Thursday, September 26, 2013

The 1% Government

Taiwan is getting pummeled by several long-term trends  -- the financial liberalization of the late 1980s that brought in big global financial players, to Taiwan's detriment; the shift of factories and investment to China; and governance by the KMT. The trend is clear, as Commercial Times observed in another hard hitting editorial:
According to government statistics, the disposable annual income of people aged below 30 averaged only NT$366,000 (US$12,388) in 2012, lower than NT$380,000 in 1999.

In 2012, the starting monthly salaries for bachelor's degree holders averaged NT$26,000, down from NT$28,000 in 1999. The average starting salary of master's degree holders was NT$31,000, up only slightly from 13 years ago, when the average salary was NT$30,000.

There is an obvious trend in which wealth is concentrated in the hands of the older generations.

In 2010, 75 percent of residential properties in Taiwan were owned by people aged 45 or older, with homeowners younger than 35 accounting for only 8 percent. Many of these young homeowners are believed to have obtained financial support from their parents. In other words, the situation for young people is even worse than it appears.
This wealth gap between generations, as this Commercial Times points out, is cushioning the blow this brutal economy is giving the young. Meanwhile the KMT continues to serve the big money -- still no real stock tax, no change in the land tax (here), and now the premier wants to chain the minimum wage to the consumer price index (CPI), essentially freezing it at the current low level for the next few years:
Premier Jiang Yi-huah (江宜樺) yesterday decided that beginning next year, the minimum wage will be contingent on growth in the consumer price index (CPI), a policy drawing severe criticism from labor groups.

With a threshold of a cumulative CPI growth of 3 percent or higher needed before the minimum wage will be reviewed, “it is highly likely that the basic wage levels will remain stagnant in the remaining three years of President Ma Ying-jeou (馬英九) tenure,” Taiwan Labor Front secretary-general Son Yu-lian (孫友聯) said.
This means that the government can hold wages down without appearing to, simply by lowballing the CPI. Theoretically, wages will always remain the same relative to prices, which means that laborers will never be able to capture a larger share of the pie, at least while the Ma government is in office. Since 2007 and especially since the Ma Administration came to power, wages have regressed while productivity has boomed. Taiwan's gap between CPI changes and wage changes was the highest in the world in 2010. The Ma government wants to freeze this historically anomalous situation and treat it as the norm. The struggle for control of Taiwan between the pro-China and pro-Taiwan sides really masks the brutal and ongoing defeat of Taiwanese workers economically; it enables both parties to enlist workers on their side via their tribal social identities while screwing them out of their rightful livelihood.
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22 comments:

Taiwan Echo said...

"The struggle for control of Taiwan between the pro-China and pro-Taiwan sides really masks the brutal and ongoing defeat of Taiwanese workers economically; it enables both parties to enlist workers on their side via their tribal social identities while screwing them out of their rightful livelihood."

Sad.

Lately I try to argue that "political alliance between green and light-blue" is the best and the only direction for Taiwan. So far I've got zero support. ZERO.

Mike Fagan said...

"Premier Jiang Yi-huah (江宜樺) yesterday decided that beginning next year, the minimum wage will be contingent on growth in the consumer price index (CPI)...

...Taiwan's gap between CPI changes and wage changes was the highest in the world in 2010. The Ma government wants to freeze this historically anomalous situation and treat it as the norm.


Jiang Yi-huah is talking about the minimum wage, yet you seem to be drawing conclusions from that about wages in general, which is strange because wages in general are not determined by changes to the minimum wage, but by variation in the supply of labour and the demand for labour.

I don't see how the government can be blamed for "holding wages down", unless you are specifically talking about the minimum wage only.

A second point: presumably the government has no idea how many young, poor students are earning less than minimum wage in informal, untaxed employment. But surely there must have been some journalist who has covered this story?

Nathan Burns said...

