and fixed effects regressions, this study examines the impact of AEC on demand for female labors in enterprises in Vietnam. It shows that there are statistically significant effects of AEC through the increase of intra industry trade on the fem ale labour’s dem and in all sectors and in the manufacture sector. In case of all enterprise, a sector oriented to intra-industry trade (IIT value increases gradually to 1) also makes the proportion of female workers increase in both short-term and long-term, but the impact in the longer term is stronger. The correlation coefficient between IIT and share of female labour in the short-term and long-term ones are 0.037 and 0.4 respectively. The short-run and long-run correlation coefficients are 0.4 and 0.44 in the manufacture sector.

Keywords: Asean Economic Community (AEC), female

labour demand, intra – industry trade (IIT).

http://dx.doi.org/10.222.99/arpap/2018.45

Vol. 3 No. 4 December 2018 13 INTRODUCTION

Today, opening economy and international economic integration is is an

inevitable trend. International economic integration offers many opportunities

for nations, including oppotunities which affect the number of jobs and the

issue of gender equality in this field. Strengthening the international market

integration generally has a relationship with the increase in labor demand

(Giovanni S. Bruno, Rosario Crinò and Anna M. Falzoni, 2012; Bill Gibson,

2013). Theoretical models of international trade such as Heckscher-Ohlin-

Samuelson - The HOS model (1933 and 1941) indicate that a country that

tends to export goods which use relative surplus production factors in their

own country and import goods using relatively scarce factors. As a result, the

demand for unskilled labor has increased and the demand for technically

skilled labor have declined in a developing countries which surplus of unskilled

labor but lack of capital and skilled labor. Some empirical studies have similar

conclusions. Harrison and Revenga (1998), using the results of a (non-

random) survey in Costa Rica, Peru and Uruguay have concluded that

developing countries tends to increase jobs after trade reforms, while

countries in transition have shown the opposite trend. Paul Baker et al. (2014)

provides evidence that trade liberalization tends to increase jobs in developing

countries and reduce jobs in developed countries; demand for labor comes

from the demand for labor-intensive goods. Lham Haouas et al. (2005) has

studied the effects of short-term and long-term effects of free trade on

employment and wages. Employment patterns and wages are estimated with

data from 1971-1996 for exports and imports by sectors in Tunisia.

The results shows a statistically significant difference in the effects on

wages and employment in the short and long term with changes in exports.

From a gender perspective, based on the HOS model, women are likely to

gain trade advantage if countries start exporting goods or services that

employ a large number of female workers. Moreover, Becker (1971)

suggested that women are expected to benefit from export, as trade will lead

to more competition and thereby promote companies reduce the cost of

discrimination by employing more women. The World Bank's World

Development Report 2012 (World Bank, 2012) has pointed out that

globalization associated with economic integration has created new jobs and

market connections for women workers. Besides with studies showing the

positive impact of economic integration on gender equality in employment,

the WomanWatch (2011) has pointed out some less optimist conclusions on

the relationship between gender equality and trade policies in the context of

globalization. The study analyzes the impact of gender differences on career

opportunities at all three levels of sectors, government and households. From

14

a sectoral perspective, with considering the impacts of free trade on the labor

market and on small and medium enterprises, the study shows that free trade

increases the formal employment in low technical level and underpaid sectors

where mainly female work. but the increase in paid employment for women

is unsustainable by the trend of shifting production to those products that

require high technical level. The most recent study on the impact of

international integration on gender equality in the employment and income

sectors is the study by The ASEAN Secretariat (2015) on the gender impact

of the ASEAN Economic Community (AEC). Based on trade and labor market

data which has been disaggregated by sex, the study concluded that the

formation of the economic community of ASEAN will create more jobs for

women in the region, but the impact of AEC on the change of gender gap in

employment and income is not significant.

