“Everything keeps going up. Except for our wages.” That phrase is now ubiquitous. It has been emblazoned across newspaper front pages and used as a weapon with which to attack the government for its incompetence and the education system for its shortcomings.
However, the underlying reasons for this have not really been explored. Neither business, government nor academia seems interested in getting to the root of the problem, and the phrase has become a throw-away salutation as people meet on the streets, expressing, as it were, how we are all in it together.
Actually, there are many reasons for the stagnation of salaries that are due to the international economic environment, and the national government has little control over them. That said, there are factors that are peculiar to Taiwan which are within the government’s remit.
First, the main reason that wage levels have remained stagnant for over a decade is the huge increase in labor supply — defined here as labor willing and able to seek work on the international market.
With the dissolution of the Soviet Union in 1991, when the world’s population stood at 5.2 billion, 140 million people from Russia and 150 million people from nine Eastern European countries formerly within its sphere, together with 1 billion Indians, were freed up that same year by economic reforms. One point three billion Chinese were in the early stages of economic reform and 70 million Vietnamese — a total of about 2.7 billion people — entered the market economy and started vying for international investment and trade exports.
In the 14 years between 1997 and 2011, economic production for the aforementioned 13 countries grew by 409 percent, far outstripping the 90 percent typical of high-income countries, among which I include Taiwan. Further, between 2006 and last year, the average annual economic growth rate for high-income economies was a mere 1.2 percent, much lower than the average 6.2 percent seen in emerging markets and developing economies.
This groundswell in the effective labor supply was so destructive to the high-income economies because it was coupled with the free movement of capital. That just happened to be the consequence of the removal of financial restrictions by many countries in this wave of globalization.
Labor cannot move freely across borders, however capital can be moved abroad in search of interest and increasing yields, and labor in high-income economies therefore lacks capital to increase productivity, leading to stagnating salaries.
The Directorate-General of Budget, Accounting and Statistics recently released figures showing that between 1992 and 2012, Taiwan’s capital returns increased from 29.3 percent to 32.9 percent of domestic product, while labor compensation slipped from 51.7 percent to 46.2 percent in that same period, which demonstrates this phenomenon.
High-income economies like Singapore and South Korea, in which policy decisions are in the hands of a small number of individuals, are able to react quickly to change and can circumvent this fate. The majority of high-income economies, however, are not so equipped, and the problem of wage stagnation is preoccupying the media in countries like Japan, Hong Kong, France and the UK.
Taiwan, then, is certainly not alone in this regard. However, there are many factors, in addition to the aforementioned, that are peculiar to Taiwan.
First, policy, laws, regulations and other resources are revised far too slowly, with the result that emerging service industries find themselves constrained and there is too little interest in investing in them.
The second factor is that workers’ unions have been suppressed by the government and business, and have not developed substantially. As a result, they are unable to effectively bargain for better pay for their members.
Third, there is too little information in the labor market, and no Web sites providing information about what salaries companies are offering. Consequently, there is no pressure on firms to increase their salary levels to ensure they snap up talent.
Next, the government cannot arbitrate between workers and companies or consult on annual salary level adjustments, or publish recommended salary adjustments for companies to adhere to, should they wish to.
Lastly, the education system is excessively regulated and lacks flexibility and the employment and salary prospects of graduates from individual schools are not published, which means schools cannot make the changes needed to keep up with changes in the market and cultivate the skills the market needs.
We can do something about all of the factors that are unique to Taiwan. The government needs to make the required changes as soon as possible.
Tu Jenn-hwa is director of the Commerce Development Research Institute’s business development and policy research department.
Translated by Paul Cooper
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