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INEQUALITY INCOME IN HANOI’S PERI-URBAN AREAS: EVIDENCE FROM HOUSEHOLD SURVEY DATA Tran Quattg Tuven Steven Lim In tro d u c tio n A number o f studies indicate that d iversification in nonfarm activities, including wage and self-em ploym ent, results in poverty alleviation and therefore increases liv in g standards for a large number o f Vietnamese rural households A ccording to W B , income from wage em ploym ent played the most im portant role in income growth o f the poor in 2004 Wage income contributed almost ha:f o f overall income grow th o f the poorest households between 2002 and 2004 ( V B , 2006) Van de W alle and Cratty (2004) found that the p ro ba b ility o f falling in poverty is substantially higher among households who not participate in non:arm self-em ploym ent activities Also, their evidence based on cross-sectional data indicated that there is a causal relation between d ive rsifica tion out o f a gricuture and poverty reduction M oreover, Pham, B ui, and Dao (2010) estimated that on average and ceteris p a rib u s , a household that moves from a pure a g ricu tu re production unit to a pure non-agriculture one w ill increase its expenditure per capita, and this outcome tends to steadily increase over tim e However, w h ile diversification in nonfarm income sources has an increasing effect on household w elfare, it exaccrbates incom c inequality in Vietnam U ỉin g dala sets from two Vietnam Household L iv in g Standard Survey (V H L S S ) in '993 and 1998, G allup (2002) shows that between 1993 to 1998, wage employm ent contributes an approxim ately same amount to overall income inequality as ith e r non farm em ploym ent sources (household enterprise and remittances, m a h lv ) A g ricu ltu l income, on the contrary, has a decreasing effect on overall income inequality A sim ila r finding from V H I,S S 2004 is also found in Van Cao and A kita * MA University o f Econom ics and Business, Vietnam National University, Hanoi PhD student at the School o f Management, the University o f Waikato, N e w Zealand ** Ph.D Waikato Management School, the University o f Waikato, N e w Zealand 796 IN FQ U A IITY INCOME IN H A N O I’S PFRI URBAN AREAS (2008), w hich shows that agricultural incomc served to decrease overall inequality whereas nonfann self-employm ent and wage income served to increase overall inequality Nevertheless, when looking at incomc distribution w ith in rural and urban sectors, Van Cao and A k ita (2008) found that the contribution o f each income source to overall inequality is quite different between tw o sectors W hile agricultural income is inequality-decreasing in the urban sector, it is inequalityincrcasing in the rural sector Nonfarm self-employm ent seemed to be not related to inequality in the urban scctor but contributed to the rise in overall inequality in the rural scctor Wage income is found to decrease overall inequality w ilh in each sector F in a lly, other income sources served to increase overall inequality in both see tors As noted in Babatunde (2008), by decomposing income inequality one can clucidatc the structure and dynamics o f incomc w ith in different socio-economic groups M easuring die contribution o f each income source to overall inequality coupled w ith realizing the relation between socio-economic characteristics and overall inequality, can be useful to analyzing economic policies and designing poverty alleviation programmes, Using a novel data set from our own household survey in Hanoi's peri-urban areas, this study contributed new empirical findings to the existing literature on income inequality in Vietnam's peri-urban scctor This paper is structured as follows: the subsequent section provides a brief description about the study area M ethodology is mentioned in Section 3, and estimation results are discusses in Section 4, fo llo w e d by conclusion in Section D e scrip tio n o f study area Our research was conducted in Hoai Due, a peri-urban district o f Hanoi Hoai Due is located nn the northwest side o f Hanoi, 19 km from the Centra] Business