On April 26, Council for Economic Planning and Development Minister Christina Liu (劉憶如) admitted that the government is unlikely to achieve the second and third goals of President Ma Ying-jeou’s (馬英九) “6-3-3” election promise by 2012 — 6 percent GDP growth, lowering unemployment to below 3 percent and raising annual per capita income to US$30,000. The next day, the council issued a “red light” warning for Taiwan’s economy — an indication of overheating — for the fourth consecutive month.
The public, however, has experienced no economic improvement and high unemployment is often blamed for this. However, the central reason many people remain oblivious to the recovery is the short-term rational decisions made by companies and the long-term pain of industrial transformation.
The economy is recovering slowly, but issues such as the sovereign debt of European countries and possible conflict between the two Koreas make the path to recovery more problematic. Given this economic uncertainty, the key question is whether companies are willing to hire new workers and the answer to that is already self-evident.
Why is hiring new workers not the best strategy at the moment? Because recruitment and training is expensive. If smart and rational companies currently treading cautiously on thin ice do not have full confidence in a future economic recovery, they will not hire new workers. But then how do they expect to meet demand for production capacity as the economy slowly recovers? The logical answer is they will increase working hours.
According to the Directorate-General of Budget, Accounting and Statistics, average monthly working hours in Taiwan’s manufacturing and service industries have increased rapidly since September last year. The January figure surged 22 percent year-on-year. Some may attribute this to the low number of hours used for the base period, but even taking the original statistics into consideration, monthly average working hours reached 192.4 in March, the same level as when the TAIEX reached 9,000 points in August 2007.
Over the last decade average monthly working hours have only exceeded 190 hours for a total of eight months. At the same time, overtime in the industrial and service sectors has increased rapidly since November last year, after a 15-month decline. These all point to the high probability of economic recovery.
Electricity consumption presents another strong indication of economic recovery. If, as suggested, companies meet demand for production capacity by increasing working hours, and almost all production requires electricity, then an increase in work hours should, all things being equal, coincide with increased electricity consumption. Figures show that industrial electricity consumption started to grow in July last year and reached August 2007 levels as the stock market boomed. Since September last year, there has been a large and constant increase in consumption. Comparative figures indicate that this was not the result of the summer heat, which by implication suggests that increases in work hours and electricity consumption are signs of an ongoing economic recovery.
Moreover, the six emerging industries promoted by the Cabinet are all part of the service sector, which shows that Taiwan is undergoing yet another industrial transformation, one that could lead to “labor heterogeneity.” The sectors undergoing transformation have started to cut jobs, while new jobs have not yet been created. During this kind of transformation process, unemployment is unavoidable.
Taiwan’s development from an agricultural to an industrial economy and then from an industrial to a service economy indicates that industrial transformation is a necessary part of long-term economic prosperity. In the past, the transformation was quick and newly emerging industries rapidly absorbed manpower released from the industries they replaced. The recent transformation, however, is different. The jobs now created after industrial upgrading require a much higher level of professional expertise. Unfortunately, the workers from the sectors being replaced are unable to acquire such skills quickly, while the transformation process is unstoppable. As a consequence, even as the economy begins to recover, it is likely that the unemployment rate will remain high. It is therefore questionable whether we should continue to measure economic recovery against the jobless rate.
Despite having already undergone several industrial upgrades, Taiwan continues to be haunted by the pursuit of productivity, a mindset more indicative of the manufacturing era. Some even go as far as to suggest a further strengthening of the manufacturing sector.
Such people do not understand that Taiwan is already developing a service-sector-oriented industrial structure. As a matter of fact, all the world’s advanced countries focus their industrial development on the service sector. Today, we need to not only raise productivity but to also speed up industrial upgrading to minimize the time this process takes. In many ways this can be likened to a teenager’s growth into an adult. Industrial transformation is tantamount to the physical and a mental changes of puberty. The best way to proceed is to complete the process smoothly and speedily, instead of trying to turn the clock back to the memories of a happy childhood that is already history.
Kuo Nai-fong is an associate professor of finance at Shih Hsin University. Han Tien-der is a graduate student in the same department.
TRANSLATED BY EDDY CHANG
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