Are migrants in large cities underpaid? Evidence from Vietnam

The most importance reason for migration is financial motivation and better employment (Hicks 1932; Chiswick 1978; Borjas 2012). Harris and Todaro (1970) argue that in developing countries, laborers from rural areas will move into cities as they expect to earn higher wages in the urban areas without worrying about the increasing level of unemployment in this area. According to the New Economics Theory of Migration, migration is viewed as a collective decision of not only individuals but also their families, and the main incentive for migration is high income in destination areas (Stark and Bloom 1985; Stark and Taylor 1991; Stark 1991).

Migration has been viewed as an important source of poverty reduction in developing countries (Taylor et al. 2005; Adams and Pages 2005; Acosta et al. 2007). Migration also has other positive impacts on education, health, and production of migrants as well as their families in home areas (Mountford 1997; Stark et al. 1997; Beine et al. 2001; Kochar 2004; McKenzie 2006). However, there might be negative effects of migration on the remaining people in home areas such as marital breakdown, decreasing education, and health care for children (e.g., Katseli et al. 2006; McKenzie 2006; Antman 2010; Silver 2014).

A major concern for migrants is whether they are underpaid in destination areas (Özden and Maurice 2006). There are serveral explanations for a wage gap between migrant workers and native ones. Firstly, migrants tend to move from rural or less advantageous areas to urban or more advantageous ones. Migrant workers tend to have lower education, working skills, and experiences than native workers in destination areas (Lall et al. 2006; Maurer-Fazio et al. 2015). As a result, they receive lower wages than the native workers. Secondly, as moving to a new area, migrants tend to lack language skills, network, and information on employment opportunities (Chiswick 1978; Borjas 2012). They are more likely to do jobs that they are overqualified (Liu et al. 2004; Özden 2006; Lall et al. 2006). Thirdly, assymetric information on labor productivity between employees and employers at the destination areas also leads to a lower wage rate for migrant employees. Employers have less information about migrants’ productivity and skills and tend to offer low-wage jobs for migrants (Chiswick 1978). Fourthly, there might be a discrimination against migrants in labor market. For example, in China, empirical studies share a conclusion that discrimination is the major determinant of the earnings gap between migrants and urban workers in urban China (e.g., Lee 2012 and Wang et al. 2013; Cheng et al. 2013; Gagnon et al. 2014).

Borjas (2012) shows that earnings of migrants are initially lower than the natives, but the gap in earnings will decrease over time as the migrants accumulate human capitals and have better access to information on labor markets. Migrants will find better match with the destination employers (Liu et al. 2004). Destination employers will also have better information on migrants’ ability and provide more firm-specific training for their migrant employees. Due to improvements in working skills, knowledge, and access to information on labor markets, migrant workers will have higher earnings. Furthermore, earnings of migrants can even surpass the native workers’ if they are positively selected from the migrant population (Borjas 2012).

There are a large number of empirical evidences showing a gap in earnings between migrants and natives, particularly in China. Overall, empirical studies find that migrants from rural areas normally get fewer chances to get a job in the formal sector in the urban areas, and as the consequence, their earnings are lower than native workers in urban areas (Camarota 1998; Meng 2000; Meng and Zhang 2001; Özden 2006; Demurger et al. 2009; Cheng et al. 2013; Liu and Kawata 2015). Camarota (1998) finds that unskilled migrant workers are underpaid in the USA. Also, using the US data, Özden (2006) finds that with the same skills, migrants earn less than the natives. Demurger et al. (2009) show that the annual earnings of urban residents are 1.3 times larger than that of long-term migrants from rural areas in China. Meng and Zhang (2001) show that within an occupation, migrant peasants are underpaid while native workers are overpaid in Shanghai city.