With the above studies, it can be seen that international integration, mainly

through international trade channels, tends to have positive impact on the

demand for labor, especially the demand for female labor, however the impact

is different for short and long term. Since joining the WTO, Vietnam's economy

has been increasingly integrated into the world economy. The year of 2015

marked a turning point in the Vietnam integration into the world economy

with participation in the Economic Community ASEAN (AEC), Vietnam-

EU's Agreement on Trade and a series of free trade agreements with many

major trade partners. Integration in global and regional markets will impact

directly and indirectly to the domestic labor market including impacts on labor

demand. Within that context, many organizations and researchers have made

preliminary assessments of the impact of economic integration on the labor

market. Research by the Institute of Labour Science and Social Affairs (2009),

"Assessing the predicted impacts on labor, employment, living condition and

income of workers when Vietnam is an official member of the WTO" shows

that the WTO will increase employment opportunities, especially for those

without technical expertise, through increasing exports, FDI and restructuring

of employment between sectors due to the development of the service sector,

industries based on new technologies, the export sectors. Integration has a

strong impact on the demand for skilled labor in the agricultural sector and

for large-scale, labor-intensive enterprises. The International Labor

Organization (ILO) and Asean Development Bank (ADB) (2014) predict that

by joining the ASEAN Economic Community (AEC), the number of jobs in

Vietnam will increase to 10.5% by 2025, the opportunity to increase the

number of jobs is mainly in cheap labor sectors which Vietnam has competitive

advantage such as textiles, footwear and human resources from industries

such as information technology, electronics and telecommunication.

Vol. 3 No. 4 December 2018 15

From a gender perspective, the study by Naila Kabeer and Tran Thi Van

Anh (2006), addresses the impact of globalization on gender and poverty in

Viet Nam. Using the survey data to compare the characteristics, conditions

and choices of women working for the global and domestic markets, the study

concludes that, as well as the other countries in the world, export-oriented

garment industry in Vietnam is an important source of employment for

women. This conclusion is similar to the study "Towards Gender Equality in

Viet Nam: To generate inclusive growth for women" by the UN Women and

the Institute of Family and Gender Studies (the Academy of Social Sciences of

Vietnam) in 2015, whereby international integration creates more

employment opportunities for female workers in the export sectors. Phan Thi

Nhiem et al. (2008) focus on the impact of WTO on ethnic minority women in

rural areas, whereby research shows that when joining the WTO, employment

opportunities for ethnic women in rural areas tend to be widespread but the

impact is negligible.

This study aims to examine the impact of AEC integration on the demand

for female workers in Vietnam at the enterprise level in both short term and

long term. This study is expected to make several empirical contributions.

Firstly, the mentioned studies have pointed out that the formation of the

economic community of ASEAN will create more jobs for women in the region,

but there are no studies on the impact of AEC on the specific situation of

female workers in Vietnam in both short term and long term. Secondly, most

studies on impact of international integration on gender issues in labor market

have focused on employment in general. Hitherto, demand side and supply

side have not been analyzed separately.

The paper is structured into five sections. After this introduction, Section 2

describes the methodology and data set used in this study. Section 3 presents

resutls including descriptive analysis of female labours in enterprises in

Vietnam and empirical results. Sections 4 concludes and finally, section 5 is

references.

METHODOLOGY

Resaech Design

The study uses GSO's annual enterprise survey data for the period 2012 –

2016 (information on enterprises operating is 2011 – 2015). The Enterprise

Survey is a firm-level survey which has been conducted since 2001 by GSO

and its sub-institutions for Viet Nam. The observations in those surveys are

corporations which have been established and governed by the Enterprise

Law. The surveys provide the enterprise’s general information on labor,

wages, income of employees, assets and source of capital, investment capital,

16

turnover, products of production and business, profits, inventory, production

costs by strains type of supplies, services, by origin (domestically produced or

imported). There is also information about export and import activities

(export, import, import and export value…).

Our approach is to measure the impact of joining in AEC on the

female labor’s demand by main secondary sectors in the economy.

