What you need to know
Taiwan's manufacturing industry leaders have hoarded profits at the expense of wages for too long.
It is the time of the year when Taiwan’s minimum wage is being put on the table for discussion again and the manufacturing industry has fired the first salvo – they do not want the government to increase it.
The Chinese National Federation of Industries (CNFI) – which represents the interests of the bulk of manufacturers in Taiwan – said last week that it wants the government to “respect the market mechanism and management autonomy of companies”, Focus Taiwan reported.
What market mechanism?!
Taiwan’s workers are already putting in hard work to increase the productivity for these companies, but are not getting back what they put in.
Thirty years ago, between 1982 and 1992, labor productivity in the industrial sector was high, increasing by 78 percent. Hourly real wages rose in line with this to almost double.
But then, between 1992 and 2002, while productivity increased by 59.7 percent, the growth of real wages struggled to keep pace, growing just 20.4 percent. And in the recent decade between 2002 and 2012, productivity growth still remained high at 52.6 percent – but real wages actually fell by 2.7 percent!
In short, for two decades now, productivity has been growing but the wages paid to workers have not caught up. Since 2002, wages have even fallen.
Does the CNFI want the government to retain a “market mechanism” that has allowed their companies to keep profiting immensely at the expense of workers?
In fact, for the electronics manufacturing industry – which comprises most of CNFI’s members – the profits per worker earned jumped from NT$328.74 (US$10.70) in the 1994-2002 period to NT$436.04 in 2003-2012. Among the non-electronics manufacturing sector, the jump was even higher: profits per worker shot up by more than two times, from NT$262.36 to NT$577.46!
Of the companies listed on the Taiwan Stock Exchange – of which the manufacturing industry comprised about 60 percent – the cited study also found that since the early 1990s, "Taiwanese workers [in these companies] are increasingly underpaid."
In fact, since the early 1990s, the manufacturing sector is the culprit responsible for most drastically underpaying workers among companies in Taiwan!
And the CNFI still has the cheek to ask the government to “respect the market mechanism.” What do they want to be respected? Their unscrupulous behavior of underpaying workers and reaping the profits for themselves?
“Respect the market mechanism” is just an excuse that self-centered businessmen repeat to allow themselves to keep lining their own pockets.
What is happening is that “market mechanism” has gone out of control! Have these companies no shame?
The study also found that “university graduates have been consistently underpaid.”
“In particular, workers with completed university education have been significantly underpaid in the most recent nine years,” the 2016 study added.
As of 2017, 71.24 percent of Taiwanese youths are enrolled in tertiary education.
Yet CNFI’s President Wang Wen-yuan (王文淵) still had the audacity to say that raising the minimum wage would cause young people to be out of jobs.
As it is, Taiwan already has one the lowest unemployment rates in the world. With Taiwan’s profit share being at 56.19 percent of GDP – already the fourth-highest among developed Western and Asian countries – Taiwan’s companies have more than enough bandwidth to increase wages and still ensure that Taiwan’s youth will be able to stay employed.
So let’s get this straight – is the CNFI threatening the government over potential increases to the increase minimum wage by suggesting that the result will be that young people lose out on jobs?
Where is their sense of duty and responsibility to Taiwan? Hasn't Taiwan acceded to their requests for long enough?
Taiwan’s wage share, at 43.81 percent, is already the fourth-lowest among developed Western and Asian countries. Among G20 countries, the average wage share is 56 percent. Taiwan is way off in comparison – in other words, Taiwan’s companies are earning too much profit because they have been depressing the wages of workers.
As Taipei Times also calculated, even as Taipei’s cost of living is lower than other developed Asian economies, it is not that much cheaper. When comparing with Tokyo, rent is 1.7 times higher than Taipei and 2.27 times higher for utility costs, but Tokyo’s average starting salary is 3.5 times more than Taipei’s. And this is already considered low for Japanese youths, mind you.
You can imagine how much worse it is for Taiwanese youths.
Moreover, the growth of Taiwan's hourly manufacturing wages is also the worst among similar developed economies. In 1997, Taiwan's hourly compensation costs in manufacturing was US$7.04 (or 31 percent of that of the United States) but by 2010, it went up to only US$8.36 (and decreased to being only 24 percent of the U.S.’s).
In comparison, South Korea's compensation increased from US$9.36 (41 percent of U.S.'s level) to US$16.62 (48 percent). In Japan, it increased from US$22.28 (87 percent) to US$31.99 (92 percent).
