Fostering Education Reform, Labor Market Transformation for Sustainable Poverty Reduction

3:36:12 PM | 5/11/2022

Although Vietnam made a lot of progress in poverty reduction in the period 2010-2020, there are still challenges in poverty reduction.

A more diverse share of the population is economically vulnerable

Over the past decade, the poverty rate in Vietnam has fallen dramatically. The poverty rate according to the World Bank's lower-middle-income country standard (US$3.20/day in 2011 purchasing power parity) has fallen from 16.8% to 5%, with over 10 million people lifted out of poverty. The sudden outbreak of the COVID-19 pandemic at the end of the decade stalled progress on wage increases and improvements in job quality. Progress in poverty reduction was set back, but did not reverse in 2020.

Vietnam's rapid economic growth has lifted many people out of poverty, but a significant portion of the population remains economically vulnerable. About one in five Vietnamese people live below the economic security threshold of US$5.50 per day and 1 in 10 vulnerable people are at risk of falling below the threshold at times due to shocks.

According to the World Bank's report titled “From the Last Mile to the Next Mile”, chronically higher poverty rates among certain groups is a last-mile challenge, but some positive trends have emerged. Poverty rates among some chronically poorer groups were reduced by at least half between 2010 and 2020, including ethnic minorities and households in the midlands and northern mountains regions. Ethnic minority workers are moving rapidly to work in the manufacturing and processing sectors, at the same rate as the Kinh at the beginning of the decade.

Beyond the poor, a more diverse share of the population is economically vulnerable. The rapid pace of change due to economic development has nonetheless left some people behind and reduced their opportunities to participate in the most dynamic sectors of the economy, and created a large group of people that are no longer poor but not yet in the middle class. Although the risk of falling into extreme poverty is currently low, their legitimate concern is still achieving higher levels of economic security.

Ms. Carolyn Turk, World Bank Country Director for Vietnam, said that Vietnam's poverty reduction and equity agenda was not just about raising minimum living standards and tackling chronic poverty – the Last-mile that Vietnam had done very well so far. The next mile is aiming at creating new and sustainable economic paths for people with higher aspirations. This is a challenging and unprecedented path in light of the changing economic conditions and global climate.

Improving the quality of higher education training

For Vietnam to achieve its goal of becoming a high-income country by 2045, equitable human capital formation and increased labor productivity are key. To achieve an average annual economic growth rate of 6.7%, a necessary condition for Vietnam to achieve high-income country status by 2045, productivity growth per worker will need to increase from 5.3% recorded in 2012-2018 - the highest rate in the past three decades - to 6.6%. 

According to the World Bank, Vietnam will face challenges in transitioning to higher-skill jobs without continuing reforms in education and skills development, and transforming the labor market. The main characteristics of the labor market are slow growth of high-skill occupations, high informality rates and an aging workforce. Improving the quality of higher education will be an important step. Improving the fit and quality of personnel and post-secondary education is a way to help reduce the skills gap and improve the perception of businesses having difficulty in recruiting certain skills.

At the same time, to mobilize capital for public investment demand in order to end poverty and develop an economically secure middle class, Vietnam can raise tax thresholds (personal income tax, wealth tax), and explore the application of new taxes to both increase revenue and deal with negative externalities.

By Quynh Chi, Vietnam Business Forum