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FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS ------------------------------

MIDTERM TEST Module: Macroeconomics Topic: UNEMPLOYMENT IN VIETNAM DURING COVID – 19 PANDEMIC IN 2020 – 2021

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Midterm Assignment - MacroEconomics Group 7 Hanoi, June 2021

LIST OF CONTENTS LIST OF CONTENTS..............................................................................................................1 INTRODUCTION.....................................................................................................................2 1.1 Subject and scope of the study.....................................................................................2 1.2 Reasons to choose the topic.........................................................................................2 1.3 Methodology.................................................................................................................3 CHAPTER 1: THEORETICAL FOUNDATIONS............................................................4 1.1 Definition......................................................................................................................4 1.2 Classification................................................................................................................4 1.3 Measurement................................................................................................................6 1.4 Cause.............................................................................................................................6 1.5 Effects...........................................................................................................................6 CHAPTER 2: UNEMPLOYMENT IN VIETNAM DURING THE COVID 19 PANDEMIC...........................................................................................................................8 2.1 Unemployment in Vietnam...........................................................................................8 2.2 Causes.........................................................................................................................13 2.3 Effects.........................................................................................................................14 CHAPTER 3: SOLUTIONS...............................................................................................17 3.1 The State’s solutions...................................................................................................17 3.2 Solutions for businesses and employers....................................................................18 3.3 Solutions for employees.............................................................................................18 CONCLUSION.......................................................................................................................19 REFERENCES........................................................................................................................20

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Midterm Assignment - MacroEconomics Group 7

INTRODUCTION The unemployment rate is an important macroeconomic indicator that is used to assess a country's socioeconomic progress through time. Prior to the epidemic, Vietnam's working - age unemployment rate had been stably low, at 2.16% on average. The pandemic has had a significant impact on the labor market, for example, altering the seasonal tendency of the labor force in different quarters of the year. During the 2016 – 2019 period, the number of labor forces was consistently lowest in the first quarter, then gradually climbed in the following quarters before peaking in the fourth quarter. However, in 2020, the number of workers began to fall in the first quarter, then significantly declined and reached a low point in the second quarter, before gradually recovering in the third and fourth quarters. “Although the economy is improving, the workforce has yet to return to pre-pandemic levels in the fourth quarter”, according to the General Statistics Office in “Bao cao tac dong cua dich Covid-19 den tinh hinh lao dong, viec lam quy IV va nam 2020” (Vietnam General Statistics Office. 6 January 2021). Therefore, our team decided to choose topic “Unemployment in Vietnam during Covid – 19 pandemic in 2020 – 2021”. Although the unemployment rate in Vietnam before Covid-19 pandemic has not been recorded as a matter of concern, the rate nowadays has been excessively high during the pandemic. This paper collects data about the employment situation in Vietnam from the first quarter of 2020 till the first quarter of 2021 conducted by the General Statistics Office to get a clear picture of the current employment situation and from there suggest solutions to ease the crisis. Our team aims to study the unemployment rate data for the period 2020-2021 and analyze the causes and effects as well as propose appropriate measures. 1.1 Subject and scope of the study ●

Subject: Unemployment in Vietnam

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Scope: During the epidemic period, from 2020 to 2021

1.2 Reasons to choose the topic The labor market is facing many difficulties, weaknesses and limitations, especially due to the heavy impact of the Covid-19 epidemic. It is critical to comprehend the workforce's development and limitations during the current epidemic

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Midterm Assignment - MacroEconomics Group 7 period in order to improve it thoroughly in the future. To have the most correct knowledge and comprehension of this subject, our team wishes to learn more about unemployment as well as strategies to reduce unemployment in our country. 1.3 Methodology In this study, a data set of unemployment rate and the number of unemployed people in the period from 2020 to 2021 was obtained quarterly from Vietnam General Statistics Office (GSO). To perform the analysis, our team has collated and evaluated the data by comparing the numbers between quarters then drawing conclusions. Our team would like to express our gratitude to Macroeconomics Lecturer….., for his guidance over the course of our studies.

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Midterm Assignment - MacroEconomics Group 7 1:

THEORETICAL FOUNDATIONS

1.4 Definition 

Working age population: In Vietnam, the legal working age is 15. Besides, the retirement age of male workers and employees is 60 years and 03 months while that of female workers is 55 years and 04 months.

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Labour force: the number of people who are employed plus the unemployed who are looking for work.

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Unemployment, according to the OECD (Organisation for Economic Cooperation and Development), is persons above a specified age (usually 15) not being in paid employment or self-employment but currently available for work during the reference period. The term includes people who are waiting to return to a job after being discharged, yet it does not include individuals who have stopped looking for work in the past four weeks.

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Briefly, both unemployed and employed people make up the “labor force,” or the subset of the population that is both able and interested in working. Not included in the labor force are citizens not looking for jobs - for example, a stay – at - home mom, a college student, or a “discouraged worker” (someone who has stopped looking for work).

