UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE IMPACT OF TECHNOLOGY ADOPTION ON EMPLOYMENT STRUCTURES AND LABOR PRODUCTIVITY A CASE STUDY IN VIETNAM MANUFACTURING FIRMS FROM 2007 TO 2013 BY NGUYEN HUONG NGUYEN MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, NOVEMBER 2015 UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS THE IMPACT OF TECHNOLOGY ADOPTION ON EMPLOYMENT STRUCTURES AND LABOR PRODUCTIVITY A CASE STUDY IN VIETNAM MANUFACTURING FIRMS FROM 2007 TO 2013 A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By NGUYEN HUONG NGUYEN Academic Supervisor: PROF.DR NGUYEN TRONG HOAI HO CHI MINH CITY, NOVEMBER 2015 Declaration “The thesis entitled “The impact of technology adoption on employment structures and labor productivity A case study in Vietnam manufacturing firms form 2007-2013” is the requirement for the degree of Master of Art in Development Economics to the Vietnam – The Netherland Programme (VNP).” Nguyen Huong Nguyen Acknowledgments I have taken efforts in writing this thesis However, it would not have been possible without the kind support of many people I would like to extend my sincere thanks to all of them I wish to express my deep sense of gratitude and thanks to my supervisor, Prof.Dr Nguyen Trong Hoai for his invaluable guidance and constant encouragement which has sustained my efforts at all the stages of this thesis work Sincere thanks also go to Dr Pham Khanh Nam for his valuable comments and suggestions for my concept note as well as for his enthusiasm of helping me collecting data It is also my duty to record my gratefulness to all VNP lecturers who have helped and taught me a great deal of useful knowledge My appreciations go to my classmates who have willingly helped me out with their abilities and accompanied with me at VNP during two years I am also very much thankful to VNP officers and librarian for all their assistances of available lab room, library and study materials Finally, I owe a debt of gratitude to my parents for inspiring me and keeping me going to this work Nguyen Huong Nguyen Abbreviations ASEAN : Association of Southeast Asian Nations NBER : The National Bureau of Economic Research OECD : Organization for Economic Co-operation and Development U.S : The United States R&D : Research and Development DANIDA : Danish International Development Agency FDI : Foreign Direct Investment SOEs : State-Owned Enterprises GSO : General Statistics Office CIEM : Central Institute for Economics Management GDP : Gross Domestic Product APO : Asian Productivity Organization HIDS : Human Identification Solutions Conference VRA : Vietnam Rubber Association MIT : Ministry of Industry and Trade Abstract This study investigates directly the impact of technology adoption on employment structures and labor productivity in Vietnamese manufacturing firms by using the panel data from the Survey of Small and Medium Scale Manufacturing Enterprises (SMEs) from 2007 to 2013 Results show that adopting technologies into production positively affects the share of professionals including engineers, technicians, accountant/economist and other professionals in Vietnamese manufacturing firms However, applying manually operated machineries and operated computers could lead to the decrease in added value per worker while other factory equipments seem not to have any effect The study also finds that the capital-intensive firms