Abstract

This study investigates the factors influencing workers’ decisions regarding the choice of employment sector in Vietnam, against the backdrop of a significant labor force transition from the state sector to the private and foreign direct investment (FDI) sectors. In addition to identifying these determinants, the research aims to examine and address the issue of endogeneity that arises in the relationship between sector choice and workers’ education level, thereby ensuring the accuracy and reliability of the estimation results. Using data from the 2020 Vietnam Household Living Standards Survey (VHLSS), the study applies the Multinomial Logit (MNL) model and compares three estimation approaches: the conventional MNL, the Control Function approach, and the Two-Stage (2S) method. The results reveal that “education level” is an endogenous variable, and among the tested approaches, the Two-Stage (2S) method is the most effective in addressing this endogeneity issue. After properly controlling for endogeneity, the findings show that factors such as gender, age, marital status, education level, income, and working hours significantly influence the decision to choose a specific employment sector, with the magnitude and direction of these effects varying across different sectors. From an academic perspective, this study underscores the importance of controlling for endogeneity when modeling individual choice behavior in labor economics. Practically, the empirical results provide valuable policy implications for optimizing human resource allocation and workforce planning. By tailoring policies to the specific characteristics and requirements of each sector, policymakers can enhance labor market efficiency and better respond to ongoing structural changes in Vietnam’s economy. These findings are particularly relevant in the current context of rapid economic transformation and labor market restructuring, offering insights that can support sustainable and inclusive growth.