Training (Column 5) 42

Column 5 isolates the effects of changing the skill-acquisition composition of new entrants to Vietnam’s labour force over the period 2010-2020. We assume that the allocation of Vietnam’s training resources is realigned in a way that ensures that initial wage relativities across skill categories are maintained in the year 2020. This explains why, in column 12 of Table 8, the net 2020 outcomes for skill-specific wages are identical across skill types. Without a change in the composition of the skill-acquisition patterns of new entrants to the workforce over the period 2010-2020, this would not be the case, as is clear from the results in column 5 of Table 8. Here, we see that forecast changes in the skill-acquisition patterns of workforce entrants has a substantial damping effect on the wages of university and college qualified workers, as well as workers with short- and long-term vocational qualifications. The implication of these results is that, without a realignment of Vietnam’s training resources over the forecast period, too few workers with these qualifications will be available in the year 2020, leading to their wage rates rising substantially. For example, the result for university-

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qualified labour in column 5 of Table 8 can be interpreted as meaning that wages of university- qualified workers will be 20.9 per cent19 _{higher than otherwise forecast in column 12, if training}

policy is not adapted to accommodate forecast growth in demand for university-qualified labour. The expansion in the level of university-qualified labour-force participants required to achieve this wage reduction is reported in column 5 of Table 7, along with the required changes in supply of labour with other qualifications. As is clear from Table 7, the allocation of training resources necessary to maintain base year wage relativities involves an expansion in overall training effort (that is, the number of workers with no vocational training must fall by 5.7 per cent), and particular attention to short- and long-term vocational training and attainment of college and university qualifications. The national benefits of devoting policy attention to the qualifications of Vietnam’s new labour market entrants are clear from the macroeconomic results (Table 3). We see that training policy alone is forecast to contribute 6.2 percentage points to Vietnam’s forecast real GDP growth (row 1, column 5). In annual terms, this represents 0.61 percentage points of the 8.0 per cent annual average growth forecast over the period (row 1, column 13). We can trace the source of the real GDP gain to rows 8 – 10 of column 5. Recall that in column 5 we do not change the total number of new entrants to the labour force20_{, only the skill composition of the new entrant stream. This explains why employment of}

persons in column 5 is unchanged from its 2010 value (row 8). Note however that wagebill-weighted employment rises by 6.4 per cent (row 10, column 5). This is so for two reasons. First, workers with vocational training, professional high-school, college or university qualifications work, on average, more hours per week than do those with no vocational training (Appendix 4). This explains why total employment in hours rises, even when the total number of employed persons is unchanged (row 9, column 5). Second, as discussed in the preceding paragraph, the realignment of training resources described in column 5 promotes supply of qualifications the relative wages of which are rising, and reduces supply of qualifications the relative wages of which are declining. This explains why wagebill-weighted employment rises by more than employment measured in hours (row 10, column 5). For understanding macroeconomic impacts, wagebill weighted employment is the relevant employment measure, because it weights employment changes according to the value of the marginal product (or GDP contribution) of different skill types.

We assume that our forecast period is sufficiently long for capital stocks to adjust to maintain base period rates of return on capital. If capital stocks were unchanged from their 2010 levels, the expansion in wagebill-weighted employment would cause rates of return on capital to rise. To maintain rates of return at their base period values, capital stock must expand (row 11, column 5). Together with the rise in wagebill-weighted employment, this accounts for the expansion in real GDP (row 1, column 5).

The expansion in the 2020 capital stock is financed partly by the additional domestic savings generated by the rise in GDP in column 5, and partly by a rise in net foreign debt (row 20, column 5). The increase in interest financing costs associated with the rise in net foreign debt explains why national consumption (rows 3 and 4) rises by less than real GDP (row 1). The welfare gain implicit in the rise in real private and public consumption is substantial. Our macroeconomic closure underlying the results in column 5 assumes that the average propensity to consume out of national income is

19 _{= 100 * (1 / (1 – 0.265) -1).}

20 _{The effect of changing the absolute number of new entrants, holding their skill acquisition patterns}

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constant. Hence, we can infer that with real private and public consumption spending rising by over 4.5 per cent, so too is real (consumption price deflated) gross national income. In 2009, Vietnamese gross national income per capita was $USD 1,032.21 _{A 4.5 per cent increase in national income thus}

represents an income gain of $46.3 per capita, or approximately $194 per household22_.

The shocks in the five columns discussed above are the most important contributors to changes in the economy and in employment. They explain 98.1 per cent of the total change in GDP. The remaining columns have small effects on the economy, and will only be discussed briefly below.