Vietnam’s Labour Export: Economic Boon or Developmental Bane?

Amidst a sluggish economic recovery, labour export has emerged as a bright spot for Vietnam. This term refers to a state-mandated policy of encouraging Vietnamese workers to seek employment abroad on a short-term basis, aiming to earn remittances and improve skills. It encompasses both the Vietnamese migrants working overseas and their activity as an economic and policy category. In 2023, the country received a record-high US$16 billion in remittances, or approximately four per cent of GDP, driven by incomes from its overseas workers. This represents a 32 per cent increase year-on-year and is equivalent to two-thirds of Vietnam’s disbursed foreign direct investment, which stands at US$23.2 billion. Within Southeast Asia, this volume of remittances is the second highest after the Philippines.

Labour export not only benefits the macroeconomy but also provides life-changing opportunities for many young Vietnamese. It enables them to experience diverse working environments abroad and to accumulate significant savings after years of hard work. Additionally, there is an expectation that returning workers will bring back valuable skills and experiences, contributing to a labour force in dire need of highly skilled personnel.

Furthermore, Vietnam’s labour export also has a crucial position in Vietnam’s foreign policy. In the two recent diplomatic upgrades to the comprehensive strategic partnership (CSP) with South Korea (2022) and Japan (2023), labour export featured prominently. Vietnamese workers have recently replaced the Chinese as the biggest foreign worker group in both Japan and South Korea (except ethnic Koreans with Chinese nationality), at 512,000 and 113,000, respectively.

For these reasons, the Vietnamese government affirms labour export and has long promoted it as the key solution to developing human resources, addressing unemployment issues, generating remittances and improving skills for workers. As a result, since 2010, more than 1.4 million Vietnamese have gone overseas for short-term contracted jobs, and the National Assembly issued a law on contracted overseas Vietnamese workers to regulate this booming sector.

However, the labour export phenomenon is not devoid of challenges. First, it strains the domestic labour market. The manufacturing sector, in particular, faces a shortage of workers as many have opted for overseas opportunities. In 2023 alone, 155,000 Vietnamese workers went abroad, equivalent to nearly a third of the new workers entering the labour market. The resultant shortfall in labour supply, juxtaposed with Vietnam’s FDI surge, signals a looming problem for its manufacturing industries.

Second, social implications loom large. Similar to the Philippines, areas in Vietnam with high numbers of overseas workers grapple with the disintegration of traditional family structures, high divorce rates, and a rise in social vices. The workers become exposed to their own vulnerabilities. The quest for higher earnings — partly a result of having to pay a huge dispatch fee — often leads to illegal overstays, contract violations, and susceptibility to scams, exacerbating social issues in host nations and tarnishing Vietnam’s international reputation. Between 2018 and 2022, Vietnam dealt with over 800 cases of overseas Vietnamese workers involved in criminal activities, in addition to receiving around 25,000 deportees. Furthermore, there is a significant risk of human trafficking, with many Vietnamese ineligible for official contracts, attempting to enter host countries through illegal means.

Third, labour export, similar to natural resources, can lead to the situation which economists dub a “resource curse” where a country becomes too dependent on a specific resource that it cannot take off economically. Vietnam is already half past its “golden population structure” when there is only one dependent person for every two or more working-age persons aged 15-64. For most countries, this is a once-off opportunity to cash in on the favourable age profile. The cases of South Korea and the Philippines illustrate two contrasting approaches to leveraging this demographic dividend to foster economic development. South Korea, once a major labour exporter with an estimated 1.6 million contract workers from 1963 to 1987, successfully utilised labour export to fund its industrialisation in the 1970s. By the 1990s, as it achieved high-income status, Seoul gradually shifted away from labour export, opting to import cheap labour for domestic manufacturing.

Although labour export has delivered short-term economic benefits and opportunities for Vietnamese workers, it resembles an economic “steroid” that requires cautious management and is unsuitable for long-term reliance.

Meanwhile, the Philippines developed a labour export policy around the same time but has been unable to overcome the middle-income trap. After over 40 years, remittances and supporting industries bring US$37.2 billion to its economy, accounting for 8.5 per cent of its GDP by 2023 and making it the biggest labour exporter in Asia. However, rather than acting as a booster, remittances have become a “curse” for the Philippines by reducing the labour supply, creating a culture of dependency, and promoting conspicuous consumption that inhibits economic growth while also exacerbating inequality.

This dichotomy presents a cautionary tale for Vietnam. Labour export, albeit lucrative, should be approached as a temporary lever rather than a perpetual growth engine. Vietnam must craft a long-term strategy that gradually diminishes reliance on labour export, focusing instead on cultivating a competitive domestic labour market. Upskilling the workforce is paramount, with only a quarter currently fully trained, alongside the integration of returning workers, in view of a 2022 report that merely 26 per cent of returnees from Japan secured employment within a year of return.

Although labour export has delivered short-term economic benefits and opportunities for Vietnamese workers, it resembles an economic “steroid” that requires cautious management and is unsuitable for long-term reliance. No country has successfully overcome the middle-income trap through labour export, and it is unlikely that Vietnam will be an exception.

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