In the last three decades, Lithuania and Estonia have been raising their minimum wages rapidly, so much that their minimum wages have caught up with Taiwan. Besides, Taiwan’s stagnated wages have led to its economic growth stagnating, with Lithuania and Estonia catching up. At this rate, Taiwan will be at a risk of having the lowest minimum wage among the advanced countries in just a few years.

Taiwan’s Basic Wage Deliberation Committee under the Ministry of Labor will be meeting on 8th September to discuss the magnitude of raising Taiwan’s minimum wage. However, will the committee recommend increasing the minimum wage to a level that satisfies Taiwan’s cost of living, and enable it to keep up with Lithuania and Estonia?

In 1997, Lithuania and Estonia’s minimum wages were only 23% and 11% that of Taiwan’s. However, Taiwan then started suppressing its minimum wage growth, leading to Lithuania and Estonia growing to become on par with Taiwan today.

Lithuania’s monthly minimum wage has grown to NT$28,589 this year, having surpassed Taiwan’s NT$26,400. Estonia’s minimum wage has grown to NT$24,675 and will likely overtake Taiwan next year.

Data source: Taiwan, other countries

Because of how fast Lithuania and Estonia have been growing their minimum wages, their median wages have also been growing rapidly, and have in fact overtaken Taiwan.

In 2001, their median wages were only about 25% to 30% that of Taiwan. Today, their median wages have grown to over NT$46,500 a month, as compared to Taiwan’s NT$42,167. (Note: Taiwan’s median wage is only reported starting from 2012, but it has been growing at a similar rate as the average regular wage. As such, the median wage data used in this article’s charts prior to 2012 is based on the average regular wage to give an indication of the general trend relative to Lithuania and Estonia.)

Data source: Taiwan, other countries. Note (1): Taiwan’s median wage is only available from 2012. For the data prior to 2012, the charts in this article uses average regular wage as a proxy to give a general indication of the trend as their wage levels are similar. Note (2): The median wages of other countries are derived by multiplying the minimum wage with the minimum wage-to-median wage ratio.

Similarly, because of how fast Lithuanian and Estonian minimum wages have been growing, their average wages have also surpassed that of Taiwan.

In 2000, their average wages were only about a quarter to a third that of Taiwan’s. Today, their average wages have risen to over NT$65,000 a month, as compared to Taiwan’s NT$57,628.

Data source: Taiwan, other countries

It is not just Lithuania and Estonia which have been growing their wages rapidly.

South Korea, New Zealand, and Australia used to have GDP per capita closer to that of Taiwan. Prior to the mid-2000s, South Korea’s GDP per capita and minimum wage were in fact lower than Taiwan.

However, while these countries have grown their minimum wages rapidly, Taiwan instead suppressed its minimum wage. In the chart below, we can see how the minimum wages of Australia, New Zealand, South Korea, Lithuania and Estonia have all trended upwards at a similar pace, while Taiwan’s minimum wage flatlined.

Prior to the mid-1990s, Taiwan’s minimum wage was however growing at a similar pace as these countries, but it decided to suppress its minimum wage and has never recovered since.

The same trend can be seen when comparing the median wages of these countries. The median wages of these countries have been trending upwards at a similar pace, while Taiwan stagnated.

Again, we can see that prior to the mid-1990s, Taiwan was growing at a similar pace as these countries, but thereafter its median wage stagnated so badly, that South Korea overtook it in the early-2000s, and Lithuania and Estonia also overtook it by the late-2010s.

The same can be seen when comparing average wages, where the other countries are trending similarly upwards, while Taiwan stagnated. Again, South Korea overtook Taiwan in the early-2000s, and Lithuania and Estonia overtook Taiwan in the late-2010s.

Prior to the mid-1990s, Taiwan’s minimum, median and average wages were growing at a similar pace as these countries, and would have continued doing so, if successive governments since then did not suppress Taiwan’s minimum wage growth.

Due to the rapid growth of their minimum wages, the total wages per capita in the economies of these countries have also been growing rapidly, and are again trending upwards at a similar pace, as can be seen in the chart below.

However, Taiwan’s total wages instead stagnated and fell behind.

