This is the second in our 5 part series. You can read part 1 here.

Inequality, poverty and corporate cultures

What is the cause of the large differentials in wage levels outlined in part 1? The reason lies in the Gini coefficient or the measure of income inequality. Singapore is the most unequal country among the developed nations – even when you include the United States and the United Kingdom.

Singapore also has the highest Gini coefficient, at 0.38 of the countries we are considering here. Hong Kong has the second-highest at 0.379 (derived from the Hong Kong’s Census and Statistics Department for comparison on OECD’s scale.)

By contrast, Denmark and Norway are the most equal countries in the world, with Gini coefficients of 0.256 and 0.257, respectively. (Note that the Gini coefficient figures account for taxes and transfers aimed at reducing the inequality – even so, Singapore and Hong Kong still present the largest income inequality.)


Source (data from latest year): OECD, Taiwan: Directorate General of Budget, Accounting and Statistics (DGBAS), Executive Yuan, (R.O.C. Taiwan), Hong Kong: Census and Statistics Department The Government of the Hong Kong Special Administrative Region, Singapore: Department of Statistics Singapore

You can see income inequality manifested in the gap between minimum and median wages. Because Singapore and Hong Kong have the highest Gini coefficient, they also have the highest wage gap – the median wage is 3.18 times higher than the de facto minimum wage in Singapore and 2.41 times higher in Hong Kong.

In Denmark and Norway, the median wage is 1.5 times higher – even so, de facto minimum wages in Norway, Denmark and Sweden are already higher than even median wages in the East Asian nations. Their workers already earn higher wages than half the population of the East Asian countries – because workers at the bottom in the Nordics start from a high wage base. South Korea's wage difference is lower because of this year’s robust minimum wage increase. As a result, income inequality in South Korea could be even lower next year.


If Singapore’s inequality were reduced and the wage share returned to Singaporeans, you might see a wage distribution similar to that of Denmark and Sweden.

After all, Singapore has a nominal GDP per capita similar to both countries, and taking the median wage share of above 60 percent as a reasonable optimal level – and which Denmark and Sweden employ – and a Gini coefficient on par, then Singapore should have a similar wage distribution.

That would put the city state’s minimum wage at about US$3,000 (SG$3,963) or US$2,300 (SG$3,039) if it were to follow the regression line, instead of the SG$1,100 (US$830) we see now. The median wage would be around US$3,800 (SG$5,020), similar to Sweden, instead of the current SG$3,500 (US$2,635). Another way to look at it would be that if Singapore’s wage share were 60 percent instead of 42.5 percent, then Singapore’s median wage should correspond to US$3,720 (SG$4,914) – giving a similar result.

As for Taiwan, it has a comparable nominal GDP per capita to South Korea. By the same logic of adjusting wage share and Gini coefficient, this should give the country a similar minimum and median wage, putting the former twice as high as it is now, closer to US$1,500 (NT$44,078). The median wage would balloon to US$2,000 (NT$58,771) instead of the US$1,382 (NT$40,612) it is now.

Alternatively, if Taiwan’s wage share of 44 percent were increased to 60 percent, it would give the Taiwanese a median wage of NT$55,380 (US$1,884), achieving much the same result.

Is NT$40,000 as a minimum wage really feasible? It is already being done on a localized level in Taiwan. A-Zen Bakery in Changhua County’s Lugang Township already gives its workers a minimum monthly salary of more than NT$40,000 a month. In fact, owner Cheng Yung-feng has increased his workers’ wages by 20 percent for the past two consecutive years, Taipei Times reported President Tsai as sharing. Because of that, the newest employees – who have two to three years of experience – have seen their salaries rise to more than NT$40,000 and are set to receive NT$48,000 this year. Workers who have been with the company for more than 20 years earn more than NT$100,000.