D istrict (C R D ) (W B , 2011) The district has an extrem ely favourable geographical position, w hich is surrounded by various important roads namely Thang one highw ay (the co u ntry’ s longest and most modem highway) National Way 32 and in close p ro x im ity to industrial zones, new urban areas and Bao Son Paradise Park (the biggest entertainment and tourism complex in North Vietnam ) Consequently, in the period 2006-2010, around 15,600,000 rrT o f farmland were com pulsorily acquired by the State fo r 85 projects (LH , 2010) Before r August 2008, Hoai Due used lo he a d istrict o f Ha Tay Province a neighbouring province o f Hanoi, which was merged into Hanoi on P ' August 2008 The; cistrict occupies 8,247 hectares o f land, o f which agriculture land accounts fo r 797 V IỆ T N A M H Ọ C - K Ỷ Y Ế U H Ộ I T H Ả O Q U Ổ C T É L À N T H Ứ T 272 hectares and ] percent o f this area is used by households and individuals (H oai Due D istric t People's C om m ittee, 2010a)1 There are 20 adm inistrative units under the district, including 19 communes and town Hoai Due has around 50400 households w ith a population o f 193,600 people In the w hole district, the employm ent in the agricultural sector dropped by around 23 percent over the past dccade Nevertheless, a sign ifica nt proportion o f em ploym ent has s till remained in agriculture accounting fo r around 40 percent o f the total em ploym ent in 2009 The corresponding figures fo r industrial and services sectors are 33 and 27 percent, respectively (Statistics Departm ent o f Hoai Due D istrict, 2010) P rior to r l August 2008 Hoai Due used to be the richest d istrict in Ha Tay Province (M O N R E , 2(07) In 2009, Hoai Due GDP per capita reached 15 m illio n V N D (H oai Due District People's Com m ittee, 2010b), which is less than h a lf o f H a n o i’ s average (32 m i lion V N D ) (Vietnam Government Web Portal, 2010) Methodology 3.1 Data collection Adapted from GSO (2006), a household questionnaire was designed to gather a set o f quantitative data on household demographic characteristics and income sources from various econom ic activities First, six communes were randomly selected2 and then 80 households, were randomly selected from each commune for a target o f sample size o f 480 The survey was carried out from A p ril to June 2010, and 477 households were successfully interviewed 3.2 Data analysis Income inequality can be measured using various methods (Babatunde, 2008) Am ong the different ways o f inequality measurement, the G in i coefficient is popularly used to measure the disparity in the distribution o f income, consumption, and other w elfare indicators (López-Feldman, 2006) F o llo w in g Van Den Berg and Kum bi (2006), we examine the relation between incom c sources and incomc inequality Yitzhaki using Gini decom position analysis by income source (Lermaa & 1985; Shortocks, 1982) A ccording to López-Feldman (2006), Le-man As laid down in the current l a n d Law o f Vietnam, land is not privately owned because it is the collective property o f the entire people, which is representatively ownct and administrated by the State and the land use rights are to be granted to individuals, households, enterprises and other organizations (National Assembly o f Vietnam, 2003' Six communes include Song Phuong, Lai Yen, Kim Chung, An Thuong, Due Thuon>, and Van Con 798 1NEQUAII TY INCOME IN HANOI'S PE R I-U R B A N AREAS and Y itzhaki (1985) extended the results o f Shorrocks (1982) and indicate that the G ini coefficient o f total incom c inequality (G) can he denoted as: K k=l ( 1) where Sk represents for the share o f income source * in total income, Gt is the G ini coefficient o f the income distribution from source *, and Rk is the correlation coefficient between income from source * and w ith total income Y Babatunde (2008) shows that GkRk is known as the pseudo-Gini coefficient o f income source * w h ile the share or contribution o f income source * to lota] income inequality is expressed as: G (2) A s shown in Stark, T a ylo r and Yitzhakj (1986), the income source elasticity o f inequality