Is There a Public Sector Wage Premium in Vietnam? New Evidence From the Vietnam Household Living Standard Survey

Abstract

The identification of a public sector wage premium or penalty is of specific interest in fast and emerging economies, particularly those that have transitioned from state controlled to market economies. Using Vietnam as a case study, our initial descriptive statistics analysis showed that average hourly wage rates for public sector workers exceeded those for private sector workers from 2014 to 2020. However, after applying a propensity score matching (PSM) method and controlling for worker and job characteristics, remuneration for a public sector worker was between 17.6% and 27.8% lower than that for a private sector worker. Further exploration of this result revealed that the public sector employs a large proportion of university graduates; however, it pays a lower return to human capital compared to the private sector. The main policy implication from our findings is that the government is likely to face a public sector skills shortage in the future unless it significantly increases the returns to education in its remuneration policies.