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The impact of minimum wages on employment of low-wage workers

Evidence from Vietnam


  • I would like to thank two anonymous referees for their very helpful comments and suggestions on the paper. I would also like to thank John Gallup, Paulette Castel, and workshop participants at the Institute of Labor Science and Social Affairs (ILSSA), Ministry of Labor, Invalids and Social Affairs of Vietnam (MOLISA) in April 2009, workshop participants at MOLISA in July 2009, participants in an IR Mini-Talk workshop in International Labour Organization (ILO) Office in Hanoi in November 2010, participants of the ILO‘Regulation on Decent Work’ workshop in Geneva, July 2011, for their useful comments and discussions on this paper.


This study provides empirical evidence on the impact of a minimum wage increase on employment of workers in the formal sector who have wages below the minimum level in Vietnam. Using the difference-in-differences with propensity score matching and the Vietnam Household Living Standard Surveys of 2004 and 2006, the article finds that the minimum wage increase in 2005 reduced the proportion of workers having a formal sector job among low-wage workers. Most workers who lost formal sector jobs became self-employed.