(Luận văn) the impact of human capital and social capital on income of university graduate in ho chi minh city

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UNIVERSITY OF ECONOMICS

INSTITUTE OF SOCIAL STUDIES

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HO CHI MINH CITY

THE HAGUE

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VIETNAM

THE NETHERLANDS

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VIETNAM - NETHERLANDS

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PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

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THE IMPACT OF HUMAN CAPITAL AND SOCIAL CAPITAL ON INCOME

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OF UNIVERSITY GRADUATE IN HCM CITY

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BY

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NGUYỄN LIÊN HỒNG PHÚC

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MASTER OF ARTS IN DEVELOPMENT ECONOMICS

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HO CHI MINH CITY, JULY 2013


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INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY

THE HAGUE

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UNIVERSITY OF ECONOMICS

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VIETNAM

THE NETHERLANDS

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VIETNAM - NETHERLANDS

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PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

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THE IMPACT OF HUMAN CAPITAL AND SOCIAL CAPITAL ON INCOME

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OF UNIVERSITY GRADUATE IN HCM CITY

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A thesis submitted in partial fulfilment of the requirements for the degree of

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MASTER OF ARTS IN DEVELOPMENT ECONOMICS

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NGUYỄN LIÊN HỒNG PHÚC

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By

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NGUYỄN VĂN PHƯƠNG

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Academic Supervisor:

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HO CHI MINH CITY, JULY 2013


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Contents

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ACKNOWLEDGEMENT ......................................................................................... iii

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ABTRACT ................................................................................................................. iv

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CHAPTER 1: INTRODUCTION: .............................................................................. 1

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1.1 Problem Statement ............................................................................................. 1

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1.2 Research Objective ............................................................................................ 2

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1.3 Research Question ............................................................................................. 2

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1.4 Research Methodology ...................................................................................... 3

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CHAPTER 2: LITERATURE REVIEW .................................................................... 4

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2.1 Social capital and status attainment theory........................................................ 4

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2.2 Human capital and status attainment theory ...................................................... 6
2.3 Measurement of human capital ........................................................................ 11

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2.4 Measurement of social capital ......................................................................... 13

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2.5 Relationship between human capital and social capital .................................. 17

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CHAPTER THREE: METHODOLOGY ................................................................. 20

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3.1 Introduction ...................................................................................................... 20

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3.2 Data collection ................................................................................................. 20

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3.3 The empirical model ........................................................................................ 21

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4.2 Modeling Analyses .......................................................................................... 38

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4.1 Descriptive Statistics ....................................................................................... 34

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CHAPTER FOUR: DATA ANALYSIS AND RESULTS ....................................... 34

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4.3 Explanation of coefficients .............................................................................. 42

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4.4 Policy implication ............................................................................................ 43

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CHAPTER 5 CONCLUSIONS AND RECOMMENTDATION ............................. 46

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REFERENCE ............................................................................................................ 48

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Appendix 1: Correlation matrices ............................................................................. 59

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Appendix 2: Heteroskedasticity Test: (Breusch-Pagan-Godfrey) ............................ 60

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Appendix 3: Normality Test...................................................................................... 61

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Appendix 4: Regression result .................................................................................. 62

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Appendix 5: Regression result of continuous dependent variable ............................ 63

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Appendix 6: KMO and Bartlett's Test (Social capital) ............................................. 64

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Appendix 7: Anti-image Matrices ............................................................................. 65

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Appendix 8: Extracting the Factors........................................................................... 67

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Appendix 9: Giving the factors meaning .................................................................. 68

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Appendix 10: Obtaining the factor score coefficient matrix .................................... 69

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Appendix 11: Obtaining standardized scores............................................................ 70

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Appendix 12: Regression result (CFA method for social capital) ............................ 71
Appendix 13: QUESTIONAIRS ............................................................................... 72

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ACKNOWLEDGEMENT

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First and foremost, I would like to thank my academic supervisor Dr Nguyễn

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Văn Phương at Vietnam National University HCMC International University for

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the support, the ideas and constructive comments that helped me a lot to

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successfully finish this master thesis. I also would like to thank Dr Phạm Khánh

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Nam and Dr. Nguyễn Hữu Dũng for supporting during Thesis Research Design

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and encouragement. I also am deeply grateful to my family for their love,

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support, encouragement and trust in me during the time of thesis processing.

