Patrick Lenain
OECD Economic Surveys: Viet Nam 2025
Abstract
Viet Nam’s rapid economic expansion has delivered large benefits to its citizens, including remarkable improvements in living standards and overall well-being. Extreme poverty has been nearly eradicated, and a growing middle class is experiencing rising incomes. Income inequality has been contained. Despite this general improvement of material living standards, several groups have lagged behind, especially in remote locations where access to public services is challenging. Additionally, the large numbers of workers in informal employment receive lower salaries, lack unemployment insurance, and are not entitled to old-age pension benefits. Women remain less represented than men in many leadership positions. Finally, vulnerable people living in temporary housing are more exposed to extreme climate events, such as typhoons. This chapter reviews the progress made so far to promote inclusive growth and discusses parametric reforms to provide more universal social coverage and reduce informality.
Viet Nam has almost eradicated extreme poverty over the past decades with the help of sustained economic growth and social protection policies. Extreme poverty as defined by the World Bank’s international poverty line (income of less than USD 2.15 per day at 2017 purchasing power parities) declined from 45% in 1992 to less than 1 % in 2022, one of the lowest poverty rates among peer countries (Figure 2.1). Using the benchmark for lower middle-income countries (income of less than USD 3.65 per day), poverty has declined to 4.2%, and it remains significant at 19.7% if the benchmark for upper middle-income countries is used (income of less than USD 6.85 per day). This suggests that, while few persons live in extreme poverty, almost one in five Vietnamese remain in vulnerable situations and are a risk of falling back occasionally into poverty in the aftermath of economic shocks or natural disasters.
Multidimensional poverty has also significantly declined over the past two decades, encompassing not only monetary income but also social dimensions such as employment, nutrition, healthcare insurance, and adult education. Multidimensional poverty affected only 4.1% of the population in 2024 according to official figures, highlighting the broad delivery of public services. However, the multidimensional poverty rate was almost 40% in 74 poor and especially disadvantaged districts in coastal and island areas, where the poverty rate was 24.9% and the share of near-poor households was approximately 15%
Note: PPP stands for purchasing power parity. Comparisons in USD PPP correct from differences in price levels across countries and time.
Source: World Bank Poverty and Inequality Platform (PIP).
Together with the decline of absolute poverty, income inequality has in general been contained. In 2023, Viet Nam recorded a Gini coefficient of 0.37, reflecting lower income inequality than in peer countries like Malaysia and the Philippines (both at 0.41). Viet Nam's inequality level is similar to that of Indonesia (0.38), Lao PDR (0.39), and Thailand (0.35). The decline in income inequality from high levels in the previous decade was particularly notable during the COVID-19 pandemic and the energy crisis following Russia’s invasion of Ukraine (Figure 2.2). This reduction can be attributed to several key factors. First, high-income groups have been more adversely affected by the disruptions, especially in urban areas where production has been halted owing to confinement rules and the temporary dislocation of global supply chains. In addition, the government implemented tax and transfer measures aimed at supporting lower income groups, thus effectively mitigating their income losses and reducing overall income inequality. Finally, the large informal sector has demonstrated more resilience than the formal sector, thus helping to prevent a widening of the income gap.
Source: General Statistics Office of Viet Nam, provisional data for 2023.
Analysis of inequality using the methodology developed by Commitment to Equity (Lustig et al., 2023) confirms the good performance of Viet Nam. This approach employs fiscal incidence analysis to evaluate how government interventions affect income distribution among different socio-economic groups. The methodology involves allocating taxes and public expenditures to households to determine their net effect on income levels, thereby identifying which policies are progressive or regressive. Such analysis helps policymakers in designing strategies that promote equity and reduce poverty. This methodology was applied to Viet Nam by the World Bank using pre-COVID data in 2014 (World Bank, 2016a) and 2018 (World Bank, 2022). The analysis suggest that Viet Nam’s low level of income inequality is predominantly the result of the low level of inequality in pre-fiscal market earnings (i.e., pre-tax and pre-transfer incomes). However, it is important to note that the estimates shown in Figure 2.3refer to 2018 and that important changes in social policy have been introduced in the context of the pandemic. Regular updates would be beneficial for the design of adequate social protection policies.
While these indicators of inequality are useful, they may not provide a complete picture, as they fail to account for the concentration of income among the top 1% or 0.1% and do not capture the rapid rise in wealth inequality observed in many countries. These indicators may therefore underestimate the extent of social disparities. Research indicates that nations maintaining social cohesion through inclusive growth strategies tend to achieve better long-term outcomes (Acemoglu and Robinson, 2002). Viet Nam should therefore continue prioritising an inclusive growth pathway to sustain equitable and robust development in the future. In this context, it is a concern that the country’s system of taxes and cash transfers as a whole does little to reduce poverty (Figure 2.3). While cash transfers have a sizeable poverty reduction effect, this effect is largely undone by taxes. The personal income tax system has little redistributive impact, in spite of tax rates ranging from 5% to 35%, because of the complex system of tax expenditures comprising personal and dependent allowances, as well deductions of mandatory contributions (Chapter 1). In addition, the redistributive effect of personal income taxes is more than offset by the incidence of indirect taxes – VAT and Environmental Protection Tax – thus resulting in little income redistribution impact (World Bank, 2022).
Source: 2018 VHLSS and World Bank calculations (2022).
