Vietnam is under pressure to reduce the size of the state sector. Using the Vietnam Living Standards Survey 1997-98, the paper examines the impact of this change on the gender earnings gap. Women have traditionally been over-represented in the state sector. After exiting the state sector, some seek jobs in the private sector. Estimation of separate earnings equations by sector suggests that the gender pay gaps in the state-owned enterprises and the private sector are comparable. One may then conclude that women's relative economic position may not have worsened significantly. However, Appleton's decomposition (1999) has demonstrated that the gender pay gap would be much wider if men and women were equally distributed between state and private sectors. Given that further downsizing is planned, it is important to increase women's human capital to reduce their vulnerability. Equal pay legislation and paid maternity leave are some policies that can reduce within-sector earnings inequality.