DSpace at VNU: Inequality income in Hanoi''s peri-urban areas : evidence from household survey data

INEQUALITY INCOME IN HANOI’S PERI-URBAN AREAS:
EVIDENCE FROM HOUSEHOLD SURVEY DATA
Tran Quattg Tuven
Steven Lim

1. In tro d u c tio n
A

number o f studies indicate that d iversification in nonfarm activities,

including wage and self-em ploym ent, results in poverty alleviation and therefore
increases liv in g standards for a large number o f Vietnamese rural households.
A ccording to W B , income from wage em ploym ent played the most im portant role
in income growth o f the poor in 2004. Wage income contributed almost ha:f o f
overall income grow th o f the poorest households between 2002 and 2004 ( V B ,
2006). Van de W alle and Cratty (2004) found that the p ro ba b ility o f falling in
poverty is substantially higher among households who do not participate in non:arm
self-em ploym ent activities. Also, their evidence based on cross-sectional data
indicated that there is a causal relation between d ive rsifica tion out o f a gricuture
and poverty reduction. M oreover, Pham, B ui, and Dao (2010) estimated that on
average and ceteris p a rib u s , a household that moves from a pure a g ricu tu re
production unit to a pure non-agriculture one w ill increase its expenditure per
capita, and this outcome tends to steadily increase over tim e.
However, w h ile diversification in nonfarm income sources has an increasing
effect on household w elfare, it exaccrbates incom c inequality in Vietnam . U ỉin g
dala sets from two Vietnam Household L iv in g Standard Survey (V H L S S ) in '993
and 1998, G allup (2002) shows that between 1993 to 1998, wage employm ent
contributes an approxim ately same amount to overall income inequality as ith e r
non farm em ploym ent sources (household enterprise and remittances, m a h lv )
A g ricu ltu ra l income, on the contrary, has a decreasing effect on overall income
inequality. A sim ila r finding from V H I,S S 2004 is also found in Van Cao and A kita

* MA. University o f Econom ics and Business, Vietnam National University, Hanoi. PhD
student at the School o f Management, the University o f Waikato, N e w Zealand.
** Ph.D. Waikato Management School, the University o f Waikato, N e w Zealand.

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IN FQ U A IITY INCOME IN H A N O I’S PFRI URBAN AREAS. .

(2008), w hich shows that agricultural incomc served to decrease overall inequality
whereas nonfann self-employm ent and wage income served to increase overall
inequality.
Nevertheless, when looking at incomc distribution w ith in rural and urban
sectors, Van Cao and A k ita (2008) found that the contribution o f each income
source to

overall

inequality

is quite different between

tw o

sectors.

W hile

agricultural income is inequality-decreasing in the urban sector, it is inequalityincrcasing in the rural sector. Nonfarm self-employm ent seemed to be not related to

inequality in the urban scctor but contributed to the rise in overall inequality in the
rural scctor. Wage income is found to decrease overall inequality w ilh in each
sector. F in a lly, other income sources served to increase overall inequality in both
see tors. As noted in Babatunde (2008), by decomposing income inequality one can
clucidatc the structure and dynamics o f incomc w ith in different socio-economic
groups. M easuring die contribution o f each income source to overall inequality
coupled w ith realizing the relation between socio-economic characteristics and
overall inequality, can be useful to analyzing economic policies and designing
poverty alleviation programmes,
Using a novel data set from our own household survey in Hanoi's peri-urban
areas, this study contributed new empirical findings to the existing literature on
income inequality in Vietnam's peri-urban scctor. This paper is structured as
follows: the subsequent section provides a brief description about the study area.
M ethodology is mentioned in Section 3, and estimation results are discusses in
Section 4, fo llo w e d by conclusion in Section 5.
2. D e scrip tio n o f study area
Our research was conducted in Hoai Due, a peri-urban district o f Hanoi. Hoai
Due is located nn the northwest side o f Hanoi, 19 km from the Centra] Business
D istrict (C R D ) (W B , 2011). The district has an extrem ely favourable geographical
position, w hich is surrounded by various important roads namely Thang 1 one
highw ay (the co u ntry’ s longest and most modem highway). National Way 32 and
in close p ro x im ity to industrial zones, new urban areas and Bao Son Paradise Park
(the biggest entertainment and tourism complex in North Vietnam ). Consequently,
in the period 2006-2010, around 15,600,000 rrT o f farmland were com pulsorily
acquired by the State fo r 85 projects (LH , 2010).
Before r 1 August 2008, Hoai Due used lo he a d istrict o f Ha Tay Province a
neighbouring province o f Hanoi, which was merged into Hanoi on P ' August 2008.
The; cistrict occupies 8,247 hectares o f land, o f which agriculture land accounts fo r

