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.