Data source: Taiwan, other countries. Note: The relevant charts in this article charts the data up to 2019 to give a general trend prior to the Covid-19 disruptions to the economy.

As Taiwan’s wages stagnated, its household consumption expenditure also stagnated, and so did its domestic profits.

In the chart below, the non-manufacturing profits of these countries are compared, to remove the effect of the manufacturing sector which is geared predominantly towards overseas customers instead of domestic demand. Again, we can see that the non-manufacturing profits per capita of the other countries have been growing at a similar upward pace, while that of Taiwan remains stagnated. Prior to 2000, however, Taiwan was actually growing at the same upward pace as the other countries before it lost momentum.

South Korea’s non-manufacturing profits are lower than Taiwan, which indicates how Taiwan’s businesses are earning higher profits than they need to relative to Taiwan’s wages and the economy. Even so, South Korea’s profits showed a general upward trend, while Taiwan visibly stagnated.

If Taiwan had continued growing as it did in the 1990s, the dotted red line shows how Taiwan’s non-manufacturing profits could have continued growing. In other words, Taiwan’s domestic businesses are losing as much as 40% of the profits they could have potentially earned, as compared to if wages and household consumption expenditures kept up.

It should be noted that while the wages of the other countries are increasing rapidly, this hasn’t reduced their manufacturing potential. For example, the manufacturing profits per manufacturing worker of South Korea and New Zealand have been increasing at the same pace as Taiwan. In fact, the manufacturing profits of South Korea have been increasing even more rapidly than Taiwan’s, which suggests that suppressing minimum wage to benefit the manufacturing sector is not the most sensible strategy.

Instead, because the wages of South Korea and New Zealand continued to grow, the profits of their domestic businesses have also continued to grow alongside their maufacturing profits, thereby allowing their overall economies to grow faster than Taiwan. On the other hand, Taiwan’s manufacturing profits grew but its wages and domestic profits stagnated, leading to Taiwan’s economy falling behind.

Data source: Manufacturing profits (Taiwan, other countries), employment in manufacturing (Taiwan (1), (2); other countries)

Indeed, because of how fast the wages and domestic profits of the other countries have been increasing, their GDP per capita has also been increasing rapidly, while that of Taiwan remains stagnated.

As can be seen in the chart below, the GDP per capita of these countries are trending at a similar upward pace, while Taiwan’s GDP per capita stagnated and fell behind.
Wages are a key driver of economic growth because they determine the level of domestic consumption, which in turn determines the level of domestic profits, and thereby economic growth. The domestic sector comprises a much larger segment of the economy than the manufacturing sector, so if domestic profits grow faster, economic growth will be faster as well.

But because Taiwan’s domestic profits stagnated, its economy also stagnated relative to these countries.

As indicated  the chart below, Taiwan's GDP per capita used to be growing as quickly as the other countries prior to 2000. If Taiwan’s economy had continued growing at a similar rate as these countries, Taiwan’s GDP per capita should not just be at the same level as South Korea, but should be even higher (as shown by the dotted red line).

In other words, Taiwan lost its economic potential because it suppressed its wages.

Comparing between the countries allows us to better see how suppressing the minimum wage can lead to wages being suppressed at other levels, and thereby the economy stagnating.

In the chart below, we can see that in 1995, Lithuania’s minimum wage (dotted yellow-orange line) was close to that of Estonia (light blue line). Lithuania then decided to raise its minimum wage faster leading to its median wage rising faster as well. However, from 1999 to 2002, Lithuania stopped growing its minimum wage, leading to its median wage stagnating as well. In the meantime, Estonia continued growing its minimum wage at a faster rate, leading to its median wage growing faster as well. As a result, Estonia’s minimum and median wage overtook Lithuania.  

It was only from 2018 when Lithuania started increasing its minimum wage more rapidly that its median wage also started increasing more rapidly, and thereby enabled it to close the gap, and surpass Estonia.

A similar situation can be seen when comparing Estonia and Poland.

Up until 2001, Poland’s minimum wage was higher than Estonia, and growing at a similar pace. However, from 2001 to 2007, Poland suppressed its minimum wage growth, leading to its minimum wage and then its median wage falling behind Estonia by 2007.  
In the early-2010s, Poland’s minimum wage was also growing at a slower pace, which led to its median wage also growing more slowly than Estonia. Meanwhile, Estonia’s minimum wage was growing at a faster rate, allowing its median wage to grow faster as well.

