Improving labour productivity through digital economy

ABO/NDO – As the existing growth drivers are becoming exhausted and inefficient, the rapid development of the digital economy provides Vietnam an opportunity to drastically improve its labour productivity.

High quality human resources are an important requirement in boosting digital economic development in Vietnam. (Photo: VNA)

The statement was from a recently released publication themed "Annual Vietnam Economic Review: Improving Labour Productivity in the Digital Economy" by the National Economics University (NEU).

This is the first study of a domestic organisation quantifying the impact of digital economy on labour productivity across industries and economic regions, as well as offering a forecast on the impact of digital economy on overall labour productivity.

According to Prof., Dr. Tran Tho Dat, Chairman of the NEU Council, among the three major cores of the economy, the FDI sector has always led in terms of labour productivity, followed by the State-owned and non-state sectors, respectively.

Specifically, the labour productivity of the FDI sector reached VND186.23 million per labourer in 2010, 1.4 times higher than the State-owned sector and 8.6 times higher than the non-state sector. In 2018, figure in the FDI sector reached VND225.12 million per labour, about 1.3 times the State-owned sector and 6.9 times the non-state sector.

However, labour productivity in the FDI sector has fluctuated unstably and witnessed continuous decreases since 2016. Meanwhile, the labour productivity of the State-owned sector tends to increase, thus gradually bridging the gap regarding the absolute labour productivity in comparison with the FDI economic sector. Significant improvements in the labour productivity of the State-owned sector (from VND132.46 million/employee in 2010 to VND175.37 million/employee in 2018) were mainly due to the accelerated equitisation of State-owned enterprises and based on their advantages in allocated resources and preferential access to production resources.

The non-state economic sector has the lowest labour productivity, in which the private sector has labour productivity of VND44.58 million/labourer, lower than the figures of the collective economic sector, the State-owned economy and the FDI sector but higher than that of the household economic sector and the overall economy’s labour productivity.

Despite the household economic sector having the lowest level of labour productivity, reaching VND17.83 million per employee in 2010 and increased to VND27.52 million per employee in 2018, it is still an important economic sector as it creates more than 70% of the economy's jobs. Therefore, if the labour transition from the household economic sector to advanced areas takes place smoothly on the larger scale, the overall labour productivity will increase very quickly. For that reason, creating a favourable environment for businesses to grow to a larger scale is the core to improve labour productivity of the whole economy.

According to evaluation of the research team, Vietnam’s labour productivity in 2010 was VND71.87 million per employee and may increase to VND126.5 million by 2030. The average growth rate of labour productivity is likely at 5.7% a year during the 2020-2025 period and 5.9% per year between 2025 and 2030.

For the whole period from 2020 to 2030, on average, digital economy each year can contribute from 7% to 16.5% to the overall growth rate of labour productivity. According to the report, it can be seen that the contribution of digital economy is important to productivity and efficiency of the whole economy, and offers a new driving force for rapid improvement of labour productivity.

The publication also stated that digital economy lays the most impact on labour productivity in the fields related to science and technology, financial - banking activities and insurance, real estate and ICT, while having the lowest contribution to agriculture, forestry and fisheries, and at a modest level in the processing and manufacturing industries.

Assoc. Prof., Dr. To Trung Thanh, Head of Scientific Management Department (under the NEU), commented that Vietnam's labour productivity has continuously increased, making an important contribution to the country's socio-economic growth. However, a gap in labour productivity still remains between the top industries and the others in the economy.

Because only over 2% of the labour force in the economy is working in the Top 4 industries with the highest level of labour productivity, it can be said that one of the reasons leading to the low level of the economy’s overall labour productivity is that most employment is concentrated in industries with low labour productivity.

In the national socio-economic development process, labour productivity is a decisive factor to improve the competitiveness of the economy and enterprises. Therefore, the Prime Minister has issued Directive No. 07/CT-TTg, dated February 4, 2020, on solutions to boost national labour productivity.

(Source: NDO)