Tue, May 14, 2024 page8

• EDITORIAL: The problem of income inequality

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  The middle classes have always been considered to have a certain degree of economic security and independence, such as by owning a home with a manageable mortgage, having the means to go on a family trip almost every year and to send their children to university, and having healthcare coverage and savings for retirement. Moreover, a strong middle class creates a stable source of demand for goods and services, thus supporting a nation’s economic development.

  However, given rising inflationary pressures, Taiwan’s middle class is feeling squeezed and growing anxious about the future. Some experts have said that in the next five to 10 years, middle-class families might no longer be able to afford the lifestyle that was once accessible to them in the face of rising home prices, mortgages, healthcare expenses, tuition fees and commuting costs.

  The Organisation for Economic Co-operation and Development defines the middle class as those earning from 75 percent to two times the national median income. In Taiwan, the median household income was about NT$940,000 (US$29,002 at the current exchange rate) in 2022 based on Directorate-General of Budget, Accounting and Statistics (DGBAS) data, so those with an annual income of between NT$705,000 and NT$1.88 million are considered middle-income households. While the numbers might need to be adjusted upward given the nation’s rising inflationary pressures, Taiwan’s middle class appears to be relatively stable in terms of income.

  Recently, the DGBAS released Taiwan’s household wealth distribution for 2021, showing the nation’s average wealth per household was NT$16.38 million, with about 71 percent of households coming in below the average, while median wealth was NT$8.94 million. The agency’s data also indicated the average wealth among the top 20 percent of Taiwanese households was NT$51.33 million in 2021, holding 62.68 percent of total wealth, while the average for the bottom 20 percent was NT$770,000, or 0.94 percent of the total.

  With the wealth gap surging from 16.8 times in 1991 to 66.9 times in 2021, does the middle class still exist? Is this segment shrinking or growing? Slowly or quickly? The DGBAS did not elaborate on these questions and only referred to the middle class as the middle 20 percent of Taiwanese households with an average wealth of NT$9.06 million. However, some pundits have said the middle class is slowly disappearing and the wealth standards of middle-class families are also different from the past due to the effect of inflation, while others have linked the plight of the middle class with increasing financial pressures, especially home prices.

  One undeniable fact is that the distribution of the fruits of Taiwan’s economic growth have undergone a subtle transformation, as the wealth gap has widened over the years. Although the government has repeatedly increased the nation’s minimum wage in the past few years, hoping to ensure that corporate profits are reasonably shared by workers at the bottom of the salary structure, those in the middle have seen little change in their salaries for many years, while the rich are getting richer.

  The problems facing the middle class are systemic and the issue is not unique to Taiwan, as the same trend has also been observed in other major economies. If the government fails to address this issue adequately, it could endanger the nation’s social stability with more middle-income families struggling to make ends meet and having no plans to buy a house or raise children. More importantly, Taiwan could follow Europe and the US in facing populist movements that challenge the free and democratic system if social mobility becomes more rigid, an issue the incoming government must pay extra attention to.
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