Quantitative Insights into Pension Reform in Emerging Economies: The Case of Vietnam.

Emerging countries are characterized by high informality, while their social security systems remain rudimentary and often exclusively target formal employment. Vietnam, where informal employment constitutes approximately 80% of the total labor force (ILO2021) and is currently one of the most rapidly aging countries, serves as a case study. Utilising the data from the Vietnam Household Living Standards Survey 2014-2018, this study aims to quantitatively analyse various pension reform scenarios that target both formal and informal workers differently. Chapter 2 sheds light on the impact of sectoral labour choices on household consumption and welfare. Using propensity score matching method as the main approach, we show that the decision to choose employment largely depends on education, gender and marital status. The results also indicate that entering the low-skill informal sector would lead to low spending on food while high-skill employment would induce a high level of non-durable consumption. Interestingly, both high and low-skill informal workers would lead to higher housing wealth compared to those in low-skill formal group, basically indicating that informal workers compensate the high employment risk by investing in safe assets, while those in the formal sector diversify their assets portfolio more. Chapter 3 focuses on building a model for studying the Vietnamese pension system. In this chapter, we construct a stochastic life cycle model with heterogeneous agents by gender and sectoral types where individuals confront labour earnings and lifespan uncertainty. The model comprises a household sector and a government sector with Pay-As-You-Go public pensions applicable to formal workers. The benchmark model is calibrated to the Vietnamese economy, fitted to Vietnamese data as well as key demographic and macroeconomic features. Chapter 4 examines a range of policy counterfactuals that target formal and informal employment differently. For each policy experiment, we evaluate their effects on individuals’ behaviour and the distribution of welfare over the life cycle, as well as their fiscal implications. The results reveal that extending retirement age for formal workers and introducing a social pension targeted to all informal workers aged 65 and over would generate higher welfare for all employment. However, the social pension financed by a consumption tax is superior to one funded by a labour income tax, as it yields greater welfare benefits for both formal and informal workers. Furthermore, under the same policy framework of a consumption tax, an increasing allowance linked to cohort age would be preferred. It's worth noting that in all the scenarios, male is slightly more advantaged than female in formal sector, while female tend to benefit more than males in informal sector.

Grantor dc:publisher

UNSW, Sydney

Year dc:date

2024

Author dc:creator

• Hoang, Huyen

• pension reform
• informality
• Vietnam
• anzsrc-for: 38 ECONOMICS

Statement dc:rights

• open access
• CC BY 4.0
• free_to_read

Licence

• https://purl.org/coar/access_right/c_abf2
• https://creativecommons.org/licenses/by/4.0/

Language dc:language

en

Identifier

https://doi.org/10.26190/unsworks/30164

OAI identifier oai:identifier

oai:unsworks.library.unsw.edu.au:1959.4/102244