Now, A-Zen Bakery is an SME, yet it has the resources to give its workers significant wage increases and so far, it is still earning high profits, suggesting that Taiwan's businesses do have a lot of leeway to increase the wages of Taiwan's workers. In fact, in spite of the significant increase in wages, A-Zen Bakery continues to sell its buns at a low price of NT$20 and generates annual revenue of NT$50 million – resisting the temptation to raise prices along with wages. It is therefore not a question of how much the wages of Taiwan's workers should increase, but how we can develop a roadmap to increase the wages of Taiwan’s workers to the ideal. As Tsai said, “Business owners should not think of raising wages as a burdensome increase to their overheads, but as a way for them to share their joy with colleagues who have worked hard to grow their businesses.”

According to Cheng, business owners and their employees are in the same boat. He believes that if everyone reaps the benefits together, employees would be more than willing to strive hard together with a company to help it succeed. His motto is, “The more we give, the more we get,” and as long as his company earns profits, he is happy to share them with his workers and increase their wages. Indeed, Cheng’s workers reveal that over the years, he has been giving the workers significant increases in salary, and because of that, not only has it done much to boost staff morale, they say that this has made them put in more effort to work harder for the company.

Salaries and poverty

A comparison of salaries at the top makes the disparity even more glaring. Top executives in Singapore earn €250,000 / US$305,566 per annum (about €210,000 after taxes and social security – which is the second-highest net executive salary in the world). Those in Hong Kong earn about €230,000 (close to €200,000 after deductions, or the fourth highest).

In the Nordics, the Netherlands and Japan, executives earn about €150,000 to €185,000 per annum (or €115,000 to €125,000 after deductions in Japan and South Korea, respectively, and between €80,000 and €100,000 in the Nordic countries and the Netherlands).

Taiwan’s executives earn about €120,000 before taxes and social security but about the same as the Norwegians, Danes and Dutch after deductions – around €95,000.

Middle managers in Singapore and Hong Kong earn similarly higher salaries, both before and after taxes and social security, as the Nordic countries, the Netherlands and the other East Asian countries.

The fact that the Nordics have the highest "minimum wages" in the world but executive pay is relatively lower reflects how a fairer wage distribution helps reduce inequality.

Taiwan’s executives earn a similar net salary as their Norwegian and Danish counterparts but the minimum wage in Taiwan is only a fifth or a quarter of the de facto minimum wage in Norway and Denmark, which clearly shows the massive income gap in Taiwan vis-à-vis the Nordics. Taiwan’s low Gini coefficient therefore does not present a complete picture of Taiwan’s income distribution.

Singapore and Hong Kong also have one of the lowest minimum wages among the developed high-income countries – on par with Taiwan – but among the highest executive pay brackets in the world, helping explain the extremely high inequality that plagues the two cities.

This also explains the high level of poverty in both the cities.


Source (data from latest year): OECD, Taiwan: National Statistics, Republic of China (Taiwan), Hong Kong: The Government Information Centre The Government of the Hong Kong Special Administrative Region, Singapore: Singapore Management University and Lien Centre for Social Innovation.

The Singapore government has refused to define a poverty line, claiming to fear an arbitrary “cliff effect”. However, a report by the Singapore Management University and Lien Centre for Social Innovation quoted Associate Professor Irene Ng from the National University of Singapore as estimating Singapore’s relative poverty rate to be about 20 percent, which would put the city as a leader in poverty among high-income countries.

This is perfectly plausible since Singapore has a de facto minimum wage that is even lower than Hong Kong’s and a cost of living ranked by The Economist as the highest in the world for the fourth year in a row in 2017 – Hong Kong’s poverty rate is 14.7 percent. Japan (16.1 percent) and South Korea (13.8 percent) have similar levels of poverty.

The Nordics and the Netherlands all have low levels of poverty, at between 6.3 percent (Finland) and 9 percent (Sweden).

Interestingly, Taiwan’s relative poverty rate is also low at 6.6 percent but this could be due to stagnant wages, which depress the median wage and therefore the relative poverty rate (which is defined by the Organisation for Economic Co-operation and Development (OECD) as half the median household income of the total population). On a similar note, Singapore’s depressed wages and the lower median wage could also result in a lower estimation of the poverty rate.