indicates the percent change in the overall G ini co efficient resulting from a ] percent change in income from source * is expressed as: (3) Where G is the overall G ini coefficient prior to the income change As noted by Van Den Berg and K u m b i (2006), equation (3) is the difference between the share o f source * in the overall G ini coefficient and its share in the total income (Y ) It should he noted {hat the sum o f income source elasticities o f inequality should be zero, w hich means that i f a ll the income sources changed by same percentages, the overall G ini coefficient ((7) w ould remained unchanged E stim a tio n results 4.1 B a ckg ro u n d o f household income and incom e-generating activities In previous studies on the decomposition o f income inequality in Vietnam household income is often disaggregated into various sources, including wage income, nonfarm self-employm ent income, agricultural income and other income 799 V IỆ T N A M H Ọ C - K Ỷ Y Ế U H ộ ] T H Ả O Q U Ó C T Ế L À N T H Ủ T (.Adger, 1999; Gallup, 2002; Van Cao & A k ita , 2008) However, wage earners often w ork for various types o f em ployers in Vietnam Nguyen (2010) divided wage workers in Vietnam into tw o groups, including inform al wage w orkers and formal wage workers Form al wage earners are those who w ork fo r other households, often not have a labour contract and not participate in social insurance Inform al wage earners are those w o rkin g fo r the State, enterprises and other organizations, and they earned a much higher wage income than inform al wage earners F o llo w in g this approach, we further brake down wage income into tw o sub-categories, namely inform al wage and form al wage income Household income, therefore, can he contributed by five different sources (Table 1) Table I : H ousehold incom e by source Categories Definitions Farm work Self-employment in household agriculture, including crop and livestock production Non-farm Self-employment Self-employment in household businesses (excluding farm production) Informal wage work Wage work that is unstable, irregular, and without a formal labour contract, informal wage earners are often manual workers and hired by individuals or households * Formal wa%e work Wage work that is regular and relatively stable in factories, enterprises, state offices and other organizations with a forma] labour contract and often require skills and higher level o f education Other income Income from other sources such as public and private transfer, loan interest, house or land rental, etc Source: Survey data and authors’ compilation from Becker (2004), Maxwell, el a] (2000), Cling et a] (2009), and Nguyen (2010) Tablc provides background in fo rm a tio n about household incom e shares by source It also indicates how m uch per household and per capita incom e by source The results show that o v e rw h e lm in g m a jo rity o f surveyed households 800 INEQUALITY INCOME IN HANO I'S P E R I-U R B A N AREAS (around 84 percent) derive income from fa rm ing (cro p and live sto ck pro du ctio n ), w h ich , how ever, ju st accounts fo r about 27 percent o f total incom e on average T his suggests farm ing has rem ained im p o rta n t in term s o f food security and cash incom c to some extent M any households have continued rice c u ltiv a tio n as a source o f food supply w h ile others produced vegetables and fru its to supply fo r H a n o i’ s urban markets The com m on types o f crop plants consist o f cabbages, tomatoes, w aier m orning g lo ry and various kin d s o f heans, oranges, grapefruits and guavas, etc A n im a l husbandry is m a in ly undertaken hy p ig or p o u ltry breeding sm all-size farms or cow grazing households These a c tiv itie s , how ever, have considerably declined due to the spreading o f cattle diseases in reccnt years A lm ost all surveyed households (95 percent) participate in nonfarm activities and income from these sources contributed about two thirds o f total income on average A m ong these activities, informal wage income accounts fo r about one fourth o f total income w ith a participation rate reached