hire more nonproduction workers and gain higher labor productivity Keywords: Technology adoption; employment structures; labor productivity; operated personal computer; factory equipment; manufacturing firms Table of contents Chapter 1: Introduction .11 1.1 Problem Statement 11 1.2 Research objectives: 13 1.3 Research questions 13 1.4 The scope of the study 13 1.5 The structure of the study .13 Chapter 2: Literature review .15 2.1 Key concepts: .15 2.1.1 Technology and technology adoption .15 2.1.2 Employment structures 16 2.1.3 Labor productivity 16 2.2 The relationship between technology adoption and employment structures .17 2.3 The relationship between technology adoption and labor productivity .19 2.4 The relationship between firm characteristics and employment structures .21 2.5 The relationship between firm characteristics and labor productivity .22 2.6 The relationship between capital-labor ratio and labor productivity as well as the correlation of capital-labor ratio and employment structures .22 2.7 Conceptual framework: 23 Chapter 3: Data and Research methodology .24 3.1 Model specification 24 3.3 Data source 29 3.4 Estimate methods .31 Chapter 4: Technological revolution, employment structures and labor productivity in Vietnam manufacturing firms .32 4.1 Technology innovation 32 4.2 Employment structures .35 4.3 Employee productivity .36 4.4 Summary of the chapter: 38 Chapter 5: Empirical Results 39 5.1 Descriptive analysis 39 5.2 Empirical results .45 5.2.1 For the sample 45 5.2.2 For the specified industries .52 5.3 Summary of the chapter .61 Conclusion and policy recommendation .62 6.1 Conclusion 62 6.2 Policy recommendations 63 6.3 Research limitations 64 References 65 Appendix 69 List of tables Table 3.1: Employment structures in SMEs .28 Table 3.2: Definition of variables .29 Table 4.1: Technological content of manufactured exports (%, 2000, 2008) 33 Table 4.5: Labor productivity by firm size and location 37 Table 5.1: List of considered industries 39 Table 5.4: The summary of statistics by mean of each industry .43 Table 5.5: The coefficient signs between employment structures and other independent variables 46 Table 5.7: The coefficient signs between the proportion of professional workers and other independent variables 49 Table 5.8: The coefficient signs between the proportion of sales and office workers and other independent variables 50 Table 5.9: The coefficient signs between the labor productivity and other independent variables 52 Table 5.10: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of food .53 Table 5.11: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of textile .55 Table 5.12: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials .56 Table 5.13: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of rubber and plastics products 58 Table 5.14: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of fabricated metal products, except machinery and equipment 59 Table 5.15: The coefficient signs among the employment structures, labor productivity and other independent variables in the manufacture of furniture .60 List of figures Figure 3.1: The structure of industries considered 30 Figure 4.1: The proportion of enterprises that obtained a new technology by location and size 34 Figure 4.2: Levels of labor productivity per hour worked, 1970-2010 36 Figure 5.1: Changing in employment structures form 2007-2013 