Why Taiwan Should Include Migrant Workers in Its Stimulus Program

Why Taiwan Should Include Migrant Workers in Its Stimulus Program
Photo Credit: CNA

What you need to know

Investing in blue-collar migrant laborers along with diplomats and permanent residency holders would not only improve Taiwan’s economy, but it could also solidify the country’s reputation as a progressive, inclusive nation of equals.

By Ellie Koepplinger and Hafizha Dea Iftina

Taiwan recently expanded its Triple Stimulus Voucher program to include foreign diplomats and Alien Permanent Resident Certificate (APRC) holders. This decision has been criticized by government officials and citizens who believe the expansion is fiscally irresponsible.

The stimulus scheme is meant to help revitalize Taiwan’s economy during the Covid-19 pandemic. When the program was launched, Taiwanese citizens and foreign spouses could purchase a voucher valued at NT$3,000 at the cost of NT$1,000. The program has had a successful uptake: 97% of the population has purchased the vouchers, according to the Ministry of Economic Affairs (MOEA). The MOEA stated that the program costs NT$50 billion and is estimated to bring in between NT$70 billion and NT$100 billion in business revenue.

This is not the first time Taiwan implemented a stimulus voucher to boost consumption, and in turn, its GDP. In 2008 and 2009, during the global recession, President Ma Ying-jeou’s government gave out a similar NT$3,600 stimulus to all citizens of Taiwan and foreign spouses. Under Ma’s program, citizens received the stimulus without having to purchase the vouchers.

Contrary to the government’s expectations, the rate of consumption relative to income “dramatically decreased” after the first quarter of 2007, according to an analysis by researchers at the National Taichung University of Science and Technology. The authors of the study concluded that Ma’s consumption voucher scheme had little to no effect on stimulating the economy.

蔡總統訪嘉義果園 用三倍券買禮盒
Photo Credit: CNA
President Tsai Ing-wen with Chiayi County commissioner Weng Chang-liang (L) and DPP Legislator Chen Ming-wen (second from right) at a promotional event for the Triple Stimulus Voucher program, July 24, 2020.

Like Ma’s voucher program, the Triple Stimulus Voucher initiative is designed to stimulate consumption. In the long run, however, there are other important determinants of consumption other than income. The Taiwanese government would do well to heed Japan’s cautionary tale. In Japan’s “Lost Decade” of severe recession from 1991 to 2001, the Japanese government issued stimulus after stimulus to no avail. Experts argue that Japan’s spending patterns ultimately resulted in high levels of national debt, which would create an increased tax burden for younger generations.

But just because the claims of stimulating the economy may be dubious doesn’t mean the idea ought to be discarded. When deciding how Taiwan should protect its economy while optimizing return, the government needs to consider two factors: culture and finance.

Voucher programs have been shown to be less effective in countries with a strong savings culture. A recent Cathay Financial Holdings survey found that 42.4% of Taiwanese consumers chose to spend their vouchers on daily groceries. This means the vouchers were used to support basic needs in order to save more, rather than boosting consumption.

If consumers decide to use the vouchers to buy goods and services they would have bought regardless, and save the surplus spending power, then a stimulus program becomes essentially moot. Economists call this idea the “marginal propensity to consume” (MPC), which describes the proportion a person will spend for every dollar of income that person receives. In countries like Taiwan and Japan, the MPC is lower as savings rates are high, which makes cash stimulus or vouchers less effective.

Financially speaking, we estimate that the extension of the program to around 13,000 eligible diplomats and foreign residents with APRCs would cost an additional NT$26 million. If the government is determined to carry out such a program, it will receive an optimal return by targeting groups with the highest possible MPC.

Ironically, foreigners newly welcomed to the program represent an inefficient demographic to target. Since their incomes are generally higher, a small increase in income through the vouchers would result in only a small increase in spending. A plan more likely to accomplish the goals of the program would be to provide the vouchers to groups with lower average incomes, and a higher likelihood of investing locally.

Taiwan’s Southeast Asian migrant workers are a perfectly suitable target group for Taiwanese government investment. The voucher equals roughly 15% of the average monthly salary of migrant workers, meaning that they would be more likely to use the voucher to spend money they wouldn’t have otherwise spent.

Migrant workers are also more likely to shop in local stores. They are also more likely to purchase goods other than groceries because they usually eat with their employer. This also means that the increased consumption within Taiwan will stay in Taiwan. As British economist John Maynard Keynes argues, every dollar spent is another person’s income - keeping those dollars in Taiwan becomes crucial.

Politically, the voucher program could be perceived as a public relations stunt for Taiwan. If Taiwan’s goal is to improve its global reputation, expanding the program to diplomats makes sense. Nevertheless, extending the voucher program to migrant workers can be beneficial to Taiwan’s soft power initiatives relative to the necessary investment.

Migrant workers have untapped potential. Taking a long-run perspective, our own research shows that workers from Southeast Asia who chose to leave home are 34% more likely to invest in their children’s education. By supporting those who will empower their children (who are typically expected to work due to family income constraints), Taiwan can bolster bottom-up initiatives aimed at strengthening soft power in Southeast Asia outside of traditional top-down policy strategies.

Investing in blue-collar migrant laborers along with the diplomatic and APRC communities would not only improve Taiwan’s economy, but it could also solidify the country’s reputation as a progressive, inclusive nation of equals. We hope the government of Taiwan takes steps to include migrant workers in the next expansion of the voucher program.

Ellie Koepplinger is a Research Fellow at Taiwan NextGen Foundation, studying the economic returns of bilingual education in Taiwan. She is a recent graduate of UC Berkeley with a degree in Economics and Chinese.

Hafizha Dea Iftina is Research Fellow at Taiwan NextGen Foundation focusing on Taiwan’s New Southbound Policy. She graduated from NTU with an MA in Economics.

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