Reconsidering the Nature of Skills Demands Beyond a ‘Demand-Driven' Paradigm: Toward Dynamic Skills Formation in Vietnam

Vietnam became a lower middle income country by the end of 2010, following the rapid economic growth since the early 1990s.  However, there is no guarantee that industrial development in Vietnam will continue, as some scholars have warned that Vietnam risks falling into the ‘Middle Income Trap’.  Skills mismatch is often claimed as one of the factors which may hinder Vietnam’s economic growth and industrialisation.  Many reports attribute skills mismatch to the poor quality of education and training programs which do not sufficiently take into account employers’ skills demands, and suggest the demand-driven training as a key solution to reduce skills mismatch. 

This argument is heavily influenced by the neoclassical economic theories which assume that firms are forward-looking enough to absorb skilled labours and in the best position to know their skills needs.  Accordingly, most of the preceding research analysed the balance of skills demands and supply based on employers’ perceptions.  However, few literatures have sufficiently examined in which way firms formulate their perceptions, how tangible skills demands are in reality, and what sort of firms are likely to require more skilled labours in middle-size emerging economies such as Vietnam.   This paper discusses these issues, analysing qualitative data collected through in-depth interviews with 27 foreign and Vietnamese manufacturing firms in the machine industry such as electronic and electric, motorcycle, and automobile. 

The research identified two main characteristics of employers’ skills demands in Vietnam.  First, skills demands are not as tangible as the neoclassical approach presumes.  Skills demands differ by assemblers and suppliers.  In addition, many small and medium size enterprises (SMEs) struggle to determine skills gaps in a systematic manner.  Furthermore, almost all interviewed firms face difficulty in predicting future skills demands, due to the uncertainty in business trend and production allocation through global value chain. 

Second, the demand size of skilled labours would not expand drastically on a current trajectory.  In many firms, the human resource structure is polarised between the small number of highly-educated white-collar workers and the large number of unskilled blue-collar workers.  They also foresee that this structure would not change significantly in the future.  Furthermore, technological development is incremental, not radical, and would not lead to the demands of high skills.  Some progressive local and foreign suppliers require more skilled labours in intermediate occupations such as technicians.  Nonetheless, those firms are a minority, reflecting underdeveloped supporting industries in Vietnam. 

These findings cast question on the neoclassical approach’s linear model of economic growth, technological progress, and the growth of employment and high skills demands.  If Vietnam focuses on the improvement of skills supply merely relying on the demand-driven training concept, it may not become a high-skilled economy and be stuck in the Middle Income Trap.  Moreover, the polarisation of human resource and the hollowing-out of intermediate occupations may impede inclusive economic development with equality.  In order to develop dynamic skills formation model and break through these challenges, Vietnam needs to stimulate high skills demands through the implementation of ‘proactive’ industrial policies, in coordination with skills policies.