The hourly compensation costs in manufacturing also had the lowest average annual growth from 2000 to 2007, and was the worst from 2007 to 2010 – with a negative growth rate of about -1 percent.
And by 2016, Taiwan’s hourly compensation costs in manufacturing only went up to US$9.82 (or only a quarter of the U.S.’s level) while it has gone up to US$22.98 (60 percent) in South Korea and US$26.46 (68 percent) in Japan.
The CNFI has absolutely no leg to stand on. The manufacturing sector in Taiwan does not deserve any help from the government, since they have been sucking the blood of Taiwan’s workers for the past two to three decades now.
And the Democratic Progressive Party (DPP) government should honestly stop mollycoddling these businesses like the Kuomintang (KMT) government did in the past.
CNFI President Wang Wen-yuan, who also happens to be President, Managing Director and Executive Director of the Formosa Plastics Group, is poorly qualified to make demands of the government.
The company that his father and uncle founded has been revealed to have established the most offshore entities among Taiwan’s companies – the Wang family has stashed NT$256 billion in assets in five offshore trusts, which is more than three times the net assets of NT$74.50 billion that they have in Taiwan.
Not only that, 65 percent of the listed companies in Taiwan were also found to have offshore companies, in a Tax Justice network study that listed Taiwan as the eighth most secretive tax jurisdiction in the world.
And yet Wang Wen-yuan and the CNFI want the government to keep letting them leech off Taiwanese workers while they amass offshore assets and give little back to the government and society of Taiwan?
How selfish can the CNFI get?
To be fair, the Formosa Plastics Group has been increasing wages by more than 3 percent for its workers over the past four years. This year, it increased wages by 4 percent. But it does not negate the fact that manufacturing companies – and the majority of companies in Taiwan – have been earning higher profits on higher productivity and depressing the wages of workers for the past two decades.
If anything, Wang should take leadership and ask the CNFI members to step up the to the plate, rather than help them find excuses to continue depressing workers’ wages.
Moreover, is a 3 to 4 percent increase in wages enough for low-income workers, when to get to NT$30,000 per month and achieve a basic standard of living would require significantly stepper hikes?
A CNFI director Ho Yu (何語) also complained about the government increasing the minimum wage of government workers to NT$30,000 a month and called it “political.”
Why is NT$30,000 a month political? For one, is Ho Yu willing to live on NT$30,000 a month at today’s prices – prices which he and the CNFI have had a hand in increasing? If Ho Yu is willing to start on a clean slate and live with that for the rest of his life, then by all means, let’s not increase the minimum wage.
Already, average rent has reached NT$10,392 in Taipei and households in Taipei have to spend 58 percent of their income on rent. According to the Taiwan Labor Front, using the benchmark that only 30 percent of income should be spent on rent, workers on minimum wage would only be able to pay NT$6,600 on rent.
As such, to be able to afford the average rent of NT$10,392, workers should be earning a minimum wage of at least NT$34,640.
But as it is, there were 3.051 million people who were earning less than NT$30,000 last year – which comprised a whopping 34 percent of the workforce! How would Ho Yu like to belong to this third of society?
Of these 3.051 million people, 19,410 were workers from listed companies. The government calculated that increasing their wages to NT$30,000 would amount to another NT$962 million a year, which when compared to 2018’s GDP forecast of NT$17.9 trillion, would only make up 0.005 per cent of the GDP. So what exactly is the CNFI complaining about?
That figure of 0.005 percent would barely increase the wage share of 43.81 percent in Taiwan – which may I remind you, is already the fourth-lowest among developed Western and Asian countries.
The Wang family of the Formosa Plastics Group are already the sixth-richest in Taiwan. The richest quintile in Taiwan has very high disposable income, comprising 40.36 percent of their household income. The poorest quintile must make do with 6.63 percent.
God knows how much disposable income the Wang family would have left in disposable income.
So I do not get it. How much longer do Wang Wen-yuan, Ho Yu, the CNFI, and Taiwan’s companies want the government to keep giving them a lifeline when they are obviously very well-fed, healthy and well, and it is Taiwan’s workers who are in desperate need of higher wages?
Why do they not spare a thought for Taiwan’s workers? Why do they not spare a thought for Taiwan?
Such sentiments make no mention of the environmental damage that Formosa Plastics Group is doing to Taiwan and around the world.
Indeed, Taiwan’s president Tsai Ing-wen (蔡英文) has said that NT$30,000 is the ideal minimum wage for Taiwan. Taiwan’s Premier William Lai (賴清德) also called on businesses to raise the minimum wage to NT$30,000. Taiwan’s Vice-Premier Shih Jun-ji (施俊吉) also said that it is possible for Taiwan’s minimum wage to be at NT$30,000 in the next four to six years. Lai said that businesses should increase minimum wage to NT$30,000 because it is their “social responsibility” to do so.
