The Impact of Trade and Technology on Skills in Viet Nam

Abstract

Market-oriented reforms, such as liberalizing trade and encouraging foreign direct investment, can generate large efficiency gains for a country. However, there is also concern that lower-skilled workers are increasingly being replaced by technology and that more globalized markets are harming employment opportunities. This paper investigates these important issues by exploring household surveys from Viet Nam, combined with information on the task content of occupations, industrial exposure to international trade, and access to technology across the country. We assess the extent to which exposure to foreign markets and access to digital technologies affect the demand for different types of skills, by exploiting the fact that provinces vary in the degree of access to digital technologies and industries vary in the degree of exposure to foreign markets. In our work, we also extend much of the literature to consider the interplay between trade and technology on labor demand. On its own, technological change does not appear to be a main driver of the demand for skill in Viet Nam. Increased trade, rather, does expand employment opportunities across both skilled and unskilled workers. Consistent with classic trade theory, the increase is stronger for manual and routine tasks, shifting the composition of the labor force toward lower-skilled workers. However, the increase in manual and routine employment opportunities in response to the trade shock is smaller in areas of the country with access to digital technologies, providing suggestive evidence of the routine-biased nature of technology. From a policy standpoint, our work contributes to an understanding of job requirements and job security in an increasingly technology-driven and integrated world economy. Our research also offers insights for other lesser developing countries that face similar challenges.