Recently, a group of Taiwanese models started a sudden campaign on Facebook and Instagram drawing attention to the country’s plight of low wages.
Dubbed “Declare my will to vote,” the campaign has been accused of being a China-led effort to persuade young Taiwanese voters to vote for Chinese Nationalist Party (KMT) presidential candidate Han Kuo-yu (韓國瑜) in the island’s upcoming election by associating wage stagnation with the tenure of President Tsai Ing-wen (蔡英文).
1hr ago, many #Taiwanese models suddenly uploaded the same salute photo on FB page and complain about high house prices and low salaries in Taiwan. They use the same tag #myvotingwill #宣告我的投票意志
It reminds me a news this April that China gov was hiring pro-CN TW models. pic.twitter.com/1YhGrZ2ygG— Austin H. Wang (@wearytolove) December 19, 2019
However, Taiwan’s minimum wage has grown faster under Tsai than it did under the country’s previous two leaders. Tsai has pointed out herself that the minimum wage increases she has made over the past three years is “on par with that of the previous government over the past eight years.”
Tsai is right. One key reason why Taiwan’s minimum wage stagnated was because her predecessors, Chen Shui-bian (陳水扁) and Ma Ying-jeou (馬英九), allowed it to.
Since martial law was lifted in 1987, Taiwan has had four elected presidents. The first, Lee Teng-hui (李登輝), increased Taiwan’s monthly minimum wage by a compound annual growth rate (CAGR) of 6.25% from 1988 to 1999. (Lee spent eight years in office before winning Taiwan’s first democratic presidential election in 1996.)
Taiwan’s next two presidents did not improve the wage situation much. Minimum wage only grew by a 1.25% CAGR under Chen from 2000 to 2007 and a 2.12% CAGR under Ma from 2008 to 2015. Once Tsai came into power, however, the minimum wage rose by a higher CAGR of 4.43% from 2016 to 2020.
In fact, Taiwan’s minimum monthly wage was raised only once under Chen, in 2007. Under Ma, the minimum wage was allowed to stagnate for three years: 2008, 2009 and 2015.
On the campaign trail, Tsai has championed her achievement in increasing Taiwan’s minimum monthly wage, which will be set at NT$23,800 (US$791) starting on January 1, 2020.
To put her minimum wage increases in perspective, I decided to look at how minimum wage would have increased if Taiwan’s minimum wage starting from Chen’s era had grown as quickly as Tsai’s CAGR.
The minimum wage would have risen to nearly NT$40,000 (US$1,300) a month in 2020 if minimum wage had risen as quickly under Chen and Ma as it has under Tsai, or 65% higher than what it will be next year.
For comparison, I also decided to look at how wages would have grown since Chen’s era if it has grown as fast as Lee’s minimum wage increase from 1988 to 1999. The minimum wage would have risen to NT$56,580 (US$1,850). In other words, Taiwan’s minimum wage would have been more than 100% higher than what it will grow to next year.
But are such wage increases realistic?
I decided to compare these projections with Taiwan’s closest competitor, South Korea. I have previously argued in The News Lens that, while South Korea had a lower minimum wage than Taiwan prior to 2004—in fact, it was as low as half that of Taiwan’s in the 1990s—the country’s minimum wage has since risen to be twice as high as Taiwan’s.
However, based on my projection, if Taiwan’s minimum wage had grown as fast as it had under Lee Teng-hui, Taiwan’s minimum wage today would still be higher than South Korea’s—at NT$56,580, compared with South Korea’s NT$52,393.
Even if the minimum wage had risen as quickly as it has under Tsai’s increases, Taiwan’s minimum wage today would still have kept pace with South Korea, increasing to NT$39,363.
However, half of Taiwanese private-sector workers still earn less than NT$39,000 today, while 70% of young people aged under 35 years old still earn less than NT$40,000.
Taken together, if Taiwan’s minimum wage had risen as quickly as it had under either Lee or Tsai, Taiwan’s minimum wage would be on par with that of South Korea. As it is, however, South Korea today has a minimum wage twice that of Taiwan’s.
