Friday, August 25, 2017

Taiwan's low wage slow motion economic disaster

Locks hung by lovers to symbolize relationships never broken at a truly silly lovers' corner behind the big temple in Beimen, Tainan.

Thanks for all the kind thoughts for speedy healing, dear readers. I really appreciate that you took a moment to say that.

News Lens ran an excellent piece on the low wage + low productivity trap that is stifling Taiwan's economy. I'm excerpting it here but read the whole thing, it is devastating...
The Basic Wage Deliberation Committee has proposed to increase Taiwan’s minimum wage from NT$21,009 a month this year to only NT$22,000 (US$725) next year, after a meeting earlier this month.

The committee, which is made up of representatives from the government and businesses, as well as from the labor unions and academia, meets every year in the third quarter to discuss whether to raise the minimum wage for the following year. The committee comes under the Ministry of Labor (MOL).


The Taiwan Confederation of Trade Unions Chairman Chuang Chueh-an (莊爵安), who is a member of the committee, had said last Wednesday that a consensus was reached with the committee on raising the minimum wage to NT$27,711 (US$931).

However, the committee has since made an about turn.

Even so, business leaders felt the need once again to come out against the proposed increment – even as it is small. Corporate representatives simply walked out of the meeting halfway through it.

As New Lens points out, the common saying in Taiwan is that minimum wage is 22K, but this bit of wisdom is wrong: the actual minimum is 21K. Note that labor wanted a large increment, but business groups simply walked out of the meeting when a much fairer minimum wage was proposed.

The problem is not that corporations are doing poorly. Quite the opposite, as the piece notes:
From 1992 to 2015, the profit share of Taiwan’s corporations, as a percentage of GDP, has kept growing, from 29.28 percent to 35.08 percent.

However, whereas the profits of Taiwan’s corporations have grown, the wage share of Taiwan’s workers has continuously dropped, from 51.04 percent to 43.97 percent.
Profits, productivity, and the economy are all growing. The only reason that wages are not keeping pace is because political decisions made by powerful elites are suppressing wage growth. The gap between wages and productivity represents money stolen from workers and handed to already incredibly wealthy corporate owners. Such a massive transfer of wealth could not be sustained over decades unless it was maintained by political choices at the top.

A paper out this year, Real Wage Stagnancy: Evidence from Taiwan (Huang and Huang, Singapore Econ. Rev., 2017) observes:
We empirically demonstrate that, despite the continued growth of labor productivity, the benefits from economic growth allocated to workers have been falling, and that this process has accelerated following the 2008–2009 financial crisis. The labor market institutional effect contributed partially to the problem. Workers’ purchasing power, measured by the real consumption wage rate, has been declining for a relatively long period, implying significant deterioration of terms-of-trade, and cutting real wage growth by as much as 2.23% per year. The terms-of-trade effect is particularly prominent in the manufacturing sector, which is highly export-oriented. Moreover, we found cash wages to be very sensitive to the rise in the rate of unemployment, and to the changes in output performance of the industry in which the workers are employed. The latter factor significantly reduced the cash wages paid to workers in the manufacturing sector, which highlighted the waning of workers’ bargaining power regarding wages, as well as the negative impact of globalization on the labor market. We therefore conclude that the deterioration of terms-of-trade, increases in the aggregate unemployment rate, the adverse globalization effect and the institutional effect might be the main driving forces for real wage stagnancy in Taiwan.
It's important to realize a couple of things. First, globalization is not to blame. Globalization is an external force, which locals must respond to. When typhoons come and some town floods, no one says "oh, that can't be helped, typhoons do that". Everyone instead asks why the government did not anticipate the flood.

Globalization is similar. If workers are pummeled by globalization, then the question that needs to be asked is why the government isn't doing anything about it. When people offer globalization as a "cause" of low wages they are engaging in a game of Three Card Monte with causation, hiding the reality of political suppression of wage growth behind "it can't be helped, it's globalization".

Second, this longtime productivity wage gap -- note that it began worsening severely at the beginning of the Ma years though it long predates that -- is pro-China. Whether Beijing's policies or Taiwan's corporate elites slowly erode Taiwan's economy is not relevant, because the outcome is the same. Want an independent Taiwan? We need a robust economy, with good wages and strong unions.

This paper also observes that expanded college access since 1990 has actually worsened the wage gap, since many more poorly trained grads are landing in the economy. We need to reinstate the vocational college system which produced so many SME owners and skilled laborers for the export economy.....

I do not expect anything to change under Tsai, partly because powerful corporate interests own one party and heavily influence the other, and because Tsai is a neoliberal, not a progressive.
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Shultz Lu said...

Thanks Mike! Great article.

Ed en Vadrouille said...

How would you explain that during Chen Shui Bian's mandate the minimum wage was not revised at all?
(This is Edouard, btw).

Kreditanstalt said...

"...political decisions made by powerful elites are suppressing wage growth..."?

Are you seriously suggesting that wages would somehow (naturally!) be moving higher absent the actions of "powerful elites"?

The reason Taiwan has - until recent years - been rather successful economically and that jobs were relatively more plentiful than in more "developed" western economies is precisely because of the resistance of past governments to the installing of costly social welfare programs, rigging of wages and working conditions and imposing legal frameworks, constitutional "rights" and tax burdens.

The imposition of a social welfare state has been greatly speeded up starting with the Lee Teng-hui and Chen Shui-bian administrations. Hence the growing economic ossification, lack of vibrancy and dearth of competition...

If the "powerful elites" mentioned are not governments, who are they?

Michael Turton said...

Are you seriously suggesting that wages would somehow (naturally!) be moving higher absent the actions of "powerful elites"?

I can't stand deliberately stupid people.

If the "powerful elites" mentioned are not governments, who are they?

It's a mystery to you, I guess.

Kreditanstalt said...

There isn't a great deal of space between Taiwan Plastic, etc., and governments I'll admit.

But I've lived here (now 南投縣 集集镇 ) since the 1980s and can remember when this island was truly laissez-faire: no one lacked work, the island's products were varied and competitive and regulation & taxation were light and debt levels were negligible. More importantly, there was actual class mobility.

I can see Taiwan - and this is not a partisan thing, though this latest administration seems most clueless of all - becoming another western social welfare state, with debt levels to match and with similar income and wealth disparity.

Of course the people, sensing self-benefit, will demand this. Wage-rigging is exceedingly dangerous and perniciously, though not immediately, costs jobs. I can hear "make the rich pay!" already, everywhere, and the governments play this divisive card for all it's worth.

Its important to remember HOW and WHY Taiwan became one of the "Four Tigers".