Labor unions have also called for Taiwan's minimum wage to be increased to the region of around NT$28,000, for a start.
NT$30,000 as a minimum wage for Taiwan’s public sector workers should therefore be celebrated, not just because it is a step in the right direction, but because that is the bare minimum that the Taiwanese government should be doing for its citizens.
Still, the difference in wages between the public servants and private sector workers is also a cause for concern. At NT$30,000 for public servants as compared to the minimum wage of NT$22,000 for private sector workers, this is NT$8,000 more, which is enough to pay for a person's food expenditure or rent for one whole month.
In other words, this change has allowed some public servants to earn nearly 40 percent more than public sector workers. I had half-expected the public servants to rise up and protest on behalf of the private sector workers and advocate for higher – and equal – minimum wages for the private sector workers as well. Isn’t that the role of the public servants, to serve the public?
But such a high wage gap between the public servants and private sector workers can result in side effects and is a cause for concern.
A study which explored the public-private sector wage gap of countries in Europe noted: “An unexplained public-private pay gap in a country raises questions about productive efficiency, the extent to which unwarranted public sector settlements might spill over into the private sector and affect competitiveness, and about public finances.
“It also raises questions about equity as most analysts would consider that, taking all factors into account, overall remuneration (including retirement and other working provisions) should be similar in the two sectors. Thus, a constant pay gap across income levels would raise questions along the lines just noted,” the study added.
The study also said: “For a given overall pay gap, it would also mean that the public-private differential diminishes or becomes negative at higher levels of income, encouraging turnover at the more senior level or, worse still, discouragement and underperformance.
“On the other hand, steep profiles (relative to those prevailing in the private sector) may fail to attract liquidity-constrained but competent young entrants and those that do enter the public service may never wish to leave,” it added.
Sounds familiar, doesn’t it?
Another study also pointed out that higher wages in the public sector would also cause “public sector jobs […] to become packed with under-qualified individuals who are prized for their obedience rather than for their ability to carry out the work”, and corruption thrives because of “those [in the public sector] who actively participate in corrupt activities, such as giving or taking bribes, but also by those members of the private sector who do business with the corrupt part of the public sector.”
The study added: “Corrupt agents in the public sector tend to be more interconnected than noncorrupt agents in order to keep the asymmetry in rights and incomes between the public and private sector in favor of the public sector. Here corrupt agents in the private sector do not benefit directly from the wage gap, but because they are connected to corrupt public sector agents, they can benefit from exclusive public procurement contracts or prone legislation.”
In 2016, Taiwan ranked 10th on the Economist's crony capitalism index, which measures the extent to which the rich benefit because of their political connections.
The study also noted that there is “an inherent flaw of democracy in such corrupt systems [… because] the political elites design a system that supports their rent-extracting activities [… and they are therefore] able to stay in power by maintaining a winning coalition of supporters, and they do this by building and maintaining a legitimate electoral majority.”
Thus, “in corrupt democratic societies the corrupt electoral majority is highly intra-linked, the legislative body faithfully represents them, and the corruption level is sustained.
However, the study also said that the very same model of democracy can also “prevent corruption in low-corrupt countries."
“In societies with a low level of corruption the mechanism is the same: the electoral majority is not corrupt, the societal network is homogeneously interconnected, and the democratic mechanisms isolate the corrupt minority and minimize its influence on the government and its institutions,” it said.
So, Taiwan’s democratic structure is actually well-placed to reverse the situation of chronic low wages and the crony capitalism that has plagued Taiwan which has diverted what-should-be workers’ wages to the rich.
The question is, does the DPP government have the courage and tenacity to do what is right for Taiwan’s workers and for Taiwan?
A part of me hopes that it is a strategy by the government to increase minimum wage for the public servants, so as to give cause to also increase the minimum wage of private sector workers to that level. But we will see.
As it is, the DPP government has reformed the pension system by cutting preferential saving rates (among other things) on the retired public servants’ and public school teachers’ minimum pension of NT$32,160 every month, and an even higher minimum of NT$38,990 for retired military personnel.
According to the Council of Grand Justices back in 2013, NT$32,160 was actually decided to be the income that would allow retirees to “maintain the minimum standard of living”. The then-Ma Ying-jeou (馬英九) government was supposed to have reformed pensions at that time but backed out from doing so.