40 Figure 5.2: Added value per worker 41 Figure 5.3: Numbers of machineries and computer used 42 List of appendix Appendix 1-Table 4.2: Technology Characteristics (percent) 69 Appendix 2-Table 4.3: Worker Composition by Occupation (%) 70 Appendix 3-Table 4.4: Labor productivity by Sector from 2009-2013 71 Appendix 4-Table 5.2: Description of variables .72 Appendix 5-Table 5.3: Description of variables .74 Appendix 6-Correlation Matrix of variables .76 Appendix 7- Harris-Tzavalis unit root test .78 Appendix 8- Testing multicolinearity among variables by using VIF .80 Appendix 9-Testing multicolinearity among variables without BOTH variable by using VIF test 82 Appendix 10- List of industries in SMEs 85 10 Appendix 3-Table 4.4: Labor productivity by Sector from 2009-2013 ISIC (2 digit) Sector 2009 2011 2013 15 Food and beverages 13.6 17.6 14.4 20 Wood products 12.1 17.7 15.2 28 Fabricated metal products 15.4 19.5 16.9 36 Furniture 15.4 21.5 15.8 Note: Only sectors with more than 100 observations per year included Source: CIEM 71 Appendix 4-Table 5.2: Description of variables Industry Manufacture of food (10) Manufacture of textiles (13) Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials (16) Manufacture of rubber and plastics products (22) Nonproduction Manager Professionals Sales and offices Added value Obs 1552 1552 1552 1552 1552 Mean 0.44 0.38 0.01 0.05 41354.67 SD 0.22 0.23 0.05 0.11 105518 Min 0.03 0.01 0 -3320000 Max 1 0.72 1482720 Obs 212 212 212 212 212 Mean 0.29 0.24 0.02 0.03 53175.8 SD 0.21 0.22 0.05 0.06 60232.79 Min 0.03 0.01 0 -6488.29 Max 1 0.25 0.33 357117.6 Obs 484 484 484 484 484 Mean 0.30 0.26 0.02 0.02 38898.27 SD 0.19 0.20 0.05 0.05 39050.32 Min 0.02 0.00 0 -15050 Max 1 0.75 0.37 278442.9 Obs 296 296 296 296 296 Mean 0.31 0.18 0.06 0.06 77831.51 SD 0.15 0.13 0.07 0.09 62565.33 Min 0.05 0.01 0 3222.22 Max 1 0.36 0.73 405483.9 72 (Table 5.2, continued) Industry Nonproduction Manager Professionals Sales and Added value offices Manufacture of fabricated metal products, except machinery and equipment (25) Manufacture of furniture (31) Total Obs 976 976 976 976 976 Mean 0.36 0.31 0.02 0.03 53655.74 SD 0.22 0.23 0.06 0.07 72579.28 Min 0.04 0.01 0 -186000 Max 1 0.5 0.5 1344625 Obs 648 648 648 648 648 Mean 0.34 0.31 0.01 0.01 45711.73 SD 0.23 0.23 0.05 0.05 37149.47 Min 0 0 -18925 Max 1 0.6 0.33 362080 Obs 4168 4168 4168 4168 4168 Mean 0.38 0.32 0.02 0.03 47819.05 SD 0.22 0.23 0.05 0.08 79545.86 Min 0 0 -3320000 Max 1 0.75 0.73 1482720 Soure: Author’s calculate on the data set with Stata software 73 Appendix 5-Table 5.3: Description of variables Industry ht mom pdm both opc fiage size clr male Obs 1552 1552 1552 1552 1552 1552 1552 1552 1552 Mean 0.06 0.03 0.28 0.62 0.50 18.45 7.42 11.52 0.49 SD 0.24 0.18 0.45 0.49 1.71 9.80 17.25 1.52 0.23 Min 0 0 1 6.62 Max 1 1 25 64 212 15.92 Obs 212 212 212 212 212 212 212 212 212 Mean 0.25 0.02 0.32 0.41 1.25 16.81 17.33 11.64 0.38 SD 0.43 0.15 0.47 0.49 2.54 9.63 24.19 1.47 0.24 Min 0 0 7.74 Max 1 1 19 61 150 15.38 Manufacture of wood and of Obs 484 484 484 484 484 484 484 484 484 products of wood and cork, Mean 0.21 0.03 0.18 0.58 0.70 20.93 15.41 11.23 0.56 except furniture; manufacture SD 0.41 0.17 0.39 0.49 1.77 12.64 35.50 1.61 0.25 of articles of straw and plaiting Min 0 0 4.02 Max 1 1 18 61 500 15.32 Obs 296 296 296 296 296 296 296 296 296 Mean 0.03 0.03 0.45 0.50 2.25 14.72 20.27 12.29 