The General Statistics Office (GSO) of Viet Nam conducts annually the Viet Nam Household Living Standards Survey (VHLSS) to observe the living and working conditions of different population groups and to monitor the implementation of government strategies. The survey contains information on education, health care, employment, income, consumption, housing, poverty and living conditions. It is conducted with the support of the World Bank. The sample size approaches 47,000 households selected across various geographic levels. Face-to-face interviews are conducted throughout the year with heads of households and family members. The results are used to determine different levels of poverty prevailing in the country and make comparisons with peer countries. The most recent data for 2022 were released in early April 2024.
The GSO also compiles the Labour Force Survey (LFS) following standards agreed in the context of the International Labour Organisation (ILO) and with the support of this organisation. The sample includes 235,000 households surveyed every year, with a distribution across urban and rural areas, and across provinces and cities. Among various statistical reports, the LFS is used to estimate the number and characteristics of Viet Nam’s workers with informal employment.
The rich sets of microdata compiled with these two surveys are routinely used by researchers at GSO and other organisations to prepare socioeconomic studies, including on living standards, household welfare, migration, remittances and gender gaps (VHLSS), as well as studies of employment structure, returns to skills and informality (LFS).
The declines in poverty and inequality are also reflected in a narrowing income gap between urban and rural areas. In 2002, urban incomes were about 2.3 times higher than those in rural areas, but by 2023, this ratio had decreased to approximately 1.5 times. Nonetheless, horizontal inequality remains a persistent issue in Viet Nam, particularly among underprivileged groups and regions that have not benefited from rapid economic development (Nguyen and Tran, 2022). The Southeast region, which includes Ho Chi Minh City, consistently reports the highest average monthly incomes (Figure 2.2). In 2023, the average income in this region was approximately 1.3 times higher than the national average. In contrast, the Northern midlands and mountain areas, characterized by limited infrastructure, report average incomes that are approximately 0.7 times lower than the national average. Ethnic minorities, who predominantly live in remote and rural areas, remain among the most disadvantaged groups. They face higher poverty rates and lower income levels compared to the majority Kinh population, contributing disproportionately to the nation’s poor. Further improving the various tools to deliver social protection and increase access to public services will be crucial to further reduce these various divides. Regular assessments of poverty developments, involving a community of stakeholders, could help the government fine tune existing anti-poverty policies.
Broadening the coverage of social protection policies would help to mitigate this worrisome incidence of horizontal inequality and help groups left behind. Viet Nam provides social protection with three pillars: social insurance, social assistance and active labour market programmes (World Bank, 2019). Social insurance is the largest pillar, with well-established old-age pensions, maternity benefits, healthcare, and unemployment insurance. These benefits are funded by contributions from workers and employers in the formal sector. However, given that a majority of the workforce —68.5% of employment— operates in the informal sector, these benefits are only available to a minority of workers. Social assistance consists of poverty alleviation programmes and non-contributory pensions financed through general tax revenue, but this amounts to only a low 0.7% of GDP, a rate that is well below regional and global benchmarks and results in patchy coverage and very low benefit levels. This duality leaves many workers vulnerable to economic shocks. Active labour market programmes are also limited in scope (0.1% of GDP).
Social cohesion in Viet Nam would therefore benefit from expanding social assistance programmes to reach a greater proportion of vulnerable households. However, such expansion must be carefully designed, as existing evidence from other countries points to the need to maintain strong incentives for formal job creation to avoid a shift toward informal employment. This shift can happen when the additional benefits available to formal workers are not perceived as worth the amount of contributions, thus encouraging workers and firms to avoid paying social contributions and income taxes (World Bank, 2019). Recipients of social benefits may also change their labour supply behaviour, resulting in inactivity rather than active participation in the job market. An expansion of social assistance should therefore consider the social protection system as a whole and ensure policy coherence, with the aim of providing universal basic benefit coverage for informal workers while maintaining strong formalisation incentives. Achieving more universal access to social protection and a lower incidence of informality would make economic growth significantly more inclusive and foster greater equality of opportunity.
2.2.1. Expanding pension coverage could further reduce old-age poverty
Labour force participation rates in Viet Nam remain high across most age groups for both men and women, except for younger individuals who pursue education (Figure 2.4). In theory, high participation rates should ensure workers qualify for old-age pension benefits, providing a safety net against poverty in old age. In practice, however, few workers become eligible for public pensions upon retirement due to widespread labour informality. Viet Nam’s contributory social insurance system primarily benefits workers in formal employment, leaving the vast majority in the informal sector highly vulnerable to poverty in retirement. This disparity creates significant inequalities: formal workers, often employed in the public sector or by foreign firms, receive pensions, while informal workers, typically engaged in agriculture, self-employment, and retail trade, do not. Of the approximately 14.4 million people of retirement age in Viet Nam, only 3.3 million receive monthly Social Security pensions. To alleviate poverty of other elderly persons, the government has put in place various non-contributory benefits, such as financial assistance and social support to individuals over 80 years old. Furthermore, the National Strategy for the Elderly aims to enhance the quality of life for senior citizens by 2030, and includes, amongst others, targets regarding the access to healthcare services.
Source: International Labour Office, based on micro data from Viet Nam’s Labour Force Survey.
