Tsai’s Government Failing Taiwan’s Workers with Cruel Minimum Wage Increase

Taiwan’s Basic Wage Deliberation Committee announced last Friday a proposal to increase the country’s monthly minimum wage from NT$21,009 (US$694) this year to NT$22,000 (US$726) next year. The committee comes under the Ministry of Labor (MOL).

Following the committee’s announcement, the MOL said this week that the proposed wage increment would increase employers’ spending by NT$16.29 billion (US$538 million), including via premiums paid to labor insurance, employment insurance and national health insurance.

This is much lower than what business leaders had previously claimed the increase would cost them – a director of the Chinese National Federation of Industries, Ho Yu (何語), had exaggerated the amount, claiming costs to employers would increase by nearly NT$30 billion a year.

But as the MOL has revealed, the expected increase would only be about half of what Ho had imagined – the costs to businesses would be much less significant.

Also, as pointed out in a previous article, one company Pxmart had announced in June that it was aiming for an increase its annual sales from about NT$101 billion last year to more than NT$200 billion this year.

Seen from this perspective, the projected NT$16.29 billion increase in business costs due to the proposed increase in minimum wage would only make up 8 percent of the expected annual sales of just one company. If so, you can imagine that for all companies in Taiwan, this NT$16.29 billion is barely a drop in the ocean.

Businesses can definitely more than afford to increase the minimum wage to NT$22,000. In fact, they can and should go even further.

In 2015, Taiwan’s Gross Domestic Product (GDP) was NT$16,759 billion. The wage share – or the percentage of GDP that went to wages – was 43.97 percent. The wage share of Taiwan’s workers has dropped from 51.04 percent in 1992 to only 43.97 percent in 2015 – or a drop of 7.07 percentage points.

However, businesses have been reaping higher and higher profits – the profit share of businesses increased from 29.28 percent to 35.08 percent over the corresponding period.

Where the Domestic Factor Income – the wage share and profit share combined – has stayed largely the same from 80.31 percent in 1992 to 79.06 percent in 2015, this means that the loss of the wages of Taiwan’s workers has directly gone to the profits of businesses.

In effect, employers have had to take depressing wages so companies could earn higher profits since 1992.

A 43.97 percent wage share in 2015 meant that of the GDP, only NT$7,369 billion of the GDP went to Taiwan’s workers.

Seen from this perspective, the projected NT16.29 billion in costs under the proposed minimum wage would make up only 0.2 percent of the wages of Taiwan’s workers in 2015. With Taiwan’s GDP projected to increase from NT$16,759 billion in 2015 to NT$17,788 billion in 2018, the projected increase in costs would be even less significant.

In fact, where the wage share fell by 7.07 percentage points from 1992 to 2015, but where the projected costs would only recover 0.2 percent, the proposed minimum wage increase would barely help to alleviate the plight of Taiwan’s workers.

The impact the higher minimum wage will have on businesses is negligible.

Moreover, with the Directorate General of Budget, Accounting and Statistics (DGBAS) projecting that Taiwan’s GDP would be expected to grow by 2.28 percent in 2018 – or the highest growth in four years, the economic growth will be more than cover the increase costs for businesses due to the minimum wage.

Taiwan’s wage share would in all likelihood remain the same or even continue to fall.

This is not helped by the fact that Taiwan’s median wage actually fell last year. Taiwan’s workers are becoming worse off.

In nominal terms, the portion of GDP that has gone to the wages of workers has increased from NT$2,866 billion in 1992 to only NT$7,369 billion. However, the profits of companies have increased NT$1,644 billion to NT$5,879 billion. In other words, while profits have grown by 3.58 times, wages have only grown by 2.57 times – the profits of businesses have been growing faster than wages. If this trend continues, Taiwan’s profits would overtake wages in less than two decades.

In other G20 countries, their wage share is higher than Taiwan’s – 49 percent in 2011 as compared to Taiwan’s 43.97 percent. In fact, in Australia, Canada, Sweden and the United Kingdom, the wage share was above 60 percent, and in Japan and the Netherlands, the wage share was even higher – at 65 percent.

If Taiwan’s wage share is to return to the 51 percent seen in 1992, instead of the NT$7,369 billion of GDP that went to the wages of workers in 2015, the percentage of GDP that went to workers should be NT$8,554 billion instead – or NT$1,185 billion more.

