With the announcement that the minimum wage in Taiwan will rise 5.21% next year, business groups and their supporters have predictably claimed that this will increase unemployment and pose a threat to the economy.
They’re wrong.
Let’s review 10 of the common misconceptions on raising the minimum wage with reference to Taiwan’s economy.
Misconception #1: Raising the minimum wage will lead to high unemployment.
In contrast to Taiwan, South Korea, Czech Republic, Hungary, Poland, and Slovenia — other advanced countries with a similar level of GDP per capita — have increased their minimum wages at a higher rate, but they have all seen a drastic decline in unemployment.
Taiwan saw its highest minimum wage increase in 2017 and 2019, at 5%. But in South Korea, the minimum wage grew by as much as 16.38% and 10.89% in 2018 and 2019, respectively. Poland raised the minimum wage by as much as 15.56% last year while Hungary saw a spike of 14.86% in 2017. In the Czech Republic, the increase was higher than 10% for three consecutive years. Last year, Slovenia increased its minimum wage by 8.89%.
Taiwan’s businesses are tricking people into believing that raising the minimum wage is bound to increase unemployment. Instead, in some of these countries, unemployment has even dropped to a lower level than Taiwan’s.
In South Korea, where the minimum wage has increased by an average of 10% annually (as compared to Taiwan’s 3%), the unemployment rate has remained at a similarly low level as Taiwan’s.
In advanced countries with similarly low levels of unemployment rates (of below 6%), Taiwan stands out as one with the lowest minimum wage. In Switzerland, its minimum wage is more than five times that of Taiwan’s, while in Norway and Denmark, four times that of Taiwan’s. Netherlands, Ireland, Belgium, and Germany also have minimum wages more than twice as high as Taiwan’s. (For Switzerland, the minimum wage of the city of Geneva is used for this comparison, while for the Nordic countries, the minimum wage in the hospitality sector is used.)
This explains why a high minimum wage does not lead to a high unemployment rate.
Facing a shortage of workers today, Taiwan is unlikely to see a dramatic rise in unemployment.
A study has shown that the median employment effect across studies was essentially zero for a 10% change in the average wage of workers living on minimum wage In fact, it has been found that a small increase in minimum wage increases could lead to “increased employment in low-wage labor markets.” Businesses are likely to raise prices of their products instead of dismissing employees in response to the increase.
Misconception #2: Raising the minimum wage will lead to high prices.
But it is not raising the minimum wage that leads to a rise in prices.
Based on over twenty studies conducted over several decades in the United States, when the minimum wage is increased by 10%, overall prices will increase by less than 0.4% while food prices will increase by less than 4%. Another study of state-level increases in minimum wages between 2001 and 2012 found that a 10% minimum wage increase results in only a 0.36% increase in grocery prices. In the United Kingdom, it was found that since 2016, a 10% raise in the minimum wage has led only to an increase of prices by 0.2% to 1.1%.
Indeed, In countries with higher minimum wages, prices are higher. (Note that Taiwan is one of the very few countries where minimum wage falls further below the trend line, signifying that its minimum wage cannot cover the cost of living in the country.)
But in countries with higher minimum wages and prices, purchasing power is higher as well.
We have to understand that price increases follow wage increases, but where prices will still not rise as quickly, it will still benefit workers overall as their purchasing powers rise.
Misconception #3: Taiwan should not increase the minimum wage because prices are low.
But before worrying about a possible rise in prices, we have to recognize that Taiwan’s prices are already quite high.
According to Numbeo, Taiwan’s grocery prices are in fact one of the highest in the world — Taiwan ranks among the top 10 most expensive globally (only the top 40 most expensive countries are depicted in the charts below).
Numbeo’s data also shows that Taiwan also has the second highest milk prices globally, and when it comes to rice, the staple in the country, and potatoes, Taiwan comes in fourth. Taiwan’s apples are also the fifth most expensive in the world.
