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In Vietnam, approximately 30 percent of the total workforce shifted from low productive agriculture to relatively more productive manufacturing and service jobs.

Vietnam Benefits Greatly from Reallocation of its Labor Force Away from Agriculture
Photo: Reuters
Transition from a low- to middle-income country generally involves the combination of two key factors: favorable demography and sectoral transformation. Sectoral transformation is defined as a reallocation of the labor force from less to more productive sectors.
As expected, Vietnam greatly relied on these two factors, which on average counted for approximately three-fourths of its per capita output growth during 1996–2012. 
The big decline in the fertility rate from 5 children to 2.5 children per mother led to an increase in the share of working-age people relative to dependents from 124 percent in 1985 to 238 percent in 2015 (the peak), and to 228 percent in 2018.
So long as these new workers were able to find jobs, the arithmetic of more workers than dependents provided a window of opportunity to accelerate growth before the workers start to age, contributing on average 1.7 percentage points of GDP per capita growth per year over the past 25 years.
Over the past two decades, Vietnam also benefited from the reallocation of its labor force away from agriculture, which is a key stylized fact observed in most dynamic low-income countries. 
In Vietnam, approximately 30 percent of the total workforce shifted from low productive agriculture to relatively more productive manufacturing and service jobs, generating intersectoral productivity gains equivalent to about 3.4 percentage points of GDP per year during 1996–2012. 
This shift was encouraged by the initial productivity gains in the agricultural sector as fewer workers were required per output—the push factor. It was also enhanced, on the pull side, by the rapid industrialization process, as many new workers were absorbed by the manufacturing industry, which has been a traditional source of relatively well-paid wage employment.
Today the employment structure in Vietnam looks very different; respective shares of agriculture, industry, and services in total employment are 39.5 percent, 25.8 percent, and 34.7 percent, compared to 68.6 percent, 12.3 percent, and 19.1 percent in early 1990s. These two traditional drivers of economic growth, however, will weaken as a country graduates from its low-income status. 
According to a recent World Bank study, about 80 percent of labor productivity growth in low-income countries comes from the reallocation of labor, while this contribution is only 36 percent and 32 percent in lower- and upper middle-income countries, respectively. Similarly, the demographic dividend tends to diminish in more mature economies. In line with the above cross-country empirical evidence, both the demographic dividends and the speed of the structural transformation are projected to slow in Vietnam. 
Driven by a rise in life expectancy and declining birth rates, Vietnam’s population is aging rapidly, leading to a substantial decrease in the ratio of working-age people to dependents from about 230 percent today to 200 percent in 2030 and only 165 percent in 2050. 
Similarly, while the shift of the labor force toward industry and services should continue, the magnitude of these intersectoral labor movements (and their associated productivity gains) should decrease. The capacity of nonagricultural sectors to absorb all the released workers will diminish with the greater deployment of skills-intensive technologies. The declining trend in productivity of receiving domestic sectors, mainly the informal service sector in urban centers, already points in that direction.

DIEP NGUYEN