Reform can stem unemployment

Taiwan's unemployment rate has reached another all-time high. According to a recent survey by the Liberty Times, 33 percent of unemployed persons believe the rising unemployment rate is due to the migration of businesses to other countries. Forty-three percent believe the government should temporarily stop the business migration, while 44 percent believe it will improve Taiwan's investment environment. At the same time, several major corporations are demanding that the government loosen its restrictions on investments in China. Even a corporate chairman known as the "God of Business" (經營之神) has held a press conference pressing for "three direct links" with China so as to strengthen Taiwan's competitiveness. Does Taiwan's rising unemployment have anything to do with the business migrations to China?

Industrial structure will inevitably change in the process of economic development. When labor-intensive industries lose their international competitiveness, the manufacturers of such products can only move to less developed countries such as China and eliminate quite a number of domestic job opportunities. Certainly new job opportunities will also emerge in technology-intensive industries. As long as the cost of moving the workers to new jobs is not too high, the change in industrial structure should not have too strong an impact on labor employment. But once the gap between our economic growth rate and that of less developed countries becomes so large that our industrial structure is forced to change rapidly, unemployment problems will arise among domestic workers.

At this point, if the new government does not actively reform the domestic business environment or does not accelerate the promotion of domestic industrial upgrading, but instead tries to solve the problems of industrial transformation by easing the "no haste, be patient" policy, or by lifting the restrictions on investment in China, then the government will be forced to spend even more resources to solve the problem of unemployment.

It is faster for business owners to move their capital and equipment offshore than to move their domestic low-skilled workforces. The massive industrial migration allows corporations to reap higher investment returns, but the domestic workers in those industries cannot follow suit and move offshore. They can only stay in the non-trade service sectors and compete with foreign workers for jobs. This has drastically slowed the growth rate of low-skilled labor incomes, causing domestic income distribution to deteriorate. This will have a deleterious effect on Taiwan's future economic development.

When income distribution becomes increasingly lopsided, discontent can easily arise among low-income individuals or families. More often than not this kind of discontent has led to social and political instability. Increased uncertainty in investments and the business environment will adversely affect domestic investor interest. Eventually, lowered investment will affect our economic growth rate.

Even if worsening income distribution is an inevitable byproduct of globalization, can't we mitigate this outcome by choosing the right investment strategies? According to a recent study, while measuring a country's comparative advantage, one should not compare them with those of all other countries in the global economy. Rather, one should compare a country with those at a similar developmental stage.