Taiwan’s supermarkets saw record sales during the recent Covid-19 outbreak, which began in May and has been under control, growing by 19.9% in July this year.
Watching a movie in Taiwan’s cinemas is as expensive as in other high-income countries.
And buying a pair of Levi’s 501 jeans (or a similar pair) is also as expensive as other high-income countries. Outside of Europe, Taiwan is apparently the most expensive place to buy a pair of Levi’s.
Take a big-budget item. Taiwan has one of the highest housing prices in the world. While Switzerland, South Korea and Japan have more expensive housing, South Korea and Japan’s minimum wages are double that of Taiwan, and the city of Geneva in Switzerland has a minimum wage five times that of Taiwan’s.
The gap between income and housing cost is one of the widest inTaiwan among high-income countries. In the last quarter, luxury home prices in Taipei also grew by 14.9% year-on-year, growing by the 10th highest globally. The mortgage debt to GDP in Taiwan is the highest in Asia and the world.
But Taiwan’s minimum wage is one of the lowest among advanced countries with a similar level of GDP per capita (between US$20,000 and US$50,000; Taiwan’s current GDP per capita of US$32,123 puts it in the middle of these countries). Taiwan’s prices are at the level of countries with higher wages but its minimum wage is at the lower end.
In the EU, countries with lower minimum wages also tend to have lower groceries prices. Taiwan’s minimum wage is as low as the wages of countries in the lower left quadrant, but its grocery prices are as high as those of countries in the upper right quadrant, where minimum wages are two to five times as high.
Taiwan’s minimum wage needs to be around NT$75,000 (US$2,680), more than three times the current amount, to cover the prices of groceries at the rate of other European Union countries, or about the same amount as the minimum wage in Sweden and Luxembourg.
In other words, if Taiwan’s minimum wage is as low as in countries like Portugal, Lithuania, Slovakia, and Poland, then the grocery prices should only be half of what it is today.
To cover housing prices at the rate of other EU27 countries, Taiwan’s minimum wage should be about NT$90,000 to NT$95,000, or around four times the current amount, or at the level of the minimum wage of hospitality workers in Norway and Denmark.
In other words, considering how low the minimum wage is, Taiwan’s housing prices should only be a third to a quarter of what they are today. A two-bed flat in Taiwan should cost about an average of NT$4 million to NT$5 million, not it’s current rate of NT$14 million.
Taiwan’s minimum wage needs to be about NT30,000 to NT$65,000 to cover consumer prices and costs of living. To earn enough to cover grocery prices, Taiwan’s minimum wage workers should receive NT$40,000 to NT$100,000. To cover housing prices, the amount should be as high as NT$110,000. For comparison, the dark blue bars in the chart below show the current minimum wages in several high-income countries.
It is hardly possible to justify keeping the minimum wage as low as around NT$24,000.
It might seem like eating out and electricity are cheaper in Taiwan than in most other countries, but this is a misconception.
A McDonald’s meal in Taiwan is as expensive as other advanced countries, according to Numbeo. In other words, for Taiwan’s workers, a McMeal is more expensive than their counterparts in South Korea and Japan.
In fact, a McMeal is the cheapest in countries with the highest wages in the world — in the five Nordic countries, Switzerland, Australia, New Zealand, Luxembourg, the Netherlands, and Ireland.
The chart below illustrates the number of McMeals that a worker can afford with minimum wage in each country. Taiwan ’s workers can afford just 178 McMeals per month, while South Korea’s and Japan’s can afford 306 and 238 McMeals, respectively.
With the low minimum wage, Taiwan’s electricity is again as expensive as in other advanced countries, and nearly twice as expensive as in South Korea. Again, electricity is the cheapest in the five Nordic countries and other countries with the highest wages globally.
