Taiwan’s Businesses Can Afford to Contribute More to Social Security

Taiwan’s Businesses Can Afford to Contribute More to Social Security
Photo Credit: CNA

What you need to know

Taiwan’s employers not only pay low wages to workers but also contribute little to the country’s social security. It is one of the lowest among high-income countries as a proportion of the economy.

After Taiwan’s government announced an increase of the minimum wage in October , the Chinese National Association of Industry and Commerce, one of the seven biggest groups representing Taiwanese businesses, immediately haggled over a reduction of labor insurance premiums that employers are legally required to pay.  

The current labor insurance premium is 10.5% of an employee’s gross salary, 7% of which is paid by employers. Business groups want their share to go down to 6%.

Other major business groups in Taiwan have echoed the sentiment. The National Association of Small and Medium Enterprises and General Chamber of Commerce said in January that the labor and health insurance premiums placed too much burden on employers.

Writing in support of businesses, Jou Jyh-bang, professor at the Graduate Institute of National Development at National Taiwan University, argued that the social insurance that employers need to pay — and their operating costs — will increase as the government lifts the minimum wage. Liu I-chun, professor at the College of Humanities and Social Sciences at Yuan Ze University made a similar claim.

When estimates released in October found that the labor insurance fund might face bankruptcy in 2026, professor Xin Bing-long warned that the government would need to print money, and taxes would need to be increased to top-up the fund, which will then lead to increases in prices and the costs being passed onto the consumer.

Taiwan’s business groups and economists aligned to them use the same fear mongering tactics by claiming that insurance premiums are too high and add too much to business costs — without elaborating. 

However, let’s take a look at the data to see what it really says about how muchTaiwan’s employers are contributing to the social safety net.

In contrast with those in OECD countries, Taiwan’s employers contribute little to social security in the form of labor insurance (Taiwan has been a “participant” of the organization since 2013 as Chinese Taipei).

The social security contributions for Taiwan in the chart below are calculated based on the labor, health, and pension premiums divided by the total labor cost of the average worker. 

Taiwan’s employers pay only half the amount that those in the best-performing OECD countries contribute, placing Taiwan in the bottom half of the countries in the chart.

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But this still does not tell the full story. The wages Taiwan’s businesses are paying to workers needs to be taken into account.

Taiwan’s wage share of GDP, or the total wages paid as a proportion of the economic output, is one of the lowest in comparison with many other high-income countries.

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Given the lower wages, it is natural that the social security contributions Taiwan’s businesses are making to the whole economy is lower. The chart below illustrates the phenomenon.

In 2019, the total social security contributions collected in Taiwan amounted to NT$1.18 trillion, or 6.25% of the GDP. This includes the social security contributions paid by employers into labor, unemployment, health and pension insurance schemes, along with those for private school teachers and staff, which would be about 3.2% of the GDP. 

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In addition, the chart below shows that the overall tax burden, including social security contributions, on Taiwan’s businesses as a proportion of GDP is not high in comparison with other high-income countries.

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In general, Taiwan also has one of the lowest tax burdens among high-income countries. One reason why that is the case is the low, stagnating wages.

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The other reason is Taiwan’s businesses are collecting higher-than-usual profits for themselves in comparison with those in other high-income countries. Taiwan’s businesses earn one of the highest profit shares as a proportion of GDP. 

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The chart below reveals that in countries where businesses earn lower profit shares, the overall tax burden is higher. Taiwan’s businesses earn the highest profit share among this set of countries, and the overall tax burden in Taiwan is also the lowest.

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So what does this mean for the expenditure that should be spent to improve social security in Taiwan? 

Because of the low tax burden (or the tax and social security contribution revenue) in Taiwan, the expenditure that can be spent on the social protection needs of Taiwan’s workers is also one of the lowest internationally.

In the chart below, one can see that there is greater social protection expenditure on social security in high-income countries where businesses earn lower profit shares. Taiwan is not one of those countries, meaning that its government spends at one of the lowest levels in the world on social security.

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To sum up, Taiwan’s employers not only pay low wages to workers but also contribute little to the country’s social security. It is one of the lowest among high-income countries as a proportion of the economy.

At the same time, its businesses are one of the most profitable around the world. So what does it really mean that Taiwan’s funds for labor and health insurance are on the verge of bankruptcy?

Clearly, Taiwan’s businesses, who have been earning higher profits than usual since the mid-1990s, are largely to blame. Their avarice has led to a depression of overall wages and as a result, the premiums paid into the insurance funds — not only by businesses but also workers. 

To fix this problem, the one quick method is to stop businesses from making excessive profits, allowing workers to earn more and more contributions to be made to the funds for labor and health insurance.

When the opposition Kuomintang (KMT) legislator William Tseng blamed President Tsai Ing-wen for not having a plan for labor insurance reform, the reality is that the problem had been exacerbated under the KMT presidency of Ma Ying-jeou (2008-2016). President Tsai has been trying to undo the damage by increasing the minimum wage.

Instead of pointing the finger at someone else, the KMT should be holding a mirror to themselves. 

Not increasing the minimum wage is the problem

Business groups’ complaints about high premiums are frivolous. Both the wages and insurance premiums that Taiwan’s businesses pay as a proportion of GDP are low enough. 

Their complaints imply that they do not want to pay Taiwan’s workers fairly, despite their hard work to help businesses profit excessively, and protect their social needs. Instead, they want to continue earning more profits than companies in other high-income countries.

As such, Taiwan’s businesses are being unethical and disingenuous by using the increase of the minimum wage as an excuse to wriggle out of paying insurance premiums. From the data above, it is clear that they can afford to raise the pay of their workers.

It is incorrigible that Taiwan’s businesses are pulling the wool over the eyes of policymakers by claiming that the current labor and health insurance premiums have become too high because of the increase of the minimum wage.

Economists have to stop spreading misinformation about minimum wage

Some economists and academics are also being irresponsible by propounding economic theories designed to benefit businesses. The adjustments of the minimum wage in Taiwan have little to do with the increase in unemployment or consumer prices, according to analysis, and this article has also used data to explain how businesses are paying very low wages and insurance premiums. 

Economists who continue to perpetuate these baseless myths are spreading misinformation to help businesses, while doing little for Taiwan’s economy. 

The low tax burden on Taiwan’s businesses have led to grave repercussions. Research has shown that higher tax burdens promote economic growth, improve the business environment, and enhance a country’s competitiveness and innovation. They also improve the quality of life, well-being and happiness of citizens in a society as well as increase birth rates and create a more inclusive society, and importantly, reduce corruption while increasing government effectiveness. 

The high profits and low tax burden in Taiwan and consequently, the lack of social protection for its citizens and workers, are detrimental for the economy, society and governance as a whole.

There is a duty for economists to analyze the data with a view of reinvigorating economic and social well-being, instead of regurgitating economic myths that are outdated, irrelevant, and not based on data; and media outlets have a responsibility to carry articles that have stronger grounding in data-based analysis. 

Taiwan should no longer tolerate stonewalling from Taiwan’s business groups and the economists and academics in cahoots with them. The hoarding of profits is sabotaging Taiwan’s potential. Because of how low Taiwan’s wages already are, minimum wage increases will provide greater economic prospects for Taiwan’s future, its society and future generations. 

It is time to stop being held hostage by unethical businesses. 

READ NEXT: NT$25,250 Is Still Not Enough for a Basic Standard of Living in Taiwan

TNL Editor: Bryan Chou, Nicholas Haggerty (@thenewslensintl)

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