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V IỆ T N A M H Ọ C - K Ỷ Y Ế U H Ộ I T H Ả O Q U Ổ C T É L À N T H Ứ T ư

4 272 hectares and 9 ] percent o f this area is used by households and individuals
(H oai Due D istric t People's C om m ittee, 2010a)1. There are 20 adm inistrative units
under the district, including 19 communes and 1 town. Hoai Due has around 50400
households w ith

a population o f 193,600 people. In the w hole district, the

employm ent in the agricultural sector dropped by around 23 percent over the past
dccade. Nevertheless, a sign ifica nt proportion o f em ploym ent has s till remained in
agriculture accounting fo r around 40 percent o f the total em ploym ent in 2009. The
corresponding figures fo r industrial and services sectors are 33 and 27 percent,
respectively (Statistics Departm ent o f Hoai Due D istrict, 2010). P rior to r l August
2008 Hoai Due used to be the richest d istrict in Ha Tay Province (M O N R E , 2(07).
In 2009, Hoai Due GDP per capita reached 15 m illio n V N D (H oai Due District
People's Com m ittee, 2010b), which is less than h a lf o f H a n o i’ s average (32 m i lion
V N D ) (Vietnam Government Web Portal, 2010).
3. Methodology
3.1. Data collection
Adapted from GSO (2006), a household questionnaire was designed to gather
a set o f quantitative data on household demographic characteristics and income
sources from various econom ic activities. First, six communes were randomly
selected2 and then 80 households, were randomly selected from each commune for a
target o f sample size o f 480. The survey was carried out from A p ril to June 2010,
and 477 households were successfully interviewed.
3.2. Data analysis
Income inequality can be measured using various methods (Babatunde, 2008).

Am ong the different ways o f inequality measurement, the G in i coefficient is
popularly used to measure the disparity in the distribution o f income, consumption,
and other w elfare indicators (López-Feldman, 2006). F o llo w in g Van Den Berg and
Kum bi (2006), we examine the relation between incom c sources and incomc
inequality

Yitzhaki

using Gini decom position analysis by income source (Lermaa &
1985; Shortocks, 1982). A ccording to López-Feldman (2006), Le-man

1 As laid down in the current l a n d Law o f Vietnam, land is not privately owned because it is
the collective property o f the entire people, which is representatively ownct and
administrated by the State and the land use rights are to be granted to individuals,
households, enterprises and other organizations (National Assembly o f Vietnam, 2003'
2. Six communes include Song Phuong, Lai Yen, Kim Chung, An Thuong, Due Thuon>, and
Van Con.

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1NEQUAII TY INCOME IN HANOI'S PE R I-U R B A N AREAS

and Y itzhaki (1985) extended the results o f Shorrocks (1982) and indicate that the
G ini coefficient o f total incom c inequality (G) can he denoted as:
K
k=l

( 1)

where Sk represents for the share o f income source * in total income, Gt is the G ini
coefficient o f the income distribution from source *, and Rk is the correlation
coefficient between income from source * and w ith total income Y. Babatunde
(2008) shows that GkRk is known as the pseudo-Gini coefficient o f income source *
w h ile the share or contribution o f income source * to lota] income inequality is
expressed as:

G

(2)

A s shown in Stark, T a ylo r and Yitzhakj (1986), the income source elasticity o f
inequality indicates the percent change in the overall G ini co efficient resulting from
a ] percent change in income from source * is expressed as:

(3)
Where G is the overall G ini coefficient prior to the income change. As noted
by Van Den Berg and K u m b i (2006), equation (3) is the difference between the
share o f source * in the overall G ini coefficient and its share in the total income (Y ).
It should he noted {hat the sum o f income source elasticities o f inequality should be
zero, w hich means that i f a ll the income sources changed by same percentages, the
overall G ini coefficient ((7) w ould remained unchanged.
4. E stim a tio n results
4.1. B a ckg ro u n d o f household income and incom e-generating activities
In previous studies on the decomposition o f income inequality in Vietnam
household income is often disaggregated into various sources, including wage
income, nonfarm self-employm ent income, agricultural income and other income

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V IỆ T N A M H Ọ C - K Ỷ Y Ế U H ộ ] T H Ả O Q U Ó C T Ế L À N T H Ủ T ư