Improved pension coverage is a crucial objective of amendments to the Law on Social Insurance adopted by the National Assembly in June 2024 and becoming effective in July 2025. The amendment to the Law brings a comprehensive reform that broadens the coverage of the social security system with the introduction of a multi-tiered pension system, the integration of non-contributory pensions, and the creation of a “mixed” pension for workers with shorter contributory careers. The reformed pension will include a (first pillar) social pension, for those aged 75 and above with no contributory pension benefits and for those aged 70 to 75 with low incomes. All Vietnamese citizens who reach 75 years or more without pension entitlements will henceforth be eligible for a social retirement benefit. The social pension will be paid by the central government and is subject to fiscal space constraints. The social pension is set provisionally at only VND 500,000 per month (roughly USD 20), well below the poverty line. Every three years, the government will consider whether to change the amount. Local governments may pay higher pensions if they have available funds. In addition, recipients will have their health insurance premiums covered by the state budget. Adding to this, for those with a work record in formal employment, the minimum number of years contributing to social insurance before receiving a pension will be reduced from 20 to 15 years, thus broadening access for workers with careers comprising periods of informal employment and no contributions.
The amendments to the law also seek to expand the participation in the social insurance system of small businesses owned by households. These small businesses are characterised by low enrolment rates in social insurance, and they constitute a large share of informality. By contributing, small business owners will gain access to various social insurance benefits, including retirement pensions, maternity benefits, and health insurance coverage, enhancing their social security. In addition, part-time workers and non-salaried managers of enterprises and cooperatives will also be included in the social insurance system. The government estimates that about 3 million additional workers will be covered by this change. This reform will broaden social insurance coverage, ensuring that a wider segment of the workforce receives adequate social protection. However, it will be important to understand why small businesses have generally not enrolled in the social insurance system, including whether their limited financial capacity may have been a significant impediment to their participation (Castel and Pick, 2028). If this is not addressed, the reform will fail to entail a significant increase in contributions to social insurance, and it may trigger the bankruptcies of many businesses lacking the financial capacity to pay these contributions.
In addition, amendments to the Law on Social Insurance seek to address the problem of early withdrawal of contributions from the pension system, which was financially disadvantageous to both workers and the pension system. Known as a lump-sum social insurance withdrawal, the system enables certain groups of individuals with less than 20 years of contributions to receive a one-time payment equivalent to two months of monthly salary per year of contribution. Workers unemployed for more than one year are eligible to this lump-sum payment, and this was used extensively during the pandemic by those who lost their jobs and needed to find new sources of income. In addition to this precautionary reaction to an unexpected loss of income, research has identified other attitudes leading to early withdrawal of pension funds ranging from a lack of financial literacy to risk-taking behaviour (Do et al., 2023). The reform introduces measures to encourage employees to keep their contributions in the system rather than opting for this lump-sum withdrawal of funds. The reduction in the minimum contribution period from 20 to 15 years required for pension eligibility will broaden the group of workers who can receive a monthly pension instead of having to withdraw a lump sum payment, such as those who have participated intermittently in the formal labour market. In addition, employees who choose to keep their contributions in the system instead of taking the lump-sum payment will benefit from improved pension conditions, health insurance coverage, and monthly allowances. These incentives are designed to promote long-term participation in the social insurance system and discourage asking for the lump-sum payment, which results in the loss of future pension benefits and associated health insurance coverage during retirement.
A complementary policy to potentially discourage lump-sum withdrawals would be to allow workers to borrow against their social insurance contributions during periods of financial hardship, with the obligation to repay once their situation improves. This approach, implemented in countries like the United States (through 401(k) plans) and Singapore, can provide temporary relief without undermining long-term savings. To safeguard the financial stability of the social insurance system, such loans should be strictly regulated and limited to exceptional circumstances involving significant income loss. Viet Nam could consider allowing social security contributors to temporarily borrow against pension contributions during challenging times, while ensuring that this does not compromise the long-term viability of the social insurance system.
The financial position of the social insurance scheme is generally assessed to be viable at present and is expected to remain so for the coming decade (ILO, 2023), largely thanks to the demographic dividend enjoyed by Viet Nam – with the number of working people exceeding the number of older people. However, population aging is expected to set in after 2035 and, together with the existing pension entitlement parameters, this will increase pension costs significantly in the absence of reforms (IMF, 2024). The social insurance system is managed cautiously, with a focus on safeguarding the system’s sustainability rather than the value of benefit levels, as illustrated by the absence of automatic price indexation. However, in the longer run the projected increase in the dependency ratio will require mobilising more resources to support older persons and/or adjusting benefit levels to maintain financial viability. IMF projections of pension fund viability suggest financing needs to keep pension assets positive rising from 3.45% of GDP within 30 years to 10% of GDP by 2100.
While these financial challenges will only emerge in the medium term, it is crucial to prepare immediately for their occurrence. It is therefore welcome that the government decided to increase the pensionable age gradually to 62 for men in 2038 and to 60 for women by 2035. Nevertheless, the reform should be more ambitious and accelerated. Differences between the pensionable ages of men and women could be abolished, as in most other countries. Among ASEAN-6 countries, only Viet Nam has different pensionable ages for women and men. Pension reforms typically require lengthy political discussions and negotiations and take time to implement. Many pension reforms have a material impact of pension systems only in the medium term, such as increasing the minimum periods of contribution, especially if there is a grandfathering of existing beneficiaries. Introducing a financial buffer to cope with temporary increases of the dependency rate works also overtime.