0.60 SD 0.16 0.17 0.50 0.50 6.30 8.53 31.86 1.35 0.19 Min 0 0 7.77 0.11 Max 1 1 101 55 350 16.09 Manufacture of food (10) Manufacture of textiles (13) materials (16) Manufacture of rubber and plastics products (22) 74 (Table 5.3, continued) Industry ht mom pdm both opc fiage size clr male Obs 976 976 976 976 976 976 976 976 976 Manufacture of fabricated metal Mean 0.01 0.04 0.22 0.73 0.85 16.29 9.95 11.50 0.84 products, except machinery and SD 0.12 0.19 0.42 0.45 2.43 10.11 20.20 1.3 0.18 equipment (25) Min 0 0 0 7.67 0.07 Max 1 1 30 61 215 15.94 Obs 648 648 648 648 648 648 648 648 648 Mean 0.00 0.03 0.18 0.79 0.40 16.06 8.70 11.21 0.83 SD 0.04 0.17 0.38 0.41 1.27 7.04 16.10 1.30 0.20 Min 0 0 6.73 Max 1 1 15 61 222 15.10 Obs 4168 4168 4168 4168 4168 4168 4168 4168 4168 Mean 0.07 0.03 0.25 0.65 0.75 17.51 10.56 11.49 0.64 SD 0.25 0.18 0.44 0.48 2.53 9.93 22.58 1.47 0.27 Min 0 0 0 4.02 Max 1 1 101 64 500 16.09 Manufacture of furniture (31) Total Soure: Author’s calculate on the data set with Stata software 75 Appendix 6-Correlation Matrix of variables Sample mom pdm both opc fiage size clr male mom 1.0000 -0.1069 -0.2475 -0.0079 -0.0281 -0.0126 0.0253 0.0113 pdm both opc fiage size clr male 1.0000 -0.7904 0.0283 -0.0415 -0.0002 0.1885 -0.0170 1.0000 0.0082 -0.0258 0.0293 -0.1184 0.1381 1.0000 -0.0905 0.5244 0.0386 -0.0426 1.0000 -0.1060 0.0615 -0.1033 1.0000 -0.0364 -0.0814 1.0000 0.0545 1.0000 Manufacture of food (10) pdm both opc fiage size clr male mom mom 1.0000 pdm both opc fiage size clr male -0.1163 -0.2347 -0.0333 -0.0438 -0.0450 0.0229 0.0334 1.0000 -0.8036 -0.0251 -0.0146 -0.0433 0.1609 0.0235 1.0000 0.0682 0.0243 0.0889 -0.1162 0.0402 1.0000 -0.0605 0.7318 0.1005 0.0319 1.0000 -0.0744 0.0539 -0.0069 1.0000 0.0403 -0.0170 1.0000 0.1901 1.0000 male Manufacture of textile (13) pdm both opc fiage size clr mom pdm both opc fiage size clr mom 1.0000 -0.1068 -0.1284 -0.0521 -0.0130 -0.0163 -0.0589 1.0000 -0.5677 0.1914 -0.1135 0.1296 0.2995 1.0000 0.0171 0.0556 -0.0491 -0.0406 1.0000 -0.1952 0.6138 0.1442 1.0000 -0.1623 -0.0879 1.0000 -0.0479 1.0000 male -0.0718 0.2028 0.0100 -0.0409 -0.0112 -0.0995 0.3273 76 1.0000 Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials (16) mom pdm both opc fiage size clr male mom 1.0000 -0.0843 -0.2095 0.0975 -0.0273 0.0658 -0.0142 -0.1053 pdm both opc fiage size clr male 1.0000 -0.5523 -0.0019 -0.0716 -0.0549 0.2203 0.1565 1.0000 0.1249 -0.2702 0.1372 0.0967 0.1651 1.0000 -0.2417 0.5013 -0.0473 -0.0655 1.0000 -0.2036 0.0751 -0.2359 1.0000 -0.1689 -0.1024 1.0000 0.1661 1.0000 Manufacture of rubber and plastics products (22) pdm mom pdm mom 1.0000 -0.1589 both opc fiage size clr male -0.1759 0.0275 -0.0266 0.0146 0.0601 0.0316 -0.8911 -0.0384 -0.1089 0.0004 0.0901 -0.0366 both opc fiage size clr male 1.0000 0.0427 0.1569 0.0201 -0.1267 0.0432 1.0000 -0.0452 0.3769 -0.1209 -0.1249 1.0000 -0.0422 0.0608 -0.0078 1.0000 -0.1762 -0.1848 1.0000 0.0770 1.0000 1.0000 Manufacture of fabricated metal products, except machinery and equipment (25) mom pdm both opc fiage size clr male mom 1.0000 -0.1031 -0.3143 -0.0314 -0.0258 -0.0307 0.0405 0.0044 pdm both opc fiage size clr male 1.0000 -0.8713 0.0325 -0.0506 0.0189 0.1436 0.0331 1.0000 -0.0212 0.0483 -0.0058 -0.1657 0.0013 1.0000 -0.0543 0.6980 0.0026 -0.0949 1.0000 -0.0558 0.1184 -0.0732 1.0000 -0.0252 -0.0879 1.0000 -0.0454 1.0000 77 Manufacture of furniture (31) mom