(.Adger, 1999; Gallup, 2002; Van Cao & A k ita , 2008). However, wage earners often
w ork for various types o f em ployers in Vietnam . Nguyen (2010) divided wage
workers in Vietnam into tw o groups, including inform al wage w orkers and formal
wage workers. Form al wage earners are those who w ork fo r other households, often
do not have a labour contract and not participate in social insurance. Inform al wage
earners are those w o rkin g fo r the State, enterprises and other organizations, and
they earned a much higher wage income than inform al wage earners. F o llo w in g this
approach, we further brake down wage income into tw o sub-categories, namely
inform al wage and form al wage income. Household income, therefore, can he
contributed by five different sources (Table 1).
Table I : H ousehold incom e by source
Categories

Definitions

1. Farm work

Self-employment in household agriculture, including
crop and livestock production

2 Non-farm Self-employment

Self-employment in household businesses (excluding
farm production)

3 Informal wage work

Wage work that is unstable, irregular, and without a
formal labour contract, informal wage earners are often
manual workers and hired by individuals or households.
*

4. Formal wa%e work

Wage work that is regular and relatively stable in factories,
enterprises, state offices and other organizations with a
forma] labour contract and often require skills and higher
level o f education

5 Other income

Income from other sources such as public and private
transfer, loan interest, house or land rental, etc

Source: Survey data and authors’ compilation from Becker (2004), Maxwell, el a]
(2000), Cling et a] (2009), and Nguyen (2010).
Tablc 2 provides background in fo rm a tio n about household incom e shares
by source. It also indicates how m uch per household and per capita incom e by
source. The results show that o v e rw h e lm in g m a jo rity o f surveyed households

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INEQUALITY INCOME IN HANO I'S P E R I-U R B A N AREAS

(around

84

percent)

derive

income

from

fa rm ing

(cro p

and

live sto ck

pro du ctio n ), w h ich , how ever, ju st accounts fo r about 27 percent o f total incom e
on average. T his suggests farm ing has rem ained im p o rta n t in term s o f food
security and cash incom c to some extent. M any households have continued rice
c u ltiv a tio n as a source o f food supply w h ile others produced vegetables and
fru its to supply fo r H a n o i’ s urban markets. The com m on types o f crop plants
consist o f cabbages, tomatoes, w aier m orning g lo ry and various kin d s o f heans,
oranges, grapefruits and guavas, etc. A n im a l husbandry is m a in ly undertaken
hy p ig or p o u ltry breeding sm all-size farms or cow grazing households. These
a c tiv itie s , how ever, have considerably declined due to the spreading o f cattle
diseases in reccnt years.
A lm ost all surveyed households (95 percent) participate in nonfarm activities
and income from these sources contributed about two thirds o f total income on

average. A m ong these activities, informal wage income accounts fo r about one
fourth o f total income w ith a participation rate reached around 41 percent. This
incomc source is often earned from manual labour jobs and the common types o f
such jobs are carpenters, painters, building workers and other various kinds o f
casual jobs. Such jobs are often hired by individuals or households w ith low and
unstable income, and w ith o u t labour contracts. Those who undertake these jobs
have be low-average education and are younger. Sim ilar figures are observed fo r the
case o f non farm self-em ploym ent income. About 43 percent o f the household
sample reported engaging in non-famn household businesses, and on average around
26 percent o f total
constituted

income is contributed by this a ctivity.

small-scale

trade or production units, using

Such businesses

fa m ily

labour.

The

households’ business premises are m ainly located at their own houses or residential
land plots that have a prim e location for opening a shop, a w orkshop or a small
restaurant.
A b o u t 28 percent o f sample households received incom e from form al wage

w ork, accounting fo r 18 percent o f total income on average. Form al wage
earners are often employees who w ork in enterprises and factories, state offices
or other organizations. Such jobs are ofien h ig h ly paid w ith stable incom e and
labour contracts. Those undertaking these jobs tend to have a much higher
education level and are younger. Finally, about one th ird o f surveyed households
received other income, inclu d in g private transfer (g ift and rem ittances) and
public transfer (pension and social assistances), rental incom e and interest
incom c, and so on. T his source, however, contributes o n ly 6 8 percent o f total
income on average.

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V IỆ T N A M H Ọ C - K Ỷ Y Ế U H Ộ I T H À O Q U Ố C T Ế L À N T H Ứ T ư

Table 2: Composition of income, and household participation
in different activities

Total
SD
Farm income
SD
Nonfarm income
SD
A. Informal wage income
SD
B. Forma] wage income
SD

c Nonfarm self-employment

SD
Non-labour income
SD

Per

Per

Share o f total

Participation

household

capita

Income (%)

rate (%)

59,688

14,146

(31,156)

(7,345)

14,046

3,282

27.14

83.65

(16,502)

(4,187)

(30.40)

42,151

9,712

66.07

(32,527)

(7,402)

(31.50)

12,035

2,793

24.04

(18,399)

(4,228)

(34.06)

14,554

3,092

17.90

(28,972)

(6,322)

(31 80)

15,561

3,827

24.13

(26,478)

(6,495)

(34.13)

3,490

1,153

6.78

(8,849)

(3,233)

(17.16)

95.40

40.70

28.10

40.50

33.12

Unit: 1,000 VND. Nonfarm income “ (A+B+C). Number o f observations: 477 Standard
deviation in parentheses

Source: Authors' own calculation from the survey.