around 41 percent This incomc source is often earned from manual labour jobs and the common types o f such jobs are carpenters, painters, building workers and other various kinds o f casual jobs Such jobs are often hired by individuals or households w ith low and unstable income, and w ith o u t labour contracts Those who undertake these jobs have be low-average education and are younger Sim ilar figures are observed fo r the case o f non farm self-em ploym ent income About 43 percent o f the household sample reported engaging in non-famn household businesses, and on average around 26 percent o f total constituted income is contributed by this a ctivity small-scale trade or production units, using Such businesses fa m ily labour The households’ business premises are m ainly located at their own houses or residential land plots that have a prim e location for opening a shop, a w orkshop or a small restaurant A b o u t 28 percent o f sample households received incom e from form al wage w ork, accounting fo r 18 percent o f total income on average Form al wage earners are often employees who w ork in enterprises and factories, state offices or other organizations Such jobs are ofien h ig h ly paid w ith stable incom e and labour contracts Those undertaking these jobs tend to have a much higher education level and are younger Finally, about one th ird o f surveyed households received other income, inclu d in g private transfer (g ift and rem ittances) and public transfer (pension and social assistances), rental incom e and interest incom c, and so on T his source, however, contributes o n ly percent o f total income on average 801 V IỆ T N A M H Ọ C - K Ỷ Y Ế U H Ộ I T H À O Q U Ố C T Ế L À N T H Ứ T Table 2: Composition of income, and household participation in different activities Total SD Farm income SD Nonfarm income SD A Informal wage income SD B Forma] wage income SD c Nonfarm self-employment SD Non-labour income SD Per Per Share o f total Participation household capita Income (%) rate (%) 59,688 14,146 (31,156) (7,345) 14,046 3,282 27.14 83.65 (16,502) (4,187) (30.40) 42,151 9,712 66.07 (32,527) (7,402) (31.50) 12,035 2,793 24.04 (18,399) (4,228) (34.06) 14,554 3,092 17.90 (28,972) (6,322) (31 80) 15,561 3,827 24.13 (26,478) (6,495) (34.13) 3,490 1,153 6.78 (8,849) (3,233) (17.16) 95.40 40.70 28.10 40.50 33.12 Unit: 1,000 VND Nonfarm income “ (A+B+C) Number o f observations: 477 Standard deviation in parentheses Source: Authors' own calculation from the survey 4.2 G ini coefficients f o r income inequality Figure presents the disừibution o f incom e sources over incom e quintilcs As compared to households in the higher incom e strata (4 and 5), the low er incom e 802 INEQUALITY INCOME IN HANOI'S PE R I-U R B A N AREAS quintilc households (1 and 2) ha\o a higher share o f farm incom e, whereas those in the richcr groups have a higher share o f non farm s e l f - e m p l o y m e n t and form al wage incomes This suggests that incomc shares by source arc closely associated w ith the in c o m e d is trib u tio n ; s p e c ific a lly th e re is a positive a ss o c ia tio n b e t w e e n d ie n a n fa r m s c lf-c m p lo y m e n t in c o m e share, fo rm al wage incom e share and p er cap ita in co m e, but a negative correlation between the farm and inform al w age incom e shares and per cap ita i n c o m e Figure shows the distribution of income source over farm land holdings A s revealed in th is figure, households in the h ig h e r l a n d h o l d i n g stratum s have a m uch h ig h e r percentage o f farm in co m e hut have a lo w e r share o f n o nfa rm s e lf-e m p lo y m e n t, form al wage incom es and other incom e By contrast, the lo w e r la n d h o ld in g stratum households receive m ore incom e from nonfarm s e lf-e m p lo y m e n t and manual labour jo b s , w h ic h im p lie s that households w ith lim ite d farm land m ig h t be pushed in to these a c tiv itie s as a way to co m p le m e n t th e ir incom e F in a lly , the share o f fo rm a l wage incom e appears not to be c o rre la te d w ith the d is t r ib u t io n o f fa rm la n d , suggesting