pdm both opc fiage size clr male mom 1.0000 -0.0826 -0.3478 -0.0208 0.0076 -0.0366 0.0595 0.0673 pdm both opc fiage size clr male 1.0000 -0.9007 0.0632 0.0602 -0.0073 0.1661 0.0088 1.0000 -0.0492 -0.0624 0.0240 -0.1763 -0.0209 1.0000 -0.1304 0.4814 0.0133 -0.1690 1.0000 -0.1359 0.1769 0.0595 1.0000 -0.0584 -0.2313 1.0000 -0.1025 1.0000 Appendix 7- Harris-Tzavalis unit root test Harris-Tzavalis unit-root test for nonproduction Ho: Panels contain unit roots Ha: Panels are stationary Number of panels = Number of periods = AR parameter: Common Panel means: Included Time trend: Not included Asymptotics: N -> Infinity T Fixed rho Statistic z p-value -0.2372 -35.5670 0.0000 1042 Harris-Tzavalis unit-root test for manager Ho: Panels contain unit roots Ha: Panels are stationary Number of panels = Number of periods = AR parameter: Common Panel means: Included Time trend: Not included Asymptotics: N -> Infinity T Fixed rho Statistic z p-value -0.2298 -35.1579 0.0000 78 1042 Harris-Tzavalis unit-root test for professionals Ho: Panels contain unit roots Ha: Panels are stationary Number of panels = Number of periods = AR parameter: Common Panel means: Included Time trend: Not included Asymptotics: N -> Infinity T Fixed Statistic rho -0.2650 z 1042 p-value -37.1215 0.0000 Harris-Tzavalis unit-root test for salesandoffice Ho: Panels contain unit roots Ha: Panels are stationary Number of panels = Number of periods = AR parameter: Common Panel means: Included Time trend: Not included Asymptotics: N -> Infinity T Fixed rho Statistic z p-value -0.2521 -36.3997 0.0000 1042 Harris-Tzavalis unit-root test for valueadded Ho: Panels contain unit roots Ha: Panels are stationary Number of panels = Number of periods = AR parameter: Common Panel means: Included Time trend: Not included Asymptotics: N -> Infinity T Fixed rho Statistic z p-value -0.3278 -40.6273 0.0000 79 1042 Appendix 8- Testing multicolinearity among variables by using VIF Variable both pdm mom size opc male clr fiage Mean VIF For sample VIF 1/VIF 4.15 0.241176 3.95 0.252950 1.50 0.668342 1.40 0.713641 1.39 0.719357 1.09 0.920751 1.06 0.941064 1.05 0.953437 1.95 Manufacture of food products (10) Variable VIF 1/VIF both 4.20 0.238339 pdm 4.04 0.247649 opc 2.18 0.458269 size 2.18 0.459590 mom 1.49 0.671368 clr 1.08 0.922565 male 1.06 0.941983 fiage 1.01 0.987170 Mean VIF 2.15 Manufacture of textiles (13) Variable VIF 1/VIF pdm 1.88 0.531226 opc 1.76 0.567121 size 1.68 0.596346 both 1.66 0.601329 clr 1.26 0.790953 male 1.17 0.852113 mom 1.07 0.934670 fiage 1.05 0.949340 Mean VIF 1.44 80 Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials (16) Variable VIF 1/VIF both 2.32 0.431434 pdm 2.11 0.472885 size 1.41 0.706921 opc 1.40 0.715026 fiage 1.35 0.739855 clr 1.26 0.792932 male 1.20 0.835851 mom 1.19 0.839835 Mean VIF 1.53 Manufacture of rubber and plastics products (22) Variable both pdm mom size opc clr male fiage Mean VIF VIF 10.15 9.91 2.10 1.22 1.18 1.06 1.05 1.05 1/VIF 0.098479 0.100943 0.477174 0.818194 0.848647 0.940656 0.950657 0.954824 3.46 Manufacture of fabricated metal products, except machinery and equipment (25) Variable both pdm mom opc size clr male fiage Mean VIF VIF 13.46 12.24 3.26 1.96 1.96 1.05 1.03 1.03 1/VIF 0.074314 0.081696 0.307120 0.510498 0.511168 0.953879 0.967603 0.971272 4.50 81 Manufacture of furniture (31) Variable both pdm mom size opc male clr fiage Mean VIF VIF 111.23 98.73 