1.

Economic productivity in VN
1.1 Definition
You may wonder what is Productivity, in economics, measures output per unit of
input, such as labor, capital, or any other resource. It is often calculated for the
economy as a ratio of gross domestic product (GDP) to hours worked.
Labor productivity may be further broken down by sector to examine trends in
labor growth, wage levels, and technological improvement. Corporate profits and
shareholder returns are directly linked to productivity growth.
At the corporate level, productivity is a measure of the efficiency of a company's
production process, it is calculated by measuring the number of units produced
relative to employee labor hours or by measuring a company's net sales relative to
employee labor hours.
So, A country’s ability to improve its standard of living depends almost entirely on
its ability to raise its output per worker. Economists use productivity growth to
model the productive capacity of economies and determine their capacity
utilization rates. This, in turn, is used to forecast business cycles and predict future
levels of GDP growth.
1.2. 4 types of Productivity Measures
Labor Productivity
The most commonly reported productivity measure. Published by the Bureau of
Labor Statistics. This is based on the ratio of GDP to total hours worked in the
economy. Labor productivity growth comes from increases in the amount of
capital available to each worker, the education and experience of the workforce
and improvements in technology .
However, productivity is not necessarily an indicator of the health of an economy
at a given point in time. For example, in the 2009 recession in the United States,
output and hours worked were both falling while productivity was growing (hours
worked were falling faster than output).
Total Factor Productivity
There are many factors that impact a country’s productivity. Such things include
investment in plant and equipment, innovation, improvements in supply chain
logistics, education, enterprise, and competition.
It is interpreted as the contribution to economic growth made by managerial,
technological, strategic, and financial innovations.
Also known as multi-factor productivity , this measure of economic performance
compares the number of goods and services produced to the number of combined
inputs used to produce those goods and services. Inputs can include labor, capital,
energy, materials, and purchased services.
Capital Productivity
Capital as a productivity measure looks at how efficiently physical capital is being
used to create goods or services. Physical capital includes tangible items, such as
office equipment, labor materials, warehouse supplies, and transportation
equipment (cars and trucks).
Capital productivity is calculated by subtracting liabilities from physical capital.
You then divide the sales number by the difference. A higher capital productivity
number shows that physical capital is being used efficiently in the creation of
goods and services while a lower capital productivity number shows the opposite.
Material Productivity
Measuring productivity by materials looks to measure output by the materials
consumed. Materials consumed can be heat, fuel, or chemicals in the process to
create a good or service. It analyzes the output generated per unit of material
consumed.
Thank you Khoi for such an informative presentation on definition and how to
measures economic productivity. Now lets move on to the next part. Which
include benefits of productivity growth and learn more about labour productivity in
Viet Nam over the time and by economic activity.

1.3. The benefit of productivity growth

Productivity growth is important for maintaining the economic welfare and
prosperity Productivity growth can contribute to one or a combination of the
following:
1. Higher wages: Productivity growth enables firms to increase wages for workers.

2. Lower prices: Businesses can pass on productivity improvements to consumers

through lower prices without reducing profits or wages.

3. Higher profits: In response to an improvement in productivity, businesses can

increase their profits as it now costs less to produce a given level of output. These
profits can be distributed to the business owners or shareholders, or reinvested into
the firm.

4. Stronger economic growth: Labour and capital inputs tend to affect marginal
returns. In other words, holding other inputs constant, the addition of one more unit
of labor or capital will lead to a smaller and smaller addition to output. This leaves
productivity growth as the main driver of higher living standards in the long run.

1.4. Labor productivity in Vietnam

1.4.1. Labor productivity over time
Vietnam’s labor productivity evolved in three distinct stages: high growth (1991-
95), stagnation (1996-2012) and recovery (2013-2015) as illustrated in Figure

During the first half of the 1990s, Viet Nam vigorously eliminated barriers to
market and decisively integrated into the international trading community. These
efforts were behind the remarkable initial upsurge in Viet Nam’s labor
productivity, which peaked at 7.13% in 1995
However, the growth of labor productivity slowed down in the late 1990s.
From 2000 to 2012, labor productivity growth was in the range of 3-4% per year.
In 2008-09, another global financial crisis lowered Viet Nam’s labor productivity
growth to 2.6%. More recently, labor productivity growth started to recover from
around 2013 approaching the figures recorded in the mid-1990s
Labor productivity by economic activity
In general, labor productivity of three main economic sectors—(i) agriculture,
forestry, and fisheries; (ii) industry and construction; and (iii) services—has each
improved significantly over the years (Figure 2.2)

Among them, agriculture, forestry, and fisheries had the lowest labor productivity
in absolute level while industry and construction had the highest labor
productivity. The latter sector includes activities with high labor productivity such
as mining and certain manufacturing
Agriculture, forestry, and fisheries
Agriculture is the largest creator of value-added in this broad sector (76% in 2015),
followed by fisheries (20%) and forestry (4%) as seen in Figure 2.5
The agriculture, forestry, and fisheries sector has the lowest labor productivity but
the highest growth rate, with a steadily upward trend over the years
labor productivity growth of agriculture, forestry and fish sẽ eries seems to have
been influenced by international shocks, market movements, and other external
conditions such as favorable weather, high GDP growth, and good conditions for
export.