A better estimation of relative poverty would be to first define the optimal median income corresponding to the country’s GDP per capita, and calculating the poverty line from this optimal level – so, half of optimal median income. In Singapore, taking the optimal median wage as about US$3,800 (SG$5,020) would correspond with a poverty line at SG$2,500 (US$1,892). This puts more than 30 percent of the population in relative poverty. Professor Hui Weng Tat of the Lee Kuan Yew School of Public Policy estimated a relative poverty rate of around 35 percent based on a poverty line set at 60 percent of the national median equivalized income.

One other statistic gives us a broader perspective of the countries’ wage situation – the top 10 percent income shares.


Source (data from latest year): World Wealth & Income Database, South Korea: The Hankyoreh, Hong Kong: Education Bureau The Government of the Hong Kong Special Administrative Region.

Naturally, Singapore’s and Hong Kong’s high income inequality implies that the share of income that goes to the top 10 percent is one of the highest among the high-income countries – at 43.8 percent and 41 percent, respectively.

The top 10 percent income share in the Nordics and the Netherlands is lower, ranging from 26.9 percent in Denmark to 30.9 percent in the Netherlands.

Japan and South Korea’s top 10 percent income share is also high at 41.6 percent and 45 percent, respectively. However, they have relatively higher minimum wages, which should help close the wage gap, and the higher wage shares should enable a greater portion of the GDP allocated to wages to be available for fairer distribution, when compared with Singapore and Hong Kong. (Note that South Korea's income share statistic comes from a separate source, and is used as an approximate.)

As a comparison, assuming the top 10 percent income share as a portion of the wage share, Chart 13 below shows the share of GDP that can be distributed to the remaining 90 percent of workers. For Singapore, this allows only 23.9 percent of the GDP to be distributed to the 90 percent of workers. In South Korea, it would be higher, at 28.5 percent, while Japan would register 36.1 percent. The shares are higher in the Nordics and the Netherlands. The share in Norway is slightly lower than the other Nordics because Norway starts off with a higher GDP per capita, and a higher income base.

In other words, because Singapore has a low wage share of 42.5 percent but 43.8 percent of the income goes to the top 10 percent, only 23.9 percent of the GDP would be available for the rest of the 90 percent as wages – based on our assumptions. In comparison, even though the top 10 percent income share in Japan is also high at 41.6 percent, but there is a high wage share of 61.8 percent, there is still 36.1 percent of the GDP that can be distributed to workers in terms of wages.


When we compare the difference between the annual executive pay and minimum wage, Singapore and Hong Kong again have the highest wage gap. Even though Taiwan’s wage disparity is not as wide, it still has the third highest gap ahead of Japan and South Korea.


Moreover, when comparing the pay gap between executives and middle managers (see chart below), the gap in Taiwan shows a similar disparity with Singapore and Hong Kong, suggesting that wages also fall off quickly from the top in Taiwan as well. Still, Taiwan’s income inequality is notably low as compared to the other East Asian countries, which could be due to the social welfare transfers that compensate for the wage gap, or the higher concentration of small and medium-sized enterprises (SMEs) – we will look at these later.


Source: Approximate data of executive and middle manager pay from ECA International.

One possible reason why Taiwan’s executives and the rich pay themselves such high comparative salaries in relation to the minimum wage could be due to the control of top families in the largest firms. As can be seen in the chart below, two-thirds of the 20 largest firms in Taiwan were controlled by families (defined as having 10 percent control rights) in 1996. A similar pattern is also seen in Hong Kong and Singapore, with 70 percent and 45 percent, respectively – which helps further explain the high inequality in those cities. Taiwan's Gini coefficient might therefore be relatively low due to the sharp drop-off in wages from the top which influences a more equitable wage distribution at the bottom. This idea led to a popular joke in Taiwan: “That wages are equal – because they are equally low.”