2.2.2. Improving cash transfers to protect vulnerable households
Beyond old-age pensions, well-targeted social assistance transfers to vulnerable households in working age can provide an effective tool to reduce poverty and protect households against economic hardship, including that arising from job dismissal, price shocks such the recent rise in energy prices (section 2.6) or excessive out-of-pocket healthcare expenses (section 2.4). Around the world, and especially in Latin America where they became prominent in the late 1990s, targeted cash transfers have effectively contributed to significant reductions in poverty (Fiszbein, Schady and Fereira, 2009). The success of such benefits often depends on effective targeting, including the availability of comprehensive registries of low-income households.
Social assistance transfers can be used to complement Viet Nam’s still nascent unemployment insurance (UI) system, which provides financial support and employment services to formal-sector workers who lose their jobs. The scheme is funded by contributions from both employers and employees, with employers contributing 1% of the monthly salary fund and employees contributing 1% of their monthly salary. To become eligible for UI benefits, employees must have paid into the system for at least 12 months within the 24 months preceding unemployment and must register with an employment service center within three months after a job loss. The benefit amount is calculated as 60% of the average monthly salary of the six months prior to unemployment, with the duration of benefits ranging from three to twelve months, depending on the length of contribution. However, with the majority of workers in informal jobs and without access to these benefits, its coverage rate is still low, at only around 27% of employed workers (or about 13.7 million workers) by end of April 2022. The recent amendment to the law on social insurance, if successfully implemented, and the reforms suggested below to encourage shifting to formal employment can help to increase the coverage of unemployment insurance.
Although informality has gradually declined in Viet Nam during recent years, it remains pervasive and is the source of low coverage with social protection benefits. Attempts to formalise informal workers faced significant setbacks during the COVID-19 pandemic. The economic disruptions caused by lockdowns and global supply chain interruptions forced many workers to transition back from formal employment to informal work, reversing some of the earlier progress made in formalisation efforts. Reflecting this recent setback, informality remains prevalent. Individuals in the informal sector often face low earnings and heightened vulnerability to poverty. The informal sector is predominantly composed of small, unproductive firms that are largely disconnected from the formal economy and demonstrate limited growth potential. These businesses are particularly unlikely to benefit from the spillover effects of foreign direct investment, perpetuating their status as low-productivity, low-innovation, and slow-growth enterprises (Chapter 4).
The General Statistics Office (GSO) publishes informality statistics based on ICLS20 definitions (International Conference of Labour Statisticians under the auspices of the International Labour Organisation) for informal workers in all sectors, and ICLS17 for informal non-agricultural workers, using the labour force survey. GSO estimates that Viet Nam recorded 33.6 million informal workers in 2021, accounting for 68.5 per cent of the total number of employed workers (GSO, 2023a). In other words, two-thirds of workers are employed without a labour contract, labour law protection, and social insurance. In a regional comparison, informality in Viet Nam is much higher than in Malaysia and slightly higher than in Thailand, but lower than in Indonesia, the Lao PDR and Cambodia (Figure 2.5).
According to the labour force survey, informal workers are typically young workers (15-19 years) entering the labour market and older workers (60+ years) exiting it. Notwithstanding, informality prevails also in the group of prime-age workers: only 40% of the 15-60 age group pays social insurance contributions. Informal workers more frequently live in rural areas, they are typically persons with low educational attainment and skills, their average labour monthly earnings are around half of that earned by formal workers, and they typically work longer hours than workers in formal employment. These workers often operate individual household businesses or small private enterprises, otherwise they are typically family members of the small business owner and are not declared to the social insurance system and do not pay income taxes.
Informality in Viet Nam is heavily concentrated in agriculture, forestry, and fisheries (Figure 2.6), which account for 13.7 million of the country's 37.2 million informal workers (37%). While the modernisation of agriculture and internal migration from rural to urban areas have contributed to a gradual decline in informality, this alone does not address the broader issue. Significant numbers of informal workers are also found in retail trade (4 million), construction (3.9 million), transport (1 million), and various manufacturing activities. Addressing informality, therefore, requires a comprehensive reform strategy that goes beyond the modernisation of agriculture.
Informal work, concentrated in low-productivity and low-pay activities, provides little in terms of opportunities for improving incomes and often perpetuates poverty. Conversely, poverty prevents workers from investing in skills and tools to enhance their productivity, creating a self-reinforcing “vicious circle” of informal employment and low-paying work (OECD, 2024). Breaking this circle requires comprehensive and interconnected reforms across multiple policy domains.
Source: International Labour Organisation, based on micro data from Labour Force Surveys. In Panel B, data for Malaysia are sourced from Ghorpade et al. (2024) and Thailand from National Statistical Office (NSO).
Because informal workers often have low skill levels, raising educational attainment significantly increases their chances of transitioning into formal employment (ILO, 2021a). Public policies aimed at improving education are therefore essential in this context. Self-employed workers and small businesses can be encouraged to formalise by simplifying regulatory processes and highlighting the benefits of formalisation, as recommended in Chapter 4. Establishing a simplified tax regime, for example, can help to incentivise micro and small businesses to formalise by lowering tax compliance costs and levying lower tax rates compared to the standard tax system and can be designed to include a Social Protection financing component (Mas-Montserrat, M. et al., 2023). Reducing the cost of formal job creation through lower social contributions has been successful in Colombia (Arnold et al., 2024). In addition to these “carrots,” effective “sticks” are also necessary, such as stronger enforcement of tax compliance and labour regulations (Chapter 1 and ILO, 2021b). Such measures are particularly effective for workers and employers in the “upper tier” of informality, who possess sufficient skills and experience and are more likely to formalise when compliance is strictly monitored (OECD, 2024).
