The Riddle of Low Taiwanese Wages

For Asia Sentinel www.asiasentinel.com

Despite the fact that Taiwan has averaged healthy 5.72 annual gross domestic product growth since 1981, wages have stagnated, barely keeping up with inflation and rising only 1.5 percent in real terms over the past seven years. Conditions should militate for rising wages, with unemployment at a three-year low, the size of the labor force at an all-time high and the granting of unpaid leave to adapt to weaker order books falling sharply. But in Taiwan they don’t.

The issue has come to the fore after Singapore Deputy Prime Minister Tharman Shanmugaratnam, in remarks to the Singapore Parliament, recently used the island’s labor policies as an excuse to argue against strict immigration laws of the kind Taiwan has in place.

Citing a survey by the East Asian Institute at the National University of Singapore, which showed that the nominal income of the average Taiwanese has remained flat for more than a decade, Shanmugaratnam argued that Taiwan’s strict immigration laws are to blame for the island’s brain drain and diminished real income for those who choose to stay. Singapore, he said, risked becoming a “Taiwan story” if it closes its own doors.

Rather than feeling insulted by an official from a fellow Asian Tiger – which actually has its own grave brain drain problems –Taiwanese officials largely appear to agree. Premier Sean Chen called Shanmugaratnam’s observation “worthy of reflection.”

While the Taiwanese Council of Labor Affairs acknowledged the existence of a Taiwanese brain drain, the council dismissed the claim that unreasonable immigration policies are to blame. According to CLA Deputy Minister Pan Shih-wei, regulations on the island are less strict than those in South Korea, Hong Kong or Thailand, but it doesn’t have any impact on local wages.

Whether Shanmugratnam’s criticism is valid or not, the figures tell a grim story. Over the past decade, 20,000 foreign white-collar workers and technicians annually have immigrated to Taiwan, with up to 30,000 Taiwanese emigrating overseas. That the latter decided to leave the island for greener pastures is hardly surprising: Average salary, at about US$1,500 a month, is the lowest among the four Asian tigers, growing at a mere 0.8 percent per year from 2000 to 2010. Adjusted for inflation, real wage growth during the period has gone negative. This year so far has seen real actually wages decline by 1.42 percent. New degree holders start with monthly pay of under US$1,000 if they take a job in Taiwan, about half of what they would get in Singapore. The fact that the majority of Taiwanese enterprises froze salaries in 2011 certainly didn’t help persuade them to stay.

Adding to the malaise, a leaked US State department cable in 2008 pointed out that while employees may be doing badly, executive and management pay increases have been rising faster than that for general staff.

For some, the appearance of low wages may be illusory. High-tech companies tend to use stock profit-sharing to keep wages down, thus supplementing basic incomes, according to Tony Liu, a human resource consultant with Towers Watson, a global consulting firm.

“This satisfies employees, making them not demand higher pay or other incentive plans while at the same time ensuring the company can keep its tax rate at 10 percent per share.”

Since Taiwan implemented new regulations two years ago, stocks given to employees have to be recorded at market value on companies’ balance sheets, therefore much decreasing the incentive for employers, he said, but as the method was promoted by the government for many years in order to strengthen the island’s high-tech sector, it naturally left a significant mark on domestic wages.

However, large numbers of people don’t work in the high-tech sector, and they are stuck with low wages.

Hu Sheng-Cheng, an economist at Academia Sinica, Taiwan’s most respected research institution, argued that the crux of the problem is Taiwanese officials’ failure to grasp what talent actually is.

“The Council of Labor Affairs sees its responsibility in protecting domestic blue-collar workers, but they don’t understand that talent and ordinary workers are two very different things,” Hu said. “The prevailing attitude is that all foreigners who come here to work, including experts, do so in order to grab local blue-collar workers’ jobs.”

Hu added that Taiwan’s high-tech companies would have never become successful in the first place without the contributions of overseas Chinese who were recruited from elsewhere or were allowed to stay in Taiwan after graduation at Taiwanese universities, listing Morris Chang, the founding Chairman of Taiwan Semiconductor Manufacturing Company (TSMC), and Quanta Computer Chairman Barry Lam as examples.

“Without reasonable wages, we can neither make local talent stay nor recruit foreigners. Because our government officials and legislators lack awareness, we lose international competitiveness and let those people be grabbed by China,” Hu said.

Academics are particular victims of the low-wage policy. Strict immigration laws for faculty are solely aimed at mainland Chinese, said Ronald A. Edwards, an expert on China’s political economy and professor at Tamkang University.

“Taiwan offers salary and benefits packages to academics that measure only up to a quarter or a third of what Hong Kong and Singapore offer,” Edwards said. “And recently mainland China has been offering better salaries than those in Taiwan.”

“But the immigration policy only applies to scholars who are from mainland China, not to those from other countries.”

Edwards contended that “The only way Taiwan is going to be able to compete in the international academic world is if they pay for it like everyone else. The government constraints on salaries should be removed and market forces should be allowed to work. But the money has to come from somewhere so some combination of three things will ensue: taxes increase, tuition increases and the reduction of the number of total faculty.

Towers Watson’s Tony Liu singled out the prevailing mindset of employers, as well as other Taiwanese peculiarities, as further reasons for Taiwan’s comparatively low wages.

“An annual wage increase of 5 percent is considered huge in Taiwan by employers, no matter how big their company’s profit,” Liu said. “Another factor is that unlike Korea, Taiwan doesn’t have strong unions, and also Taiwan isn’t governed as an authoritarian state.”

In Singapore, Liu continued, the government can effectively jawbone companies to raise wages, whereas its Taiwanese counterpart can hardly do more than “encourage”.

But if more foreign talent were to be invited in, it would eventually make the difference Shanmugaratnam talked about, Liu concluded.

He explained that if foreigners come in only sporadically as they do now, they’ll simply replace locals who are then moved to different positions with lower pay, but if more foreigners come, it’s another matter.

“Such an influx initially leads to different pay structures within one company, which, however, cannot last very long. To avoid internal inequality, wages for local employees must be adjusted at some point,” Liu said.

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