Industry and construction

The industry and construction sector has tihe highest labor productivity in the
economy. It witness an extreme productivity growth in the 1990s but faced a
decline and stagnation in the first ten years of the twenty-first century (Figure 2.7).
Within this broad sector, manufacturing is a critical subsector occupying 46% of
value-added in 2015 (Figure 2.8) and expected to play a vital role in job creation
and economic growth and transformation.

Services
Service sector include these sub sector:
Wholesale, retail trade and repair,
Transportation and storage,
Accommodation and food service activities
Real estate activities
Education Wholesale

Retail, and repair accounts for about 35% of value-added of this sector, while other
subsectors carry the weight of about 5-10% each (Figure 2.11). The value-added
structure of services has remained relatively stable over the years.

Real estate business and financial, banking, and insurance activities are two
subsectors that have recorded high labor productivity, not just among services but
even in the entire economy. Real estate business had very high labor productivity
from 2003 to 2009 when the Vietnamese economy boomed under a property
bubble and high inflation.

Similar to the construction subsector, performance of the real estate subsector is

highly correlated with macroeconomic booms and busts, investment strength, and
credit growth. Medium-term volatility with little long-term improvement was also
observed in other subsectors. Other than transportation and storage, which had a
mild upward trend, it is difficult.

2. Comparison

2.1. Vietnam vs ASEAN Countries

First, let’s compare Vietnam’s labor productivity with other ASEAN
countries. I will take the period from 2011-2019 which has the most specific
data to prove that Vietnam has a remarkable growth rate but is still not
completely good. Then 2020-now, covid —> figures not changed much
There is an outstanding point that our country has had a relatively high labor
productivity growth rate. In this period, Vietnam's labor productivity by
purchasing power parity (PPP) 2011 of Vietnam increased by an average of
4.9%/year, higher than the average growth rate of Singapore (1.4%/year);
Malaysia (2%/year); Thailand (3.2%/year); Philippines (4.3%/year);
Indonesia (3.6%/year).
With a higher level of development, Vietnam has narrowed the relative gap
relative to other ASEAN countries. (Chart 1)
However, in terms of absolute value, according to World Bank data,
Vietnam's labor productivity at purchasing power parity (in terms of PPP
2011) in 2019 was only 7.6% of Singapore's productivity level; 19.5% of
Malaysia; 37.9% of Thailand; 45.6% of Indonesia; 56.9% of the Philippines;
88% of Laos. The labor productivity of Vietnam in Southeast Asia is only
higher than that of Cambodia (1.6 times).
More specifically, the labor productivity of Vietnam ranks lowest among
comparison countries in the three most important industries: "transportation,
warehousing, communication", "manufacturing industry", "construction".
The labor productivity in Vietnam is just rated higher than some countries in
only 3 industry groups: "Mining industry", "Community, social and personal
services", "Finance, real estate and office services”.
There’s 1 more noticeable point that some smaller countries such as Laos,
Myanmar and Cambodia are also increasingly narrowing the gap with
Vietnam thanks to their increasing labor productivity. This disparity tends to
increase rapidly in the near future. This may present a challenge for the
Vietnamese economy when it has to quickly catch up with the labor
productivity levels of other countries

2.2. Vietnam vs Northeast Asia Countries

Next, let’s compare Vietnam’s labor productivity with Northeast Asian
countries, including Japan, Korea, and China. It's obvious that Vietnam's
labor productivity is also very modest. According to statistics from the
Vietnam Statistics Office, the labor productivity of Japan is 39 times higher
than that of Vietnam, South Korea is 16 times higher and China is 2 times
 higher. Japan is also considered one of the 19 countries with the highest
labor productivity in the world now.
The growth rate of labor productivity of Vietnamese people is quite limited
with only 4% while this figure in China is 7%, Korea is 5%.
The working productivity of the nine groups of Vietnamese industries is near
the lowest or even the lowest among the above countries, especially in the
"manufacturing industry", "construction" and “transportation, warehousing,
communication”. The difference in labor productivity is easy to see because
the gap between Vietnam and other countries is still increasing.