However, it is important to recognise that many informal workers are employed by enterprises that cannot afford to pay the current level of social security contributions and taxes due to their low productivity. A strong focus on enforcement —including shutting down these businesses— before addressing other bottlenecks could prevent workers from accessing the only income generation source they have. If it were to drive more low-income earners into unemployment than into formal jobs, focusing on enforcement alone could actually worsen poverty.
The experience of fast-growing countries suggests that emerging economies do not simply grow their way out of informality. While high-income countries generally benefit from lower informality rates than developing and emerging economies, the relationship is not strong and there is a large degree of dispersion in informality rates for a given level of GDP per capita (ILO, 2022). Thailand has a similar level of informality to Viet Nam, despite a significantly higher GDP per capita, with the same holding true when comparing Mexico and Argentina. Hence, even though Viet Nam enjoys very strong growth rates, a decline in informality cannot be taken for granted in the absence of specific policy reforms. Viet Nam should follow the experience of countries having reduced informality with the help of a “virtuous circle” of higher social protection coverage, greater productivity, and increased probability of formal employment – simultaneously leading to declining poverty and inequality.
Note: The sector classification corresponds to the ISIC 2-digit level.
Source: International Labour Organisation, based on micro data processing of labour force survey.
As part of a broad package comprising investment in human capital, easier regulation to register businesses and obtain licenses, and strong enforcement, policies to lower informality in Viet Nam could include lowering non-wage labour costs for those with low incomes, which reflect the price differential between creating an informal and a formal job in a context of imperfect enforcement. Such a reform has proven effective for reducing labour informality in Colombia (Box 2.2).
2.3.1. High social security contributions likely encourage informality
Within a comprehensive strategy to fight informality, the government could consider reducing social security contributions for low-income earners, which are typically most affected by informality. Instead, basic social protection for low-wage workers could rely more on non-contributory benefits, financed from general tax revenues. This would imply shifting some of the burden of financing social insurance from social security contributions to other sources of public revenue, while at the same time aiming at universal access to social protection. Improving access to non-contributory old-age pensions is particularly important, as discussed in the first part of this chapter.
In Viet Nam, social insurance (SI) contributions are payable by individuals employed with a labour contract. Income subject to SI contributions includes salary, certain allowances, and other regular payments. Total SI rates from employers and workers to the various insurance schemes reach 32% (Table 2.2). The payments are capped at 20 times the basic salary for SI contributions. Health insurance and unemployment insurance contributions follow the same rules. In addition, workers pay a tax on their personal income with progressive rates ranging from 5% to 35%. The combination of social security contributions, income taxes and minimum wages can make the cost of formal labour prohibitive to hire workers with weak human capital and low productivity. This is likely to encourage employers to operate informally and recruit workers informally without a labour contract. Hence, it is plausible that high social contribution rates encourage informality in Viet Nam.
Source: PWC, Worldwide Tax Summaries, Viet Nam.
Social security rates in Viet Nam are higher than in Thailand, Indonesia, Malaysia, and the Philippines. This is reflected in Viet Nam’s high revenue collections from social security contributions, relative to non-OECD countries in the Asia-Pacific region (Figure 2.7). Social security contributions account for about 30% of general government revenue, which is high in international comparison. Notably, some OECD countries, such as Australia, New Zealand, and Denmark, do not levy social security contributions at all. Instead, they finance their social protection systems through other direct and indirect taxes. A similar approach is observed in Singapore and Hong Kong (China). Viet Nam could draw valuable insights from these policy approaches and consider shifting its tax mix to reduce reliance on labour taxes, in particular social contributions that typically apply from the lowest formal incomes and are not levied at progressive rates. This would also imply aligning social insurance rates more closely with those of its South-East Asian peer countries. For instance, in Thailand, social security contributions are shared equally by employees, employers, and the government, each contributing 5% of wages.
Source: OECD Comparative tables of Revenue Statistics in Asia and the Pacific.
The cost of reducing social security contributions could be limited by targeting such reductions to low-income earners, which are typically most affected by informal work. A range of reforms could help reduce the current disincentives to formal employment at a limited fiscal cost, following the example of other countries:
Lower contribution rates for workers earning below a certain threshold (Thailand, Colombia, see Box 2.2).
Grant subsidies to offset the cost of social security contributions for low-productivity workers (France, South Africa).
Grant temporary waivers of social security contributions during the transition from informal to formal employment (Thailand, Mexico).
In December 2012, Colombia’s Congress approved a reform that reduced payroll taxes by 13 percentage points of wage earnings. In particular, it eliminated employers’ contributions to the public training agency and the childhood services agency, previously set at 2% and 3% of firms’ payrolls, respectively. The reform also eliminated employers’ contributions to the health system set at 8.5% of the payroll. These payroll reductions applied only for workers with wages below a certain threshold. The goal of the reform was to stimulate formal employment. In the aftermath of the reform, labour informality declined visibly (Figure 2.8).
