The Impact Of Urbanization On Informal Employment: Evidence From Vietnam

Abstract

Purpose - This study estimates the impact of urbanization on informal employment in Vietnam. Besides this study also examines the moderating effect of income inequality on the impact of urbanization on informal employment. Design/methodology/approach - This study uses the fixed-effects model and the provincial-level data in Vietnam from 2016 to 2020. Findings - This study shows evidence of an inverted U-shaped relationship between urbanization and informal employment in Vietnam. Urbanization in the early stages leads to an increase in the proportion of workers with informal jobs. However, the increased level of urbanization will reduce the proportion of informal employment after passing a certain threshold. The results also show that income inequality moderates the relationship between urbanization and informal employment. Implication - The results imply that local authorities need to continue promoting urbanization to improve worker job quality by reducing informal labor. Because urbanization in a more equal income distribution context will reduce the number of informal workers more quickly, and this effect is sustainable, so local governments need to pay more attention to policies that reduce income inequality. Enhancing access and improving the quality of public services such as education, healthcare, or income redistribution policies is one of many policies that local governments can use to promote inclusive urbanization. Originality - Different from the previous studies, this paper estimates the impact of urbanization on informal employment in Vietnam. This study also examines the moderating effect of income inequality on the impact of urbanization on informal employment. Besides, to the best of the authors’ knowledge, this research is the first to evaluate urbanization’s direct impact on informal employment in Vietnam.