In this study, we examine the wage gap between migrant workers and native workers in Hanoi capital city and Ho Chi Minh City (HCMC)—the two largest cities in Vietnam. Internal migration has been an important aspect of Vietnamese society (Marx and Fleischer 2010). According to the 2009 Population and Census of Vietnam, there were 6.6 million people migrating within the country over the 2004–2009 period. This is a significant increase compared with the 1999 Census data with 4.5 million people migrating internally in Vietnam. Most internal migration in Vietnam is rural-to-urban migration, especially migration to Hanoi and HCMC.

There are several studies looking at the effect of migration and remittances on migrants’ origin households in Vietnam. Migration is found to have a positive effect on households’ consumption and poverty reduction in studies such as De Brauw and Harigaya (2007), Nguyen et al. (2008), and Nguyen et al. (2011). Using Vietnam Household Living Standard Surveys (VHLSS) 2002 and 2004, Nguyen (2008) finds that international remittances help receiving households increase consumption and reduce poverty. However, using the 2006 and 2008 VHLSSs, Nguyen and Mont (2012) and Nguyen et al. (2013) do not find a poverty-reducing effect of international remittances.

Marx and Fleischer (2010) highlight that migrants are subject to less job security and lower paid work compared to local residents. Their access to social, health, and employment insurances are limited in the destination areas. Like China and several countries, Vietnam maintains a household registration system to manage public security and population movement (Demombynes and Vu 2016). People without a household registration book (or permanent residence permission) in an area have less access to public services such as education and health care. In China, Demurger et al. (2009) point out that the household registration system is one of the main determinants for the earnings gap between migrants and non-migrants. Liu (2015) uses the Vietnam Rural-Urban Migration Survey 2013 (VRUMS2013) and the Vietnam Household Living Standard Survey 2012 (VHLSS2012) to investigate the wage gap between migrants and non-migrants, and she finds that the migrants are more likely to have low-wage jobs than the non-migrants.

In this study, we not only examine the wage gap between migrant workers and native workers but also try to understand factors associated with this gap. To do so, we will use data from the 2009 Urban Poverty Survey to estimate the wage gap between migrants and non-migrants in the two largest cities in Vietnam. Then, the Oaxaca-Blinder decomposition technique will be used to decompose the wage gap into different components due to differences in demographic and education variables between the migrants and non-migrants.

The remainder of the paper is structured as follows. The second section introduces the data set used in this study. The third section describes the pattern of migration and characteristics of migrants in large cities in Vietnam. The fourth section presents the estimation methodology. Empirical findings will be presented in the fifth sections, and the sixth section concludes.

This study relies mainly on data from the Urban Poverty Survey (UPS), which was conducted by the Hanoi Statistics Office and the HCMC Statistics Office in October 2009. The survey sample is representative for Hanoi and HCMC. The main objectives of the 2009 UPS are to assess urban poverty in Hanoi and HCMC. Normally, household surveys often rely on a population frame which contains only registered households. As a result, household surveys tend to underestimate the proportion of migrants. The 2009 UPS has a special sampling selection design so that it covered not only the registered households but also unregistered households and individuals. In addition, it also sampled homeless individuals and those living in dormitories and company campuses.

Data from this survey are very detailed, including income, consumption, employment, education, health care, and risks. The number of observations of the 2009 UPS is 1637 and 1712 households for Hanoi and HCMC, respectively. It should be noted that these two cities contain not only urban but also rural areas. The number of urban and rural households in the data set is 2280 and 1069, respectively. In this study, we focus the analysis on individuals who are above 14 years old and employed or wage earners. Self-employed individuals are excluded from the sample, since we do not have data on their wages. The number of individuals used in this study is 3778.

A large proportion of people in Hanoi and HCMC are migrants from other areas. In this study, we define migrants as those who do not have a household registration book (called Ho Khau in Vietnamese) in Hanoi or HCMC. The household registration system has been implemented in Vietnam since 1964 to manage public security and population movement (Demombynes and Vu 2016). According to this system, a person has to register his/her residence in an local areas and is provided with a household registration book of that area (a permanent residence permission in that area). In other words, a household registration book is a statement that household members are permanent residents in one location. Having a registration book in an area, people are more easily to have access to social services such as education and health insurance in that area.