Table 1 presents the number of enterprises by sector. By 2015, the number

of registered enterprises (formal enterprises) is about 455 thousand

enterprises, with an average increase rate of 7.7% per year in the period 2011

- 2015. From all sectors, electronics and textiles were the two industries with

relatively high growth rates of 17.2% and 6.6%, respectively. The rapid

growth of the textiles industry presents economic opportunities for women,

especially women who are looking for more steady income and formal sector

employment and women workers who are displaced from the rural areas. This

situation in Vietnam is quite similar with a number of the ASEAN Member

States. Within the AEC, this sector is expected to continue its expansion (The

ASEAN Secretariat, 2015).

Table 1. Number of enterprises by sector in Vietnam in the period 2011 –

2015

Unit: Number of enterprises

Sectors 2011 2012 2013 2014 2015

Agriculture 8,698 8,821 8,860 9,350 9,107

Fishing 1,546 1,544 1,512 1,689 1,716

Mining industry 2,955 3,002 2,910 2,996 2,801

Manufacture industry 55,836 59,212 60,878 67,221 70,219

Of which, Textiles 6,940 7,331 7,690 8,506 8,889

Electronic

Electricity, gas, steam and air

conditioning supply

627

1,131

736

1,376

820

1,390

1,088

1,752

1,142

1,857

Construction 44,578 48,973 51,801 56,441 61,669

Whole sale and retail trade

Accommodation and food

service activities

129,830

12,912

135,197

13,182

146,932

13,547

158,271

15,105

174,518

16,512

Transportation and storage 25,844 27,362 28,725 32,113 37,102

Other services 54,708 59,824 63,450 70,702 79,797

Total 338,038 358,493 380,005 415,640 455,298

Source: Authors’ calculation based on GSO’s enterprise surveys

Vol. 3 No. 4 December 2018 17 Estimation method

Basu et al. (2005) based on Hamermesh (1993) used the following model

to evaluate short- and long-term effects on labor demand from independent

variables:

LnLit = α0i + α1LnLit-1+ β1LnQit+ β2LnQit-1+ γ1LnWit+ γ2LnWit-1 + δ1Xit + δ2Xit-1 + εit (1)

Where the subscripts i and t refer to labor in enterprise i at time t,

respectively. L is the labor demand, Q is the real output, W is real wage, X is

a vector of other control variables which influences the demand for labor in

the enterprise and may also have the form of lagged variables. Finally, α0i is

a fixed effect.

- In the short run, the elasticities of job with output and wages are,

respectively, β1, and γ1.

- In the long run, under the assumption that the variables converge to

equilibrium, then Lit=Lit-1;

Qit=Qit-1; Wit=Wit-1; Xit=Xit-1 . In this case, (1) can be rewritten as follow:

(1- α1)LnLit = α0i + (β1 + β2)LnQit+ (γ1 + γ2)LnWit+ (δ1 + δ2)Xit + εit (2)

Base on (2), the elasticities of job with output and wages in long run are

(β1 + β2)/ (1- α1) và (γ1 + γ2)/(1- α1) respectively.

To estimate the effect of AEC on demand of female labour in Vietnam, the

paper uses the methodology proposed by Basu et al. (2005) with the

dependent variable is the logarit of share of female labour in labour force of

enterprise (lnfes); X is vector of sectoral intra – industry trade (IIT) – which

is presented for AEC impact on female labour demand. We choose the X as

the IIT for two reasons: (1) The ultimate target of ASEAN regional

integration(AEC) is to be single market in order to create an efficient

production hub and network. The one important condition is trade and

investment liberalisation to assure the expansion of intra-industry trade

(Wattanakul, T., 2015); (2) Over the past ten years, the intra - industry trade

of Vietnam has been steadily increased and among major trading partners,

Vietnam has obtained the highest levels of IIT mainly with countries within

the Asian region (Tran Nhuan Kien and Tran Thi Phuong Thao, 2016).

The Grubel & Lloyd (1975) has proposed the measurement of IIT as:

Where X and M is the exports and imports of same category. The G-L index

is constructed to fall between 0 and 1. Some basic statistics of variables used

in the model are as shown in the table 2.