Taiwanese workers pay not only similar amounts for imported international products, like electronic appliances and consumer goods, but when factoring in wages, this is actually twice more than consumers in other high-income countries for a new iPhone 13 Mini (128GB), for example. It is three times more expensive than in Norway and Denmark, and five times more expensive than in Switzerland.
It’s no wonder that Taiwan’s purchasing power is low, with its relatively low wages and one of the most expensive housing, groceries, and consumer products.
It’s clear from the comparison above that living in Taiwan is not cheap. Taiwan’s businesses create the illusion of low prices to continue giving low wages, as they continue profiting handsomely at the expense of the quality of life of local workers. We have to recognize that prices in Taiwan are not low.
If the Taiwanese government does not increase the minimum wage to a level that allows workers to cover the cost of living, then it needs to keep price raises under control and subsidize families seeking to purchase housing.
Misconception #4: Minimum wage increases won’t impact the average worker.
Commenters claim that increasing the minimum wage will not raise average wages, but the growth of the median wage has followed that of minimum wage since 2012 (when the earliest data is available).
The average wage growth has also followed that of the minimum wage since the turn of the century. And similar to minimum wage, the average wages have stagnated so badly that they only finally caught up with 2002’s level — 17 years later, in 2019. For university graduates, it was only in 2016 that average starting salaries finally became higher than those in 2000 — after 16 years.
Clearly, the growth trend of average wages follows that of the minimum wage. As long as minimum wage is depressed, it will therefore be difficult for the average worker to see higher wage increases.
A much larger increase in the minimum wage is necessary to allow wages to grow across the board for workers at all income levels. All workers need to demonstrate solidarity by supporting a much more ambitious increase in the minimum wage.
On the minimum wage, some falsely claim that Taiwan’s wage situation is better than that of many other countries because tax, as well as labor and health insurance premiums, are considered low.
In the chart below, I compare the average wage of Taiwan with that of the OECD countries, before and after tax and social security. The reality is that Taiwanese workers are found to be earning salaries at the level of some other OECD countries with a lower cost of living, when Taiwan should actually be closer to the middle of the chart.
Misconception #5: The salaries of civil servants are depressed even more than those of workers in the private sector.
No data has been found to fully support this claim.
For only 2016 and 2017, the data on the average salary of Taiwan’s civil servants is publicly available. It revealed that civil servants had earned an average of NT$63,167 and NT$63,833 a month, respectively.
Another set of data provided by former Democratic Progressive Party legislator Lin Cho-shui showed that the average salary of civil servants in 2006 stood at NT$62,167 a month, in comparison with NT$36,126, the average amount that private sector workers earned in the same year. In other words, Taiwan’s civil servants earned twice as much as private sector workers in the country in 2006.
Moreover, Taiwan’s civil servants earn a higher level of minimum wage than private sector workers, at above NT$30,000, in comparison with the NT$24,000 that private sector workers earn on average (or about a fifth to a quarter higher).
In fact, the average salary of Taiwan’s civil servants is more equivalent to those of other high-income countries with a close GDP per capita (between US$20,000 and US$50,000 today). Yet the average salary of private sector workers has languished, being one of the lowest.
It’s worth noting that the average wages of these other countries include bonuses, but Taiwan’s does not. Including bonuses would place Taiwan’s civil servants at a more vantage position. However, for Taiwan’s non-government workers, their total average salary, inclusive of bonuses (which will be at NT$43,492), would allow them to overtake only Portugal’s average workers.
I wrote to Taiwan’s Directorate General of Budget, Accounting and Statistics (DGBAS) for more up-to-date data, but I was referred to the Directorate-General of Personnel Administration, which claimed it does not compile such data. The DGBAS added that this data is not publicly available.
Assuming that the average civil servant salary grew at the rate of private sector workers, it would have grown to NT$74,512 in 2020, compared with NT$42,394 for private sector workers. In other words, civil servants would be earning nearly twice as high a salary as private sector workers based on this projection.
