It's Time to Return Taiwanese Workers What They Rightfully Earn

It's Time to Return Taiwanese Workers What They Rightfully Earn
Photo Credit: Denis Bocquet @ Flickr CC BY 2.0
What you need to know

Business groups simply do not want to show any respect when it comes to raising their workers’ wages, and it's time to start protecting workers in Taiwan.

Taiwan’s wages are low and the recent proposal to increase Taiwan’s minimum wage to NT$22,000 (US$730) would do little to improve the livelihood of Taiwan’s workers.

Last month, the Basic Wage Deliberation Committee met and proposed to increase Taiwan’s minimum wage from NT$21,009 (US$697) this year to NT$22,000 (US$730) next year – the committee meets in the third quarter of every year, where representatives from the government, businesses and labor groups discuss whether to increase the minimum wage. The committee is convened by the Ministry of Labor (MOL).

Theoretically, this tripartite arrangement should be applauded for wanting to bring the different groups together to try to achieve a consensus. But in practice, business groups have boycotted the meetings halfway through. It happened last year. It happened again this year. These business groups simply do not want to show any respect when it comes to raising their workers’ wages.

This year, labor groups have proposed to increase minimum wage to NT$27,711 (US$919), and where initially the Taiwan Confederation of Trade Unions Chairman Chuang Chueh-an (莊爵安) said that the committee had agreed to this proposed increase, the agreement fell through and Minister of Labor Lin Mei-chu (林美珠) announced that the committee would settle for NT$22,000.

If minimum wage had increased under the labor groups’ proposal, minimum wage would have increased by 30 percent. The committee’s proposal however would only increase minimum wage by 4.72 percent. On the other end, business groups wanted 0 percent, while Republic of China General Chamber of Commerce Vice Chairman Hsu Shu-po (許舒博) – also from the business groups – suggested only 2.14 percent.

Lin revealed that labor groups were disappointed by the decision but grudgingly accepted the proposal. Was it due to the puerile boycott by the business groups?

But the business groups cannot keep throwing their toys out of the cot. What have they done to protect the livelihoods of the workers in Taiwan?

The NT$22,000 minimum wage harks back to 2008. For many years, the Taiwanese have kept thinking that Taiwan’s minimum wage is already NT$22,000, but it is revealed now that minimum wage is not even NT$22,000.

In fact, since the Kuomintang (KMT) government introduced the Economic Power-Up Plan in 2012 – where the government said it would subsidise the wages of new college graduates by NT$22,000 to encourage businesses to hire them – with the intention to reduce unemployment, the inadvertent effect has been that with the NT$22,000 de facto minimum wage for college students in place, businesses instead took to depressing the wages of college graduates. (The subsidy is actually NT$26,190 but became only NT$22,000 after deductions for labor and national health insurance.)

Associate Professor Huang Chih-lung wrote in her book, “New Life Courses, Social Risk and Social Policy in East Asia,” that, “the average salary for newly hired post-secondary graduates has not risen: in 2000, it was NT$28,016, and by 2011 it had dropped to NT$26,577.” The average salary rose by less than NT$1,500 for those completing graduating school and “the actual purchasing power of the starting salary of university graduates decreased from NT$29,115 in 2000 to NT$24,842 in 2011.” In fact, as Hu Meng-yu (胡孟瑀), head of the 95 Youth Labor Union, pointed out, real starting salaries have actually declined over the last 16 years.

The side effect of the NT$22,000 policy – as it is widely known as now – resulted in businesses taking workers for granted and suppressing the wages of workers to as close to the minimum wage as they can, while businesses grew their own profits.

The starting average salary for new university graduates of NT$28,116 last year is only NT$2,000 higher than 2008’s NT$26,190 wage subsidy, and this subsidy was almost 10 years ago. Not only that, the starting salary of NT$28,116 last year was the first time the starting salary is higher than in 2000, when it was NT$28,016 – or in other words, the starting salaries of new university graduates only caught up after 16 years.

Huang explained: “The strategies facilitating youth transition to adult stage in Taiwan not only have eroded the basis of equality but also provided no social protection for Taiwan's educated youth. [...] There are wage subsidy policies for employers but, without collective bargaining and compensatory social policies, recent graduates have difficulty in escaping from low-paying part-time jobs.”

Yet, without strong collective bargaining power in Taiwan as labor unions learn to organize themselves more effectively, the government needs to ensure that minimum wage is adequate to compensate workers for their labor. The minimum wage has to be much higher so that even as businesses would depress wages, there would be a limit to how much they can do so.

Prices were lower in 2008 and businesses depressed wages to earn high profits; but with higher prices today and the continued depression of wages, the profits of businesses is certainly higher, as borne out by the statistics. There is absolutely no reason why minimum wage cannot go above, or even much higher, than NT$22,000.