In 2019, Poland finally realized that growing its minimum wage too slowly was causing it to fall behind Estonia, so it started growing its minimum wage more rapidly, which has allowed its median wage to grow rapidly again, to again be at the same pace as Estonia. However, because Poland’s median wage lost its growth in the 2000s and early-2010s, its median wage has still been unable to catch up with Estonia.

Due to the rapid growth of its minimum wage in recent years, Poland’s monthly minimum wage of NT$27,670 this year has also grown to surpass that of Taiwan.

When comparing Taiwan and New Zealand, we can again see a similar situation.

Taiwan used to have a similar minimum wage as New Zealand in 1984. In the late-1980s, New Zealand decided to spike up its minimum wage, leading to its median wage rising dramatically as well. From 1988 to 1994, New Zealand however suppressed and then stopped growing its minimum wage, leading to its median wage stagnating. During this period, Taiwan decided to raise its minimum wage more quickly from 1988 to 1997 to close the gap with New Zealand, and leading to its median wage growing faster as well.

However, thereafter, New Zealand started allowing its minimum wage to grow quickly again, leading to its median wage rising quickly as well. On the other hand, Taiwan suppressed its minimum wage, leading to its median wage being suppressed, and even dropping below New Zealand’s median wage by 2007.

Today, New Zealand’s minimum wage has grown to nearly three times that of Taiwan’s, even though their minimum wages were similar in 1984.

In the three comparisons above, we can see that the median wage tends to follow that of minimum wage growth. When the minimum wage in these countries rises rapidly, their median wages will rise rapidly as well. But when the minimum wage grows slower, then the median wage grows slower.

As such, minimum wage growth is a key determinant as to how fast median and total wages in a country grow, and total wages are a key factor as to how fast the economy can grow.

Indeed, when comparing Estonia and Lithuania, we can see that in 1995, both of these countries had similar total wages per capita and GDP per capita, and were growing at the same pace up until 1998. However, when Lithuania stopped growing its minimum wage from 1999 to 2002, this led to its total wages falling behind that of Estonia, with its GDP per capita following suit.

After Lithuania started growing its minimum wage again, its total wages and GDP per capita continued growing at the same pace as Estonia, but it has not been able to recover from the loss in the early-2000s, and has yet to close the gap with Estonia.

If Lithuania had not stopped growing its minimum wage in the early-2000s, its GDP per capita could have been on par with Estonia today.

Comparing Estonia and Poland, it could be seen that up until 2000, their total wages per capita and GDP per capita were growing similarly. However, when Poland suppressed its minimum wage from 2001 to 2007, its total wages stagnated, pulling its GDP per capita down with it. Meanwhile, Estonia’s GDP per capita growth continued to escalate as its total wages continued growing more rapidly.

Up until 2019, Poland’s minimum wage was still growing more slowly than Estonia, and its GDP per capita has thus not been able to catch up with Estonia.

Comparing South Korea and New Zealand, it could be seen that as their total wages per capita have been increasing at the same pace since 1998, their GDP per capita have been increasing at the same pace as well (see the similar gradients in the slopes of their lines in the chart below), which again shows how a similar pace of wage growth can lead to a similar pace of economic growth.

Comparing Taiwan and South Korea, Taiwan used to have higher total wages per capita and GDP per capita than South Korea, and they were growing at a similar pace as South Korea’s up until the early-1990s (see the similar gradients in the slopes of their lines in the chart below).

However, Taiwan suppressed its minimum wage growth from 1997, leading to both its total wages and GDP per capita sharply stagnating in 2000. Taiwan’s total wages and GDP per capita saw another dip after the 2008 economic crisis, and thereafter fell behind South Korea.

Last month, the chairperson of the Third Wednesday Club, Lin Por-fong, asserted that the minimum wage should only grow in line with GDP growth, and that if Taiwan’s GDP growth does not exceed 2%, that the minimum wage increase should not be raised by more than 2%. But based on the data, this would be a counterintuitive way to grow wages. The evidence shows that suppressing wage growth only holds down economic growth, which traps Taiwan in a vicious cycle and causes it to fall behind other countries, as it has.

