Whether or not to abolish the basic minimum wage is one of the hottest issues facing the cross-party Economic Development Advisory Conference. Not only are labor and capital in direct opposition over the matter, but even the Council for Economic Planning and Develop-ment and the Council of Labor Affairs have taken entirely different positions on the matter.
The main point of those who support abolishing the minimum wage is that the vast majority of domestic workers have salaries far higher than the minimum wage. They therefore argue that the minimum wage only benefits foreign workers and makes the costs of hiring them much higher here than in neighboring countries. This, they contend, has a negative influence on Taiwan's industrial competitiveness.
This argument seems reasonable at first glance, but actually misses the mark because foreign and domestic workers can replace one another in production activity. Thus, using the minimum wage to increase the cost of employing foreign labor and reduce the difference in the costs of employing foreign and domestic labor not only protects foreign workers but also has the beneficial effect of protecting work opportunities for domestic workers. This accords with the repeated statements by the authorities that foreign labor is a form of supplementary labor.
Furthermore, if only the wages of foreign workers are influenced by minimum wage, then considering that foreign labor accounts for less than 5 percent of the domestic industrial work force, one has to be skeptical about how much benefit abolishing the minimum wage would have for lowering aggregate labor costs and raising the competitiveness of industry.
Abolishing the minimum wage will only make businesses depen-dent on low-cost labor investment and prevent them from improving production processes or increasing capital investment. This will be detrimental to productivity.
Moreover, any conflict between labor and capital that may be caused by the abolition will ultimately only end up being another factor in the cost of labor.
From this dispute we can begin to discern that groups representing employers and government agencies in charge of economic development have already come to view labor costs as the key reason behind the economic slowdown in recent years. Thus they intend to reduce the cost of labor by abolishing the minimum wage and relaxing other labor laws in order to stimulate the economy.
A surplus of global production and the cooling off of the US economy are the reasons why Taiwan's economic growth rate has fallen precipitously. Blaming the slow economy on rising labor costs is unfair.
Even if Taiwan's recession really were related to an increase in the cost of labor, the way to solve the problem would be to transform industry and invest in manpower to increase the productivity of labor.
Forcing wages down might give manufacturers some room to prolong their operations in the short term, but in the long term they would still be unable to escape pressure from low wages in places like China and Vietnam. Industry still won't be able to evade the fate of moving abroad.
Lowering wages is not wholly beneficial for business or for overall economic development. Since income from labor is the primary income of domestic workers, lowering wages will necessarily influence buying power. As soon as people's buying power drops off and markets contract, business profits will come under pressure and the economy will slump even further.
One reason why the UK government introduced a minimum wage in 1999 was to increase people's ability to consume, thereby maintaining the continued growth of the economy. Reinstating the minimum wage had no negative influence on Britain's domestic employment market.
When capitalist representatives and government officials cite the experience of other countries as a reason for revising labor laws and lowering the cost of labor, Britain's experience would seem to provide another direction for thought.
Labor laws are an important factor influencing business management. Thus it is necessary to include discussion on changing labor laws on the advisory conference's agenda. But any relaxation of the laws may lead to antagonism between capital and labor.
From the point of view of cost effectiveness, the cross-party Advisory Board on Economic Development should expend their efforts on laws that will benefit a majority of businesses, for example extension of flexible work hours, relaxing restrictions on regular contracts and subsidies for the cultivation of business talent.
Since abolishing the minimum wage can only benefit a minority of employers and may lead to widespread antagonism, it would seem reasonable that the matter be shelved for the time being.
Hsin Ping-lung is a research fellow at the Chung-hua Institution for Economic Research.
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