I am always amazed by stories like this. Democracy is based on the idea that people are self-interested. Workers should vote for people that increase their standard of living. There has always been a struggle between labor and business. But they key development of democracy and labor unions were that it was supposed to be in balance.
Business and political parties have gotten "smarter"
"it enables both parties to enlist workers on their side via their tribal social identities while screwing them out of their rightful livelihood."
By taking advantage of social identities and creating some of their own, the conversation has shifted away and leads people to be concerned with stuff and issues that are not in their best interest. Why on earth would you vote for a person that is out to screw you?
Lenin must be screaming from inside his glass tomb, and i for one wish he didn't have a point.

Joel Linton said...

Raising minimum wage does not increase standards of living. It merely increases cost of living now offset by a slightly higher wage for some. (It is a gimmick by politicians that is detrimental on the whole.) Raising minimum wages also constricts the number being employed at entry level positions, thus also limiting the ability for many to get experience.

In I-lan where there is a building boom, yet a shortage of construction workers, their wages are higher (without government intervention) because of supply and demand.

We don't not need any more forcible redistribution schemes like increased land taxes or inheritance taxes. We rather need regulations against corruption and against detrimental and short-sighted practices of developers making a big/quick buck. And Taiwan needs to stop exporting its know-how to China. Rather set up a factory in the Philippines than give it to Taiwan's greatest enemy. The government should increase Tagalog and Vietnamese languages classes for Taiwanese if they want to do something beneficial.

Michael Turton said...

""Raising minimum wage does not increase standards of living. It merely increases cost of living now offset by a slightly higher wage for some.""

LOL. If only there was any history that supported your view. Since the US minimum wage is about 1/3 of where it should be if it had risen with the government's inflation figures, there out to be gazillions of jobs... in fact, as gazillions of studies show, raising the minimum wage has no apparent negative effects on employment. You can review some of them here:
http://www.raisetheminimumwage.com/pages/job-loss

"""n I-lan where there is a building boom, yet a shortage of construction workers, their wages are higher (without government intervention) because of supply and demand."""

Nope. Because the minimum wage is set too low in Taiwan, the "higher" wages that emerge in pockets like this (assuming your claims are true) are lower than they would be otherwise. That is why the government sets the minimum wage low in both the US and Taiwan -- to pull down wages across the board (the foreign workers here have that function as well). The low minimum wage is simply a transfer of money from the working class to the wealthy, since the productivity gains that should be reflected in gains to wages are instead reflected in gains to the wealth and income of the top 1%. The government essentially wants to freeze this screw-the-poor inequality in position with its CPI-wage proposal.

Your position carefully pretends that there are no structural features that bias labor markets in favor of powerful corporations who bargain collectively with individual workers and own the government. The ignorance of your position lies right here:

""We don't not need any more forcible redistribution schemes like increased land taxes or inheritance taxes.""

The low land tax is redistributive, it makes land a tax shelter for the rich. It is the result of government intervention on behalf of construction firms and the rich (which strangely, your kind seems to like a lot). The only way to stop that redistribution of wealth upward is to raise it.

You're Joel Linton the missionary, right? A "Christian" missionary arguing that the poor and the workers should be well and truly screwed and the rich coddled and protected. Why am I not surprised?

Michael

Michael Turton said...

Lately I try to argue that "political alliance between green and light-blue" is the best and the only direction for Taiwan. So far I've got zero support. ZERO.

That's the function of those tribal identities... they separate the middle and working classes into two opposed groups, so they can't work together for their common economic and social interests. The KMT's fake "Chinese" identity is functionally identical to the "White" identity that southern plantation owners invented to create solidarity with poor whites so that they could get the poor and middle class to enforce slavery for them -- which dragged down wages and hurt the economic and social advancement of the poor and middle classes. Surprise surprise.

I don't know what can be done about it. It seems like all over the world our tribal political identities are preventing solidarity and progress.

Readin said...

The fact that raising the minimum wage too high must cost jobs or cause inflation is pretty hard to dispute. Consider what happens if you make the minimum wage American $1,000,000 per year. You certainly wouldn't hire any workers at McDonald's for that wage without raising prices.

