Pacific Money | Economy | Southeast Asia

From Jobs to Skills: Rethinking Vietnam’s FDI success

Despite its rapid industrialization, the country’s economy is not creating enough jobs that make productive use of advanced skills.

People riding motorbikes in Hanoi, Vietnam, Jan. 3, 2018.

Vietnam attracted $34.65 billion in registered foreign direct investment (FDI) in the first half of 2026, 61 percent more than the same period in 2025. At the same time, realized FDI reached $13.03 billion, its highest first-half level in five years. Observers including Harvard’s Growth Lab have also pointed to Vietnam’s increasingly diverse and sophisticated export base as a source of strong long-run growth prospects. By conventional measures, the country’s development model is working.

Despite this, another important labor-market signal has been moving in the opposite direction. Since the late 2000s, the wage premium earned by staying in school has been falling, with particularly marked falls for university graduates. This does not necessarily mean that education has become less valuable in itself. It may instead mean that the economy is not creating enough jobs that make productive use of advanced skills.

Whatever the reality, it has important implications for the Vietnamese government’s ambition of reaching high-income status by 2045. The gains from moving workers out of agriculture and into factories and services cannot continue indefinitely; future growth requires sustained productivity growth rather than labor reallocation alone. So far, Vietnam’s FDI model has succeeded on employment quantity but underperformed on occupational upgrading.

Drawing on 13 years of nationally representative Labor Force Survey data, a recent study that we conducted found that for every 100 jobs created in foreign-invested firms, an additional 100 jobs emerge in the same district – a local employment multiplier of roughly one to one. This is a large spillover, and a compelling reason why FDI has become such a central part of Vietnam’s growth story.

Foreign firms accounted for around one-tenth of total employment in 2023, up from almost nothing before 2000. Factory jobs raise household incomes and local spending, creating employment in other businesses.

The composition of these additional jobs, however, presents a more sobering picture. Of every 100 additional non-FDI jobs associated with foreign investment, roughly two-thirds are in services and only one-third in manufacturing. Most are generated by small, often informal household enterprises: i.e., the restaurants, repair shops, and retail stalls that spring up around industrial zones to serve factory workers.

Looking at the occupations themselves reveals the same pattern. For every 100 FDI jobs, only about 13 to 15 additional high-skilled cognitive jobs emerge, compared with 41 to 45 blue-collar production jobs and 27 to 31 clerical or service positions. The educational profile of jobs created elsewhere in the local economy largely mirrors Vietnam’s existing workforce, in which lower-secondary education predominates. Put simply, Vietnam’s FDI-led expansion has overwhelmingly been a jobs boom built on basic schooling rather than a skills boom. That helps explain why the country’s impressive educational progress has yet to translate into equally strong economic returns to education.

Vietnam has continued to invest in education. By 2023, workers with tertiary qualifications accounted for about 18 percent of total employment. Yet the economy has struggled to put those skills to productive use. Manufacturing employed 25.4 percent of the workforce but only 16.5 percent of tertiary-educated workers. Just 11.5 percent of manufacturing workers held a tertiary qualification, below the economy-wide average.

FDI-intensive provinces generally offer higher nominal wages. But the additional wage premium is not larger for better-educated workers. Moreover, part of the apparent wage advantage may simply compensate for higher housing and service costs in fast-growing industrial locations. FDI can therefore raise wages without necessarily strengthening the financial reward for remaining in education.

This changes the choices facing households. When a reasonably paid factory job is available after lower-secondary school, continuing in education becomes more costly, especially for poorer households that cannot easily forgo an immediate........

© The Diplomat