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ABTRACT

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My study investigates the effects of human capital and social capital on income

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of university’s graduate in Ho Chi Minh City. Human capital is captured by

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English proficiency, computer skills, and communication skills. Social capital is

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categorized by home-based capital, friend connection, extracurricular activities,

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peer relationship, teacher-student relationship, and university impact. My study

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employs the data through the own survey in 2012. The empirical results are as

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follow: i) The English proficiency and communication skills have the significant

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impact on income of university’s graduate. ii) The parent education and teacher-

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student relationship also have the significant positive effect on income of

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university graduate. The message from my study can give to students, educators,

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and educational policy makers about the effect of social capital, and human

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capital on income.

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CHAPTER 1: INTRODUCTION:

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1.1 Problem Statement

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There are many studies about human capital and social capital alone on different

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status attainments such as economics, education, environmental, and many other

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things with different levels of impact on individual, firm, organization, and

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society instead of the combination between them. Many researchers argue that

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the relationship between human capital and social capital are substitution

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(Piazza-Georgi 2002). The other side argues that it has the complementary

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relationship (Bruderl and Preisendorfer 1998).

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In the current market economy in Vietnam, education is the driven factor to

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increase knowledge and competency. Human capital is the key factor to increase

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value such as wages, competencies, and productivity not only for individual but

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also for firm and society as a whole (Denison, 1962; Schultz, 1961). The study of

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Grayson in 2004 found that human capital had the positive contribution to

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income of university graduate in Canada. Government has recently attracted

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many multi-nation companies to invest in Vietnam so the demand of economy is

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increasing the demand for employee with a certain form human capital to meet

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the requirements of the competitive business environment. 'The knowledge,

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skills and competencies and other attributes embodied in individuals that are

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relevant to economic activity' is the definition of human capital (OECD, 1998).

proficiency, computer skills, and communication skills (Santarelli and Hien,

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With the context of my study, the human capital is captured by English

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2012).

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On the other hand, many studies investigate the effect of social capital on the

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many desirable outcomes of individual, household, and firm level. The study of

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Yandan Wang examined the effect of social capital on job outcome of university

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graduate by using the NELS – National Education Longitudinal Study in 2008.

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The study emphasized how importance of the university environment to build up

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the social capital that had the positive relationship with job outcome for

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university graduates. The study carried out by Nguyen Van Ha to see the impact

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of social capital on the household welfare in paper-recycling craft village in

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Vietnam in 2004. The other study of Ha Anh Tuan carried out to examine the
impact of social capital on individual income in Ho Chi Minh City. We rarely

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see many researches to combine the human capital and social capital impact on

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one desirable outcome, especially for the level of individual.

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1.2 Research Objective

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With the above in mind, I am going to investigate the impact of combination

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between human capital and social capital on the income of university graduate in

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Ho Chi Minh City. In the transition period of university graduate, the family and
school (Yadan Wang, 2008) generate the social network. Human capital

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accumulates through learning during university period. The message from my
study can give to students, educators, and educational policy makers about the

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effect of social capital, and human capital on income.

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1.3 Research Question

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bring the positive relationship to income?

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Research question 1: Does the investment of individual for the human capital

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The major relationships investigated in this study are:


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Research question 2: Does the current social capital and cumulative social capital

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during university period have the positive impact on income of university

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graduate in Ho Chi Minh City?