Note: 12-month averages. Informality is defined as the percentage of workers in employment not contributing to the pension system. Months from April to August 2020 are missing because of the pandemic some questions were not asked in household surveys.
Source: DANE (Statistical Institute of Colombia), OECD Economic Survey of Colombia (2022).
Available impact evaluations suggest that the reform led to a 2 to 4 percentage-point reduction in the informality rate (Kugler et al., 2017; Morales and Medina, 2017; Fernández and Villar, 2017; Bernal et al., 2017). For self-employed workers, the reform implied no changes in social contributions, explaining why the effect on increased formality was stronger among employees than self-employed workers. The effects of the reform have been broad-based and long-lasting, with the manufacturing, services and agricultural sectors experiencing reduced informality rates (Garlati-Bertoldi, 2018).
Source: OECD (2022), OECD Economic Surveys: Colombia 2022, OECD Publishing, Paris, https://doi.org/10.1787/04bf9377-en.
Still, reducing social security contributions for low-wage earners, and other recommendations made in this chapter, will require exploring alternative tax bases, such as consumption, carbon emissions, and recurrent taxes on immovable property, and improvements in the efficiency of existing expenditures. The viability and success of such reforms will hence hinge on the ability to identify alternative sources of revenues or spending reductions, which are discussed in Chapter 1 of this Economic Survey.
Reforming social protection systems is often not easy from a political economy perspective. Evaluating potential obstacles to the political implementation of lower social contributions for low-income earners and a stronger reliance on tax-financed non-contributory benefits implies identifying those who would win and those who would lose from the reform. The main winner would be the most vulnerable households that currently lack access to pensions and/or basic protection against poverty. These are the most vulnerable segments of the population, but they may not be the ones with the strongest political voice. Beyond low-income households, there would also be large potential benefits for society at large, as widespread informality is negatively linked to productivity (Amin and Okou, 2020; Maloney, 2004). By contrast, groups with a less obvious benefit would include those who are already enjoying the privilege of the formal labour market. Formal workers in the higher income ranges may oppose the reform to the extent that more of them would be paying more taxes than before. Since most of these have incomes significantly above those of low-income households that currently struggle to join the formal sector, the reform would likely have a progressive distributional effect overall.
In Viet Nam, the population in urban areas has access to education and healthcare services, including tertiary education (Figure 2.9), whereas people living in rural areas are less likely to benefit from the full range of these services. The population in the bottom four income deciles are predominantly living in rural areas and with low educational attainment, while those in the top six income deciles are mostly in urban areas and are better educated. Ongoing policy efforts are focusing on better protecting people in lower income deciles, especially those working in informality, by making them eligible for old-age supplement. Actions are also aimed at improving access to healthcare services and other public services, with schemes such as waivers on school fees, public transport discounts, and administrative procedures with no fees. Existing policies also prioritise facilitating access to concessional credit and seed funding, enabling households to establish enterprises without incurring high-interest debt. Finally, with rising occurrence of extreme weather events, recent policy initiatives seek to help vulnerable groups adapt to climate change.
Groups in the bottom 40 and top 60 (2022)
Note: The figure provides the profile of the bottom 40% and top 60% of the income or consumption distribution using the latest data. The chart does so by reporting the share of individuals with a particular characteristic, involving demographics or geographic location, who are in the bottom 40 or the top 60.
Source: World Bank Poverty and Inequality Platform (PIP).
2.4.1. Primary education is nearly universal, but secondary access remains incomplete
Over the past two decades, Viet Nam has achieved remarkable progress in education, with near-universal enrolment in primary and lower secondary schools. This widespread access, coupled with a strong emphasis on building human capital from an early age, has led to impressive outcomes. According to the PISA 2022 results, Vietnamese students scored close to the OECD average in mathematics and slightly below the OECD average in reading and science. Additionally, the socioeconomic gap in educational performance in Viet Nam is narrower than in many OECD countries. In the PISA mathematics test, students from the top 25% of socio-economic backgrounds outperformed their disadvantaged peers by 78 points—a smaller disparity compared to the OECD average of 93 points. This indicates that Viet Nam’s primary and lower secondary education systems are operating effectively, both in terms of proficiency and equity, providing significant benefits to 15-year-old students when they take the PISA assessment.
However, socioeconomic disparities take a severe turn beyond the age of 15 years, as illustrated by incomplete enrolment in upper secondary education (Figure 2.10). A barrier to full enrolment is likely to stem from the cost of education being too expensive for vulnerable populations. The VHLSS2022 survey reports education spending of VND 7 million annually (about EUR 260) – reflecting school fees, contributions to school funds, extra tutoring and other school expenses – exceeding what vulnerable families can pay. The wealthiest families spend on average 5.6 times more than the poorest on additional courses outside the school system, a difference that extends to 10 times more in secondary school (World Bank, 2016b) – which reduces the equality of access to future opportunities in tertiary education.
Source: General Statistics Office of Viet Nam (2023b).
