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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Daily Links:

• DON'T MISS:  This review of the Formosa Steel plant disaster in Vietnam is both brilliant and beautifully written.
• NY Review of Books: The Lonely Struggle of Li Ching-yu, Lee Ming-che's wife.
• American Needs a Taiwan policy for the 21st century
• J Michael sounds on a theme I have long written about, the lack of support for Taiwan among progressives and liberals. Great rip of a bad piece of writing.
• Ketagalan: does Taiwan need more foreign workers
• Foreign Policy on the Southbound Policy and Chinese resistance
• MOFA reiterates ROC sovereignty over unnecessary and indefensible Taiping Island in the Spratlys, pointlessly trolling Vietnam. The Administration should be quiet about its false and absurd claims to the South China Sea.
• The DPP's program to get the local patronage networks to switch to them is on display in the high construction sector indicators, driven by the Administration's determination to "expedite" public works programs. The construction-industrial state is alive and well, and may have a new patron soon...
• Locally-based internationally known videographer Tobie Openshaw recounts his experience of being bitten by a venomous snake.

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Wage Stagnation with Numbers

Cricket, 7 am

Huang Tien-lin published an excellent commentary in the Taipei Times on the problem of wage stagnation in Taiwan...lots of juicy numbers.

The first point is that, whereas Taiwanese manufacturers did 12.24 percent of their manufacturing overseas in 1999, that figure grew to 46.23 percent by 2007, with 90.9 percent of offshore production done in China. By last year, the figure had climbed to 50.52 percent, with 92.7 percent of production abroad concentrated in China. After Taiwan’s first handover of government power from the Chinese Nationalist Party (KMT) to the Democratic Progressive Party (DPP) in 2000, the administration of then-DPP president Chen Shui-bian (陳水扁) abandoned his KMT predecessor, former president Lee Teng-hui’s (李登輝) “no haste, be patient” policy with regard to investment in China, allowing Taiwanese manufacturers to quickly move their operations across the Taiwan Strait. This relaxation of Taiwan’s cross-strait policies led to an exodus of manufacturers on a scale that no other country has ever seen.

It's so nice to see this. Remember how the Establishment media abroad and the pan-Blue media at home  abused Chen Shui-bian for not "opening to China"??? It would be comical if it were a less urgent topic. Basically half of "Taiwan's" manufacturing is now done in China and the results are grim for the local populace. The number of working poor in Taiwan is high -- according to Huang, the DGBAS has 42% of the population making $30,000 NT or less, monthly.

Huang then goes on to point out that the moves kept Taiwan's makers "competitive". Profits shot up. But labor's share of GDP has fallen over the last decade from 50% to 44.5% of GDP. Last month I posted some charts from the US Bureau of Labor Statistics which showed, starkly, what has happened in Taiwan, especially since 2007. If you look at this chart you can plainly see that in the period 2000-07 Taiwanese workers experienced very slow wage growth and then, between 2007-10 experienced negative wage growth even though the very next chart shows that productivity growth has slowed slightly but continues to rise. This gap between falling wages and rising productivity, ironically makes Taiwan very "competive" which is neoliberal slang for a place where capital can make tons of money while the workers get screwed. For the last decade, but especially the last three years of the data, gains from rising productivity have gone to the firms, not to the workers.

Huang's next point is even more brutal:

The third point is that while Taiwanese manufacturers have spent more than a decade chasing cheap labor in China, they have paid scant attention to research, development and innovation. The overall value-added rate for the Taiwanese manufacturing industry as a whole slid from 26.3 percent in 2000 to 21.3 percent in 2010 — the biggest drop in Asia.

This is a point I've been making for several years on this blog -- Taiwanese firms moved to China so that they could continue to pursue Taiwanese-style family firm management and avoid having to upgrade to professionally run firms. But also, as they moved to China, they cut themselves off from the flow of government produced R&D innovation that Taiwanese SMEs have traditionally relied on (bike industry example). Several years ago on this blog I posted on a speech from Lee Teng-hui in which he predicts that this would happen -- even then it was obvious that moving to China had dumbed down Taiwan's firms. As Huang observes, the fall in value-added offsets the advantages of lower wages, harming "competitiveness."

Lots of other things involved -- weak unions, feeble taxes on the wealthy and on large corporations, poor regulation of wages and hours... the list goes on.
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[Taiwan] Don't miss the comments below! And check out my blog and its sidebars for events, links to previous posts and picture posts, and scores of links to other Taiwan blogs and forums! Delenda est, baby.