1.5 Classification 1.5.1 Classical unemployment Classical unemployment occurs when wages are set above the equilibrium level, causing the supply of labour to exceed the demand. On the contrary, when wages fall below the living wage, many workers choose to drop out of the labour market and no longer look for jobs. In countries which have public welfare systems supporting lowincome families, wages would have to be high enough to encourage people to opt for employment rather than what they receive through public welfare. In addition, consumption of goods and services is the primary driver of increased demand for labor. Higher wages result in workers having more income available to spend on goods and services. Therefore, higher wages increase demand for labor and reduce unemployment.

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Midterm Assignment - MacroEconomics Group 7 1.5.2 Cyclical unemployment Cyclical unemployment is caused by businesses not having enough demand for labor to employ people who are looking for work at that point of the economic downturn within the business cycle. Because of that, its name is derived from the frequent rise and fall in the business cycle. According to Keynesian economics, cyclical unemployment is a natural result of the business cycle in times of recession: if all consumers become fearful at once, consumers will attempt to increase their savings at the same time, which means there will be a decrease in spending, and businesses will not be able to employ all employable workers. 1.5.3 Frictional unemployment Frictional unemployment is the temporary transition from one job to another of workers. It is sometimes called search unemployment and can be voluntary, based on the circumstances of the unemployed individual. Frictional unemployment exists because mismatches can result between the supply and demand of the labour market. Such mismatches can be related to skills, payments, work-time, locations, seasonal industries, attitude, tastes... Frictional unemployment also includes new entrants (newly - graduated students) and re-entrants (former homemakers). Workers and employers can accept a certain level of imperfection, but not right away. They will invest time and effort to find the best match. This is beneficial to the economy since it results in a better distribution of resources. However, if the search takes too long and mismatches are too frequent, the economy suffers as some work will stay undone. If that happens, governments will find ways to reduce unnecessary frictional unemployment by providing education, training, advice, and assistance. 1.5.4 Structural unemployment Structural unemployment is caused by the inconsistency between the skill sets of workers and the types of jobs available. Structural unemployment occurs due to shifts in an economy, mainly when industries undergo technological advancements. The difference between structural unemployment and frictional unemployment is that it lasts longer. Structural unemployment may also rise by constant cyclical unemployment: the economy suffers from having long lasting low aggregate demand, many of the 5

Midterm Assignment - MacroEconomics Group 7 unemployed become discouraged, and their skills become out of date, which means they may not fit the job vacancies created when the economy recovers. 1.6 Measurement In Vietnam, the unemployment rate is determined quarterly by the General Statistics Office using data in the Labour and Employment Survey. In general, the unemployment rate is obtained by dividing the number of unemployed persons by the number of persons in the labor force (both employed and unemployed) and multiplying that figure by 100. Formula:

Unemployment rate = (Unemployed workers / Total labor force) x 100 1.7 Cause 1.7.1 Classical Theory of Unemployment According to the Classic Theory of Unemployment, price and wage are flexible. Unemployment is provoked by real wages fixed above the equilibrium level. 1.7.2 Keynesian Theory of Unemployment Price and wage are sticky, according to Keynesian Theory. Assuming that aggregate demand decreases, so demand for labour goes down, since price and wage are rigid, supply of labour has to decline as well. Unemployment occurs in such situations. 1.8 Effects The impact of unemployment can be felt by both the workers and the national economy and can cause a ripple effect.When unemployment rates are high and steady, there are negative impacts on the long-run economic growth. Unemployment wastes resources, generates redistributive pressures and distortions, increases poverty, limits labor mobility, and promotes social unrest and conflict. The effects of unemployment can be broken down into three types: ●

Individual: people who are unemployed cannot earn money to meet their financial obligations. Unemployment can lead to homelessness, illness, and mental stress. It can also cause underemployment where workers take on jobs that are below their skill level.

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Midterm Assignment - MacroEconomics Group 7 ●

Social: an economy that has high unemployment is not using all of its resources efficiently, specifically labor. When individuals accept employment below their skill level the economy's efficiency is reduced further. Workers lose skills which causes a loss of human capital.

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Socio-political: high unemployment rates can cause civil unrest in a country. In addition, unemployment results in reduced demand, consumption, and buying

power, which in turn causes lower profits for businesses and leads to budget cuts and workforce reductions. It creates a cycle that goes on and on that is difficult to reverse without some type of intervention. Vietnam’s labour market during Covid-19 will be analysed in this essay.