If indeed there is a level at which raising the minimum wage doesn't cost jobs, we need to understand what level that is, and what would cause a breakage in the fundamental economic law of supply and demand.

However it seems more likely that at some point the difference is simply too small to be picked up by the imprecise tools available to economists - that the rise in unemployment would get lost in the noise of other events.

Studies that purport to show that a rising minimum wage does not cause rising employment seem suspect to me because of the fact that to deal with such noise, economists have to make assumptions about what they're seeing. Those assumptions can be wrong and for a question with so much political baggage the assumptions can be biased.

However I can imagine one condition that would account for a rising minimum wage having such a tiny effect on unemployment that it would escape notice, and that is where wages are lower than they should be due to the inherent advantage of "divide and conquer" that some industries have over their employees. The lowest wage jobs usually are not unionized, and so with many workers and fewer job-providers, such workers have fewer choices and even without collusion the minimum wage can become a de-facto standard for the industry. The other advantage the job-providers have is that they know more about the opportunities available to the workers than the workers do, and that knowledge is power. So a government mandated minimum wage could have the effect of pushing wages to where they should be rather than higher than they should be for many jobs.

However there will always be at least a few workers who get priced out of the market because they're labor isn't worth that much.

Readin said...

"Since the US minimum wage is about 1/3 of where it should be if it had risen with the government's inflation figures, there out to be gazillions of jobs"

Lowering the minimum wage doesn't create jobs, it simply prevents the elimination of very low-wage jobs. We have millions of those but we have millions more illegal immigrants who are willing to work for that and even for less.

We keep being told we need more illegal immigrants to fill jobs like there is a labor shortage, but then we get told we need a minimum wage because labor isn't worth that much. I wish they would make up their minds.

Readin said...

"Democracy is based on the idea that people are self-interested."

Yes and no. It is definitely based on the idea that leaders are self-interested and can't be trusted, so the people need a way to get rid of them.

But it is also based on the idea that people have decency in them. The American founders wrote many times that the decency and religious beliefs of the American people would be critical to making the great experiment succeed.

More to the point, it was pointed out that democracy is doomed to fail as soon as 51% of the people realize they can vote themselves monies from the treasury.

Quite a few people believe America has reached that point.

What Americans need is more Americans willing to vote for what is good for America rather than for presents from politicians dressed up as Santa Claus.

Readin said...

"That's the function of those tribal identities... they separate the middle and working classes into two opposed groups, so they can't work together for their common economic and social interests."

This is something America and Taiwan both have to deal with. In Taiwan there is antagonism between aborigines, Chinese, Hakka, and Hokkien that can be exploited. In America there was an attempt to remove the antagonism between blacks and whites, but the Democrats have found that by promoting antagonism and placing tribal loyalties above American loyalties they can gain advantage.

It threatens to destroy both countries.

Mike Fagan said...

"...raising the minimum wage has no apparent negative effects on employment."

I would think that rather depends on the extent to which it is raised, don't you? If the minimum wage in Taiwan were raised tommorow to say, NT$1,000 per hour, then everyone currently earning less than that would suddenly find themselves unemployed (or more accurately, employed in the "informal" market). Presumably, that would be a lot of people. In any economy, there has to be a natural limit to which a minimum wage can be raised without seeing large effects on unemployment. That's why minimum wages tend not to be increased much by governments, not because of "the rich" twitching away behind some purple curtain.

"That is why the government sets the minimum wage low in both the US and Taiwan -- to pull down wages across the board..."

I'm going to assume you'll be good and tell us all what you mean by "across the board"? I don't see how the level at which the minimum wage is set can affect wages "across the board" unless either (a) the share of the working population earning minimum wage is very high, or (b) the minimum wage is increased to a rate that eclipses a very large share of existing wages.

Taking your statement at face value, you appear to be saying that the wages of say an entry to mid level engineer or manager or whatever (e.g. somewhere between NT$40,000 to NT$100,000 per month) are "pulled down" by the minimum wage being set at a given "low" value. Is that what you are actually trying to persuade people of?

