Compulsory social security participation revealed preferences

The study starts with a classification of the enterprises depending on their participation to the Vietnam social security. Among the enterprises that contribute, one striking feature is that on average the share in the wage bill of the contributions paid to the Vietnam social security is much lower than the contribution rate established in the law. Even if the enterprises that do not register their employees are excluded from the calculation, the average ratio is of 7.6 percent while the legal rate was in 2006 equal to 23 percent. The study, consequently, examine this issue before investigating the characteristics of the enterprises that do not register their employees. The paper shows that this low ratio is due to a wide practice by enterprises of paying contributions on lower wages than current wages. The paper investigates, furthermore, who benefit from the practice of avoiding registration and from the practice of under-reporting wages to social security. The results indicate strong evidence that employees in enterprises that are not registered to social security and in enterprises that under report wage receive higher net wages. (This abstract was borrowed from another version of this item.)