Using the RIF-decomposition to explore changes in wage inequality during the economic transformation in Vietnam, we find that real wages increased substantially during the period 1998-2010, but wage growth slowed down in the following period 2010-2020. Wage inequality increased in the former period, but declined considerably in the later one. Overall changes in wage inequality over the former period was mainly contributed by changes in labor market, job and workers’ observed characteristics, but in the later period the change was mainly contributed by the changes in returns to job and workers’ observed characteristics (wage structure effect). The economic structure change and increased supply of higher educated workforce have substantially contributed to the changing wage inequality over the past two decades. A rapid increase in supply of higher educated workers in the later stage of economic transformation has resulted in declining returns to education and thus has contributed to a decline in wage inequality.