4.2. G ini coefficients f o r income inequality
Figure 1 presents the disừibution o f incom e sources over incom e quintilcs. As
compared to households in the higher incom e strata (4 and 5), the low er incom e

802


INEQUALITY INCOME IN HANOI'S PE R I-U R B A N AREAS

quintilc households (1 and 2) ha\o a higher share o f farm incom e, whereas those in
the richcr groups have a higher share o f non farm s e l f - e m p l o y m e n t and form al wage

incomes. This suggests that incomc shares by source arc closely associated w ith the
in c o m e d is trib u tio n ; s p e c ific a lly th e re is a positive a ss o c ia tio n b e t w e e n d ie n a n fa r m

s c lf-c m p lo y m e n t in c o m e share, fo rm al wage incom e share and p er cap ita in co m e,

but a negative correlation between the farm and inform al w age incom e shares and
per cap ita i n c o m e

Figure

2

shows

the

distribution

of

income

source

over

farm land

holdings. A s revealed in th is figure, households in the h ig h e r l a n d h o l d i n g
stratum s have a m uch h ig h e r percentage o f farm in co m e hut have a lo w e r

share o f n o nfa rm s e lf-e m p lo y m e n t, form al wage incom es and other incom e.
By contrast, the lo w e r la n d h o ld in g stratum households receive m ore incom e
from nonfarm s e lf-e m p lo y m e n t and manual labour jo b s , w h ic h im p lie s that
households w ith lim ite d farm land m ig h t be pushed in to these a c tiv itie s as a
way to co m p le m e n t th e ir incom e. F in a lly , the share o f fo rm a l wage incom e
appears not to be c o rre la te d w ith the d is t r ib u t io n o f fa rm la n d , suggesting that
th is in c o m e s o u r c e m a y b e a s s o c ia te d w it h o th e r f a c t o r s , s u c h as e d u c a t io n ,

rather than fa rm la n d h o ld in g .

Figure 1: Income shares hy source and income quintiies

■Non-fami

« Formal wa^e

■Iufomiahvage

■ Other iiK C r t iie

* Firm

100%

1
•ệ
te

60 %

3

0
X
•3 40%
©
w

1

20 %

III com qulntlltc
(incomcper capita)

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V IỆ T N A M H Ọ C - K Ỷ Y Ế U H Ộ I T H Ả O Q U Ỏ C T Ế L A N T H Ứ T ư

Figure 2: Income shares by source and farm land holding quintiles

I

8
Ề
5
Ô

5
I

Jm
1
i
V
0
i
w

I
Farmland holding qulnlllM
(farmland size p a bcHiiebold)

Table 3 presents the G in i decomposition o f incom e inequality by income
source. The overall G in i co efficient fo r the sample households was 0.267, w h ich is
much low er than the G in i co efficient o f 0.434 in the w hole country and 0.4 ] ] in the
Red River Delta reported by GSO (2008). This indicates a quite low degree of
income inequality among the sample households. Such a lo w e r inequality at district
level than that in larger areas is also found in Vietnam by M in o t, Baulch, and

Epprecht (2006), w ho explained that, sim ila r 10 other measurements o f inequality,
there is a ứend toward sm aller G in i coefficients fo r sm aller regions, such as
provinces or districts, than for the country as a whole. T his is due to the fact that
households in a sm all region are lik e ly to have m ore sim ilarities than households

across the w hole country.
B y decomposing the total household income inequality into various income
sources, the results reveal that nonfarm self-em ploym ent, form al w ag e incom c and
other income becom e the m ajor contributors to the overall incom e inequality am ong
sample households. Taken together, they account for 93 percent o f the total income
inequality. B y contrast, farm and inform al wage income reduced the inequality; the

pseudo-Gini coefficients o f these income sources are much low er than the total G ini
coefficient, whereas the pseudo-Gini coefficients for nonfarm self-em ploym en t,

804


INEQUALITY INCOME IN HANO I'S PE R I-U R B A N AREAS

form al w a g e in co m c and other income sourccs arc much higher, s p e c ific a lly , a 10
p crc cn t increase in incom c from fa rm and inform al wage activities w ould have led

