Wed, Oct 09, 2013 - Page 8 News List

Decline in real wages is not a fantasy

By Chen Chien-yin 陳建印

In response to reports that average real wages in the first half of the year had fallen to the same level as 16 years earlier, government officials said that if you factor in the decline in legal working hours and the increase in employers’ contribution to the new labor pension system, salaries have actually climbed by 16.5 percent. However, this interpretation is clearly at odds with the experience of households living on declining salaries and wages.

It also suggests that the government has yet to find a convincing solution to the nation’s woes.

First, according to the Council for Labor Affairs’ international labor figures for this year, although Taiwan’s official working hours dropped from 48 hours a week to 84 hours every two weeks, this decline was smaller compared with those of Japan and South Korea.

Moreover, although working hours in Taiwan continue to fall year on year, Taiwanese still work more hours compared with workers in Western countries.

In addition, non-farm payroll is far lower in Taiwan than in neighboring areas or countries: Hong Kong, South Korea, Singapore and Japan.

This phenomenon of long working hours and low wages and salaries has bestowed on Taiwan the dubious honor of being one of the most favored countries for investment in terms of labor costs, as the low salaries are an added incentive for employers. For the same level of expenditure, companies can hire more people in Taiwan than they could in many other countries.

It is perhaps not a competitive edge the nation should be proud of.

Second, to say that the increase in employers’ contribution rate to the pension fund from 2 percent to 6 percent equates to a 4 percent rise in salaries is an oversimplification, to say the least. As a company’s costs rise, its profits fall, all other things being equal.

When productivity remains steady, a company may get into trouble if costs increase, forcing it to reduce costs in other areas, such as cutting salaries. However, if it does that, it will still need to negotiate with workers or risk falling foul unions. As a result, companies with steady productivity have to seek other measures, such as reducing the salary level offered to new employees.

This perhaps is the reason why the salaries of new employees are not as high as they used to be.

Studies carried out by economists show that the salaries of workers who began working following the implementation of the new labor pension system have fallen markedly, and the size of this decrease is equivalent to 5.86 percent of workers’ salaries.

Evidently, employers are passing on the additional costs incurred by the increased contribution rate to the workers themselves. In other words, to say that workers benefit with a 4 percent increase in their salaries simply does not add up when considering workers’ actual take-home pay.

Taiwan’s economy has performed poorly over the past few years. Nobody is disputing the fact that families depending on a salary are struggling.

The government ought to focus on the root causes of these problems, propose effective policies to address them and bear in mind that economic growth is a means to improving the lot of the public, and not an end in itself.

If economic growth does not improve the lot of ordinary people, they will not feel the benefit.

Chen Chien-yin is a research assistant in the Department of Economics at National Chengchi University.

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