The average monthly wage in Taiwan in the first seven months of this year was NT$44,286, the Directorate-General of Budget, Accounting and Statistics said last week. The figure is 3.1 percent higher from a year earlier and represents the largest increase in 22 years.
However, with the consumer price index rising 3.17 percent annually during the same period, the average real wage actually fell 0.07 percent annually to NT$41,416 per month, the agency said.
Since 2001, real wages in Taiwan have declined only nine times, despite relatively low inflation rates, with occasional deflation. The most significant drop was in 2008, when real wages fell 2.82 percent, followed by a contraction of 2.45 percent in 2009. Prior to this year, the most recent drop in real wages was in 2016, with a decline of 0.19 percent, agency data showed.
Why did real wages fall this year? Is it really due to inflation or are pay raises in Taiwan too low?
The inflation rate ranged from 3.1 percent to 4.5 percent for six years during the 1990s — compared with an average increase of 3.17 percent so far this year — yet no real wage declines occurred in those years, agency data show. In 1990, for example, real wages rose 8.8 percent against an inflation rate of 4.1 percent, while in 1991 real wages gained 6.9 percent and inflation stood at 3.6 percent.
Rising inflation does indeed squeeze real wages and erode people’s purchasing power, but stagnant wage growth is also an accomplice.
Annual average pay raises have remained below 2 percent over the past few years, even as the minimum wage has seen hikes of about 5 percent for seven consecutive years since President Tsai Ing-wen (蔡英文) took office in 2016.
When the COVID-19 pandemic swept across the world in 2020, the government touted its efforts in containing the spread of the disease and said Taiwan’s economy outgrew those of many developed countries, but real wages in the nation rose just 1.71 percent that year, lagging behind countries such as Singapore, the US and Canada.
This year’s decline in real wages reflects two things: First, most wage earners have over the past few years not seen pay raises similar in scale to minimum wage hikes, as the latter only benefit minimum wage earners.
Second, an annual average pay hike of 3.1 percent being the fastest increase in 22 years shows that wage growth in Taiwan has been very slow since 2001.
Wages should increase at a healthy pace to keep up with the rising cost of living, and the government should not leave the fate of wages to the forces of supply and demand. Rather than intervening in the labor market directly, the government could adopt strategies to propel robust and accelerating growth in nominal wage, such as enabling workers to command higher wages through training, offering wage subsidy schemes to low-wage earners and providing incentives for businesses to raise wages.
Real wages must increase sufficiently and in a timely manner to compensate for people’s declining purchasing power amid rising inflation. It would not only help workers on the lower rungs of the income ladder, but also contribute to stronger, more inclusive income growth in the long term.
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