I have lived in Taiwan for several  years now. And I like this place a  
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.
lot. But one of the biggest criticisms  of life here has to do with wages.

“The salary is too low here.”
“The salary is too low here.”

I have heard this one over and over again.  
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.
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:  
July 2014, 17 years later. The average  working salary in Taiwan has barely budged:  

46,786 NTD a month.
46,786 NTD a month.

This is a big reason why people leave and go  to Australia or the United States or China.  
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.
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.  
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  
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 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.  
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,  
That output translates into income, or profit  or however you want to call it. Regardless,  

it describes the benefits  of the capital and labor.
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.  
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 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.
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:
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  
* First, a period of fast growth from 1981 to 1990 * Second, a period of moderate growth from  

1991 to 2000 * Third,  
1991 to 2000 * Third,  

wage and economic stagnation from 2001 to 2012
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.  
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  
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.
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.  
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.
Now, let us look at how that pie is split up.

Data compiled by the Taiwanese  government shows that the share  
Data compiled by the Taiwanese  government shows that the share  

of income going to labor has  been declining since the 1980s.
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  
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.
share as declining for decades. I  say that this is a global trend.

But the absolute amount of the  decline combined with the weak  
But the absolute amount of the  decline combined with the weak  

starting position of Taiwan's labor is unusual.
starting position of Taiwan's labor is unusual.

Let's compare with other areas  in Asia. Singapore and Hong Kong  
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.
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.  
South Korea, China, and Japan all  exhibited similar trends though.  

Labor income share dropped across the board.
Labor income share dropped across the board.

The result is a situation where real wages  essentially decouple from economic output. The  
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.  
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.
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.  
This leads us to a few questions.  

We can come up with some theories  explaining this declining income share.
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  
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:  
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.
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  
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  
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.
with their work. but they are getting paid  increasingly less for each marginal hour.

Singapore and South Korea are  somewhat the opposite situation.  
Singapore and South Korea are  somewhat the opposite situation.  

They are getting paid more  for their marginal labor.
They are getting paid more  for their marginal labor.

So what does Taiwan's overall  labor structure look like?  
So what does Taiwan's overall  labor structure look like?  

Well it is pretty stable. It  is not great. Not terrible.
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  
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,  
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.
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.  
That implies that on the whole Taiwanese  people are not very productive.  

There are a few theories  for which you explain this.
There are a few theories  for which you explain this.

The first, Taiwan's education system does not  create a competitively productive labor force.  
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 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,  
Maybe their English language skills are  poor - where Hong Kongers, Singaporeans,  

or even South Koreans vastly outperform them.  
or even South Koreans vastly outperform them.  

Maybe their curriculum is not up to date - not  enough skills relevant to the modern economy?
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  
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  
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.
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  
The third, Taiwan's companies operate in  industries where labor productivity cannot  

be easily leveraged. Taiwan's companies  are mostly legacy hardware manufacturers  
be easily leveraged. Taiwan's companies  are mostly legacy hardware manufacturers  

(or small service businesses like  restaurants) rather than software producers.
(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  
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.  
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  
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.
need to invest in a factory to generate  millions of dollars of financial fees.

The fourth theory: The data  is more complicated than it  
The fourth theory: The data  is more complicated than it  

at first seems and we need to  go deeper. Let's go deeper.
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  
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.
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  
Taiwan's older generations are not  as well educated as its younger  

generations - where virtually everyone has  a college degree. The older generations,  
generations - where virtually everyone has  a college degree. The older generations,  

they basically have a high  school education and that is it.
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.  
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  
In other words, Taiwanese companies  are paying these tenured people  

very well especially in  contrast with younger people,  
very well especially in  contrast with younger people,  

who can be considered basically underpaid for  the marginal labor productivity they generate.
who can be considered basically underpaid for  the marginal labor productivity they generate.

Because these large Taiwanese  companies either cannot afford  
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  
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.
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  
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?
so disproportionally because Taiwanese work  culture respects tenure and seniority above all?

Or because they know more about  the idiosyncrasies of each company  
Or because they know more about  the idiosyncrasies of each company  

(i.e., where all the bodies are  buried) and can keep it running.
(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  
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.
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  
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.  
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  
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.
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.  
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  
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.
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  
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  
came across a real interesting theory. You  know how they say that China's populace  

is not politically or socially engaged because the  
is not politically or socially engaged because the  

government has been able to deliver  lasting economic benefits right?
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 -  
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.
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  
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.  
to live a materialistic life: The traditional  material goods associated with success.  

Instead they focus on non-materialist goals.  
Instead they focus on non-materialist goals.  

Like democracy, freedom of expression, or  social justice. And if you are running a  
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.
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  
What kind of values of today’s recession  generation will show in the future? Taiwan  

and the world abroad.
and the world abroad.