Taiwan’s low wages could therefore be attributed to the high family control which in spite of the country’s democracy has resulted in its economy functioning in a similarly familial fashion as Singapore and Hong Kong. But how does a politically-democratic and corporately-authoritarian country run? Could Taiwan’s relatively strong social welfare system but depressed wages and relatively poor labor standards in terms of rest days be a result of this odd combination?


Source (data from 1998 to 2000): Eklund, Johan E., and Sameeksha Desai. "Ownership and allocation of capital: Evidence from 44 countries." Journal of Institutional and Theoretical Economics JITE 170.3 (2014): 427-452.

Among the Nordics, Sweden’s top families also have significant control in the top 20 largest firms – 55 percent – but the developed culture of collective bargaining for workers’ wages and a transparent democratic structure might serve to limit the families’ ability to expand their wealth at the expense of workers.

Fortunately, even as the top families in Taiwan have significant control in the largest firms, the corporate assets held by the top 15 families in Taiwan as a percentage of GDP is still not as high as Singapore and Hong Kong.


Source (data from 1996): Claessens, Stijn, Simeon Djankov, and Larry HP Lang. "The separation of ownership and control in East Asian corporations." Journal of financial Economics 58.1 (2000): 81-112.

The concentration of control of the top 15 families comprised 17 percent of GDP in 1996, which is lower than in Hong Kong (84.2 percent) and Singapore (48.3 percent). However, it is still higher than Japan (2.1 percent) and South Korea (12.9 percent), which could explain the challenges faced by the Taiwanese in reforming their system for more equitable distribution, vis-à-vis Japan and South Korea.


Source (data from 1996): Claessens, Stijn, Simeon Djankov, and Larry HP Lang. "The separation of ownership and control in East Asian corporations." Journal of financial Economics 58.1 (2000): 81-112.

However, as mentioned, Singapore stands out from other East Asian Tigers due to high state control – when looking at control of publicly traded companies in East Asia, 52 percent of companies are in family hands (with at least 10 percent of voting rights) while 23.6 percent is controlled by the state, effectively totaling 75.6 percent.


Source (data from 1996): Claessens, Stijn, Simeon Djankov, and Larry HP Lang. "The separation of ownership and control in East Asian corporations." Journal of financial Economics 58.1 (2000): 81-112.

In South Korea, 67.9 percent of companies were controlled by families but only 5.1 percent were state-controlled. Similarly, in Hong Kong, it was 64.7 percent versus 3.7 percent and 65.6 percent versus 3.0 percent in Taiwan. In Japan, the control by both families (13.1 percent) and state (1.1 percent) is low.

But as Johan E. Eklund and Sameeksha Desai, authors of the study “Ownership and Allocation of Capital: Evidence from 44 Countries”, explain, “family control and ownership concentration negatively influence capital allocation. Economies with highly concentrated ownership structures display economic entrenchment and persistent misallocation of capital.”

There is evidence to support this. In “Performance for Pay? The Relation Between CEO Incentive Compensation and Future Stock Price Performance,” researchers found that “the longer CEOs were at the helm, the more pronounced was their firms’ poor performance.” Forbes reported the study’s authors as saying this is “because those CEOs are able to appoint more allies to their boards, and those board members are likely to go along with the bosses’ bad decisions.”

Among the Asian Tigers, the top firms are predominantly family-controlled (and state-controlled, in Singapore's case), and the families’ (and state’s) voting rights of at least 10 percent effectively allow them to appoint their allies to company boards.

Michael Cooper of the University of Utah’s David Eccles School of Business, a co-author of the “Performance for Pay” study, added: “For high-pay CEOs, with high overconfidence and high tenure, the effects are just crazy” In fact, the returns on shareholder value of these companies over three years is 22 percent worse than their peers.

Indeed, long tenures are also a concern in Taiwan – a 104 Job Bank survey last year showed that 86.1 percent of Taiwanese companies polled do not have any succession plans while only 13.9 percent have thought of enacting one.

