This paper studies the labor market in Vietnam during the transition towards market
economy (1993-2006): we show that the public-private sector wage gap markedly increased,
but that wage inequality decreased overall. Our aim is to assess how much
of this evolution can be explained by workers’ productive skills and their allocation
between sectors. We use a simple, yet innovative, method that allows us to take into
account workers’ unobservable characteristics and their remuneration in each sector.
Throughout the period we consider, workers are more skilled than private sector workers.
However, rising returns to workers’ skills in the public sector play a major role in
the increase of the public-private sector gap. Against all expectations, the public sector
grew richer as Vietnam moved towards market economy. Finally, a greater homogeneity
among labor market participants seems to explain the overall decline in wage
inequality