Prior 2007, the residence regulation in Vietnam requires that anyone who are living in a place other than their permanent residence over 30 days have to register their temporary status with the destination police. However, changing residential status was very complicated process because the migrants had to obtain a letter of release from sending authorities where they hold their registration book. It is much more complicated and difficult to get a permanent registration in cities. Since 2007, when the new Law on Residence took effect, many requirements and conditions in obtaining permanent residency are eased. According to the new Law, the number of residence status are just two—temporary and permanent, and the Law also removed any legal conditionality of employment for registration (Marx and Fleischer 2010). To obtain a registration book in Hanoi or HCMC, people must live in the city for at least 2 years (based on temporary residential booklet record) and prove that they have a legal residence place (a house or an apartment). Although transfer of registration books from one province to Hanoi or HCMCs is easier than before, it requires a complicated paperwork procedure (Demombynes and Vu 2016).

As mentioned, we define overall migrants as those who do not have a registration book in Hanoi or HCMC. To capture the short-term migration, we use the second definition in which a person is defined as a short-term migrant if she/he has no registration books and has lived in Hanoi and HCMC since 2008, i.e., have lived in the cities for less than 2 years.

It should be noted that non-migrants defined in this study include individuals who have a registration book (permanent residence permission) in Hanoi or HCMC. They can include people who have lived in the cities less than 2 years, but they have been able to obtain a registration book already. The definition of overall migrants and non-migrants does not depend on how long people have lived in the cities but on whether they have a registration book in the cities.

Figure 1 shows that the proportion of overall migrants, i.e., people without a registration book in Hanoi and HCMC, was 17.3 % in 2009. The proportion of short-term migrants, i.e., people having lived in the cities since 2008 and not having a registration book, was 2.4 %. The proportion of migrants was very high among young adults aged from 15 to 25.

Non-migrants tend to work in the public sector, while migrants are more likely to work in the private and foreign sector than non-migrants. Migrants tend to work in informal sectors (without labor contracts) and do not have health insurance. Migrants have much lower wages than non-migrants. Monthly wages of non-migrants are around 44 % higher than that of migrants. More specifically, monthly wages of migrants and non-migrants are equal to 2480 and 3590 thousand VND, respectively. Short-term migrants have even lower monthly wages, at 2066 thousand VND, less than one-half wages of non-migrants.

In this study, we use ordinary least squares (OLS) regression and propensity score matching to examine the wage gap between the migrant workers and non-migrant ones. To understand the factors associated with the wage gap, we use the Oaxaca-Blinder decomposition technique.

Vietnam is a transition country with an increasing migration. Although there is a large number of studies on migration and remittances in Vietnam, there have been no studies on the wage gap between migrants and non-migrants. Using a survey of households and individuals in Hanoi and HCMC, this study examines the characteristics of migrants and the wage gap between migrants and non-migrants. It finds that migrants in the cities are younger and less educated than non-migrants. With less experiences and low education, migrants are more likely to work in the informal sector and receive lower wages than non-migrants.

Using regression and propensity score matching analysis, we find that the wage gap between migrants and non-migrants is negligible once the observed variables are controlled for. In other words, migrants are not underpaid given their gender, marital status, age, and education. We use the decomposition techniques to understand factors contributing the wage gap between migrants and non-migrants. The difference in the means of controlled variables contributes mainly to the wage gap. Among these demographic variables, age and holding a post-secondary education degree are the most important factors contributing the wage gap. The returns to these variables is lower for the migrants than that for the non-migrants. However, the difference in the returns does not contribute largely and significantly to the wage gap.

The findings from this study imply that migrants in cities in Vietnam are not underpaid. There is no discrimination against migrants. The main reason why migrants have lower wages than non-migrants is the gap in age and education between migrants and non-migrants. To obtain higher wages, migrants should have better education and improve working skills through vocational training.