As a result, differences in enrolment widen when entering upper secondary school, with over a third of children from households in the bottom quintile dropping out. By age 19, less than 20% of children from poor households remain in school, while 80% of students from high-income households continue with their education up to college or university (World Bank, 2022). A greater focus on the impact of socioeconomic factors in upper secondary education is necessary to provide better opportunities to children from vulnerable families and those living in remote areas. Information campaigns highlighting the employment opportunities and increased earning potential associated with completing upper secondary education are crucial for encouraging children from low-income families to stay in school. Viet Nam decided to fully waive tuition fees for students attending public schools from preschool through high school nationwide, effective September 2025. In addition, means-tested cash transfers could give all students a chance to complete their education as the cost of attending school includes expenses such as uniforms, textbooks, and extracurricular activities that can altogether deter further education. Attracting good teachers to remote schools with financial incentives has resulted in improved performance in other countries and could be part of a strategy to improve the quality of upper secondary education.
2.4.2. Access to healthcare is almost universal, but with high out-of-pocket payments
Viet Nam has made strong progress towards achieving universal health coverage, with 93.3 % of people having health insurance in 2022. The government fully subsidises health insurance premiums for vulnerable groups, including the poor, ethnic minorities, children under six, and the elderly above 80. Additionally, policies have been implemented to transition from voluntary to compulsory health insurance membership, aiming to increase coverage rates, with partial subsidies provided to vulnerable households and students. Despite these efforts, about 6.7% of the population remains without health insurance coverage. Viet Nam has stepped up its efforts to improve the health care of populations at the margin of society – such as ethnic groups living in mountains or remote rural areas –who lacked access to regular health checks and access to hygienic conditions such as clean water and latrine (Mekong Development Research Institute, 2020). However, out-of-pocket health expenses still account for 43% of total spending in Viet Nam, often making the cost of healthcare prohibitive for low-income households. Indeed, research shows that almost 5% of households still faced catastrophic health expenditures in 2018 (based on the 40% of non-food expenditure threshold). This rate had gone down over time, thanks in part to increased health insurance coverage, but remained higher than in Indonesia and Thailand (Thuong 2021).
Achieving effective universal coverage – close to 100% of the population with sufficient coverage - should be the government’s goal to increase health equity. Moreover, healthcare is considered essential to prevent the spread of infectious diseases and alleviate the plight of the sick living in poverty. Research based on pilot interventions finds that the lack of documentation, administrative complexities and costs of enrolment make it difficult for some groups to get a health insurance card (Forse et al., 2024). While the government fully subsidizes health insurance premiums for specific vulnerable groups, there appears to be a lack of awareness and understanding among the low-income population about the procedures to become eligible. Focusing on specific groups with low health enrolment and reaching out with information campaign, together with simplifying procedures, will be essential to achieve universal coverage. Holding a health insurance card alone will not ensure immediate access to healthcare– obstacles such as overburdened facilities and high out-of-pocket payments will remain – but it would be a step in the right direction. Targeted social assistance benefits could provide additional support to low-income households with high out-of-pocket health expenditures.
Women participate in the labour market in large numbers, which has made a crucial contribution to eliminating poverty is the country (Figure 2.4). Nonetheless, the average participation rate of women (62.5% in 2022) remains lower than that of men (75%) (GSO, 2023c). The gender wage gap is low both in comparison to peer countries and to OECD members (Figure 2.11), but at 11%, it nonetheless has further scope for reduction. While a lower share of women holds informal jobs (65%) than men (71.6%), their informal jobs are often more precarious and less well paid (ILO, 2024). In addition, traditional stereotypes and prejudices remain a barrier to women’s progress in their career on the labour market (Country Gender Equality Profile, Viet Nam, 2021).
Government directives have introduced legal and policy provisions to eliminate barriers for women and girls to access to education, health care, and employment. Revisions to the labour code in 2019 include provisions to promote gender equality in the workplace, such as equal pay for equal work and protection against gender-based discrimination. The revisions removed the list of 77 occupations proscribed for women and/or pregnant and breastfeeding women. Maternity leave (6 months paid), breastfeeding breaks (60 minutes per day) were codified. The National Strategy on Gender Equality (2021–2030) outlines objectives to reduce gender gaps in politics, economics, labour, and education, and to enhance women's leadership roles. However, Viet Nam's paternity paid leave provisions of 5-7 working days, with the exact duration depending on specific circumstances, is low by international comparison. As an illustration, both Myanmar and Nepal grant 21 days of paternity leave, both Australia and the United Kingdom grant 14 days of paternity leave, and France provides 25 days. This positions Viet Nam among countries with relatively modest paternity leave offerings. Providing paid leave entitlements to both parents to care for a very young child is good for household finances, child development and parental well-being. It also encourages fathers to use their leave entitlements and get more involved in childcare, thus increasing opportunities for women to move ahead with their professional career (Adema et al., 2023). Viet Nam should consider expanding paid leave entitlements available to both parents, with a significant share - preferably half - earmarked to fathers.
Note: The average wage include part-time workers. The ASEAN data point excludes data from Brunei Darussalam.
Source: ILO database (https://ilostat.ilo.org/).
