The Pay in Taiwan Is Too Damn Low

The Pay in Taiwan Is Too Damn Low
Photo Credit: 中岑 范姜@ Flickr CC BY SA 2.0
What you need to know

Taiwan’s minimum wage is not just lower than the international standard. Its rate of growth has lagged.

If you say that the minimum wage in Taiwan is too low, you may hear responses that plead the case of businesses that can’t afford to raise wages any higher. 

But instead of asking what businesses think, it’s better to compare wages with countries that have similar economies. As I have written previously, based on Taiwan’s cost of living and GDP per capita, Taiwan’s minimum wage should be at least at the level of Slovenia — 941 euros (NT$32,774).

Comparing Taiwan with countries with similar GDPs per capita, we see that while Taiwan had the highest minimum wage among comparable countries until 1999, it has fallen behind Spain and Slovenia.

Taiwan’s minimum wage is not just lower than the international standard. Its rate of growth has lagged. While Taiwan had a similar minimum wage to Spain in 1991, Spain’s minimum wage has risen to 55% higher than Taiwan’s today. In fact, while Slovenia’s minimum wage was only 40% of Taiwan’s in 1995, Slovenia’s minimum wage has grown to be 30% higher than Taiwan’s today.

Note, too, that Taiwan’s cost of living is higher than both Spain and Slovenia.

Not only that, Estonia and Slovakia had only 3.5% and 18.7% of Taiwan’s minimum wage in 1995. Today, their minimum wages are now more than 80% that of Taiwan’s, which is about where most of the other East European countries have caught up to.

In other words, Taiwan has fallen behind.

roy1
Sources for minimum wage figures: Taiwan; OECD countries: OECD and Eurostat

To clearly show the rate of minimum wage growth, we can plot all the countries at a baseline of 100. When a country reaches 200, its minimum wage has doubled, at 300, tripled, and so on. We can see that while Taiwan’s minimum wage since 1999 hasn’t even doubled, the other countries have seen their minimum wages grow by two to seven times.

image5

What about Taiwan’s median wage?

Trying to locate consistent data on Taiwan’s median and average wages is difficult because the government figures are repeatedly adjusted. Based on years working with this kind of data, this gives off the perception that the government is less than fully transparent.

The figure for 2016’s median wage, for example, is NT$40,612, NT$38,417, and NT$38,667 a month according to three different data releases from the Directorate-General of Budget, Accounting and Statistics (DGBAS) under the Executive Yuan in 2017, 2018 and 2019

The chart below shows how the respective wage data compares, according to the date of the data releases. 

Median wage is more important than average wage when looking at how income is distributed, as situations of extreme inequality can have a deceptively high average wage. This is why economists generally prefer to look at the median wage in relation to average wage to see the earnings of the truly “average” worker.

In brief, the closer the median wage is to average wage, the more evenly wages are distributed.

image2
Sources for average and median wage data: 2019, 2018, 2017.

As I could not locate median wage data prior to 2012, I extrapolated back from existing data. (2017’s median wage data release is omitted from the comparison because of the wide discrepancy with 2018’s and 2019’s figures.)

In 2019’s data release, Taiwan’s median wage as a proportion of the average wage declined from 79.9% in 2012 to only 77.9% in 2018. 2018’s release also saw median wage decline from 79.1% in 2012 to 78.3% in 2017. Accordingly, I extrapolated the median wage prior to 2012 by estimating the median wage to be 80% of the average wage, depicted in the chart below. This is a conservative estimate, because inequality between the bottom and the top 5% has been continuously widening since 2005. This means that the median wage would have been closer to the average wage prior to 2012. 

Accordingly, Taiwan’s median wage would have risen from about NT$34,000 in 2000 to NT$40,833 in 2018.

image3

A glaring disparity is revealed when we compare Taiwan’s median wage with the other countries with similar GDPs per capita. Taiwan’s median wage hardly grew between 2000 and 2018, while the other countries showed sustained growth.

We can see in the chart below that wages for Taiwan’s so-called middle-income earners have remained flat in comparison with the Eastern European economies.

image6
Median wage data are derived using minimum wage and the ratio between minimum wage and median wage, using OECD data. Taiwan’s median wage is a composite between 2019’s data release and the estimation of median wage using average wage data released in 2017.

Plotting the countries at a baseline of 100 makes the comparison clearer — while Taiwan’s median wage has barely grown, the post-socialist economies of Eastern Europe have grown between 2.5 and 5.

image7

Comparing Taiwan with other countries with similar GDPs per capita using data compiled by The Conference Board on the hourly compensation costs in manufacturing from 1996 to 2016 showed the same trend: Taiwan’s wages have barely grown, while South Korea (which until 1998 had similar wages as Taiwan) has seen its wages grow to more than twice as high as Taiwan. Even Argentina, which has less than 40% of Taiwan’s GDP per capita, has wages that have grown to nearly twice as high. 

Eastern European countries like Estonia, Slovakia, and the Czech Republic, all of which used to have wages a third to half that of Taiwan, have seen their wages grow to become higher than Taiwan, while Hungary and Poland were also catching up to Taiwan by 2016.

image9
Source: The Conference Board. Argentina and Brazil are included in this comparison even though their GDPs per capita are only 30% to 40% that of Taiwan’s, to reflect the extent of Taiwan’s wage depression.

One of the arguments for increasing the minimum wage is that it benefits all wage earners. We see in the chart below that the depressed minimum wage in Taiwan partially explains why Taiwan’s median wage has remained stagnated — you can see in the chart below that Taiwan’s median wage growth corresponds with that of Taiwan’s minimum wage — this is particularly clear with the minimum wage increase in 2015, and then from 2017 onwards.

image1

As long as Taiwan’s minimum wage remains depressed, the median wage will continue to be depressed. I am not sure if it is still accurate to call median income earners in Taiwan as middle-income since their wages have largely fallen behind countries poorer than Taiwan. 

Taiwan has the economic bandwidth to support higher wages, yet the government refuses to do so through implementing higher minimum wage increases or other measures like strengthening the power of labor unions. The continuously revised median wage data released by the government does not help in clarifying the wage situation either, and reeks of a lack of transparency. 

Meanwhile, the cost of living has kept rising. With workers strangled by Taiwan’s low-cost model, the government’s plans to increase birth rates or develop higher-value innovation seem like pipe dreams.

Taiwanese businesses simply cannot have their cake and to eat it too, in seeking top-level talent and performance from workers when most workers are given such a small share of the country’s income. 

If Taiwan wants to make good on the commonly held desire to no longer be a low-value manufacturer for the world, and reach the highest level possible on the global value-added chain, a few proposals are crystal clear: 

Implement a long-term plan to increase the minimum wage that would correspond to the cost of living. Provide interim wage subsidy support for small and medium-sized businesses. Most important, to secure these gains for the future: revise the laws to strengthen the power of labor unions to negotiate for higher wages, and include the many migrant workers not covered by Labor Standards Act.

In other words, Taiwan needs to make use of its democracy to benefit workers, otherwise “democracy” will only be seen as empty words to us — it cannot be eaten as rice to fill the stomach, as the Chinese saying goes. 


READ NEXT: Taiwan's Minimum Wage Increase Doesn't Go Far Enough

TNL Editor: Nicholas Haggerty (@thenewslensintl)

If you enjoyed this article and want to receive more story updates in your news feed, please be sure to follow our Facebook.