However, the problem also lies with how well executives pay themselves. Historian Nancy F. Koehn from the Harvard Business School suggests that in America, the salaries of board directors are usually decided by compensation committees, and since “Most board members of public companies are themselves well-paid executives … they have incentives to approve large pay packages for men (and the many fewer women) who are effectively their peers.”

Bloomberg writes up a very good summary of the thinking here.

In essence, the make-up of the companies in the Asian Tigers mean that they already function internally like compensation committees, and in conjunction with other families related to them, and via their intermarriages. Blogger Jess C. Scott has dug out and pieced together the relationships of the top families in Singapore from the corporate and political scene. Blogger Roy Ngerng had also drawn out several family tree maps of their relationships.

Koehn adds that these executives are “operating in a system that presumes the contribution of a good senior executive is very, very high.” But as we have seen from Cooper’s study, the evidence points to the contrary – “the more CEOs get paid, the worse their companies do over the next three years.”

In an analysis of American companies, former CEO Steven Clifford concludes that, “board directors and compensation committees have directly contributed to the rising salaries and bonuses of the country’s richest executives; [… but] each of those companies could have paid their CEOs 90 percent less and performed just as well.”

“From the outside, this may look a lot like cronyism or poor corporate governance, and no doubt both are at work,” says Koehn.

The Economist has calculated that Taiwan – and Singapore – has high levels of crony capitalism, at 3.2 percent and 10.7 percent of the GDP, respectively, when analyzing for billionaire wealth in the crony sector. In an earlier reiteration of the index, Hong Kong was also ranked as having the highest crony capitalism level in the world, at 58 percent of the GDP. In comparison, Japan and South Korea have comparatively low levels of cronyism – at 0.6 percent and 0.5 percent, respectively. You can see a correlation between crony capitalism and the control of corporate assets within the top 15 families in the GDP.


Source: Corporate Assets of Top 15 Families: Claessens, Stijn, Simeon Djankov, and Larry HP Lang. "The separation of ownership and control in East Asian corporations." Journal of financial Economics 58.1 (2000): 81-112., Crony Capitalism: The Economist, Crony Capitalism (Hong Kong): The Economist.

As The Economist explains, “Behind the crony index is the idea that some industries are prone to “rent seeking” […] when the owners of an input of production – land, labour, machines, capital – extract more profit than they would get in a competitive market.

“Rent-seeking can involve corruption, but very often it is legal,” it adds.

But Eklund and Desai offer this point of view: “We argue that it is not ownership concentration per se that creates inefficiencies in the allocation of capital but rather, key governing institutions. Therefore, strong private property and investor protection [will] reduce [the] equilibrium concentration ownership and improve [the] allocation of capital.”

In short, when wages are low and inequality is high, it is because of government inaction, and if wages are to be increased, then the government needs to act or citizens have to badger their government to do so, and hold politicians accountable for not acting on their promises to the citizens and workers, or for having too cosy relationships with big business.

The authors Stijn Claessens, Simeon Djankov and Larry H.P Lang, of the paper, “The separation of ownership and control in East Asian Corporations”, explain: “In most developing East Asian countries, wealth is very concentrated in the hands of few families. Wealth concentration might have negatively affected the evolution of the legal and other institutional frameworks for corporate governance and the manner in which economic activity is conducted.

“It could be a formidable barrier to future policy reform,” they conclude.

Singapore’s case therefore presents a danger to its citizens. Whereas in Norway the state also has a high control of publicly traded firms, there is transparency as to how these firms are managed and the Norwegian government is therefore accountable to its citizens and cannot withhold from them their rights and gains.

However, the Singapore government does not operate in a transparent manner. It was Singapore Prime Minister Lee Hsien Loong who famously said: “I would not believe that transparency is everything” when discussing the government’s management of investment funds (which the country’s national pension funds are transferred into).

Tomorrow in part 3: Authoritarianism, tax and profit

Editor: David Green