Middle class: The new ladder of the Vietnamese economy

Living standards in Vietnam have improved, poverty rates decreased and new consumer classes are expanding rapidly, according to a World Bank report.

This is the result of the positive economic transformation during 2010-2016, which has brought the population classified as economically safe to 70%, of which 13% belongs to the middle class.

The recently released report “A new step forward: Poverty reduction and shared prosperity in Vietnam” shows that poverty in Vietnam continues to decline, especially among ethnic minorities thanks to income growth from agriculture in the highlands.


The number of poor people in Vietnam from 18 million in 2010 has decreased by about 9 million in 2016. 72% of the poor in Vietnam are in upland areas, the World Bank forecasts that the poor in this area will continue to decline with books to encourage the planting of high-value industrial crops to increase income among the ethnic minority communities.

Poverty continues to decline

The World Bank survey shows that agricultural transformation has contributed to poverty reduction in rural areas by increasing income from non-crop farming, becoming particularly important for ethnic minority households, accounting for 20 % of households are economically safe from 2014 to 2016, second only to the contribution of wage growth.

According to WB, this is a successful part of transforming Vietnam’s agricultural economy in developing non-traditional agricultural exports.

Salaries from new jobs have positively contributed to poverty reduction. In 2016, about 62% of poor households earned income from wages – 23% from agriculture and 39% from non-agricultural sectors. Wages are the main source of income for 44% of the poor. However, the poor mainly earn their salaries from employment in low-productivity and low-skilled occupations.


Meanwhile, the increase in household business income has boosted economic security, especially in urban areas.

According to international standards, households are divided into 5 economic classes based on daily consumption (USD / person / day calculated by PPP 2011).

Five classes are defined as:

  1. The extremely poor, living below $ 1.9 / day
  2. The poor are moderately poor, and consume between 1.9-3.2 USD / day;
  3. The vulnerable economically, consuming 3.2-5.5 USD / day;
  4. Safe in economics, consumer 5.5-15 USD / day
  5. Global middle class, living on more than $ 15 per day.

Households in groups (4) and (5) are called the “consumer class” because they have enough income to cover daily expenses, tolerate income shocks, and can consume the number of goods and services is not essential.

The report also shows that Vietnam’s rapid structural transformation over the past period due to its pursuit of an export-oriented growth model has spurred the creation of many jobs. The speed of employment has made people shift to wage employment and poverty reduction. The booming export sector created more than 3 million jobs between 2014 and 2016. Nearly 80% of these jobs are in the manufacturing, construction, retail and hospitality sectors, pulling 2 million workers out of agriculture.


This marked a turning point in the transformation of Vietnam’s production structure. The skyrocketing demand for labor pushed average monthly wages in the private sector by 14%. Households are also increasingly dependent on wages, with an estimated 70% earning a portion of wage income and about 54% having the bulk of their wage income in 2016.

“The increase in wage income contributed more than half of the poverty reduction rate between 2014 and 2016 and 40% of the economically secured population,” according to the report.

The household business sector is the second most important contributor to economic security, after wage growth. Most have income from household businesses that exceed the poverty line. The number of households with income from non-farm businesses stood at 35%, but the average income from this sector increased to 79%.

Thus, growth in household business income is driven by increased profitability instead of opening new family businesses.

“Efforts to increase income for minorities can increase their opportunities and reduce inequality in society,” said Mr. Ousmane Dione, WB Vietnam Country Director.

To address the gap, according to the World Bank, the focus is on access to upper secondary education, improving clean water and sanitation.

At the same time, increasing access to credit helps upland farmers with the necessary investments in agricultural production to increase income.

Share prosperity

Currently 70% of Vietnamese people are economically secured, of which 13% are middle class according to world standards. These income classes are growing rapidly, by more than 20% in 2010-2017. Since 2014, an average of 1.5 million Vietnamese have joined the middle class each year, suggesting that households are continuing to climb the economic ladder after escaping poverty. The report notes that the number of people susceptible to falling back into poverty has also decreased to 2% between 2014 and 2016, but the middle class increased by more than 3 million during this period.

The rise of the middle class will change the face of consumption and change social aspirations, the focus of the poverty eradication and prosperity sharing program will shift from “fighting extreme poverty” to “improving strong “quality of life” and support “rise of the middle class”.

The ability to rapidly create jobs and the transition to paid work are driving the positive outcomes of poverty reduction and shared prosperity.

Currently 70% of Vietnamese people are economically secured, of which 13% are middle class according to world standards.

According to Mr. Ousmane Dione, one of the priority areas in the World Bank’s Country Partnership Framework with Vietnam for the period 2018-2022 is inclusive growth with the goal of “economic integration for the poor and vulnerable. “.

The World Bank is committed to supporting targeted interventions to create economic opportunities for people in lagging regions. Some priority areas are improving productivity and investing in infrastructure to maintain jobs and raise wages without reducing competitiveness.

Implement education reform to ensure equity in opportunities and develop skills of the workforce. Accelerate agricultural structural transformation by changing agricultural land use patterns and improving skills for poor farmers.

The World Bank recommends that foreign companies have created more than 90% of new jobs in the electronics industry and more than 45% of new jobs in the textile and garment industry. From 2014 to 2016, the labor productivity in this sector increased by 1% but the average monthly salary increased by 11%, indicating that the cost of basic labor increased much faster than the labor productivity in the manufacturing sector.

In the future, the region faces high international competition and requires stricter investment, rising salaries may undermine Vietnam’s competitive advantage, slow productivity growth. salary increase, employment or both.

“Need to move higher in the value chain or expand into high productivity industries, combined with investment in skills to sustain wage growth. The move to high productivity sectors. more need to come with policies to invest in improving skills to maintain reasonable labor costs and have the necessary skills to meet “, recommended WB.

* Source: Saigon Businessman


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