Since the early 1990s, when Taiwan’s labor productivity grew, the real average earnings of Taiwan’s workers have not kept up with the growth, but have instead stagnated. As professors Lin Chien-fu and Lu Hsin-chan have shown, “the gap for saving – between the nominal GDP per capita and individual consumption – [has] become wider apart as companies withhold more and more cash earnings.”

In effect, workers have been putting in more and more effort, only to be paid lesser and lesser for the work they are doing. As such, businesses have been forfeiting the wages of workers since the early 1990s – Taiwan’s businesses have been withholding what workers should earn for the businesses’ own profits instead. In fact, the profit share of businesses have edged up since 1990 while for workers, the money that goes into their pocket has shrunk.

From 2006 to 2013, Taiwan was the only country in the Asia Pacific with four years of negative real wage growth – in 2008, 2009, 2012 and 2013. Also, the decline of Taiwan’s real wages of 4.1 percent in 2009 and 4.2 percent in 2010 were the largest drop in real wages among all the countries during the eight-year period, not accounting for the dip in Sri Lanka in 2008.

Taiwan’s wages might have picked up in 2014 and 2015 but it was revealed that last year, Taiwan’s – nominal – median wage has in fact dropped, which meant another spiral downwards for Taiwan’s real wages.

In other words, real wages in Taiwan have declined since 2006.

Writing for the World Economic Forum, Professors Pickett and Wilkinson said: “Research has repeatedly shown the clear link between high levels of income inequality and low levels of social mobility.” They also explained that, “far from being the land of opportunity, the U.S. has very low social mobility” and that, “British social mobility is damaged by the U.K.’s high income inequality.” And as Assistant Professor Luke Yu-Wei Chu and Professor Ming-Jen Lin found, “the intergenerational earnings elasticity in Taiwan is similar to relatively less mobile countries like the U.K. and the U.S,” meaning that Taiwan has similarly low levels of social mobility.

Taiwan’s inequality was initially reduced to where the Nordic countries are today and was even “among the lowest in the world” in the 1970s but since 1980 has increased almost unabated. The income share of GDP that has gone to the richest 10 percent has also been increasing since 1980, from 23.43 percent to 36.39 percent in 2013. And where the richest 20 percent had average disposable incomes of 4.17 times that of the poorest 20 percent in 1980, and by 2013, this has grown to 6.08 times higher.

It is thus shameful that Taiwan’s businesses would stoop so low as to boycott a meeting meant to increase the wages of Taiwan’s workers – or rather, to return to the workers what they should have rightfully earned.

The plain and simple question is this – without Taiwan’s workers, who will do the work for these businesses? Will these businesses be able to produce and get rich? Can businesses make use of their workers’ labor only to pretend that this labor did not exist in the first place? It is wilful and indulgent for Taiwan’s businesses to ignore the contribution of their workers who have helped to increase the profits of these businesses but who have not reaped their just returns. To steal the wages of these workers for their own profits is exploitation which the government should have punished but has instead turned a blind eye to for the past three decades.

The right thing to do is to return back to Taiwan’s workers their wages. And the first step is by increasing the minimum wage to a level that is commensurate to the cost of living. As it is, the poorest 20 percent in Taiwan were not earning enough to make ends meet – their average disposable income of NT$320,312 was lower than their consumption expenditure of NT$ 339,536 in 2015.

According to Asa Briggs in the book, “The Welfare State in Historical Perspective,” “a “welfare state” is a state in which organized power is deliberately used (through politics and administration) in an effort to modify the play of market forces in at least three directions first, by guaranteeing individuals and families a minimum income irrespective of the market value of their work or their property; second, by narrowing the extent of insecurity by enabling individuals and families to meet certain “social contingencies” (for example, sickness, old age and unemployment) which lead otherwise to individual and family crises; and third, by ensuring that all citizens without distinction of status or class are offered the best standards available in relation to a certain agreed range of social services.”

In terms of the second and third directions, Taiwan seems to be performing quite admirably as compared to its Asian peers.

On “sickness” or healthcare, the HSBC’s latest Expat Explorer survey ranked Taiwan as having the second best healthcare system in the world last year. It was ranked the best in 2014, with the most affordable and best quality healthcare system. Writing for The Brookings Institution, health policy Research Analyst Cheng Tsung-mei wrote that, “Taiwan’s NHI may be said to be a high performing health care system compared with many other health care systems around the world. In terms of cost-effectiveness, Taiwan’s system outperforms the U.S. system.”

On old age and pension, Taiwan’s pension has also been ranked as one of the most adequate in Asia. Of course, Taiwan’s replacement rate – or the pension payments that retirees receive as a percentage of what they earned before retirement – is uneven as the ratio can be as high as more than 100 percent for public servants while for private sector workers, the replacement rate was only between 45 and 49 percent. But even at 45 percent, the replacement rate is already higher than the other Asian Tigers (Hong Kong, Singapore and South Korea), and even higher than traditionally-strong social welfare countries Norway, Sweden, Denmark, Switzerland, Germany and the Netherlands.