21.27 1.36 1.33 1.12 1.09 1.06 1/VIF 0.008990 0.010129 0.047015 0.733536 0.754277 0.890502 0.914348 0.940961 29.65 Appendix 9-Testing multicolinearity among variables without BOTH variable by using VIF test For sample Variable size opc pdm clr fiage male mom Mean VIF VIF 1.40 1.39 1.06 1.05 1.04 1.02 1.02 1/VIF 0.714668 0.719903 0.947423 0.948493 0.965613 0.976147 0.984897 1.14 Manufacture of food products (10) Variable opc size clr pdm male mom fiage Mean VIF VIF 2.18 2.17 1.08 1.05 1.04 1.02 1.01 1/VIF 0.458357 0.460426 0.923076 0.955430 0.960096 0.978507 0.987170 1.37 82 Manufacture of textiles (13) Variable opc size clr pdm male fiage mom Mean VIF VIF 1.72 1.67 1.25 1.17 1.16 1.05 1.02 1/VIF 0.580316 0.597600 0.799096 0.858125 0.865228 0.949507 0.983335 1.29 Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials (16) Variable VIF 1/VIF size 1.40 0.716448 opc 1.39 0.719179 fiage 1.17 0.852164 male 1.15 0.872423 clr 1.11 0.900205 pdm 1.08 0.927255 mom 1.03 0.974053 Mean VIF 1.19 Manufacture of rubber and plastics products (22) Variable size opc clr pdm male mom fiage Mean VIF VIF 1.22 1.18 1.06 1.06 1.04 1.04 1.02 1/VIF 0.822395 0.849272 0.945370 0.947350 0.957446 0.964968 0.978245 1.09 83 Manufacture of fabricated metal products, except machinery and equipment (25) Variable opc size clr pdm fiage male mom Mean VIF VIF 1.96 1.96 1.04 1.04 1.03 1.02 1.02 1/VIF 0.510565 0.511229 0.957083 0.960308 0.971490 0.980914 0.983710 1.30 Manufacture of furniture (31) Variable size opc clr male fiage pdm mom Mean VIF VIF 1.36 1.33 1.09 1.08 1.06 1.05 1.02 1/VIF 0.735139 0.754357 0.919968 0.921835 0.942808 0.956533 0.981539 1.14 84 Appendix 10- List of industries in SMEs Industry Manufacture of food products Manufacture of beverages Manufacture of tobacco products Manufacture of textiles Manufacture of wearing apparel Manufacture of leather and related products Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials Manufacture of paper and paper products Printing and reproduction of recorded media Manufacture of coke and refined petroleum products Manufacture of chemicals and chemical products Manufacture of basic pharmaceutical products and pharmaceutical preparations Manufacture of rubber and plastics products Manufacture of other non-metallic mineral products Manufacture of basic metals Manufacture of fabricated metal products, except machinery and equipment Manufacture of computer, electronic and optical products Manufacture of electrical equipment Manufacture of machinery and equipment n.e.c Manufacture of motor vehicles, trailers and semi-trailers Manufacture of other transport equipment Manufacture of furniture Other manufacturing Repair and installation of machinery and equipment 85 Number of firms 388 22 53 36 17 121 32 30 12 32 74 69 15 244 20 17 162 ... to enhance the quality of labor and labor productivity, anticipate drawbacks of technology progress on manufacturing labor and increase the national competitiveness in the international market... TFP in both the manufacturing and nonmanufacturing sectors Particularly, the authors concluded that the labor productivity relationship was even stronger in the manufacturing sector than the non -manufacturing. .. and Trade Abstract This study investigates directly the impact of technology adoption on employment structures and labor productivity in Vietnamese manufacturing firms by using the panel data