If we are to compare Taiwan with other advanced economies with a similar GDP per capita, the same pattern can be seen.
In a previous article for Ketagalan Media, I compared the minimum wage of Taiwan with those of Asian and European advanced economies with a similar GDP per capita (between US$15,000 and US$35,000; Taiwan’s GDP per capita is about US$25,000).
Taiwan, at one point in the 1990s, had the highest minimum wage among this group. Since the 2000s, however, it has stagnated to the gap between the higher-income and lower-income economies in this group.
However, if the minimum wage had increased at the rate it had under Lee, Taiwan would have maintained its pole position with the highest minimum wage in this comparison group of countries.
If Taiwan’s minimum wage had grown as quickly as it has under Tsai, Taiwan’s minimum wage would still be second highest in this comparison group, just below South Korea and higher than Spain. (Spain’s minimum wage this year is €1,050, or US$1,169.)
If Taiwan’s minimum wage had grown based on President Tsai’s minimum wage CAGR, it would have grown to NT$37,693 (€1,120, US$1,247) today, or 60% higher than the current minimum wage.
But would a minimum wage higher than Spain’s be realistic?
One way to look at this question is to compare the cost of living between these countries. While Taiwan has a minimum wage lower than Spain, Slovenia, Greece and Portugal, its cost of living is actually the highest among the group. This cost of living comparison suggests that a minimum wage higher than Spain’s is reasonable.
According to the 2019 Knight Wealth Report, Taiwan has 35 billionaires—higher than Spain’s 29 and Greece’s four. (Malta, Portugal and Slovenia have even fewer.) But Taiwan’s minimum wage is still lower than all these countries, which suggests a huge income disparity in Taiwan.
I also did a projection to look at how much Taiwan’s minimum wage would need to increase if it were to go up in the next five years to catch up with the minimum wage growth based on the CAGR of Lee Teng-hui—Taiwan’s minimum wage would need to grow by 26% every year to NT$76,614 by 2025. (For context, Spain’s minimum wage grew by 22% this year.)
Even if minimum wage were to increase based on Tsai’s minimum wage CAGR, minimum wage would still have to grow by 15% annually to hit NT$48,889 in 2025. (For context, South Korea’s minimum wage grew by 16.4% last year.)
President Tsai and her vice-presidential running mate, former premier William Lai (蔡英文), have also on various occasions in the last two years suggested that NT$30,000 is a more reasonable minimum wage for Taiwan. (This has yet been put into policy.) In 2018, former vice premier Shih Jun-ji also floated the possibility of increasing minimum wage by 6% every year over a period of four years to achieve a NT$30,000 minimum wage. Labor groups have advocated for a higher minimum wage ranging from NT$27,711 to NT$28,862 over the last few years, which they say is necessary to be commensurate to Taiwan’s cost of living.
After Tsai’s Democratic Progressive Party (DPP) suffered a crushing defeat in November 2018’s regional elections, Taiwan’s Ministry of Labor announced a minimum wage draft bill which was sent to the Executive Yuan for review in June this year. The bill proposed taking into account the consumer price index as well as Taiwan’s “economic development status” in the calculations of Taiwan’s minimum wage.
Increasing minimum wage in Taiwan is clearly an urgent issue due to the extent to which it has been depressed and its disparity with Taiwan’s cost of living. Despite this, Tsai faces competing objectives and challenges in doing so in her current presidency.
The opening up of China led to a dramatically increasing outflow of Taiwanese businesses into China under the administrations of Chen and Ma, leading to wages being depressed in Taiwan as big Taiwanese businesses could simply move to hire lower-wage workers in China if they had to. President Tsai has worked in her first term of presidency to stave off this outflow, and has reduced the proportion of Taiwanese outward investments in China from over 50% of all investments to 35% this year. On the other hand, as Tsai has also spent the past year luring Taiwanese businesses in China back to Taiwan in the midst of the U.S.-China trade war, she may be feeling a need to keep costs low for returning businesses.