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1.4 Research Methodology

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My study uses the survey data of university graduate in Ho Chi Minh City with

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the samples size is 252. The combinations of three method of survey are face-to-

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face interview, drop off, and email. The econometric method employed is OLS

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(Ordinary Least Square) with robust standard errors.

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The major independent variables in the proposed model are cumulative social

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capital during university (extra-curricular activity, voluntary service work, and

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social connection), current social capital, and Home base social capital
represented by Social Economic Status (parent education level); Human capitals

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which measured by English skills, communication skills, and computer skills.

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The result of this study aims many readers. First, student can use this as a

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preference for good preparation for the transition period. Second, educators and

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educational policy makers can use this to have the good design program for

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student during university to achieve the desirable human and social capital.

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CHAPTER 2: LITERATURE REVIEW

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Before carrying out the study, we have to know that what the definition of social

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capital, human capital is. How is the relationship between human capital and

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social capital? What is the theory behind that? In particularly, we have to answer

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the question what the definition of social capital and human capital is in the

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context of this study, and how we can measure it.

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2.1 Social capital and status attainment theory

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Bourdieu (1986) defines social capital as “the aggregate of the actual or potential

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resources which are linked to possessions of a durable network of more or less

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institutionalized relationships of mutual acquaintance and recognition.” He

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focused on the social capital with relationships such as family, schooling, and

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workplace environment. He states that social capital involves “transforming
contingent relations, such as those of neighborhood, the workplace, or even

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kinship, into relationships that are at once necessary and elective, implying

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durable obligations subjectively felt (feelings of gratitude, respect, friendship,
etc.)” (1983).

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Three form of social capital are obligations and expectations, relational networks,

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and social trust and norms (Coleman, 1990). The social capital can help

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individual to obtain their objective and mission through the social relationship

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and network of social tie. The study of Coleman, which carried out in 1988 to

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capital to social relationships that can help individual to accomplish a task or

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by using the series of National Educational Longitudinal Study. He refers social

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examined the relationship between the social capital and education achievement

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achieve a goal. Social capital can contribute and promote the learning of

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individual and adapt to society and its norms.

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Putman (2000) defines social capital “While physical capital refers to physical

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objects and human capital refers to properties of individuals, social capital refers

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to connections among individuals - social networks and the norms of reciprocity

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and trustworthiness that arise from them”. According to Putman, There are two
type of social capital. First, bonding social capital refers to inward relationship

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such as within family, group of friend, or ethnic group. Second, Bridging social

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capital relates to outward relationship among different groups.

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Most of the studies have focused on how human capital impact on the job

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attaining process. Because the status attainment theory believes that, the

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education achievement such as knowledge and skills is the core factors to have

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the competitive advantage to obtain and get a better job (Becker, 1975; Mincer,

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1974).

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Status attainment theory states that the level of education achieved of one person

affected by social status of parent. According to Featherman & Carter (1976) and

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Jencks (1979), the status attainment theory has a high correlation with parent's

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occupations, levels of education, and incomes. The level of education in turn

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affects the occupation status and income of children.

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There are not many researches and literature mention about the effect of
cumulative social capital during university period to income. The connection,

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extra-curricular activity, and other activity that created during university period

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Student might get the first job through connection or university network, and this

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created during university might affect occupation of individual in many ways.

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play an important role in occupational status of individual. The social capital that


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job may be a direction for occupation career of individual, which might directly

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affect income. On the other side, the argument of Buerkle and Guseva (2002)

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said that the cumulated social capital during university had independent effect on

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income of individual.

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Buerkle and Guseva (2002) states that the social capital gained in the university

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has the effect on individual’s income, and this effect varies by individual’s
education and experience levels. The reason that social capital in university is of

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special interest for occupational success is that it is closely tailored to the

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student’s career interests and aspirations. Conceptualizing the university

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experience is an important source of social capital.

