President Tsai Ing-wen (蔡英文) on Monday last week spoke about the long-standing issue of stagnant salaries. For those paid a monthly salary of NT$22,000 — the minimum wage — having a regular job does not make much difference, Tsai said, so the government’s primary task this year is to improve salaries.
Tsai has proposed several measures to solve the problem, including examining businesses’ salary structures. If businesses meet certain criteria, the government would provide employers with extra subsidies, as is done in other countries, or grant them weighted bonuses when they place bids for government contracts, Tsai said.
As far as low salaries are concerned, two things must be taken into account: First, in comparison with South Korea — formally one of the “Four Asian Dragons” — is Taiwan’s average salary really that low?
South Korea is used as a reference point because of the popularity of its television programs, fashion and smartphone brands in Taiwan. When converted to US dollars, South Korea’s gross national income (GNI) has superseded Taiwan’s since 2003, even though in 1997, Taiwan’s GNI was better than South Korea’s after the Asian financial crisis, in which South Korea suffered greatly.
However, South Korea quickly made a comeback after the crisis and rushed ahead of Taiwan.
South Korea is this year expected to see its GNI reach a record high of US$30,000, leaving Taiwan further behind with a GNI of less than US$25,000.
On the other hand, when taking the cost of living into consideration and comparing the purchasing power parity of the two, the real purchasing power per capita in Taiwan is expected to be equivalent to US$51,000, which is far superior to the US$41,000 estimated in South Korea, meaning that the same level of income could lead to a more comfortable lifestyle in Taipei than Seoul.
Second, would the pay raise for civil servants, public-school teachers and military personnel really encourage businesses to increase salaries and would it have a significant effect?
Governments and businesses have different goals. Governments work to ensure the economy is functioning normally, whereas businesses operate to make a profit. Only when businesses are profitable is there an incentive to increase employees’ pay.
However, Taiwan’s general economic performance this year is not expected to surpass last year’s. The annual rate of increase of Taiwan’s wholesale price index keeps exceeding the inflation rate, which results in continuous cost increases for businesses.
In such a situation, in which growth and profit are hard to predict and raw material costs continue to rise, why would businesses be willing to give employees a pay raise?
Last year, Taiwan’s gross fixed capital formation went into negative growth and a strong recovery is not predicted this year. Companies have little interest in investing domestically, as they do not see a potential return on their investment.
By contrast, the passage late last year of US President Donald Trump’s tax bill by the US Congress is likely to stimulate investment in the US and draw in investment from overseas. This motivation is likely to outweigh the higher cost of human resources in the US.
The government needs to consider where businesses’ motivation for compliance with a pay rise lies. If it is determined that there is little motivation, then the government should shift its focus to increasing corporate investment motivation. With increased investment will come new jobs, and large numbers of jobs chasing a limited number of unemployed people would give people a stronger hand when negotiating higher salaries.
Darson Chiu is deputy director of the Macroeconomic Forecasting Center, research fellow at the Taiwan Institute of Economic Research and part-time professor in the Department of Economics at Tunghai University.
Translated by Chang Ho-ming and Paul Cooper
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