Women’s participation is lower than men’s in senior management across both the public and private sectors in Viet Nam. In Parliament, the proportion of women elected to the National Assembly has risen only modestly, from 26.2% during the 1997–2002 tenure to 30.3% for the 2021–2026 term. Furthermore, women are almost entirely absent from police roles (GSO, 2023c). In the private sector, women also hold relatively few leadership positions. A private-sector survey revealed that women accounted for just 16.6% of board members and only 16% of CEOs in a sample of 50 Vietnamese companies in 2018 (Deloitte, 2019). While Viet Nam lacks mandatory quotas for women on corporate boards, corporate governance regulations stipulate that boards should have a gender-balanced composition, with at least two female directors and 30% female representation (Decree 71/2017/ND-CP). Encouragingly, some prominent Vietnamese companies, such as Vingroup, are setting a positive example exceeding these minimum quotas. To advance gender equity, Viet Nam could consider introducing mandatory quotas similar to the European Union’s Directive (EU 2022/2381), which requires 40% representation of women among non-executive directors and 33% overall among all directors in large companies. These quotas, enforced with penalties for non-compliance, have proven effective in increasing female board membership in countries such as France and Norway. A phased-in approach could ease implementation, initially targeting large public companies and expanding to private and medium-sized enterprises only after substantial compliance is achieved among larger public firms.
While Viet Nam has made enviable progress in reducing poverty and lowering inequality, this could be undermined by multiple risks linked to the mitigation of greenhouse gas emissions and the adaptation to extreme weather events.
As highlighted in Chapter 3, Viet Nam must advance policies to improve energy efficiency and transition from fossil fuels to renewable energy sources. This transition will require implementing a comprehensive package of measures, including carbon pricing mechanisms such as carbon taxes and the planned rollout of an emissions trading system. These measures will likely lead to higher prices for energy products, including vehicle fuels, coal, electricity, kerosene, and LNG (Chapter 3).
Even though Vietnamese low-income households consume less energy than high-income households, they are nonetheless at risk of being severely burdened by the price increases entailed by the energy transition. Encouragingly, several mitigating factors are already in place to reduce this burden. Viet Nam’s electricity retail tariffs are somewhat progressive, with lower prices for the initial blocks of monthly household consumption. This structure ensures that low-income households can access essential electricity at lower costs. Small rural enterprises benefit from relatively low tariffs, providing further relief to vulnerable segments of the economy. These measures are critical to preventing energy poverty and protecting vulnerable households from significant price hikes, as seen in other countries with similar support schemes, such as France’s “chèque énergie” or the UK’s “Warm Home Discount” and fuel vouchers. To further shield vulnerable populations from rising energy prices, Viet Nam could consider additional programmes, including:
Direct cash transfers: Means-tested social assistance transfers could help to alleviate the financial burden on vulnerable households, potentially conditional on adopting cleaner technologies such as solar panels, microgrids, or clean cooking solutions.
Enhanced progressive tariffs: Adjusting electricity tariffs to further lower prices for the initial consumption blocks.
Targeted financial support to help small firms and farmers adopt less energy-intensive production techniques.
In all countries the energy transition will result in sectoral reallocations, as workers and capital move from high-carbon to low-carbon activities. In Viet Nam, this will affect local communities that are heavily focused on coal extraction, coal processing, coal-thermal power generation and energy-intensive manufacturing such as steel and cement production. Workers specialised in fossil fuel-based sectors such as manufacture and maintenance of combustion engine vehicles and petroleum product refineries and distribution will also be affected. Many of these workers will likely find new employment opportunities in “green activities”, such as wind power and solar farms, but the required skills are not the same and locations are different. For example, Viet Nam has 39 coal-fired power plants, which employ 13,500 workers; together with indirect jobs, the value chain is estimated to employ 35,500 people. The coal mining sector is estimated to employ between 77,000 and 111,000 workers (Socialist Republic of Vietnam, 2023).
New employment prospects are emerging in renewable energy development, energy efficiency projects, and electric vehicle value chains. To help workers transition to these jobs, Viet Nam is investing in skills training, retraining programmes, and local economic development initiatives to ensure that workers can adapt to the demands of a decarbonized economy while minimizing social disruptions. Since not all workers in high-carbon industries will be able to move into new jobs rapidly, the government should be prepared to provide support to affected workers. This could include access to social assistance benefits, temporary jobs and -if needed- early-retirement packages. In addition, the government could encourage workers to relocate in other regions with better employment opportunities. In addition to information provided by public employment services, means-tested support to meet the cost of relocating would facilitate the transition of workers, especially homeowners leaving depressed regions and moving to cities with high housing prices.
Climate change is expected to intensify the frequency and severity of extreme weather events, such as typhoons, droughts, and floods. Helping households cope with the impact of climate change will become increasingly important. Typhoon Yagi serves as a stark reminder of the destructive power of such events and their impact on infrastructure, livelihoods, and living conditions, and underlines the need for contingency planning to support vulnerable populations following extreme weather events. People living in temporary dwellings are particularly vulnerable to weather events when their housing is made of substandard materials that cannot withstand extreme weather events like heavy rainfall, strong winds, or heatwaves. Limited or non-existent drainage systems in slums also exacerbate flooding risks. Recognizing the threats to livelihoods posed by events such as heatwaves and typhoons, the government is prioritizing urgent measures to improve housing and infrastructure in poverty-stricken areas. The government has initiated a comprehensive plan to construct nearly one million social housing units between 2021 and 2030, which is a step in the right direction to replace temporary dwellings in locations likely to be hit by extreme weather events, but could be accelerated. A campaign is underway to eliminate temporary and precarious settlements vulnerable to extreme weather, with the objective of completing the construction of about 100,000 units by the end of 2025. The government estimates that it will require approximately VND 12 trillion to provide proper housing. Funding for this initiative will come from the state budget, complemented by contributions from civil society, including businesses, community organizations, and philanthropists.
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