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Lin (1999) carried out the research to examine the relationship between social

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capital and status attainment. The research had two processes. The first process

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focused on how people access to social capital available in a general social

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networks, such as a person’s education background, prior experiences. The

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second process involved the use of social contact and resources provided by the

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contact in the job-search process such as network resources, education, and

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initial position. These factors expected to affect attained status like occupational

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status, earnings …

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2.2 Human capital and status attainment theory

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With the challenges of the current knowledge economy, many countries in
general and individual always want to seek the new way to improve and maintain

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valuable assets and recognized within a framework of human capital.

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largely depends on level of competencies. In the end, people are becoming

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competitive advantages. In the context of Viet Nam, the success of individual


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Generally, the human capital is the combination of two words with different

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meaning. In the economic perspective, the human is the subject to take charge of

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all economic activities such as production, consumption, and transaction. The

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capital refers to ‘factors of production used to create goods or services that are

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not themselves significantly consumed in the production process’ (Boldizzoni,

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2008). On the creation of these concepts, human capital means one of production

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elements, which can generate benefits through inputting it.

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There are many studies show that human capital influences many desirable

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outcomes. Many economists show that investment in human capital brings the

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high individual’s wage compared with other input such as land, labor force, and

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financial capital (Salamon, 1991). The investment of the knowledge and skills of

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individual is easy to turn into goods and services (Romer, 1990). Human capital,

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such as knowledge and skills, which can improved through learning process.

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According to Sleezer, Conti, and Nolan (2003), learning is the key factor and

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important component to acquire human capital and enhance the relationship with

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other through learning process. In the micro perspective, human capital is the key

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factor for firm’s competence and comparative advantage (Lepak & Snell (1999).

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In the macro perspective, Dension (1962) and Schultz (1961) say that human

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capital largely affects wage of individual, productivity of firm, and the economy

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of nation. Schultz (1961) stated that human capital plays an important role in the

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growth of an economy.

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Investment of human capital is not only productivity alone but also other thing.

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reward from current firm and labor market.

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activity, workplace, and quick adaptation of working condition to receive high

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activity. After employed, people are also easily control and organize their job

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Attaining learning activity, the learner is easily to apply for the job-seeking


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We can understand that knowledge and skills are the concept of human capital

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that can acquire through the learning activity. Skills, knowledge, competencies,

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and experience can consider as the factor of human capital.

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The first point of view of human capital is from individual aspect, human capital

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is a property against labor force in the classical aspect (Schultz, 1961).

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Researchers show that the human capital can closely link to knowledge, skills,
education, and abilities (Garavan, 2001; Youndt, 2004). Human capital is

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conceptualized ‘knowledge, competency, attitude and behavior embedded in an

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individual’ Rastogi (2002).

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The second point of view of human capital is the accumulative process that

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people obtain the knowledge and skill throughout the learning activity such as

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university, college, vocational education (Alan, 2008). In the other way of saying,

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human capital acquires knowledge and skills through experience.

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The third point of view of human capital is the production-oriented perspective.

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The definition of human capital is “an amalgam of factors such as education,
experience, training, intelligence, energy, work habits, trustworthiness, and

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initiative that affect the value of a worker's marginal product” (Frank and

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Bemanke 2007). The definition of Romer (1990) is “a fundamental source of

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economic productivity’. The definition of OECD (2001) human capital is ‘the

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knowledge, skills, competencies and attributes in individuals that facilitate the

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creation of personal, social and economic well-being”.

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Definition from OECD (1998), Human capital defines as 'the knowledge, skills

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many skills. In the knowledge economy, the increasing demand for highly

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to economic activity'. The job market has the demand that university graduate for

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and competencies and other attributes embodied in individuals that are relevant


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educated with communication, self-management, adaptation skills,… and

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especially English skills, computer skills, and communication skills in the

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context of Vietnam where is the interest destination for multinational companies

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are the core factors.