Based on this estimation, civil servants would again be earning a salary on par with that of other countries with a similar GDP per capita, while the average salary of private sector workers have been so depressed that it is the lowest among this group of countries compared.
Wage distribution provides another perspective to look at how much Taiwan’s wages have been depressed. The chart below shows that low- and median-income workers in Taiwan’s private sector live (thick red line) like those of countries with prices 30% to 40% lower than in their own (blue lines). Based on prices, Taiwan’s wages should be at the level between Spain (light orange line) and Italy (light green line). Its prices are higher than the former’s, but lower than the latter’s.
In other words, the salaries that Taiwan’s civil servants are earning (black line) is about how most private sector workers should be earning as well. In 2018, civil servants earned a minimum wage of NT$30,235, but they earned an estimated average wage of NT$71,990 — which is about on par with South Korea’s level of wages. (Note too that Taiwan’s wages have become more unequal as salaries at the higher-income level rise while the rest stagnate. The red line shows a steeper rise at the top end as compared to the other countries. Even so, due to the overall wage depression, there is only so much that wages at the top can rise.)
It should be noted that data on the average salaries of civil servants is actually publicly available in other advanced countries. Unlike Taiwan, civil servant salaries in other countries are lower than private sector workers. It is therefore unacceptable that such data is not in the public domain, and the data secrecy borders on corruption.
With the recent discussion over whether civil servant salaries should be increased, this needs to be grounded in open data. This is especially so when civil servant salaries are derived from taxpayers’ monies and such data needs to be transparent to account for the taxes being paid.
To be clear, in the previous article I wrote, if the total wages (compensation of employees) in Taiwan had grown at the rate of total profits (operating surplus) — as is the case in the EU, the total wages in Taiwan would have grown by an additional NT$1,389.1 billion, which divided equally would increase the wages of private sector workers by NT$26,639 each in 2019. Adding this to the average private sector salary of NT$41,776 would give NT$68,415, which would be about what civil servants would be earning. It would also increase the minimum wage to NT$50,639.
As such, it should be noted that civil servants are not earning extravagant salaries — the salaries of private sector workers should be increased to match that of civil servants.
On the other hand, the depressed salaries of private sector workers should not be used as an excuse to hold back increases to the salaries of civil servants — this is unjust and unethical as well. Both the salaries of civil servants and private sector workers should be raised to a level commensurate with the cost of living, and increased annually indexed to the cost of living.
Wage secrecy is not the way to manage the wage stagnation and inequality in Taiwan. Courage and honesty to deal with the unequal situation and to reverse the wage stagnation is the way.
Misconception #6: Increasing the minimum wage will result in businesses losing high profits.
As I wrote in my previous article, the profit share of businesses in Taiwan is actually considerably higher than EU countries. Taiwan’s profit share of 41% was at a similar level to that of the European Union countries in 1995, but while Taiwan’s profit share has risen dramatically to nearly 50% today, the EU has remained at about 40%.
In the chart below, you can see that since 1988, the total wage growth in a group of EU countries has kept pace with total profits.
While total wage growth kept pace with total profits in Taiwan in the 1980s to mid-1990s, this changed from 1995 when wages began to fall behind profits, resulting in the profits of Taiwan’s businesses growing dramatically.
It’s the same situation comparing Taiwan with South Korea, as I wrote in another article — in South Korea, minimum wage growth has tracked that of total profit growth in the country.
But in Taiwan, while minimum wage growth tracked total profit growth from the 1980s to the mid-1990s, minimum wage has stagnated since 1995 as profits continued escalating.
If Taiwan’s minimum wage growth kept pace with the growth in total profits, the minimum wage would have increased to more than NT$40,000 today. Instead, minimum wage today is only at about half that level.
When Taiwan’s businesses fear-monger about losing their profits, they are either misguided or just plain lying. Businesses have been earning higher profits than their European or South Korean counterparts for the last two to three decades.