Michael Turton said...

That's why minimum wages tend not to be increased much by governments, not because of "the rich" twitching away behind some purple curtain.

LOL. The minimum wage for tipped (i.e. restaurant waiter/-tress) workers in the US is $2.13. Why?

Mike Fagan said...

Why do the likes of you insist on "managing" and harassing the poor by tying them to shitty minimum wage jobs, instead of abolishing all their taxes and paying them a supplemental minimum income?

Mike Fagan said...

"The minimum wage for tipped (i.e. restaurant waiter/-tress) workers in the US is $2.13. Why?"

How does the government setting the minimum wage low "pull down" wages "across the board"?

Michael Turton said...

Why do the likes of you insist on "managing" and harassing the poor by tying them to shitty minimum wage jobs, instead of abolishing all their taxes and paying them a supplemental minimum income?

Who is this addressed to?

Readin said...

"LOL. The minimum wage for tipped (i.e. restaurant waiter/-tress) workers in the US is $2.13. Why?"

I don't follow how this is related, but the reason is that they make up in tips what they lose by having a lower minimum wage.

This is fair to the restaurant because the restaurant has to consider tips when setting the price for customers. People going out to eat know that a 10$ steak costs more than 10$ once they figure in the cost of the tip.

Whether you believe the minimum wage should be higher or lower, why would you object to trying to keep the cost consistent for all kinds restaurants?

Michael Turton said...

The minimum wage is $2.13 because the National Restaurant Assoc. bribed Congress to set it that way. It's been that way since 1996.

The function of tips, Readin, is to enable employers to get away with paying poverty wages.

Michael

Michael Turton said...
This comment has been removed by the author.
TMLutas said...

Low wages are capitalism's way of saying "go do something else". If you want to increase the lot of workers whose majority income appears on payroll (whether hourly or salaried) and not as bonuses or stock options payments, increase labor demand.

In the US, there are huge gaps in government oversight. I spotted this and am trying to set up a company which, when fully built out I expect to employ somewhere between 10k-15k, mostly as independent contractors and franchisees. It doesn't require a change in law. I don't have to wait for anybody's permission. I'm just applying some very simple observations and turning them into a business.

I expect that the elite will mostly not like what I am doing but have purposely positioned the product so that it will be distinctly uncomfortable for them to drive me out of business.

So that's what I can do. A few thousand other bright ideas like that and we knock unemployment down to reasonable size. A few hundred more and wage pressure starts rising, leading to outsourcing and a ripple effect of increasing labor demand in other countries.

The dance will end when the last bad governance hellhole has its first couple of decades of good governance and no more large pools of underutilized labor exist. Until then, the best thing to do is to keep inventing new things, producing, and creating services to create labor demand.

Mike Fagan said...

"Low wages are capitalism's way of saying "go do something else"."

Not quite. That mechanism (low wages, i.e. prices) is the mechanism of the market, not of capitalism. Markets work via prices and are therefore a necessary condition for capitalism just as they are also a necessary condition for mutualism (e.g. the Co-Op).

taipeir said...

Minimum wages matter, especially for people in rural or in centre or South of Taiwan or older people. These menial jobs will still exist anyway, the profit margin is there through GDP growth over the last decade, it just hasn't been shared with the bottom tier of workers.

Minimum wages ARE commonly used to set a base rate for wages, as anybody familiar with the way Taiwan business operates would know. How many times over the years have I heard 'we abide by the labour law regulations'...code speak for we do the minimum for employees under the law.

Taiwan has very low unemployment, but wages are very sticky to the low end, so it tells you that the idea that the 'market will find it's own price' is often wrong, because the 'market can be fixed' is as plain as the nose on your face also.



Mike Fagan said...

"Minimum wages ARE commonly used to set a base rate for wages, as anybody familiar with the way Taiwan business operates would know."

Taipeir, you appear to be saying that employers calculate other wage rates ("across the board"?) using the minimum wage rate and a set of multipliers as a function. Is that correct?