that th is in c o m e s o u r c e m a y b e a s s o c ia te d w it h o th e r f a c t o r s , s u c h as e d u c a t io n , rather than fa rm la n d h o ld in g Figure 1: Income shares hy source and income quintiies ■Non-fami « Formal wa^e ■Iufomiahvage ■ Other iiK C r t iie * Firm 100% •ệ te 60 % X •3 40% © w 20 % III com qulntlltc (incomcper capita) 803 V IỆ T N A M H Ọ C - K Ỷ Y Ế U H Ộ I T H Ả O Q U Ỏ C T Ế L A N T H Ứ T Figure 2: Income shares by source and farm land holding quintiles I Ề Ô I Jm i V i w I Farmland holding qulnlllM (farmland size p a bcHiiebold) Table presents the G in i decomposition o f incom e inequality by income source The overall G in i co efficient fo r the sample households was 0.267, w h ich is much low er than the G in i co efficient o f 0.434 in the w hole country and 0.4 ] ] in the Red River Delta reported by GSO (2008) This indicates a quite low degree of income inequality among the sample households Such a lo w e r inequality at district level than that in larger areas is also found in Vietnam by M in o t, Baulch, and Epprecht (2006), w ho explained that, sim ila r 10 other measurements o f inequality, there is a ứend toward sm aller G in i coefficients fo r sm aller regions, such as provinces or districts, than for the country as a whole T his is due to the fact that households in a sm all region are lik e ly to have m ore sim ilarities than households across the w hole country B y decomposing the total household income inequality into various income sources, the results reveal that nonfarm self-em ploym ent, form al w ag e incom c and other income becom e the m ajor contributors to the overall incom e inequality am ong sample households Taken together, they account for 93 percent o f the total income inequality B y contrast, farm and inform al wage income reduced the inequality; the pseudo-Gini coefficients o f these income sources are much low er than the total G ini coefficient, whereas the pseudo-Gini coefficients for nonfarm self-em ploym en t, 804 INEQUALITY INCOME IN HANO I'S PE R I-U R B A N AREAS form al w a g e in co m c and other income sourccs arc much higher, s p e c ific a lly , a 10 p crc cn t increase in incom c from fa rm and inform al wage activities w ould have led 10 a 1.7 percent and 1.9 pcrccnt decline in the overall incom e in e q u a lity , respectively Whereas, the same increase in nonfarm self-em ploym ent, form al wage incom c and other incom e sources w o u ld have resulted in a 1.4 percent, 1.6 percent and 0.57 percent increase in the overall income inequality, respectively T a b le : G ini decomposition o f incomc inequality by income source Correlation Income income source share Sk with the Gini distribution Gk of total income Source PseudoGini GkRk Share lo elasticity tola] income of total inequality inequality (RkGkSkVG (RkGkSkV Rk G-Sk 0.232 606 0.121 073 0.064 -0.168 0.271 0.757 0.534 0404 0.409 138 Informal wage 197 727 0.012 0.009 0.007 -0.191 Formal wage 0.219 818 0.572 468 0.383 0.164 Other incomc 0.082 0.876 0.518 454 0.138 0.057 Total 1.000 0.267 Farm Non farm Self-employment N o te 1.000 Estimates are based on annual per capita incomes N '-4 7 L o okin g at the third and fourth column in Table 3, the results show that the inequali(y o f farm and in fo rm a l wage incomes among households is low er than the in eq u ality o f nonfarm self-em ploym ent, formai wage incom e and other incomes among households In addition, as co m p a r ed to nonfarm self-em ploym ent income, form al wage incomes and other income, farm and in fo rm a l w age incomes have a much low er correlation w ith the distribution o f total income Consequently, income from farm and in fo rm a l wage w ork had an equalizing effect on the income distribution Basically, this fin d in g is in a cc o rd a n ce w ith G allup (2002) and Van C a o and A k it a (2 0 ), w h o fo u n d that w h ile agricultural in c o m e a c tu a lly re d u c e d 805 V IỆ T N A M H Ọ C - K Ỷ Y Ẻ U H Ộ I T H Ả O Q U Ỏ C T Ẻ L À N T H Ú T the inequality o f income distribution, nonfarm self-em ploym ent incom e and ether income sources m a in ly