2.3. Reasons for the backwardness

 There are many reasons for the backwardness of Vietnam. The first
reason to mention is that the economic scale of our country is still
small, from a low starting point.
 The second reason can be mentioned is that the economic structure is
still backward and slow to shift towards industry - service.
 Another reason that is quite obvious in the present time is the rate of
underemployment due to COVID.
 There are some other reasons such as inefficient use of human
resources,low productivity per working hour or outdated machinery,
equipment and technological processes. (Because of the time limit, I
won't go into detail. If you care about it, I will send this slide to you
after the presentation.)

2.4. Conclusion
As you can see, Vietnam's labor productivity is still quite limited compared
to other countries in the region. In other words, Vietnam's labor productivity
growth is still not fast enough to close the gap with other countries.
According to information from the report in 2020 of the Asian Productivity
Organization (APO), Vietnam's labor productivity is currently 10 years
behind Thailand, 40 years behind Malaysia and 60 years behind Japan.
In order to shorten the gap with other countries in the region, in the coming
period, Vietnam's labor productivity needs to increase by at least 6.5%/year
as in the draft socio-economic development plan for the period 2021- 2025.
That proves that if compared with Western countries which tend to have a
very high labor productivity, Vietnam will have to spend many more years
and face a lot of difficulties to catch up with them.

3. The role of factors of production for our economy

 In economics, factors of production are the resources people use to produce
goods and services; they are the building blocks of the economy. Economists
divide the factors of production into four categories: land, labor, capital,
and entrepreneurship.

 Land
 Def:
 is the physical place where economic activity takes place
 also includes all the natural resources found on it, for example:
water, oil, copper, natural gas, coal and forests
 Land resources are the raw materials in the production process, some
can be renewable and some are not

 Labor
 Labor is the effort that people contribute to the production of goods
and services
 An example of labor resources: a grab driver who drives you to work,
a shopkeeper who sells something for you

 Capital
 Capital can be understood as the machinery, tools and buildings
humans use to produce goods and services
 Some common examples of capital include hammers, forklifts,
computers, and delivery vans
 Capital differs based on the worker and the type of work

 Entrepreneurship
  Entrepreneurship combines all the other factors of production into a
product or service for the consumer market or to explain in another
way, entrepreneurs use land, labor, and capital in order to produce a
good or service for consumers.
 Entrepreneurship is involved with establishing innovative ideas and
putting that into action by planning and organizing production.
 They are a vital engine of economic growth

Role of factors of production in Vietnam

 Land
 Vietnam is strategically located in the center of Southeast Asia. It is
also worth noting that it shares borders with China.
 It has a long coastline and it is close to many international shipping
routes.
=> Vietnam has become a top destination for investment in
manufacturing and a prime location for trading in recent years
 Vietnam’s manufacturing is centralized in four key economic regions,
including the Northern, Central, Southern, and Mekong Delta regions.
These regions attract different manufacturing sectors and are
distinctive in terms of labor pools, industrial mix, and infrastructure.
 Rapid economic growth in the past two decades has converted up to
one million hectares of household farmland to commercial and
residential use. With a large population and limited availability of
land, Vietnam’s endowment of 0.3 hectare of agricultural land per
person is among the lowest in the world

 Labor
 Vietnam’s population in 2020 is estimated at 97,58 million people, the
labor force that above 15 is 54.6 million people, accounted for 55.6%
of the total population
=> Competitive labor cost compared to many countries in the world
Vietnam’s labor cost are half as much as China’s labor cost at
US$2.99 (VND 68.000) per hour compared to US$6.50 (VND
148.000) per hour respectively.
 Because of the cheap labor, Vietnam became the fourth-largest
garment exporter in the world market after China and the EU
 Vietnam has a relatively large, well-educated labor force
=> Making it an attractive hub for production
  However, there is still a current labor shortage and a lack of skilled
workers in specific industries such as IT

 Capital
 According to Bloomberg, Vietnam is one of the smallest economies in
the region, however, our country is the top leader in investing in
infrastructure.
 Vietnam has formed most of the road axes from North to South, from
East to West, not only connecting economic regions throughout the
country but also ensuring trade with neighboring countries.
 Vietnam’s machinery and equipment sector has expanded
substantially in the last decade. This is proved by the net revenue
recorded by companies operating in this industry increasing at a
compound annual growth rate (CAGR) of 14.3 percent between 2010
and 2019.
 The condition of old and patchy machinery and equipment in Vietnam
is quite common for all manufacturing industries
 In factories, and enterprises, up to 70% of equipment and machinery
are used from the 60s - 70s generation and most of that equipment has
been fully depreciated.

