Why Taiwan’s Average Wage Growth is Slower than Minimum Wage Growth

Taiwan will be reviewing its minimum wage in the third quarter of this year, but despite annual increases to the monthly minimum wage since 2017, Taiwan’s average wage growth has not been catching up. This article looks into why this is the case.

Taiwan’s average wage stopped growing twice as fast as minimum wage

In the early-1990s when Taiwan’s monthly minimum wage was growing the fastest historically by an average of NT$1,033 a year, its monthly average wage also grew the fastest, doubling that of the minimum wage by an average of NT$2,208 a year.

However, Taiwan’s minimum wage then stopped growing for a decade from 1998 to 2006, leading to average wage growing slowly as well. Minimum wage started growing faster under President Ma Ying-jeou, which led to average wage growing faster; but it was only under President Tsai Ing-wen that monthly minimum wage growth recovered to levels similar to that of the early-1990s, by an average of NT$913 a year.

Still, monthly average growth did not recover, and only grew by an average of NT$1,309 a year—or only about 60% that of the early-1990s.

Data source: Minimum wage, average wage

I’ve written previously that among advanced countries, average wage tends to grow at twice the level of minimum wage—higher minimum wage growth pushes up wage growth at other wage levels because businesses would want to “preserve wage structures within their organization”, and ensure that those at higher levels earn higher pay. As can be seen above, this was also the case for Taiwan in the early-1990s when minimum wage experienced faster growth, leading to average wage doubling (left chart below).

However, when Taiwan’s minimum wage stopped growing from the late-1990s to mid-2000s, businesses also stopped giving higher raises to average wage (middle chart).

While minimum wage growth recovered to early-1990s levels under President Tsai, but because businesses have become so used to paying low wages across the board, the higher average minimum wage did not drive much higher average wage growth (right chart)).

It is worse when factoring inflation. In the early-1990s, wages were growing faster but inflation was much lower, which meant that the purchasing powers of Taiwan’s workers were growing.

However, inflation did not cease when minimum wage stopped growing in the late-1990s to mid-2000s, eroding purchasing lowers.

Since the 2010s, inflation is growing almost as fast as wages, leading to purchasing powers barely growing.

Data source: Inflation Rate

Official data for inflation doesn’t account for housing prices, which have been growing several times faster than wages and overall inflation, meaning Taiwanese’ purchasing powers over the last two to three decades are likely severely eroded, in order to buy homes.

Data source: House price index

Taiwan’s profits escalated while wage growth is held back

With wages and costs being suppressed and inflation remaining relatively high, Taiwan’s domestic businesses are thus earning very high profits—as explained previously, Taiwan’s domestic profits relative to minimum wage are one of the highest among the advanced countries.

Data source: Profits (Taiwan, other countries). Note: Non-manufacturing profits are used as a proxy for domestic profits in this article.

When the minimum wage started rising faster from the late-1980s, Taiwan’s domestic businesses took the opportunity to raise consumer prices much faster (left chart below), leading to their profits escalating in the 1990s—much faster as compared to wages (right chart)).

However, when wages stagnated from the late-1990s onwards, the profit spurt abruptly stopped, and profits stagnated as well—alongside wages.

Taiwan’s domestic business profits were growing so rapidly that by the late-1990s, it caught up with other advanced countries like Australia, Austria, France and Finland (left chart below).

However, Taiwan’s wages did not catch up, and remained much lower than theirs (middle and right charts).

Since 2000, Taiwan’s profits have grown on par and remained as high as the other countries, but worse, its wages did not even grow on par as theirs, but have fallen even further behind.

As such, Taiwan’s wages are growing slowly because businesses are choosing to pay themselves more, instead of raising the wages for their workers.

Average wage is suppressed for the high profits of businesses

In the early-1990s, Taiwan’s average wage was growing by twice as fast as minimum wage. In the last decade, it has only been growing by about 1.4 times as fast.

Among most other advanced countries, average wage is growing by twice as fast or even faster. However, Taiwan’s growth is one of the slowest.

In fact, Taiwan’s average wage growth relative to minimum wage has been declining over the last two decades.

Taiwan’s businesses accumulate high profits to pay themselves the highest salaries, and accumulate the highest household incomes—in particular, Taiwan’s businesses have been found to give themselves high salaries, and also arrange for family members to be senior executives in their companies, and then pay them high salaries as well; and wages are suppressed in order for them to do so.

As a result, Taiwan’s total wages (or compensation of employees) relative to minimum and average wage have risen to being one of the highest among the advanced countries (left charts below), signifying that businesses are paying themselves much, much higher salaries than their workers.

Taiwan’s household consumption expenditure relative to minimum and average wage has also risen to among the highest (right charts), signifying how the wealthiest households are able to afford to spend much more.

Data source: Total wages/compensation of employees (Taiwan, other countries), Household consumption expenditure (Taiwan, other countries)

Among countries where average wage growth is low relative to minimum wage growth, their minimum wage growth tends to be higher, leading to the small gap between the two (left chart below). However, even as Taiwan’s average wage growth relative to minimum wage growth is low, its minimum wage growth is instead one of the lowest among countries in the Organization for Economic Co-operation and Development (OECD)—this means that Taiwan’s average growth is being intentionally suppressed.

