Local governance, education and occupation-education mismatch: Heterogeneous effects on wages in a lower middle income economy

Using data from the first quarter of Labour Force Survey 2018, this paper examines the role of provincial governance, education and job-education mismatch in wage differentials in Vietnam. We find that good provincial governance benefits those in lower wage quantiles more than those in higher wage quantiles. Also, the returns on higher education qualifications (e.g., bachelor's or master's degrees) tend to be higher for those at the bottom than for those at the top of the wage scale. However, job-education mismatch has a negative effect on wage earnings in all wage quantiles considered and harms those in lower wage groups more than those in higher wage groups. Our research findings suggest that improving the quality of provincial governance, together with investment in higher education, can be expected not only to increase the income of wage earners but also reduce wage inequality in Vietnam. In addition, education and training systems should be designed to equip workers with the skills and knowledge to match the labour demands of local enterprises in Vietnam.