Measurements and Determinants of Pay Inequality and its Impacts on Firms Performance in Vietnam

This study is an empirical investigation of causal factors of pay inequality and its relationship with firm performance using firm level data in Vietnam. Both nonparametric and parametric approaches are used for the purpose. The Gini coefficient and Theil-T index are employed to measure pay inequality. Linear and quadratic models are specified to identify determinants of pay inequality and to investigate the relationship between pay inequality and firm performance. The empirical results, based on a large sample of Vietnamese firms, suggest that capital-intensive sectors pay more equal wages than labour-intensive sectors while regions with a higher urbanization rate and economic development pay their employees quite unequally. The determinant factors contributing to pay inequality are firm size, volume of assets, share of temporary workers, debt ratio, provincial competitiveness and the market size. We also find a positive relationship between firm performance and pay inequality, which gives support to the ¡°tournament¡± theory.