Do Recruitment Ties Affect Wages? An Analysis using Matched Employer–Employee Data from Vietnam

Abstract

This paper examines the extent to which recruitment ties affect individual wage outcomes in small and medium scale manufacturing firms. Based on a unique matched employer-employee dataset from Vietnam the authors find that there is a significant positive wage premium associated with obtaining a job through an informal contact, when controlling for standard determinants of wage compensation. Moreover, they show that the mechanism through which informal contacts affect wages depends on the type of recruitment tie used. The findings are robust across location, firm size categories, and different worker types.* Larsen and Torm (corresponding author):

The Role of Trade Unions in Vietnam: A Case Study of Small and Medium Enterprises

“…The different occupation categories all indicate a substantial wage premium compared with production workers, especially for managers and professional workers at close to 50 and 30 per cent, respectively. Having been hired through an informal contact gives a positive wage return of about 12 per cent compared with a formal method, which is in line with Larsen et al (2011).…”

“…Having been hired through an informal contact gives a positive wage return of about 12 per cent compared with a formal method, which is in line with Larsen et al . ().…”

“…Fifth, I include a dummy variable for whether the worker found their job through an informal contact (knowing the owner or someone who works in the firm), as opposed to via a formal contact (advertisement, employment agency, etc. ), because this has been shown to be associated with higher individual wages (Larsen et al, 2011). Sixty-four per cent of workers have been hired through an informal contact, and this job finding method has increased over time.…”

On the effects of formalization on taxes and wages: Panel evidence from Vietnam

“…7 Fifth, the share of female workers has been shown to depress wage levels in firms, thereby affecting performance (Larsen et al 2011), and this might result from women being less productive, being more likely to work in less productive enterprises, or being discriminated against. Consequently, the exact mechanism through which the share of female workers can impact firm performance remains unclear.…”

Key Determinants of SMEs in Vietnam. Combining Quantitative and Qualitative Studies

“…Nevertheless, they could not identify the cause-effect between the two variables. It implies that the ineffective performance firms hired more female workers or the more female workers generated low productivity than the male ones (Croson & Gneezy, 2009;Larsen, Rand, & Torm, 2011).…”