Nonetheless, returning Taiwanese businesses seeking government support have been required to invest in higher-value production under the government’s 5+2 innovative industries plan, which Tsai’s administration says is focused on higher-value businesses and sustainable development. In fact, businesses are required to pay a minimum salary of NT$30,000 to workers under this plan.
Tsai’s strategy has arguably been successful. A United Nations research paper reported Taiwan as being the main beneficiary of the trade war, as U.S. companies look to Taiwan for replacement of intermediate products which they previously sought from China. However, in her bid to attract Taiwanese businesses to return, Tsai may feel compelled to hold back on further minimum wage increases to attract contract manufacturers who would otherwise turn to other lower-cost manufacturing sites in the region such as Vietnam, Thailand or Malaysia.
But Taiwan’s continued reliance on the low-cost and low-wage model has repercussions.
While Taiwan has seen successes in, for instance, becoming the world’s top market for semiconductor equipment, Taiwan has become stuck at the level of contract manufacturing. This produces slim profit margins, therefore putting a further squeeze on workers’ wages and reducing the resources necessary for innovation, thereby leading to a decline in innovation among Taiwan’s big businesses. Taiwanese brands have thus struggled to compete at the level of countries like South Korea, which have built up global brands like Samsung – even though, prior to the 2000s, Taiwan had greater economic leverage than South Korea. In fact, Taiwan once had a higher GDP per capita than South Korea. But as Taiwan’s minimum wage became depressed and went below South Korea’s in 2004, so did its GDP per capita.
Tsai has recognized these problems and has thus focused on developing higher-value industries and increasing wages. Last month, she unveiled a proposal to turn Taiwan into a “high-end research, development and manufacturing hub.” At the first live policy presentation a few days ago, she also proposed providing youth entrepreneurs with up to NT$1 million in 100% guaranteed loans.
Tsai has also increased minimum wage at the fastest pace in the last 20 years. During her presidency, starting salaries for university graduates grew to NT$28,116 in 2016, surpassing 1991 levels for the first time, and real average wages this year finally grew to the level they were 17 years ago.
However, a survey conducted by the National Applied Research Laboratories, a research institute affiliated with Taiwan’s Ministry of Science and Technology, found that wages remained among the top concerns of Taiwanese—which will surely have an impact on the legislative election which will be held alongside Taiwan’s presidential election on January 11.
Tsai should be credited for trying to restructure Taiwan’s economy away from big business’s reliance on China’s low costs, to high-value production and higher wages. But moving from Taiwan’s minimum wage of NT$23,800 next year to the “ideal” minimum wage of NT$30,000 that Tsai and Lai have both considered would still require a 26% increase.
This is still not accounting for the fact that Taiwan’s minimum wage should increase to around NT$40,000 if it were to be commensurate to the cost of living in Taiwan, when comparing Taiwan with other advanced economies.
But Tsai is faced with the challenge of undoing what her predecessors had locked Taiwan into: A low-cost model, powered by low wages. Undoing this sticky situation is going to take time. Tsai has spent her first four years trying to reverse the situation, but she might need more time to bring Taiwan back on track with the growth momentum it has lost due to an excessive dependence on the low-cost model. Whether she will be able to do so will depend on whether she takes bold moves to uplift workers’ wages to a level more commensurate to the cost of living, and whether her investment in higher-value production will pay off to create higher-paying jobs. First and foremost, her government must pass the minimum wage bill and strengthen labor laws so that workers can be empowered to push for higher wages.
Whether or not Taiwan can free itself from its current stagnation to catch up with other advanced economies—including its closest competitor, South Korea—depends on whether Tsai is ready to take bold steps in her second term. Tsai, for her part, believes she is ready. As she said earlier this month, she “just needs a little more time to complete what needs to be done.”
(Cover photo via Taiwan Presidential Office, CC BY 2.0)