Among countries where average wage growth is low relative to minimum wage growth, wages also grow faster, so profit growth relative to minimum wage growth is slower (right chart). However, Taiwan is an anomaly where its profit growth is comparatively high, which indicates that Taiwan’s businesses are under-paying wages and over-accumulating profits for themselves.

Countries where profit growth relative to minimum wage growth is lower, also have lower total wage growth to minimum wage growth, meaning that profits are more equitably distributed to workers as wages (left chart below). Taiwan is again an anomaly, where its total wage growth relative to minimum wage growth is much higher, signifying that businesses are accumulating higher profits to pay themselves much higher salaries compared to workers.

Countries where average wage growth relative to minimum wage growth is lower, also have lower total wage growth to minimum wage growth—meaning average wage and total wage growth are on par (right chart). However, Taiwan is a far outlier where its total wage growth relative to minimum wage growth is much higher—this means that Taiwan’s average wage is being suppressed alongside minimum wage, and that the majority of Taiwan’s workers are earning depressed wages, while business leaders pay themselves lavishly.

All this means that the reason why Taiwan’s average wage is growing very slowly is because wages for most workers are being suppressed, in order that Taiwan’s businesses can pay themselves very high profits and salaries.

Taiwan’s imbalanced wages and profits

Average wage growth is slow in large part because Taiwan’s minimum wage is also growing too slowly, and does not have enough upward momentum to push up wages at other levels.

In general, minimum wage is suppressed to enable manufacturing exports to be cheaper, but this instead enriches profits. Taiwan’s minimum wage is growing one of the slowest among OECD countries (left chart below), and thus its manufacturing profits per worker are one of the highest (right chart).

This means that Taiwan’s economy is very imbalanced where profits are overly-high while wages are overly-low—Taiwan’s economic growth is not being shared equitably with workers.

Due to Taiwan’s wages being suppressed and growing so slowly, its minimum and average wages relative to GDP per capita have grown to being one of the lowest among the advanced countries—the decline for minimum wage slowed in the last decade or so because minimum wage growth is recovering to some extent (left chart below), but because businesses are still unwilling to raise wages at other wage levels faster, average wage share has continued declining rapidly (right chart)—thus the reason why Taiwan’s average wage aren’t growing as fast as minimum wage.

Where should Taiwan’s wages be?

If Taiwan’s average wage is to be on par with other advanced countries, it should be at level with its GDP per capita—monthly average wage should be 100% of per capita monthly GDP instead of being only at 67% of GDP in 2024, or at NT$90,989 instead of NT$61,002 today.

The international benchmark for an adequate minimum wage is pegged at 60% of average wage, and Taiwan’s minimum wage should thus be at NT$54,593 a month instead of only NT$27,470 presently.

In other words, Taiwan’s average wage should be about 50% higher than it is today, and minimum wage should be doubled. This would have been achievable if Taiwan had continued growing its wages as other advanced countries did, instead of suppressing its wage growth from the late-1990s.

In my last article, I explained that if Taiwan’s monthly minimum wage had grown by NT$1,500 annually as did other countries at a similar stage of economic growth as Taiwan (like South Korea), its average wage growth would also grow faster. Taiwan’s minimum wage could have grown close to NT$60,000. Average wage could have grown to over NT$130,000.

To the credit of the Democratic Progressive Party (DPP) government, President Tsai Ing-wen during her term raised the minimum wage the fastest since the late-1990s, and President Lai Ching-te has continued this progress last year. However, because minimum wage stagnated so severely for the 20-odd years since then, it requires much higher wage growth for wages to catch up to an adequate level, to be adequate for Taiwan’s cost of living.

Several advanced countries are now rapidly growing their minimum wages to do so. If Taiwan’s monthly minimum wage were to grow by NT$3,000 annually (as countries like Lithuania and New Zealand have been doing in recent years), it would enable Taiwan’s minimum wage to grow to close to NT$60,000 by 2035, and average wage to reach close to NT$130,000.

As explained previously, higher wage growth also leads to higher profit and economic growth, because higher wages drive higher consumption and consumer demand.

To conclude, Taiwan’s average wage has not been growing faster despite higher minimum wage growth in recent years, because businesses have been so used to paying low wages that they are reluctant to pay higher wages. Instead, they choose to use their high profits to pay themselves extravagant salaries, which has contributed to Taiwan’s unaffordable housing crisis, and further exacerbated income inequality in the country.

In order to resolve the current predicament, with the upcoming review of Taiwan’s minimum wage this quarter, the Lai Ching-te administration and labor minister Hung Sun-han need to implement policies to raise minimum wage much faster to an adequate level, in order to lift average wage growth; as well as to curb the profit accumulation excess of businesses. Otherwise, the continuation of Taiwan’s wage suppression and excessive profit accumulation can be destabilizing.

The research group on the Minimum Wage Deliberation Committee should propose a multi-year plan to raise wages to an adequate level based on their research, and the labor ministry should seek consensus with the committee to implement this plan. The cabinet should also monitor and stabilize consumer prices to prevent excessive price increases and profit accumulation, so as to enable purchasing powers to grow and rebalance the economy. Taiwan’s executive and central bank should also implement stricter mortgage rules to bring housing prices more strongly, in order to enable housing’s burden on wages to return to international standards of affordability.

(Featured photo by Matt Hardy on Pexels)