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The research of Becker in 1975 and Mincer 1974 give a high attention to how

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important of human capital, knowledge and skills, affect the job obtaining
process base on the theory of status attainment to get a better job in the job

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market. According to Featherman & Carter (1976) and Jencks (1979), “the status

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attainment specially acknowledges that the job status of a person is a function of

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skills and knowledge of individual, parent education, education attainment of

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individual income, and occupation of parent”.

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Since the late 1970s, there are many research diagnose the relationship between

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income and language proficiency. Most of studies carried out in developed

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countries where the destination of immigrants is. Chiswick and Miller (1995,

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2002), Bellante and Kogut (1998) examine the relationship of English

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proficiency of immigrants and income in United State. The same study carried

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out in United Kingdom by Shields and Wheatley Price (2002). We can see that

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most of study has just focused on the fluency of destination language on earning

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of immigrant.

In the context of developing country where does not the destination of

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immigrants. The native language is very diversification and it cannot conduct for

the fluency of native language but dominant language in business especially

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of dominant language in business and income among indigenous population.

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English proficiency. Research explore in developing country is the relationship

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the business language. The earning of indigenous population cannot evaluate by


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According to Chiswick and Miller (1995), Language proficiency is an important

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factor of human capital. It increases the productivity of a person through reduce

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transaction cost and exchange information effectively among individual.

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Dustmann, (1994) and Shields and Wheatley Price (2002) argue that it help

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individual to have a better negotiation with employer to have better earning. As

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mention above, Most of studies evaluate the effect of destination language on

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income of immigrants. In the context of my study, language proficiency defines

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as the proficiency of English, which is the most popular business language.

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According to Chiswick and Miller (2002), International transferability is the

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return of language proficiency in education of immigrants. In their study,

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language proficiency is the key factor and has the positive relationship to the

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year of schooling in United State among immigrants. We can say that language is

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the complementary with other type of human capital. According to MOLISA

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(Ministry of Labor, Invalids and Social Affairs - MOLISA) of Vietnam by 1996,

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there were around 85% of student in Vietnam graduated with language skills at

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difference levels and around 30% of them using these skills at work.

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Computer skills are another form of human capital. There were around 40% of

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students graduated with computer skills at different levels and 18% of them

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using these skills at work, according to the report of MOLISA of Vietnam by

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1996. With the current opening economy, Vietnamese government has a good

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policy to attract foreign direct investment. The computer skills and language skill

is the key competitive factor to obtain the job and better earning. These skills

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also expect to increase together with FDI investment.

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skills was around 10-15% higher compare with worker without computer skills.

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The research of Krueger (1993) showed that the income of worker with computer


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He explained that the earning gap was due to computer skills. On the other hand,

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the reverse result of several studies, for example, the study of Sakellariou and

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Patrinos carried out in 2004 in Vietnam show that computer skills has no change

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for earning of individual. The similar finding found in United State by Handel

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(1999), Krashinsky (2000), and in United Kingdom by Borghans and Ter-Weel

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(2001).

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Borghans (2003) analyzed the returns to various types of skills in Britain and

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found that while the ability to write documents and carry out mathematical

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analyses yields significant labor market returns. The ability to use a computer

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has no substantial impact on wages, despite the higher average earnings of

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workers who use computers at work, compared to those who do not.

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2.3 Measurement of human capital

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The measurement of human capital has categorized into three ways: Income

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approach, output approach, and cost approach. Income approach is the wage or

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benefit of individual obtained by education or training investment. Output

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approach is something such as level of knowledge obtaining, the year of

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schooling. The Cost approach prefer to the cost paid for getting knowledge or

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certificate.

Income approach is the returns, income or benefit, which an individual obtains

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from labor market through education investment. Mulligan & Sala-i-Martin
(1995) defines that aggregate human capital is the sum of quality adjustment of

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each individual’s labor force, and presents the stock of human capital utilizing an

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individual’s income.

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Output approach can be measured the human capital by “schooling enrollment

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rate”, education attainment, or the production output. Psacharopoulos (1984)

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suggested the average years of schooling to measure the stock of human capital.