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Midterm Assignment - MacroEconomics Group 7 2: UNEMPLOYMENT IN VIETNAM DURING THE COVID 19 PANDEMIC 2.1 Unemployment in Vietnam 2.1.1 The first quarter of 2020: The number of unemployed people in the first quarter of 2020 was roughly 1,12 million, which was double, increasing by 26,7 thousand people compared to the same period of last year. The unemployment rate of people aged 15 and above was 2,02% and the unemployment rate of the working age was 2,22%. According to the total number of working hours, Vietnam had more than 1 million people who did not have jobs and 83,6% of them were living in rural areas. The number of people aged 15 to 24 who did not have an occupation was approximately 492,9 thousand, which constituted 44,1% of the total number of the unemployed. The unemployment rate of young people was 7%, which was 5,4 times higher than the unemployment rate of adults (who are above 25 years old). Age

15 -19

Sum Whole country: 1.118,2 Urban area: 536,6

30 – 34

35 – 39

40 44

45 – 49

50 – 54

55 – 59

60 – 64

>65

167,8 325,2 248,9 121,8

76,0

45,3

49,7

34,4

28,7

15,7

4,8

61,0

Rural area: 581,6

20 24

25 – 29

147,7 140,2

63,0

37,5

20,3

26,8

19,0

12,1

6,5

2,5

106,7 177,5 108,8

58,8

38,5

25,0

22,9

15,4

16,6

9,2

2,3

Table 1: Number of the unemployed aged 15 and above in quarter 1/2020 2.1.2 The second quarter of 2020: The number of unemployed people in the second quarter of 2020 was roughly 1,3 million, which had increased by 192,8 thousand people compared to the previous quarter. The unemployment rate of people aged 15 and above was 2,51% and the unemployment rate of the working age was 2,73%. In the second quarter of 2020, this 8

Midterm Assignment - MacroEconomics Group 7 rate of the urban areas constituted 4,46%, which was the highest rate of the urban areas in the past 10 years. The number of people aged 15 to 24 who did not have an occupation was approximately 410,3 thousand, which constituted 30,7% of the total number of the unemployed. The unemployment rate of young people was 6,98%, which had increased by 0,3% compared to the same period of last year. Age

15 -19

Sum Whole country: 1.336,2

20 24

25 – 29

30 – 34

35 – 39

40 44

139,7 270,6 236,0 183,8 133,5 106,3

45 – 49

50 – 54

55 – 59

60 – 64

>65

95,3

84,3

46,6

25,6

14,5

Urban area: 766,4

51,4

147,2 132,5 106,8

87,9

75,0

61,8

50,5

29,0

13,8

10,4

Rural area: 569,8

88,4

123,4 103,5

45,6

31,3

33,5

33,8

17,5

11,9

4,1

76,9

Table 2: Number of the unemployed aged 15 and above in quarter 2/2020 2.1.3 The third quarter of 2020 The number of unemployed people in the third quarter of 2020 was roughly more than 1,2 million, which had decreased by 63 thousand people compared to the previous quarter. The unemployment rate of people aged 15 and above was 2,29% and the unemployment rate of the working age was 2,50%. In the third quarter, this rate of the urban areas constituted 4%, which had decreased 0,46% compared to the previous quarter. The number of people aged 15 to 24 who did not have an occupation was approximately 408,8 thousand, which constituted 32,6% of the total number of the unemployed. The unemployment rate of young people was 7,24%, which had increased by 0,26% compared to the previous quarter. Nevertheless, this rate was 4,2 times higher than the unemployment rate of the adults (who are above 25 years old), as the unemployed rate of young people in Ha Noi and Ho Chi Minh city was dramatically high (9,25% and 10,47% respectively). 9

Midterm Assignment - MacroEconomics Group 7 Age

15 -19

Sum

20 24

25 – 29

30 – 34

35 – 39

40 44

45 – 49

50 – 54

55 – 59

60 – 64

>65

Whole country: 1.252,4

78,3

330,5 298,6 205,2 152,5

61,2

47,1

26,4

26,3

15,2

11,2

Urban area: 679,5

24,3

160,6 165,4 119,8

94,0

41,2

28,6

15,8

14,8

9,7

5,1

Rural area: 572,9

54,0

169,9 133,2

58,4

19,9

18,6

10,6

11,4

5,5

6,1

85,3

Table 3: Number of the unemployed aged 15 and above in quarter 3/2020 2.1.4 The fourth quarter of 2020 The number of unemployed people in the fourth quarter of 2020 was roughly more than 1,2 million, which had decreased by 60,1 thousand people compared to the previous quarter and increased by 136,8 thousand people compared to the same period of last year. The unemployment rate of people aged 15 and above was 2,16% and the unemployment rate of the working age was 2,37%. This rate of the urban areas constituted of 3,68%, which had decreased by 0,32% comparing to the previous quarter The number of people aged 15 to 24 who did not have an occupation was approximately 410,9 thousand, which constituted 34,4% of the total number of the unemployed. The unemployment rate of young people was 7,05%, which had decreased by 0,19% compared to the previous quarter.

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Midterm Assignment - MacroEconomics Group 7 Age Sum

15 -19

20 24

25 – 29

30 – 34

35 – 39

40 44

45 – 49

50 – 54

55 – 59

60 – 64

>65

Whole country: 1,192.9

70.4

340.5 215.0 171.4 127.5

84.4

64.0

56.5

48.9

9.7

4.5

Urban area: 619.2

23.2

157.5 119.7 106.8

85.4

62.8

35.4

13.8

9.8

4.8

0.0