contributed to inequality in Vietnam Conclusion and policy recommendation By disaggregating wage income into tw o sub-categories, we found Lhat inform al wage income has an inequality-decreasing effect on income inequality, w hich im plies that there is no or a low entry barrier to manual labour jobs and hus everyone can undertake these jobs in Hanoi's peri-urban areas In contrast, the rising-inequality effect o f other nonfarm income sources, m ainly nonfarm jelfemployment income and form al wage income, suggests that there are sime relatively high entry barriers that hinder everyone from participating into these ligh return activities Possibly, lucrative nonfarm activities often require higher leves o f education and skills, better access to credit or other conditions O ur fin d in g supports the hypothesis stated by A dger (1999) that income d ive rsifica tion into non arm activities results in either greater income inequality i f opportunities for tiese activities are skew ed towards to the better-ofT; or in less incom e inequality i f ỉuch opportunities are accessible to the poorer parts o f the population Given the context o f shrinking farm land due to rapid urbanization, the declining share o f farm income w ill be unavoidable Consequently, increising inequality due to the sh rin kin g share o f farm incom e w ill be im possible to ayoid w ith o u t stopping farm land conversion fo r in d u s tria liz a tio n and urbanizaion Based on the aforem entioned e m p irica l fin d in g s , it is possible to propose some p olicies that may help to m itig a te the issue o f incom e ine q u a lity in V ie tn im 's peri-urban areas A g ricu ltu l extension polices can help farmers to get h iịh e r returns from agriculture by changing to more profitable crop plants In addiion, providing local people, especially elderly landless farmers, w ith appropriate jo b training programmes can help them get a decent jo b F in a lly, im proving oca] infrastructure, coupled w ith installing new local markets are found to be a efTe:tive w ay to create m ore nonfarm jo b opportunities fo r local people (B ic h N goc, 2)04; V S N guyen, 2009) Reference Adger, w N (1 999 ) Exploring incom e inequality in rural, coastal V iet N am T h e J o u r n a l o f D e v e lo p m e n t S tu dies, 55(5), -1 Babatunde, R (2008) Incom e Inequality in Rural Nigeria: E vid en ce from F am in g H ouseholds Survey Data A u s tr a lia n J o u r n a l o f B a s ic a n d A p p lie d S c ie n c e s (1), 134-140 06 INFQUALITY INCOM E IN H AN O I'S PERI-UR RAN AREAS Bccker, K F (2 0 ) The in fo r m a l e co no m y SỈDA: Department for Infrastructure and E conom ic Co-operation Rich N g oc (2 0 ) Farmers Icam to take a new career path V ie tn a m In v e s tm e n t R e v ie w L td Cling, J P., Le, V D , N g u yen , T T 11., Phan, T N T., Razafindrakoto, M., & Roubaud., F (2 0 ) S h e d d in g lig h t on a h u g e b la c k h o le : the in f o r m a l s e c to r in H a n o i, m a in fin d in g s o f th e In fo rm a l s e c to r s u rv e y ( IS S u rv e y ) 0 (G S O -ISS / 1RD-D1AL project) Retrieved from h t t p / /w w w dial.prd fr/dial pays/PD F/hanoi survey.pdf Gallup, J (2 0 ) T he w a g e la b o r m a rk e t a n d in e q u a lity in V ie tn a m in the J 9 s (World Bank P olicy Research Working Paper No 2896) Retrieved from The World Bank: h ttp ://w w w -w ds.w orldhank.org/extem al/default/W D SC ontentServer/lW 3P/lB / 0 / 1 /0 /0 0 9 02 l01 805 10 l9 /R cn d e red /P D F /m u ltiO p a g e.p d f GSO (2006) V H L S S -2 0 The Q u e s a n n n a ir on H o u s e h o ld Survey Hanoi, Vietnam, The General Statistical Office G SO (20 08 ) S ection 9: Participation in poverty reduction programs T h e re s u lt o f s u rv e y on h o u s e h o ld liv in g s ta n d a rd s 0 : Statistical Publising House llo a i Due District People's Committee (2010a) Báo cáo thuyết minh kiềm kê đất đai năm [2010 land inventory report] Hoai D u e Ha N o i, Vietnam 10 Hoaj Due District People's Committee (2010b) B o c o tìn h h ìn h th ụ c h iệ n n h iệ m v ụ p h ả i tr iể n K T X H - 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