The government’s announcement of a 3 percent pay increase for military personnel, civil servants and teachers in the next fiscal year — the first since 2011 — has received broad support from across party lines and won backing from the business community.
The move indicates the government’s effort to promote social cohesion following the passage of several pension reform bills in the Legislative Yuan in late June, but it also suggests its expectation of a trickle-down effect in the private sector.
The government hopes that Taiwanese companies follow suit in raising employee wages, because most of them have not seen a raise in as many years.
Because the nation follows free-market principles, decisions on wage increases are left up to each company on the basis of its business plan, operating situation and financial resources.
Meanwhile, a survey conducted by the online job bank yes123 last week showed only 7 percent of the polled firms have plans for a general pay increase in the fourth quarter, with the average pay raise at 3.2 percent.
The survey results and the business community’s responses following 3 percent pay increases in 2000, 2005 and 2011 indicate that businesses will not raise salaries just because the government is taking the lead.
Most people would theoretically agree that companies should share their profits with workers so that broader segments of society can enjoy economic prosperity.
However, not all companies are making a profit and not many would raise salaries and give up a cost advantage like cheaper labor without government incentives to do so.
Premier William Lai (賴清德), who has taken credit for the latest wage hikes, views the move as the first arrow in his policy to boost the economy. He has made known that the decision to increase the pay of public-sector employees was made in the broader context of the nation’s economy and the government’s fiscal situation.
Even though the government is looking at an increase in securities transaction tax revenue and savings from budget cuts to fund the hikes, there is still doubt over the sustainability of the tax revenue due to volatility in the nation’s stock market.
Because the wage hikes will increase the government’s contributions to the insurance and national health insurance premiums of civil servants and teachers, as well as their retirement pensions, which are calculated based on employees’ pay levels, it means that the government will have to find funds in addition to the NT$18 billion (US$596.2 million) in its preliminary estimate.
People are left wondering where the money will come from.
Moreover, the question remains whether a pay raise will help spur private consumption or simply become additional savings in people’s bank accounts.
The government estimates that the nation’s ratio of excess savings to GDP will reach 13 percent this year, the fifth consecutive year of the ratio remaining at about 10 percent. Cumulative excess savings will be close to NT$11 trillion, which reflects the listless state of domestic investment and weak private consumption of Taiwanese.
Wage increases alone cannot boost the economy.
The government must be ready with additional policy arrows to improve domestic demand, as export performance is no longer the best solution, and follow through with fiscal and structural reforms to revitalize the economy.
It must take steps to address long-standing issues — such as shortages in land, water, electricity, labor and talent, as well as the rigid regulations on working hours and overtime pay — while ensuring that its vitality and integrity remain sources of stability in the nation’s future growth.
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