18

Table 2: Statistic description of some variables in estimated model

female_share 35.70 21.18 0.00 100.00

Lnrevenue 8.03 2.31 -2.30 20.04

IIT 0.15 0.28 0.00 1.00

lnwage_av 3.73 0.85 -5.08 12.98

lnW*Labs 0.12 4.66 -329.14 2792.91

RESULTS AND DISCUSSION

Descriptive analysis

Up to 2015, the total number of workers employed in enterprises was 12.9

million, with an average increase of 4.4% for 2011-2015 (table 3). Of which,

the number of female workers is 5.89 million, average growth of female

worker for 2011-2015 is 6.1% per year, which is higher than the average for

both men and women (table 4). It leads to the share of female workers in the

labor force in 2015 has been slightly higher than in 2011 (the share of female

workers is 42.87% and 45.59% in 2011 and 2015 respectively – table 5).

Table 3: Total labour by sectors

Sectors

Agriculture

Fishing

Mining industry

Manufacture industry

Of which, Textiles

2011 2012 2013 2014 2015

309,186 324,970 307,003 302,455 303,519

43,997 44,090 44,925 48,315 53,067

226,813 230,483 207,060 247,779 245,717

5,037,836 5,151,863 5,462,898 5,916,711 6,389,659

1,154,280 1,195,715 1,328,097 1,460,185 1,577,465

Electronic

Electricity, gas, steam

and

237,695 288,512 326,433 406,909 496,103

air conditioning supply 86,016 91,690 97,897 104,554 103,364

Construction 1,729,219 1,736,477 1,700,569 1,671,496 1,786,486

Whole sale and retail

trade

Accommodation and

food

1,528,532 1,511,117 1,502,581 1,536,766 1,708,787

service activities 236,568 247,276 251,495 281,909 298,307

Transportation and

storage

634,965 696,807 702,985 728,868 769,820

Other services 990,105 1,059,248 1,151,307 1,126,354 1,268,616

Total 10,823,237 11,094,021 11,428,720 11,965,207 12,927,342

Source: Authors’ calculation based on GSO’s enterprise surveys

Table 3 also shows the number of employees by sector for the period

2011–2015. It shows that the change of labor force is the same trend with

Vol. 3 No. 4 December 2018 19 the change of enterprises in the period 2011-2015. Corresponding to the

increase of enterprises in the sectors, labor demand in electronics and textiles

sector are also increased rapidly, with an average increased 19.9% and 8.6%

per year respectively in the period 2011 - 2015. In Vietnam, the textiles

industry is the most labor intensive industry, by 2015, labor force in the textile

industry is 1.57 million workers

Table 4: Female labour in enterprises by sectors

Unit: Person

Sectors 2011 2012 2013 2014 2015

Agriculture 98,770 105,788 101,685 101,182 100,604

Fishing 6,108 5,690 6,168 7,029 7,506

Mining industry 46,132 45,007 39,184 46,152 43,735

Manufacture industry 2,899,949 2,971,295 3,224,457 3,534,069 3,810,113

Of which, Textiles 886,025 925,581 1,028,478 1,123,386 1,202,229

Electronic 187,478 222,840 258,260 323,112 389,076

Electricity, gas, steam

and air conditioning

supply

34,407 36,197 38,455 40,714 39,889

Construction 311,342 325,341 318,146 304,165 329,595

Whole sale and retail

trade

567,821 583,098 575,855 588,518 668,300

Accommodation and food

service activities

127,397 132,813 136,061 144,370 164,471

Transportation and

storage

154,277 176,206 176,803 180,237 195,178

Other services 394,152 429,333 487,427 462,662 533,572

Total 4,640,355 4,810,768 5,104,241 5,409,098 5,892,963

Source: Authors’ calculation based on GSO’s enterprise surveys

According to the table 4, the electronics and textiles sectors remain the

highest growth of female workers in economy (20.1% and 8.4% respectively

for 2011-2015 respectively). Table 5 also shows that those sectors are also

having the highest share of female worker in the labor force (the share of

female worker in electronics is 78% and in textiles is 76.2% in 2015). The

textiles industry is also one of the top employers of women‐ especially from

the younger generations the number of female workers is more than 1.2

million workers (table 4). It is the same situation with Cambodia (The

ASEAN Secretariat, 2015). In Vietnam, like Thailand, Philippines and

Indonesia, there are high proportions of female workers employed in

manufacturing since female textiles workers comprise a large share of the

total employed in manufacturing sector (table 5).

