I have lived in Taiwan for several years now. And I like this place a
lot. But one of the biggest criticisms of life here has to do with wages.
“The salary is too low here.”
I have heard this one over and over again.
Sadly, it’s a crushing reality. In 1997, the real average salary in Taiwan was 46,646 NTD a month.
July 2014, 17 years later. The average working salary in Taiwan has barely budged:
46,786 NTD a month.
This is a big reason why people leave and go to Australia or the United States or China.
In this video I want to talk a bit about wage stagnation in Taiwan’s economy.
Let's translate this vague feeling into economic concepts that we can more easily understand.
I am going to do some huge simplifications here. These are sadly necessary
in order to explain the issue in a way that fits into a short video.
In an economy, capital and labor come together to create economic output.
That output translates into income, or profit or however you want to call it. Regardless,
it describes the benefits of the capital and labor.
This income needs to be split between the holder of capital - the shareholders of a company.
And the holders of labor - the company employees who do not hold share in the company
and are not entitled to its profits. Think wage workers, Uber drivers and entry level analysts.
We can split Taiwan's recent economic history into three stages:
* First, a period of fast growth from 1981 to 1990 * Second, a period of moderate growth from
1991 to 2000 * Third,
wage and economic stagnation from 2001 to 2012
Consistent over these three stages is a decline in overall income and GDP growth year to year.
Average economic growth in the 2001 to 2012 period was 3.25% a year - down from 6.25% in
the 90s and 7.65% in the 80s. This is expected for a developing and rapidly aging nation like Taiwan.
So we got a pie that's no longer getting as big as it used to be.
Now, let us look at how that pie is split up.
Data compiled by the Taiwanese government shows that the share
of income going to labor has been declining since the 1980s.
Taiwan is not unique in exhibiting this trend. The OECD has shown labor income
share as declining for decades. I say that this is a global trend.
But the absolute amount of the decline combined with the weak
starting position of Taiwan's labor is unusual.
Let's compare with other areas in Asia. Singapore and Hong Kong
are unique in that labor income share increased by some 10% from 1980 to 2011.
South Korea, China, and Japan all exhibited similar trends though.
Labor income share dropped across the board.
The result is a situation where real wages essentially decouple from economic output. The
economy on a whole might speed up or slow down, but the output income won't go to the workers.
And because income isn't going to the workers, they feel like it does not help them at all.
This leads us to a few questions.
We can come up with some theories explaining this declining income share.
The first potential explanation is: Well, the workers are getting better at their jobs
but for whatever reason they are not getting paid for it. Economic phrasing would be:
Labor productivity increases, but that growth is not reflected in incomes.
This is the situation in Hong Kong and Japan since the 1990s. Hong Kong
is in a rather bad situation here. Workers there are working harder and produce a lot
with their work. but they are getting paid increasingly less for each marginal hour.
Singapore and South Korea are somewhat the opposite situation.
They are getting paid more for their marginal labor.
So what does Taiwan's overall labor structure look like?
Well it is pretty stable. It is not great. Not terrible.
So Taiwan's labor situation is not like Hong Kong's - where the workers are getting better
at their jobs but for whatever reason are vastly underpaid. On the whole,
Taiwanese people's pay are largely in line with the actual value they are delivering.
That implies that on the whole Taiwanese people are not very productive.
There are a few theories for which you explain this.
The first, Taiwan's education system does not create a competitively productive labor force.
Maybe what Taiwan's kids are learning do not make them particularly fit to do the job.
Maybe their English language skills are poor - where Hong Kongers, Singaporeans,
or even South Koreans vastly outperform them.
Maybe their curriculum is not up to date - not enough skills relevant to the modern economy?
The second, Taiwan's most productive people exit the system and go be productive elsewhere. Brain
Drain is a consistent issue for every country in the world except America. But Taiwan is especially
vulnerable because of the presence of nearby China where strong language and societal ties abound.
The third, Taiwan's companies operate in industries where labor productivity cannot
be easily leveraged. Taiwan's companies are mostly legacy hardware manufacturers
(or small service businesses like restaurants) rather than software producers.
Software has been a huge boost to labor/economic productivity because of its high operating
leverage. That means that one productive person can generate many multiples of output.
Finance is another example of an industry with very high operating leverage - you don't
need to invest in a factory to generate millions of dollars of financial fees.
The fourth theory: The data is more complicated than it
at first seems and we need to go deeper. Let's go deeper.
We looked at this globally unproductive labor force and broke it down using two
big pivot points: Age and sex. And something that jumped out has to do with age and tenure.
Taiwan's older generations are not as well educated as its younger
generations - where virtually everyone has a college degree. The older generations,
they basically have a high school education and that is it.
However it turns out that their labor wage as compared to their productivity is quite favorable.
In other words, Taiwanese companies are paying these tenured people
very well especially in contrast with younger people,
who can be considered basically underpaid for the marginal labor productivity they generate.
Because these large Taiwanese companies either cannot afford
to or will not pay their younger people, smaller Taiwanese companies do the same. The result is
that Taiwan's younger generations are no longer as socially mobile as their previous peers.
This is a tougher nut to crack. These older generations, are they being paid
so disproportionally because Taiwanese work culture respects tenure and seniority above all?
Or because they know more about the idiosyncrasies of each company
(i.e., where all the bodies are buried) and can keep it running.
And can you legally justify asking older people to leave their jobs just because they are
overpaid - just so that can be replaced by younger people? That sounds like age discrimination to me.
Again, I won't say that this is a unique case. This effect is happening all over the world. And
each of the Asian Tigers have their own problems. Let's not single out Taiwan as this unique case.
I have said this before, but I think every country in the world save the United States
needs to worry about wage-based brain drain of some sort taking their best workers.
I want to write more on such economic issues in Taiwan down the line.
But I want to leave you guys with a thought that I have been
thinking about lately - especially in light of the recent global recession.
I was reading about Hong Kong's labor-capital situation - which to me is especially dire - and
came across a real interesting theory. You know how they say that China's populace
is not politically or socially engaged because the
government has been able to deliver lasting economic benefits right?
What happens when a government cannot do that? What's the reverse of that? That's Hong Kong -
where the economy and government has been utterly unable to improve its people's living standards.
What this failure does is to create a generation of young people who have "given up" on being able
to live a materialistic life: The traditional material goods associated with success.
Instead they focus on non-materialist goals.
Like democracy, freedom of expression, or social justice. And if you are running a
government looking to avoid social unrest at all costs, that's the last thing you want.
What kind of values of today’s recession generation will show in the future? Taiwan
and the world abroad.