Counting jobs and the unemployed: Some frequently asked questions

By Phu Huynh, labour economist of the International Labour Organization in Asia and the Pacific

News | 17 September 2014

1. Unemployment rate in Viet Nam is less that 2 per cent while it is double digit figure in many developed economies. What is the reason for this difference?

Low unemployment may disguise substantial levels of poverty, as high unemployment rates often occur in developed countries with low incidence of poverty. In countries with limited social protection, unemployment insurance and welfare benefits, many individuals simply cannot afford to be unemployed. Instead, they must survive by any means, often by taking up low quality, poorly remunerated jobs in the informal economy or in informal work arrangements. By contrast, in advanced countries with well-developed social protection and higher living standards, workers can better afford to take the time to seek more desirable jobs. Therefore, comparing unemployment rates across countries with very different social, economic and institutional contexts can be misleading.

2. What is the limitation of using unemployment rate as an indicator of the economy for developing countries like Viet Nam?

The limitation of using the unemployment rate in developing countries such as Viet Nam is that it does not reflect fully the labour market situation. In these countries, there is a lack of decent and productive work, which results in various forms of labour underutilization such as high underemployment and low earnings and productivity. In this regard, monitoring the labour market in developing countries such as Viet Nam should include indicators that reflect the quality of employment. This includes the working poverty rate, vulnerable employment rate, informal employment rate, agricultural share of employment, labour productivity and average wages, for example.

Source: LO, Trends Econometric Models, 2013

3. What explains why unemployment rate falls while many enterprises go bankrupt or dissolve and are not yet able to fully recover after the economic crisis? Also, the number of newly established enterprises in the first 8 months of this year was only 44,500 compared to 47,500 closed down.

In the 2nd quarter of 2014, unemployment decreased on an annual basis as the growth in employment (436 thousand) outpaced labour force expansion (273 thousand). However, it’s important to note that there was a contraction in the number of employers (-208 thousand) which was offset by a rise in wage workers (453 thousand). This partly reflects the complexity of Viet Nam’s economy and labour market. While some enterprises are facing challenges, other companies are faring better and able to hire more employees. However, some redundant workers who are unable to find new wage employment are returning to their households and working as unpaid family workers. In this regard, stronger employment services and labour market information would help Vietnamese jobseekers during these times of rapid economic change.

4. What are the major problems of Viet Nam's labour market?

Viet Nam’s labour market has made significant progress in recent decades, as reflected in higher wages, steady decrease in agricultural employment, and stronger labour laws and institutions. Despite its formidable progress, nearly half of Viet Nam’s workers are still employed in agriculture where productivity and incomes are low. Around three in five workers are in vulnerable jobs where working conditions are typically poor. Overall, productivity and wages are relatively low compared to some ASEAN economies such as Malaysia, Singapore and Thailand. In this regard, continued efforts are needed to enhance the country’s labour legislation, improve compliance with laws, and strengthen industrial relations system and skills development institutions.

5. What are the opportunities and challenges for Viet Nam's labour market in terms of its demographic bonus? What should be done to seize those opportunities?

Viet Nam’s demographic bonus reflects sizeable growth in its working-age population and declining dependency ratio. If it can create enough high-quality jobs to meet the supply of its expanding labour force, Viet Nam can accelerate economic growth while also addressing gaps in the labour market. To this end, macroeconomic stability and stronger labour market institutions would help create a conducive business environment, attract investment and stimulate demand. In addition, strengthening the quality of education and training and employment service providers would help Vietnamese workers and jobseekers meet the demand of business and industry and seize new and better job opportunities.

According to Tite Habiyakare, regional labour statistician of ILO Asia and the Pacific, the international concept of unemployment comes from the Resolution of the 13th International Conference of Labour Statisticians (ICLS) in 1982. It widely used today, both in developed and developing economies. Unemployment statistics in Viet Nam, produced by the General Statistical Office through regular labour force surveys, are fully in line with international standards.

According to the international standards, the "unemployed" comprise all persons of a specified age (such as 15 years and above) who during the reference period of the survey (usually the previous 1 week or 7 days) met all the three conditions: “without work” (not even for 1 hour, not in paid employment or self-employment), "available for work", and "seeking work".

In that sense, “being unemployed” is an extreme of the spectrum of the labour force that also includes “being underemployed” and “being employed”.

However, the international standards were recently changed by the 19th ICLS in October 2013 with a new resolution on work statistics. It introduced a new framework to better measure different forms of work (such as production work for own use, employment work, unpaid trainee work, volunteer work including in household production of goods and other forms of work such as unpaid compulsory work), and it has narrowed the concept of the employment to better capture what counts as “market-oriented” job.

According to the new definition, persons in employment are defined as all those of 15 years and above who, during a short reference period (usually 1 week or 7 days), were engaged in any activity to produce goods or provide services for pay or profit. It means those who worked in a paid job or in a self-employment business for profit for at least one hour during the reference period.

This is major change for many developing countries like Viet Nam where most or many people work in subsistence agriculture with little or no engagement with the market economy. When this new concept applied, labour force surveys will measure more adequately the “market sector” unemployment (rather than hide it by the existence of the large subsistence agriculture), and help capture the true extent of underutilized labour in the economy.

Viet Nam is among the first group of countries that will introduce this change, but it takes time to implement it.