If the minimum wage were significantly increased today, the reality is that many businesses would have a store of wealth to rely on to tide them through.
Furthermore, Taiwan’s GDP is expected to grow by 5.88% this year, and as it is, the economy has already grown by 9.27%, 7.43% and 8.34% in the first three quarters of this year. Taiwan’s industrial production has also seen 18 straight months of growth, and exports have also grown for 14 consecutive months to reach a record high of US$36.08 billion. It is not just the semiconductor industry, but the information and communications industry, base metal suppliers, and machinery companies all saw record growth. The wholesale, retail, and hospitality sectors are all picking up as well.
Evidently, with this level of growth, Taiwan’s businesses no longer have any excuse not to increase wages.
Misconception #7: Increasing the minimum wage will lead to lower profits.
One reason why Taiwan’s businesses do not want to increase wages could be due to the belief that increasing wages would lead to lower profits. This is also a belief that the government has seemingly bought into, which has resulted in the thinking that wages and utility prices need to be depressed in order for businesses to profit.
This is a clear misconception.
The Netherlands, which has a population similar to Taiwan, actually earns total profits that are nearly twice as high as Taiwan. The Netherlands also pays twice the total wages of Taiwan.Germany and Sweden are both able to earn profits per capita a third higher than that of Taiwan, while paying two times the per capita wages. Switzerland is able to earn twice the per capita profits of Taiwan, while paying four times more in per capita wages. Most of these countries are economies with similar manufacturing bases and export orientation to Taiwan.
Even though Germany, the Netherlands, Sweden, and Switzerland pay some of the highest wages in the world, they are still able to earn total profits several times that of Taiwan.
The evidence also shows that countries with higher GDP per capita also tend to have higher profits per capita.
Looking at how countries with smaller populations are able to earn similar or even higher profits than Taiwan, it no longer makes sense to use the excuse that because Taiwan is a “small” country, it cannot compete with bigger countries.
Another widespread misconception is that Taiwan is unable to grow its profits to a higher level due to being dominated by small and medium-sized enterprises (SMEs). The cases of Sweden and the Czech Republic, which both have one of the highest SME densities in the world, show that profits and high wages are sustainable in an economy of SMEs.
With technological capabilities and export strength Taiwan possesses, there is potential to earn even higher profits (or even double or triple that of current profits). To do so, Taiwan needs to adopt a mindset shift in order to achieve its potential for higher profits, by increasing wages and moving into higher value production. This is doable.
Misconception #8: President Tsai Ing-wen is not doing enough to increase the minimum wage.
President Tsai Ing-wen has increased the minimum wage at a faster rate than her predecessors Chen Shui-bian and Ma Ying-jeou just midway through her 8-year term. Under President Tsai, the minimum wage increased by 26.20%, while it increased by only 9.09% and 15.79% in eight years under Chen and Ma, respectively.
If Taiwan’s minimum wage is to grow to about NT$40,000 today, the minimum wage should have grown by about 4.11% every year since 1997. You can see from the chart below that only under President Tsai did actual minimum wage growth actually track closely with the expected rate of growth of 4.11% — the red line shows the actual minimum wage growth, while the light green line shows the expected growth if minimum wage grows by 4.11% annually.
The light pink dotted line shows that minimum wage would have grown to NT$40,002 if the three presidents had raised the minimum wage by an average of 4.11% annually. (South Korea’s minimum wage is included as the pale yellow line in the chart, to show how far behind Taiwan’s minimum wage has lagged, even if it were to grow to NT$40,000 today.)
Note that if President Tsai followed a minimum wage increase of 4.11% annually, it should grow from NT$24,000 this year to NT$25,478 next year. But even this increase means the wages of Taiwan’s workers will never catch up with the cost of living.
It might seem unfair to place all the burden on President Tsai to raise the minimum wage to catch up with Taiwan’s cost of living. But the leader of the country has to make bold decisions to ensure the mistakes of the past are corrected. If the problem of Taiwan’s wage stagnation is kicked further down the road, inequality will only further exacerbate, and the social and political consequences.