Even for Taiwan’s unemployment benefits, at a replacement rate of 60 percent – or the unemployment benefits as a percentage of wages when workers were employed – Taiwan’s unemployment benefits is ranked as the eighth highest in the world. This puts Taiwan in front of the Asian Tigers – Singapore has no unemployment benefits – and better than countries like Denmark, Finland, France, Canada, Austria, Germany and Australia.

I have talked to several Taiwanese who tried to explain to me that Taiwan does not have a social welfare system and that all Taiwan has are social safety nets. They make the distinction that social welfare systems are more comprehensive while social safety net provide for only the most needy.

But by almost any metrics – as shown above – Taiwan has a social welfare system and its benefits are on par with, and even better, than some of the best in the world. As Didier Jacobs wrote for the London School of Economics in 1999, “a strong welfare infrastructure already exist[ed]” in Taiwan.

Thus if Taiwan has a strong social welfare system, why don’t the Taiwanese think so?

If we look at pension, private-sector retirees in Taiwan receive average monthly pension payments of only NT$16,179 (US$538), but in Norway, the minimum pension was NOK167,963 (US$21,555) a year or US$1,796 a month, SEK94,572 (US$11,849) a year or US$987 a month in Sweden, DKK 5 908 (US$943) a month in Denmark, 14,100 Swiss francs (US$14,665) a year or US$1,222 a month in Switzerland and EUR1,149.48 (US$1,366) a month in the Netherlands – countries in which Taiwan’s replacement rates do better than them.

So even with a replacement rate that is higher than these countries, but in nominal terms, Taiwan’s average pension payments are still way lower – less than half that of these other countries.

As such, it is understandable why the Taiwanese do not look at their social welfare system as one – the actual nominal payments are low, giving the perception that these are only basic safety nets.

But why so?

Because wages are low. Thus even with high replacement rates, Taiwan’s pension payments and unemployment benefits will undoubtedly be seen as low, as inadequate.

The other major problem with Taiwan’s social welfare system is that for many years now, the government has kept warning that the health insurance and pension systems would go bankrupt.

But a study in the United Kingdom shed light on one of the solutions: “Tackling […] low pay reduces poverty and decreases public expenditure on welfare spending and tax credits, with indirect savings in other public service areas, including healthcare, crime and social services.

The study added that, “Reducing […] low pay increases government revenue through the increased taxation (income tax and National Insurance) on the incomes of those who find work or a higher-paid job.”

Thus understandably as much as Taiwan has a technically superior social welfare system when compared to even other Northern and Western European countries, but because of Taiwan’s low wages, this has also caused the Taiwanese to look at their social welfare system with disdain. And it has also resulted in these systems being inadequately funded as the younger generation are only able to contribute lesser while the older generation would draw on them in relatively higher amounts.

As such, the benefits to increasing minimum wage significantly are multi-fold. First and most immediate, workers would have increased finances to pay for basic necessities. Second, higher wages would increase government revenue for Taiwan’s social welfare systems i.e. health insurance and pension, and ward off bankruptcy. And third, this in turn would lead to more adequate health insurance and pension coverage for Taiwan’s workers. It will restore the financial sustainability and confidence in Taiwan’s social welfare system.

To restore the balance to Taiwan’s lopsided social welfare systems and to prevent bankruptcy, the wages of Taiwan’s workers have to go up.

This is a no-brainer.

So why are businesses against an increase in wages which would help to kick-start Taiwan’s economy and benefit businesses as well?

Writing for the Harvard Business Review, Professor Wayne F. Cascio pointed out how American hypermart Costco was paying its full-time workers average wages of US$17 an hour in 2006 in America, whereas its competitor Wal-Mart’s Sam’s Club, known for its low wages, paid workers only an average of US$10.11 an hour.

But as Cascio explained, “In return for its generous wages and benefits, Costco gets one of the most loyal and productive workforces in all of retailing, and, probably not coincidentally, the lowest shrinkage (employee theft) figures in the industry.

“As a result, Costco generated $21,805 in U.S. operating profit per hourly employee, compared with $11,615 at Sam’s Club. Costco’s stable, productive workforce more than offsets its higher costs.”

“Costco’s approach shows that when it comes to wages and benefits, a cost-leadership strategy need not be a race to the bottom,” Cascio added.

Compare this with what Pxmart’s President Hsu Chung-jen (徐重仁) said in April: “Young people should not fuss over having lower salaries than other people” and that they should "tolerate rather than complain about low pay.” The irony is that instead of pinpointing workers as complaining about low wages, Hsu should be the one who should not be complaining, because clearly, if Pxmart had paid its workers higher wages, the evidence shows that it would have earned higher profits in return.