If Taiwan’s wage share was to be as high as Japan or the Netherlands, Taiwan’s workers should be earning at least NT$10,055 billion, or NT$2,686 billion more.

In other words, Taiwan’s workers are possibly losing between 16 percent and 35 percent of their wages.

Seen in this light, when it was reported that the Basic Wage Deliberation Committee initially reached a consensus to increase the minimum wage to NT$27,711 – by 30 percent – this was the right move to bring the wages of Taiwan’s workers back to parity, to catch up for the loss in their wages since 1992.

Taiwan’s government has to take strong action to restore the wages of Taiwan’s workers so that Taiwan’s wage share can go back up to 50 percent – or to the level that other advanced countries are at. Any less and the government is reneging on its responsibility to the workers.

This is not to say that Taiwan’s government should immediately hike minimum wage by 30 percent, but the government should at least seek to come to a middle ground. The Basic Wage Deliberation Committee’s proposal of 4.72 percent is hardly a middle ground but would instead continue to mollycoddle businesses.

As explained, the South Korean government has taken the bold step to protect its workers by increasing the country’s minimum wage by 16 percent next year – to 7,530 won (US$6.60) per hour. Labor groups had proposed a 55 percent increase while business groups only wanted 2.4 percent. The South Korean government adopted a centrist approach and increased the minimum wage by 16 percent.

In Taiwan, labor groups proposed 30 percent while business groups, as represented by the Republic of China General Chamber of Commerce Vice Chairman Hsu, wanted only 2.14 percent. The Basic Wage Deliberation Committee settled on 4.72 percent, which favored businesses more than workers.

Seen in the perspective where Taiwan’s workers have lost 7.07 percentage points of their wages – as a percentage of GDP – since 1992, and are losing out on as much as 21.03 percentage points of their wages when compared to advanced countries like Japan and the Netherlands, a 4.72 percent increase in minimum wage is unacceptable.

I had a chat with a physician and told him that minimum wage would be increased to NT$22,000 next year. He was shocked and asked me, “how can that be enough for anyone in Taiwan?”

So I told him that the labor groups have proposed increasing the minimum wage to NT$27,711. Still, he felt that this is inadequate. I explained to him that the labor groups have come out with this minimum wage figure that is the bare minimum that they have calculated is necessary for people to have the most basic livelihood in Taiwan – but even then, business leaders have rejected this proposal.

But again I ask, which business leader would be willing to live on only NT$22,000 a month? If even a business leader would be unwilling to do so, can he or she expect their workers to bear with only NT$22,000 a month?

As the Buddhist saying goes, “Hurt not others in ways that you yourself would find hurtful.” Why then would we do unto others what we would not do unto ourselves? In our good conscience, is this fair?

As it is, Taiwan’s businesses are earning profits at record levels today. They have accumulated vast surpluses while the poorest 20 percent of households do not earn enough to make ends meet.

Businesses may claim that higher wages would impact on their profits and lead to lower economic growth. But the facts do not support their claim. Taiwan’s economic growth was at its highest until the late 1980s, before growth started to decline for the last 30 years. The period in which Taiwan’s economic growth was high was also when Taiwan’s wage share was high, but since wage share started to decline from the early 1990s, Taiwan’s economic growth has also gone south.

In fact, low wages can lead to low or even zero productivity, and the reduced demand will lead to dampened domestic consumption which will impact on economic growth, as I pointed out in the previous article. With the exception of 2010, Taiwan’s labor productivity has seen low, or even zero and negative growth since 2008. Low wages also lead to lower investment in the workers and their children, which will lead to lower cognitive function and less effective workers.

The government has given Taiwan’s businesses too much latitude, sinking Taiwan into a state of stagnation for more than a decade.

It is time to give Taiwan’s workers a chance, and to take the bold step to improve the plight of our workers, so that the citizens and residents of Taiwan can be given the responsibility of growing Taiwan together.

Read more:

Taiwan’s Grim Truth: Vicious Low Wage, Low Productivity Cycle Crippling Workers and Companies
Curing the ‘Ghost Island’: Why Taiwan Needs Basic Income
PODCAST: Can the Universal Basic Income Save Asia from the Automation Cliff?

Editor: Edward White