Misconception #9: Nothing can be done to increase the minimum wage.
As I have written several times, Taiwan’s minimum wage should be at least NT$40,000 to NT$50,000 today if pegged to the cost of living or to be on par with the growth in profits, as has occurred in the EU countries and in South Korea.
In a previous article, I wrote that Singapore has in June this year finally accepted proposals to increase the minimum wage for resident outsourced cleaning workers, because the severe wage depression has taken income inequality to an extreme degree in the country. Accordingly, Singapore has implemented a phased plan to increase the minimum wage for these workers to S$2,420 (NT$50,765) by 2028 (see dotted pink line in chart below).
Taiwan has largely adopted an economic model paralleling that of Singapore. If Taiwan implements a similar phased strategy and increases minimum wage by about NT$4,000 a year for the next seven years or so, this would enable minimum wage to reach NT$40,000 by 2025 and NT$50,000 by 2027 or 2028 (see dotted green line in chart below). Even this wage would only arguably afford an adequate standard of living in the country.
An increase of NT$4,000 annually is entirely reasonable, given that last year, the increase in Taiwan’s average salary was already NT$5,000.
Alternatively, if Taiwan is to follow South Korea, Czech Republic, Hungary, and Poland in the last eight years (countries that have seen similarly low unemployment rates as illustrated at the start of this article), then minimum wage could increase to between NT$39,000 and NT$43,000 by 2028, and between NT$42,000 and NT$45,000 by 2029.
Misconception #10: Increasing the minimum wage has nothing to do with democracy.
Finally, there is one important rationale as to why Taiwan’s minimum wage needs to be increased — given the external national security threats to Taiwan, the ability of Taiwanese to unite and create a stronger democratic Taiwan is dependent on their ability to fight for their own survival first and foremost.
In August, President Tsai said, “I want to tell everyone that Taiwan’s only option is to make ourselves stronger, more united, and more resolute in our determination to protect ourselves.”
However, in order to create a stronger Taiwan, Taiwan needs to make sure its democracy can work for its citizens and workers. Taiwan needs to make sure its workers can earn adequately for the cost of living in Taiwan. Only when Taiwan shows commitment to its workers, will its workers be empowered to commit themselves to protecting Taiwan.
In other words, Taiwan needs to actualize its democracy for the benefit of its citizens. To do so, it needs to ensure its workers are protected at the most minimal level — to protect their wages and livelihoods.
Studies have shown that people in countries who do not think that their financial situation has gotten much better are less satisfied with their democracy. A 2018 study by the Taiwan Foundation for Democracy (TFD) found that 58.2% of Taiwanese were dissatisfied with Taiwanese democracy while 54.4% felt pessimistic about the future of Taiwan’s politics under its current democratic system.
As such, If Taiwan’s democracy does not fight for its workers and Taiwanese workers feel betrayed by their government, this will weaken Taiwan’s democratic standing and strength internationally.
On a parting note, countries with rising wage inequality have also seen higher levels of social unrest and instability, like in the United States and United Kingdom. The only reason why Taiwan is not seeing such social instability now is because China’s threat has served to suppress the economic anxieties among Taiwanese, but it does not mean it is not there. Once the China factor becomes less relevant, the social unhappiness that is being contained will find an outlet and Taiwan will not escape the social upheavals facing other unequal countries. This thus requires the current government to have the foresight to address the wage inequality issue today, so as to prevent it from blowing up in time to come.
Taiwan’s wages have stagnated for far too long, and such a situation should not be tolerated any longer. Taiwan’s democracy needs to work for its citizens and workers.
READ NEXT: Taiwan’s Wages Are So Low Because Business Profits Are Too High
TNL Editor: Bryan Chou, Nicholas Haggerty (@thenewslensintl)
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