Increasing the wages of workers is a win-win solution for businesses. Hsu later apologized and said he would learn to be humble and to understand the plight of Taiwanese youths. He would also be stepping down from Pxmart’s management this month.

In 2014, 600 economists wrote to former U.S. President Barack Obama in support of increasing minimum wage by 40 percent, from roughly US$15,000 to roughly US$21,000. Taiwan’s labor groups only asked for 30 percent.

They added: “Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.”

On the income share of the richest 20 percent increasing to high levels today, the International Monetary Foundation (IMF) also warned that, “a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down.”

IMF also pointed out that, “inequality makes economic growth less durable” because “higher inequality has sometimes led to social or political crises, which in turn can derail growth.”

This is borne out in the statistics. A United Nations working paper showed how “the cases of Korea and Taiwan suggest that lower inequality can be complementary to rapid growth in its early stages, and how “income inequality in Taiwan and Korea declined in the initial stages of growth,” but that “with increasing liberalization since the 1990s, income inequality in Taiwan […] began to worsen.”

Professor Dr. Jomo Kwame Sundaram who wrote the paper explained that, “The significance of corporate savings in explaining the high savings rate associated with the East Asian region suggests that this may have been at the expense of labour incomes.”

The Organisation for Economic Co-operation and Development (OECD) conducted a study and also explained that its “study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility.”

It would not. Businesses – most of them anyway – have no incentives to increase the wages of workers and help reduce inequality unless there are policy imperatives which require them to do so, as Taiwan’s case has also shown.

As the OECD explained, “In the absence of a minimum wage, there would be an increased risk that some employers would try to take advantage of this additional labour supply by lowering wages (under assumptions of employer monopsony).”

The IMF go on to recommend that to prevent the further exacerbation of income inequality, “increasing the income share of the poor and the middle class actually increases growth.”

The OECD further elaborated on this and added that, “The main driver behind rising income gaps has been greater inequality in wages and salaries.”

As such, “There are several reasons to think that a coherent strategy for promoting work and reducing poverty should combine in-work benefits with a minimum wage set at a moderate level,” as the OECD explained.

Last year, President Tsai Ing-wen's (蔡英文) admitted in her inaugural speech, that “Most importantly, and I must stress: our young people still suffer from low wages. Their lives are stuck, and they feel helpless and confused about the future.”

But President Tsai also said, “We shall all vow to be a Taiwanese who safeguards democracy, freedom and this country.”

And this includes safeguarding the financial democracy and freedom of Taiwan’s workers. It includes the bold step of restoring their wages to their rightful level.

Because President Tsai, you also said, “democracy is about the welfare of the people.”

President Tsai, you said, “Here, I sincerely call on everyone to give this country a chance.”

We hear you. Let’s give our workers a chance.

The Directorate-General of Budget, Accounting and Statistics revealed that there were more than 720,000 Taiwanese who were working overseas. Of these, 58 percent of them chose to work in China. Unofficially, the number could be even higher at 1 to 2 million.

According to the National Development Council Minister Chen Tain-jy (陳添枝), he admitted that fresh Taiwanese university graduates have been forced to move overseas to work “mainly [due to] the difference in wages between Taiwan and more competitive markets.”

An article in TIME also explained that a huge cause are the low wages, which have left young people “caught in a vicious cycle.” But the low wages and brain drain also impacts on Taiwan’s social welfare system as “the resulting exodus leaves less workers to support the swelling ranks of the old, pushing the pensions system towards the brink of bankruptcy,” Nicola Smith wrote.

Alan McIvor, senior associate at the executive search firm Bo Le Associates told the American Chamber of Commerce in Taipei: “The salaries companies offer [in Taipei] aren’t competitive at all.” And Gordon Sun, director of Taiwan Institute of Economic Research spoke to Time and added: “Most of [the] spending or consumption [of Taiwanese youths who work in China] is in China. So in Taiwan our consumption cannot grow. We need them to come back and live here and spend here.”

Indeed, President Tsai, you said, “It is the collective striving of the people that makes this country great.”

But if Taiwan’s youths continue to leave Taiwan – for China no less – then how can we make good the promise for Taiwan to strive collectively to make Taiwan great again? Not only that, Taiwan’s low wages also undermine Taiwan’s democracy as young Taiwanese are absorbed into China’s fold.

So, please “never back down,” as you promised.

Because President Tsai, you are the best hope for Taiwan now. Please be “courageous” as you said in your inaugural speech. Please be bold and increase Taiwan’s minimum wage to a level that will make the country great. And as you said, “Dear fellow citizens, dear 23 million people of Taiwan: the wait is over. Today is the day. Today, tomorrow, and on every day to come."

So let’s stop waiting. Let’s protect our workers – today.

Editor: Olivia Yang