 Entrepreneurship
 Vietnam’s entrepreneurship ecosystem has seen steady improvements
in recent years. Enterprises play an important role in the Vietnam’s
economy
 In 2020, the business sector is making the largest contribution to the
development scale of the economy, accounting for over 60% of GDP
 By the end of July, 2022, the whole country has about 871 thousand
operating enterprises that incur taxes, an increase of nearly 13%
compared to 2019. Of which, enterprises in the fields of agriculture,
forestry and fisheries account for 1.4%; industry and construction
accounted for 31.2% and the service sector accounted for 67.4%. The
increase in the number of enterprises means that the contribution of
entrepreneurship to the country is increasing
 The number of newly established enterprises and returning to
operation increased significantly, but the rate of enterprises dissolved
or stopped operating was still high; at the same time, there is a lack of
medium and large sized enterprises, the scale of Vietnam’s company
 is still too small, compared to the world. The majority of enterprises in
our country are micro, small and medium size, accounting for nearly
98% of the total number of enterprises. Besides, the scientific and
technological capacity of enterprises is still limited, in some places it
is still backward; enterprises have not yet boldly invested in the
application and development of science and technology, especially
core technology and pioneering technology.

4. Improving the productivity

Land - Green Economy

 As in most low-income countries, we have relied heavily on its natural
resources, using its extensive stocks of agricultural and mineral resources to
enhance its economic development over the past two decades. And with this
much reliability, issues can arise in terms of scarcity, where it will become a
diminishing return. That’s why we need to expand and conserve or alternate
the natural resources into other ways.


 Bringing sustainability considerations into everything. This “whole economy

approach” should be at the center of Vietnam's reform agenda as short-term
 considerations should be balanced with the long-term objective to preserve
the country’s natural stock to a sustainable level.
 And authority plays a major role in maximizing the country’s wealth over
time.
(1) pricing policies,
(2) direct public interventions
(3) Easy access to information and decision making processes for all
stakeholders.

Labor - Skilled workers and opportunities for all

Next, the element we are going to dissect and solve is labor.

 The amount of labor available to an economy can be increased in two ways.

One is to increase the amount of human capital. The other to increase the
total quantity of labor
 Skilled workers:
 Building worker skills will require radical reforms to the education and
training systems, notably in the upper and postsecondary levels. The reforms
should be designed around two main objectives:
(a) to increase the responsiveness of the postsecondary education sector to
demand for skills including the number of post-secondary graduates and the
types of skills taught
(b) to promote equity in access to post-secondary programs.
This includes developing more cost-effective, non-university options (VET
institutions)

 Opportunities for all:

As of 2016, ethnic minorities make up 73 percent of the number of poor people
nationally (9 million)
These minority groups are poor because they are facing unequal access to human
capital development and jobs.

 Supporting the transition of ethnic minorities into household enterprise and

wage employment is key to the country’s long term prosperity, but it will
require reducing their economic distance to markets. There are three key
entry points to reduce the economic distance:
(a) integrate lagging areas into the network economy to expand their market
potential,
 (b) create a secondary economy supporting industries based on the regional
absolute advantages, and
(c) reduce the cost of migration to increase long-distance migration
domestically.

Capital - Efficient infrastructure

 As mentioned previously by Nhu Anh, we’ve talked about how outdated the
infrastructure in Vietnam is. In order to solve this, I came up with four main
steps.
 First is to assess the company assets: Before solving any problem,
businesses need to identify the problem they are facing.
 Second, analyzing the issue: Asking your these questions:
Is the equipment damaged too badly or is it not to serious, then consider
renewal or apply asset maintenance appropriately
 Third, develop a cost plan and equipment usage, how we are going to assess
the issue with the manufacturer
 Fourth, we pursue our plans to fix it and after that, constant eye on the
instruments are necessary to notice major damage before it even happens
and maximizing the machinery at their peak.
That is our way of solving this field.

Entrepreneurship - Dynamic firms

 Many firms and entrepreneurs in Vietnam are being penalized by a poor
and uneven application of regulations and property rights, corrupt
practices, etc
 Two main recommendations have been formulated
 Improved productivity through better allocation of resources
-> focus on removing barriers that prevent the reallocation of existing resources to
the most efficient firms.
 Improved productivity by removing obstacle
-> Fostering innovation: Vietnam can continue to reap significant productivity
gains from prioritizing technological catch-up through adoption of the existing
global knowledge pool rather than trying to push innovation at the frontier as a key
element of its enterprise centric innovation strategy.