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They refer that the average years of schooling is meaningful to measure the stock

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of human capital as a proxy. Barro (1991) and Barro and Lee (1993) measure the

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stock of human capital utilizing ‘school enrollment rates’ as a proxy of human

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capital. Nehru, Swanson, & Dubey (1993) measure relationship between human

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capital and students’ ‘accumulated years of schooling’ in the employable age as

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educational attainment.

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Cost approach is the accumulated cost to investing for one’s human capital.

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Jorgenson & Fraumeni (1989) present the discounted income in the future. The

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stock of human capital uses indirectly to measure for this approach. The

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investment cost of individual uses to measure in the study of Kendric in 1976.

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Chiswick and Miller (1995) utilize Language proficiency is the important factor

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of human capital. In Vietnam, the current open economy where the destination of

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many multinational companies is, English skills widely believe that is the

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important factors in the competitive labor market for university graduate. There

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is almost no empirical research on the returns of earning with different levels of

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English skill in Vietnam and relationship with other educational outcome as well

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as social capital.

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The research of Casale and Posel (2010) found that the large return among

reading and writing skills. Their research uses the NISD database (National

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Income Dynamics Survey). The survey conducted in 2008. The question is how

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Africans who English skills are good. The English skills use in the research is

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12


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well they could speak and write English together with indigenous language. The

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answer ranged into 4 scales “very well”, “fair”, “not well” and “not at all”.

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Computer skill is another form of human capital. According to the study of

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Sakellariou and Patrinos (2004) in Vietnam, the earning of individual with

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computer skills is 10-14% higher than individual who do not. Sakellariou and

ju

y
th

Patrinos confirmed again this with the later study. The study used the
instrumental variable approach. The university graduate was asked to measure

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their computer skill. It ranged into four scales (low, intermediate, high and very

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high). In the other research of Choi (1993) in Korea, The earning of worker was

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higher with computer skills in the industries with rapid change in technology

va

n

than industries with slow change in technology. The study of Sakellariou and

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Patrinos (2004) showed that there was a positive relationship between education

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outcome and computer skills in Singapore.

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2.4 Measurement of social capital

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Home based social capital

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ht
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Social Economic Status:

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The accumulation process of social capital believed that when students and

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parents engage in day-to-day educational activities, and as parents provide

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resources for better educational development. Parents also bring resources for the
overall development of their children.

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13

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economic and social position in relation to others, based on income, education,

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measure of a person's work experience and of an individual's or family’s

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Socioeconomic status (SES) is an economic and sociological combined total


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and occupation. In the context of this study, parent’s education is as a form of

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social capital that affects to children education outcome measured by earning.

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Parent with good and high education will give more support and involvement to

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children education activity. Parents who are more involvement and support of

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their children are likely to build up social capital within the family (Coleman,

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1988). This type of social capital provides young students with the resources that

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th

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may have an impact on students’ behavior at university attainment and university

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performances. Coleman (1988) viewed social capital as the outcome of

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ua

al

relationships between parents and children.

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Crosnoe (2004) found that emotionally distant relationships with parents were

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n

associated with declining academic achievement. Some studies also examined

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ll

the relationship between social capital within family and years of schooling.

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Some earlier studies have found a positive relationship between socioeconomic

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status of family and education result of the children.

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Social Capital in College

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vb
k

jm

Extra-curricular activities:

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Extra-curricular activities are activities performed by students that fall outside

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the realm of the normal curriculum of school education. Such activities are

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generally voluntary as opposed to mandatory, tend to be athletics, social and

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philanthropic as opposed to scholastic, and usually involve others of the same
age (Robert S. Rubin, 2003). Another way of saying, on university campuses,

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extra-curricular involvement is a key tool in personal development. The majority

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14

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not only for entertainment, social, and enjoyment purposes, but most important,

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role in the college experience. “Students involve in extra-curricular activities is

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of university students, involvement in extra-curricular activities, play an integral