Social protection among Vietnamese SMEs: Implications for firm performance, 2012–16

Mixed evidence has occasioned much debate regarding the relationship between job quality and firm performance. The evidence is particularly limited in the case of small and medium-sized enterprises (SMEs) in emerging economies. Focusing on the manufacturing and construction sectors, this paper investigates how, between 2012 and 2016, employer-provided social security affected firm performance in Viet Nam. The paper is based on enterprise census data covering all registered firms across the Socialist Republic of Viet Nam’s 63 provinces during 2012–2016. Controlling for unobserved time-invariant firm-level characteristics, the results reveal that firms which increased social security coverage by 10 per cent experienced a per-worker revenue gain of between 1.2 and 1.5 per cent and a profit gain of up to 0.7 per cent, with exact estimates depending on the survival time of the firm. Due to the time-inconsistency between costs (social security contributions) and benefits (firm performance), the latter may not be realized immediately. Thus, specific policy measures such as subsidizing social insurance contributions for small firms during an initial period until the business becomes viable could encourage active participation in mandatory schemes.