20

Table 5. Share of female worker in enterprises

Sectors 2011 2012 2013 2014 2015

Agriculture 31.95 32.55 33.12 33.45 33.15

Fishing 13.88 12.91 13.73 14.55 14.14

Mining industry 20.34 19.53 18.92 18.63 17.80

Manufacture industry 57.56 57.67 59.02 59.73 59.63

Of which, Textiles 76.76 77.41 77.44 76.93 76.21

Electronic 78.87 77.24 79.12 79.41 78.43

Electricity, gas, steam and air

conditioning supply

40.00 39.48 39.28 38.94 38.59

Construction 18.00 18.74 18.71 18.20 18.45

Whole sale and retail trade 37.15 38.59 38.32 38.30 39.11

Accommodation and food service

activities

53.85 53.71 54.10 51.21 55.13

Transportation and storage 24.30 25.29 25.15 24.73 25.35

Other services 39.81 40.53 42.34 41.08 42.06

Total 42.87 43.36 44.66 45.21 45.59

Source: Authors’ calculation based on GSO’s enterprise surveys

Empirical results

This section presents fixed-effects regressions of the effect of IIT on

female labour demand with panel data. The explanatory variables include log

of enterprise’s revenue (lnrevenue), the log of average wage (lnwage_av),

the log of share of female labour’s salary in total salary (lnw_labs), and lag of

those variables. Time-invariant variable is IIT (iit), that is time-invariant is

eliminated in fixed-effects regressions. The model 1 is the impact at enterprise

level in general; the model 2 is in agricultural sector; the model 3 is fishery

sector, the model 4 is mining industry; the model 5 is manufacture industry;

the model 6 is Electricity, gas, steam and air conditioning supply; the model

7 is construction sector; and the model 8 is trade and other services. The

estimated results are presented in table 6.

According to table 6, the enterprise’s revenue has a statistically significant

effect on share of female labour in general. That is 1% increase in revenue

will lead to a reduction in the percentage of female employees in the

enterprise by 0.011%. This means that with the increase in enterprise’s

revenue, the rate of women's job growth is slower than that of men. Except

the agriculture sector, all other sectors have the similar trend of impact as the

Vol. 3 No. 4 December 2018 21 total economy’s enterprise level. However, only fisheries sector and trade and

other services have statistically significant impacts.

As regards to the impact of regional integration (joining in to AEC), the

results showed that IIT impact with statistical significance for the general and

in manufacture industry. Apparently, there are no statistically significant

effects of increased revenue on female labor in the remaining sectors. Thus,

in case of all enterprises, a sector oriented to intra-industry trade (IIT

value increases gradually to 1) also makes the proportion of female workers

increase in both short-term and long-term, but the impact in the longer term

is stronger. The short-term and long-term ones are 0.037 and 0.4 respectively.

This result implies that when firms participate in integration, the competition

increases, thus forcing the enterprise to rationalize their human resources and

make a shift in employment, increasing employment of female workers with

lower labor costs than male workers. Similarly, this effect in the long-term is

stronger than in the short term in manufacture industry (short-run and long-

run correlation coefficients are 0.4 and 0.44). The positively effect of IIT on

the share of female workers in manufacture sector can be explained by the

structure of international trade in Vietnam with the products of the textiles

and electronic industry account for 60% of export revenue in Vietnam

(General department of Vietnam customs, 2017), while the two industries

have the highest share of female labour as mentioned in section 3. In addition,

textiles industry in one of ASEAN priority sector under AEC.