Clearly, it is by raising the minimum wage faster that will enable Taiwan’s economy to grow faster, and benefit businesses.

When comparing the total wages per capita, we can see in the chart below that in the 1990s, Taiwan’s total wages per capita were growing quickly while New Zealand stagnated, and thus at that time Taiwan was on its way to reach New Zealand’s total wage level.

However, in 1997, Taiwan suppressed its minimum wage growth while New Zealand then rapidly increased it in 1999, resulting in Taiwan losing the ability to catch up with New Zealand. If Taiwan’s total wages per capita had continued growing as it did in the early-1990s or as New Zealand and South Korea have, it could have potentially grown to being as high as New Zealand today (see the dotted red line). However, not only did it not, it even fell behind South Korea.

In the chart below, we can also see that when New Zealand stopped growing its minimum wage and suppressed it from 1991 to 1999, its total wages per capita fell behind. Taiwan also stopped growing its minimum wage from 1997 to 2006, and its total wages per capita also fell behind at a similar pace as New Zealand had. As such, not growing and suppressing the minimum wage has a similar impact on the total wages for both countries.

From 2007, Taiwan started raising the minimum wage again but because the minimum wage growth was intermittent and the minimum wage still did not grow in some years, this led to Taiwan’s total wages continuing to fall further and further behind.

Due to Taiwan’s total wages stagnating, this led to its GDP per capita stagnating and falling behind as well.

If Taiwan’s GDP per capita had continued to grow at the same pace as the early-1990s or as New Zealand and South Korea have, it would have grown to be higher than South Korea and closer to New Zealand today (see the dotted red line in the chart below).

Taiwan’s total wages stagnated because Taiwan’s minimum wage stagnated.

If Taiwan’s minimum wage had continued to increase at the same pace as in the early-1990s or at the same pace of New Zealand and South Korea, Taiwan’s minimum wage would have grown to be over NT$60,000 today, to be higher than South Korea, and almost on par with New Zealand (see the dotted red line in the chart below).

And if Taiwan’s median wage had grown at the same pace as it did or as New Zealand and South Korea have, Taiwan’s median wage could have grown by about NT$2,000 annually to over NT$80,000 today, and would have been higher than South Korea, and closer to that of New Zealand (see the dotted red line in the chart below).

In general, as wages rise, consumer prices rise as well. But when wages rise fast enough to overtake price increases by a greater margin, this would still lead to higher purchasing powers.

Australia, New Zealand, South Korea and Lithuania have been increasing their minimum and median wages faster than Taiwan, and thus their workers have higher purchasing powers as well.

In the chart below, we can see that Australia’s consumer prices are about 40% higher than Taiwan, while its consumer prices including rent are about 60% higher. However, Australia’s minimum and median wages are over 200% higher than Taiwan’s, signifying a much higher purchasing power than Taiwan.

It is the same for the other countries where their minimum and median wages are much higher than Taiwan, while their consumer prices are not as high, which thus enable these countries to have higher purchasing powers. Lithuania’s consumer prices are actually lower than Taiwan’s but its minimum and median wages are over 8% higher than Taiwan, again indicating higher purchasing powers than Taiwan.

As such, because Taiwan’s minimum and median wages have been growing too slowly, this prevented wages from growing even faster than consumer prices, and thereby dampening the purchasing powers of Taiwan’s workers.

Data source: Consumer prices (Numbeo’s Cost of Living Comparison)

If Taiwan’s minimum wage should be pegged to its consumer prices commensurate with these countries, Taiwan’s minimum wage should be between NT$30,000 to NT$40,000 when compared with Lithuania and South Korea, and about NT$57,000 when compared with Australia and New Zealand.

Taiwan’s median wage should be about NT$50,000 to NT$55,000 when compared with Lithuania and South Korea, about NT$75,000 when compared with New Zealand, and close to NT$100,000 when compared with Australia, if it is to be comparable with its cost of living.

However, as it is, Taiwan’s minimum wage is only NT$26,400 today, and its median wage was only NT$42,167 in 2021.