10 a 1.7 percent and 1.9 pcrccnt decline in the overall incom e in e q u a lity ,
respectively. Whereas, the same increase in nonfarm self-em ploym ent, form al wage
incom c and other incom e sources w o u ld have resulted in a 1.4 percent, 1.6 percent
and 0.57 percent increase in the overall income inequality, respectively.
T a b le 3 :

G ini decomposition o f incomc inequality by income source

Correlation
Income

income source

share
Sk

with the
Gini

distribution

Gk

of total
income

Source

PseudoGini
GkRk

Share lo

elasticity

tola] income

of total

inequality

inequality

(RkGkSkVG

(RkGkSkV

Rk

G-Sk

0.232

0 606

0.121

0 073

0.064

-0.168

0.271

0.757

0.534

0404

0.409

0 138

Informal wage

0 197

0 727

0.012

0.009

0.007

-0.191

Formal wage

0.219

0 818

0.572

0 468

0.383

0.164

Other incomc

0.082

0.876

0.518

0 454

0.138

0.057

Total

1.000

0.267

Farm

Non farm
Self-employment

N o te

1.000

Estimates are based on annual per capita incomes. N '-4 7 7 .

L o okin g at the third and fourth column in Table 3, the results show that the
inequali(y o f farm and in fo rm a l wage incomes among households is low er than the
in eq u ality o f nonfarm self-em ploym ent, formai wage incom e and other incomes

among households In addition, as co m p a r ed to nonfarm self-em ploym ent income,
form al wage incomes and other income, farm and in fo rm a l w age incomes have a

much low er correlation w ith the distribution o f total income. Consequently, income
from

farm

and in fo rm a l wage w ork had an equalizing effect on the income

distribution. Basically, this fin d in g is in a cc o rd a n ce w ith G allup (2002) and Van
C a o and A k it a (2 0 0 8 ), w h o fo u n d that w h ile agricultural in c o m e a c tu a lly re d u c e d

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V IỆ T N A M H Ọ C - K Ỷ Y Ẻ U H Ộ I T H Ả O Q U Ỏ C T Ẻ L À N T H Ú T ư

the inequality o f income distribution, nonfarm self-em ploym ent incom e and ether
income sources m a in ly contributed to inequality in Vietnam .

5. Conclusion and policy recommendation
By disaggregating wage income into tw o sub-categories, we found Lhat
inform al wage income has an inequality-decreasing effect on income inequality,
w hich im plies that there is no or a low entry barrier to manual labour jobs and hus
everyone can undertake these jobs in Hanoi's peri-urban areas

In contrast, the

rising-inequality effect o f other nonfarm income sources, m ainly nonfarm jelfemployment income and form al wage income, suggests that there are sime
relatively high entry barriers that hinder everyone from participating into these ligh
return activities. Possibly, lucrative nonfarm activities often require higher leves o f
education and skills, better access to credit or other conditions. O ur fin d in g supports
the hypothesis stated by A dger (1999) that income d ive rsifica tion into non arm
activities results in either greater income inequality i f opportunities for tiese
activities are skew ed towards to the better-ofT; or in less incom e inequality i f ỉuch

opportunities are accessible to the poorer parts o f the population
Given the context o f shrinking farm land due to rapid urbanization, the
declining share o f farm income w ill be unavoidable. Consequently, increising
inequality due to the sh rin kin g share o f farm incom e w ill be im possible to ayoid
w ith o u t stopping farm land conversion fo r in d u s tria liz a tio n and urbanizaion.
Based on the aforem entioned e m p irica l fin d in g s , it is possible to propose some
p olicies that may help to m itig a te the issue o f incom e ine q u a lity in V ie tn im 's
peri-urban areas. A g ricu ltu ra l extension polices can help farmers to get h iịh e r
returns from agriculture by changing to more profitable crop plants. In addiion,
providing local people, especially elderly landless farmers, w ith appropriate jo b
training programmes can help them get a decent jo b . F in a lly, im proving oca]
infrastructure, coupled w ith installing new local markets are found to be a efTe:tive

w ay to create m ore nonfarm jo b opportunities fo r local people (B ic h N goc, 2)04;

V. S. N guyen, 2009).

Reference
1. Adger, w . N. (1 999 ). Exploring incom e inequality in rural, coastal V iet N am T h e
J o u r n a l o f D e v e lo p m e n t S tu dies, 55(5), 9 6 -1 1 9 .

2.

Babatunde, R. (2008). Incom e Inequality in Rural Nigeria: E vid en ce from F am in g
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8 06


INFQUALITY INCOM E IN H AN O I'S PERI-UR RAN AREAS.

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