Besides the impact of index intra-industry trade, the wages in this model

also reflecttrends in theory and previous studies.Wage increases reduce the

proportion of female workers in the enterprise> through an average salary

increase of 1% the proportion of female workers dropped 0.017% in all

sectors and decreased by 0.024% in the manufacture sector. In the long term,

the average wage increase, the proportion of female workers fell by 0.18%.

22

Table 6. The estimated result

(1) (2) (3) (4) (5) (6) (7) (8)

VARIABLES Infes Infes Infes Infes Infes Infes Infes Infes

lnrevenue -0.011*** 0.117** -0.196** -0.090 -0.004 -0.133 -0.054** -0.012***

(0.003) (0.053) (0.074) (0.057) (0.004) (0.145) (0.023) (0.004)

iit 0.037*** -0.105 0.028 -0.090 0.037*** -0.590 -0.025 -0.019

(0.007) (0.096) (0.185) (0.148) (0.007) (0.396) (0.101) (0.017)

lnwage_av -0.017*** 0.046 0.084 0.019 -0.024*** 0.000 0.030 -0.015***

(0.003) (0.042) (0.093) (0.038) (0.004) (0.133) (0.020) (0.004)

lnw_labs 0.001 7.166*** 0.056 -9.358** 0.201*** -20.512 -0.119 0.000

(0.002) (1.931) (1.571) (4.012) (0.046) (18.566) (0.137) (0.002)

lag1lnrevenue 0.005* -0.121** 0.271*** 0.084 0.001 0.084 0.016 0.001

(0.003) (0.052) (0.076) (0.058) (0.004) (0.142) (0.024) (0.003)

lag1lnfes 0.818*** 0.935*** 0.772*** 0.860*** 0.856*** 0.963*** 0.607*** 0.646***

(0.003) (0.039) (0.109) (0.039) (0.003) (0.094) (0.024) (0.006)

lag1iit 0.036*** 0.143 -0.141 0.074 0.026*** 0.631* 0.110 -0.004

(0.007) (0.091) (0.201) (0.142) (0.007) (0.327) (0.103) (0.017)

lag1lnwage_av -0.016*** -0.053 -0.161* 0.007 -0.024*** -0.018 0.022 0.010**

(0.003) (0.041) (0.093) (0.049) (0.004) (0.122) (0.024) (0.005)

lag1lnw_labs -0.000 -4.695*** 3.408** 5.357 -0.002 11.650 0.093 -0.000

(0.001) (1.437) (1.558) (3.953) (0.001) (19.439) (0.152) (0.001)

Constant 4.621*** 4.556*** 3.756*** 4.340*** 4.681*** 5.253*** 4.096*** 4.393***

(0.013) (0.173) (0.478) (0.270) (0.018) (0.579) (0.140) (0.022)

Observations 43,429 214 80 199 27,304 50 1,039 14,543

R-squared 0.694 0.779 0.675 0.738 0.768 0.785 0.409 0.424

Number of year

4 4 4 4 4 4 4 4

Source: Authors’ estimation from GSO’s enterprise surveys Standard errors in parentheses: *** p<0.01, ** p<0.05, * p<0.1

Vol. 3 No. 4 December 2018 23 CONCLUSION

Vietnam has joint in ASEAN for 20 years and the formation of the economic

community of ASEAN (AEC) is predicted to create more jobs for women in the

region.However, there have been no studies on the impact of AEC on the

specific situation of female workers in Vietnam in both short term and long

term. This paper examines the impact of AEC on demand for female labors in

enterprises in Vietnam using panel data from the GSO’s enterprise surveys

for the period 2011 - 2015 and fixed-effects regressions. We find that the

impact of AEC (through the increasing in intra industry trade) on female

labour’s demand is statistically significant positive in both short term and long

term. The effect of intra industry trade on female labour’s demand is stronger

in the long term. We also find the similar impact trend in the case of

manufacture sector in Vietnam.

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