Data source: Numbeo Cost of Living Index by Country

As such, Australia and New Zealand have one of the highest minimum wages in the world, and therefore their minimum wages are also one of the most adequate for the cost of living in their countries.

In Lithuania, Estonia and Poland, they are emerging economies where their minimum wages are less adequate for their countries’ cost of living, and thus they have been raising their minimum wages rapidly in order to enable their wages to attain greater adequacy.

Not only that, Lithuania and Poland have similar minimum wages as Taiwan today, but their consumer prices are lower. Poland’s consumer prices are 15% lower than Taiwan. This means that Taiwan’s minimum wage is far less adequate for its cost of living in comparison to these countries.

In order to achieve wage adequacy, Lithuania announced that it would increase its minimum wage by 10% next year to NT$31,447. Poland’s ruling party announced its plan to increase the country’s minimum wage by 20% next year to NT$33,051. Estonia is also implementing a four-year plan which could see its minimum wage increase by over 50% to nearly NT$40,000 by 2027.

Based on the expected minimum wage increase in Taiwan, it might only increase to at most NT$27,653.

Not only will Taiwan’s minimum wage continue to be inadequate for its cost of living, it will also be increasing too slowly to catch up with the other countries.

Manufacturing countries have tended to suppress their minimum wages on the thinking that this could benefit their manufacturing sector, but over the last year, several of these countries have realized the negative impacts of suppressing wages to their economies, and have taken steps to dramatically raise their minimum wages.

This year, Germany raised its minimum wage by 22.2%. Last year, Ireland implemented a four-year plan which could see its minimum wage increase by 30% by 2026. Under Singapore’s six-year plan, its resident cleaners would see their minimum wage increase by 84% by 2028, and its security guards would see their minimum wage increase by 145% over the same period. We saw above how Lithuania and Poland will be increasing their minimum wages by 10% to 20% next year, and Estonia could raise it by about 50% by 2027.

As this article illustrates, the median and average wages in a country tend to follow its minimum wage growth. However, because Taiwan’s minimum wage has stagnated since 1997, its median and average wages also stagnated. On the other hand, in Australia, New Zealand, South Korea, Lithuania and Estonia, because their minimum wages have been increasing more rapidly, their median and average wages have also risen more rapidly than Taiwan.

Faster minimum wage growth leads to faster total wage growth in the economy, which leads to faster economic growth, but because Taiwan’s total wages stagnated, its economic growth stagnated as well. On the contrary, the economies of the other five countries grew much faster because their total wages grew much faster.

Faster minimum wage growth also allows wages to grow much faster than consumer prices, leading to purchasing powers increasing faster. As such, the wages of these countries are much more adequate for their country’s cost of living, while it is much less adequate in Taiwan. Yet, for emerging economies like Lithuania, Estonia, and Poland, they have been increasing their minimum wages rapidly in order to enable their wages to become even more adequate for their cost of living, while Taiwan is still growing its minimum wage slowly.

It seems that Taiwan’s government does not have a recognition of the seriousness of Taiwan’s economic and wage stagnation, nor do any of the political parties running for next year’s presidential election. None of them have proposed a target to raise Taiwan’s minimum wage to, except for the New Power Party which advocated in 2020 that Taiwan’s minimum wage should reach NT$31,309 by next year.

If Taiwan’s minimum wage continues to be raised so slowly, Taiwan will have the lowest minimum wage among the advanced countries in just a few years. On the contrary, if Taiwan’s minimum wage is to be raised more rapidly, this could enable its economy to recover and catch back up with other powerful countries in the world.

If the Basic Wage Deliberation Committee meets on 8th September and decides on a small increase in Taiwan’s minimum wage, this would only lead to Taiwan’s economy stagnating further. At the upcoming presidential and legislative elections in Taiwan next year, if no political parties propose clear targets to uplift Taiwan’s minimum wage, it also indicates their lack of awareness of the underlying issue of Taiwan’s economic stagnation, and their lack of regards for Taiwan’s voters.

READ NEXT: 20 Reasons Why Hiking the Minimum Wage Is Good for Taiwan (Part 2)

TNL Editor: Kim Chan (@thenewslensintl)

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