Vietnam’s ethnic minorities tend to be concentrated in remote rural areas and typically have lower living standards than the ethnic majority. How much is this due to poor economic characteristics versus low returns to characteristics? Is there a self-reinforcing culture of poverty in the minority group, reflecting patterns of past discrimination? The paper finds that differences in returns to productive characteristics are an important explanation for ethnic inequality. This is most pronounced in areas where both groups reside. The majority group’s model of income generation will be a poor guide to how to fight poverty among ethnic minority groups. There is evidence of compensating behavior on the part of the minorities. The results suggest that it is not enough to target poor areas to redress ethnic inequality. Policies will need to reach minority households within poor areas and to explicitly recognize behavioral patterns that have served the minorities well in the short term, but intensify ethnic differentials in the longer term.