As suc,h since the government has acknowledged the minimum wage required for the minimum standard of living to be between NT$30,000 and NT$32,160, there is urgency to ensure that the 34 percent of workers who still earn less than NT$30,000 would be able to see their wages rise to this level.
According to Focus Taiwan, Tsai did explain that “compared to the pension systems for public employees, however, reforming the labor insurance system will be more complicated because it would also involve private employers and not just the government as was the case with public employees.”
Certainly, people like Wang Wen-yuan and Ho Yu, and the CNFI, are not making the government’s job any easier.
But at least Tsai did say that “her administration would not shy away from reforming the labor insurance system.” The labor insurance system is the pension system for private sector workers, which is separate from the pension system for the public sector workers. Ten million people are currently receiving pensions under the labor insurance system.
I hope her administration will take the same attitude towards the upcoming minimum wage increase.
Even so, for private sector workers, their current average pension payments are still only NT$16,179 a month (NT$17,223 for private school teachers), and this is even lower for farmers and workers under the general public insurance, who are able to receive only NT$7,256 and NT$3,628, respectively.
A survey in 2012 had 78 percent of Taiwanese workers saying that they would need at least NT$28,000 a month for retirement.
As such, the government, labor unions, the Taiwanese in general, and even Taiwan’s Grand Justices have all come to the same conclusion that NT$30,000 at this point is about what the minimum wage or pension for Taiwanese workers should be.
Only (some of) the businesses disagree – the businesses which are extracting extravagant profits from the workers while enriching themselves, and thereby reducing the potential of the capital which could be invested in productive purposes – in the workers.
The question again is, does the Tsai government have the determination to push through with the reform to protect Taiwan’s workers and increase their wages?
Nonetheless, after the government’s calls for the minimum wage to be increased, several companies such as the Fubon Group did come out to say that they would pay a minimum starting salary of NT$30,000 to their workers.
The Taipei-based Chinese National Association of Industry and Commerce (CNAIC) Chairman Lin Por-fong (林伯豐) also said that the association supported the government’s call to increase the minimum wage and that their members such as Taiwan Mobile – publicly traded companies – were already paying starting salaries of NT$30,000 to their workers.
But Lin is a bit schizophrenic. A few months later, he then said: "If the government interferes in this and that and demands a bunch of things it itself cannot achieve, it will only intensify conflict between management and labor." He said this in the same press conference in May where General Chamber of Commerce Chairman Lai Cheng-yi (賴正鎰) also said: "This isn't a case of the government simply throwing out numbers and then [wages] will move higher. I don't think this can work."
But didn’t Lin already say that the CNAIC members are already paying starting salaries of NT$30,000? So what’s the problem?
Perhaps Tsai and Premier Lai's strategies of coaxing businesses did work to a certain extent. Still, when asked to commit to legally increasing the minimum wage to NT$30,000 into law, Lai refused to commit to doing so.
Lai also shot himself in the foot when he said at the end of last year that caregivers “who take care of older people” and who are paid only NT$30,000 should see their work as “bless[ing] Taiwan” and that they are doing “good deeds,” even as their salaries are low.
The thing was that Lai knew that caregivers were “mak[ing] about NT$30,000,” which he even said “seem[ed] disproportionate to [their] responsibilities,” yet he was callous with his remark.
But if NT$30,000 is still seen as “disproportionate” and low, then wouldn’t the minimum wage for public sector workers still be low then, and worse still for private sector workers who have a minimum of only NT$22,000?
Nonetheless, a few days later the Ministry of Health announced that the minimum wage for caregivers would be increased to NT$32,000 in 2018. However, more than 40 percent of caregivers still earn less than NT$32,000.
There are other encouraging initiatives. Wellington Koo (顧立雄), chairman of the Financial Supervisory Commission (FSC), has said that FSC will be disclosing “the names of companies that pay employees less than the industry average by June next year.”
The FSC also said that it would look at the minimum wages that companies are paying their workers as an important indicator to review these companies’ corporate governance, and that it would also be showcasing the names of half the listed companies in Taiwan which pay the highest salaries to its workers as good role models.
The devil is in the details, but at least this is a step forward.
Former FSC chairman William Tseng (曾銘宗), who is now a KMT legislator, also admitted as much in saying that “local workers are paid less than expected, as enterprises have distributed fewer profits to workers over the past few years.”
So politicians from across the spectrum are admitting that low wages in Taiwan are a problem.
