Vietnam has seen a remarkable transition from being an agricultural-based economy to becoming a prominent manufacturing hub, but to support economic growth momentum it needs to upgrade its labor market, according to the “Vietnam at a glance: Levelling up the workforce” report released by HSBC on November 4.

The report noted that with Covid-19 disruptions now in the rear-view mirror for Vietnam but with global demand for goods waning, this is an opportune time to revisit the structural agenda of improving labor productivity. By 2030, Vietnam aims to become an upper middle-income country and raise GDP per capita to $7,500.

Following the border re-opening in March, the labor market has recovered at a strong pace. The unemployment rate reached 2.28 per cent in the third quarter, levels not seen since the onset of the Covid-19 pandemic. The workforce and workforce participation rate reached 51.9 million and 68.7 per cent, respectively, as of the end of the third quarter, continuing their upwards trajectories since the lockdowns in the third quarter of 2021. The resumption of broad economic activity in Vietnam has subsequently led to improvements in labor market conditions, and indicates that the domestic economy is well on its way to full strength.

The report also emphasizes that education is key to upgrading the labor market. Improving education and further investing in human capital has already been highlighted as one of the pillars for the government’s socio-economic development strategy for 2021-2030. As Vietnam moves past the Covid-19 pandemic, the government can reassert efforts to invest in human capital to improve workplace productivity, which is essential, especially as demographics tilt towards an older populace. Although Vietnam has achieved a high attainment of basic education, more can be done to increase the uptake of tertiary education.

In addition to funding, there is room to further improve the structure of vocational training. Headlines about expanding higher value-added production paints a positive picture, but existing firms are already experiencing recruitment difficulties due to a mismatch in skillsets.

That said, Vietnam’s workforce is indeed being increasingly exposed to higher value-adding skills and knowledge. There are signs that the gains in manufacturing are flowing to a wider variety of more complex products. The steady inflow of FDI into Vietnam has also contributed to more sustainable employment, with the General Statistics Office (GSO) noting that formal employment is increasing by more than the informal sector.

The government’s options include lowering the opportunity cost of tertiary education; expanding tertiary education funding; and improving the quality of vocational training.