As such, all in, we are looking at a situation where all sides of Taiwan are in agreement that the minimum wage needs to be increased to NT$30,000 – except for holdouts like Wang Wen-yuan and Ho Yu, and the CNFI.
In fact, a KPMG report found that, “50 percent of Taiwan CEOs believe that to enhance the welfare of employees is the key factor to keep and attract talents.”
Some 40 percent also believed that high salaries would be key for retaining talent.
Increasing their workers’ welfare and wages rank topmost on the CEO’s list.
Importantly, Taiwan today has the second most difficulty in the world in hiring skilled talent. The main reason why Taiwanese workers overseas would not return to Taiwan for work, according to a 2014 study, was because they think Taiwanese wages are not competitive. 48% of Taiwanese living and working overseas named "better local wages" as a leading factor impacting their decision to leave Taiwan.
In 2016, there were 728,000 Taiwanese who were working overseas, an increase from 662,000 in 2009. This was as much as 6.2 percent of the labor force of 11,727,000 workers in 2016, an increase from 6.0 percent of the 10,917,000 workers in 2009.
Of the Taiwanese working overseas in 2016, 73.4 percent or 534,000, were college or university graduates and Taiwan could only attract 30,928 foreign professionals to replace them, or only 5.8 percent of the Taiwanese outflow – because of the low wages.
Taiwan's manpower shortage rate has therefore increased to 3.1 percent in February 2018, from 1.79 percent in February 2009. And even as Taiwan's unemployed workers stood at 438,000 in February 2018, the industrial sector was still unable to find the relevant skilled workers to fill 243,920 positions.
Taiwan is suffering from a brain drain because of its low wages. This will continue unless something urgent is done to increase pay levels. Otherwise, Taiwanese citizens will keep outflowing to other countries. With 51.9 percent of overseas Taiwanese working in China in 2016 and China still being the top destination for 28 percent of Taiwanese who want to work overseas, this poses a security threat to Taiwan – and Taiwan’s companies would undoubtedly have a hand in threatening Taiwan’s national security.
As such, Taiwan’s youth groups (from the Taiwan Higher Education Union and the Alliance Against the Commercialization of Education, as well as other groups) have called for the minimum wage to be increased to NT$29,189 a month and NT$186 an hour. Evidently, the youths disagree with Wang Wen-yuan. They want to work, but Taiwan’s wages are too low for them.
So let’s get this straight. Wang Wen-yuan, Ho Yu, and the CNFI should listen up – Taiwanese youths are not becoming unemployed in Taiwan because of higher wages in Taiwan. Taiwanese youths are leaving Taiwan precisely to find higher wages overseas.
It is time for Taiwan’s companies to stop giving excuses for themselves just because they want to keep depressing wages. It is time to wake up to the reality – the world is moving ahead, whether they like it or not. If Taiwan’s companies choose not to keep up, it soon might be them which are no longer relevant – along with Taiwan itself.
I see immense potential in Taiwan and I want to see it do well. The key problem with Taiwan now is its low wages and this is a problem that needs to be tackled head on.
Just by increasing wages, it would alleviate the pressure on Taiwan’s social welfare system and provide the impetus to kickstart sorely needed innovation and grow Taiwan’s economy.
All we need now is the political will and commitment to see to it that this happens.
As such, Vice-Premier Shih Jun-ji's proposal to increase the minimum wage by six to eight percent annually for the next four to six years to attain the NT$30,000 level has merit.
At the end of last year, Tsai said: “If young people are still willing to listen to what the government has to say, I want to tell you: I understand your anxiety about the future, and will do everything I can to change Taiwan's future.”
“My administration's most important task in 2018 is to do everything possible to improve the problem of low wages for young people,” she added.
She also said that the government would “promote a minimum wage act [to give them] a legal basis to set the minimum wage.”
Last month, she also said that “she has not forgotten the DPP's promises to youth.”
So let’s see if Tsai and the DPP will keep their promises.
Patience can wear thin when people realize they are being had, again.
But here’s a parting shot – if anything, Taiwan can make it work because it is a democracy. The DPP is trying to tear down Taiwan’s authoritarian past, and increasing wages is one step of that journey.
Stop putting companies on a drip. They have tried to control Taiwan for long enough, and Taiwan’s workers and citizens are made to suffer. This has crippled Taiwan. It is time to pull the plug on the companies, and help revive the hopes of Taiwan’s workers and rekindle Taiwan’s position on the world stage.
It is time also to keep the promise to the Taiwanese. It is to let Taiwan truly be the pride of Asia, and to inspire citizens in other Asian countries with its democracy.
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Editor: David Green