At a televised debate between the presidential candidates last month, Chinese Nationalist Party (KMT) candidate Eric Chu (朱立倫) said that the economy could be stimulated by gradually raising the minimum monthly wage to NT$30,000 in four years.
EasyCard Corp chairman Kenneth Lin (林向愷) and National Taiwan University professor Hsin Ping-lung (辛炳隆) supported Chu’s proposal, while former National Science Council minister Cyrus Chu (朱敬一) and Gordon Sun (孫明德), head of the Macroeconomic Forecasting Center at the Taiwan Institute of Economic Research, opposed it. Cyrus Chu said that proposing to stimulate the economy by raising the minimum wage was “brainless.”
In the US, it would probably be feasible to boost the economy by increasing salaries. Americans tend to be more optimistic and consumption is more likely to increase as incomes increase, as most people would not prioritize increasing their savings.
However, the situation is different in Taiwan, where wages have remained stagnant for the past 16 years. Taiwanese have experienced hardship for a long time and many do not see a possible change in the future. Even if the minimum wage is increased, people would be less likely to increase consumption and more likely to increase savings.
In 2009, the government spent NT$85.8 billion (US$2.54 billion) to distribute vouchers in an attempt to boost consumption, but the stimulus policy boosted GDP by only NT$36.3 billion, adding a mere 0.24 percentage points to economic growth.
Raising the minimum wage is not an effective way of boosting the economy.
The minimum wage in Taiwan is NT$20,008 per month, but at least 700,000 Taiwanese are making less than that. By gradually increasing the minimum wage by NT$10,000 over four years, as Chu proposed, large companies catering to the domestic market would inevitably lay off large numbers of employees and small companies would be forced to either pay low wages illegally or close down. Companies operating in the international market, meanwhile, would probably leave Taiwan.
Investing in the nation’s export-oriented manufacturing industry would be more likely to boost economic growth. Japan’s post-war revitalization, Taiwan’s economic miracle and China’s rise all relied heavily on their export-oriented manufacturing industries.
Taiwan needs to relax its foreign worker policy, introduce flexible wages and allow the number of workers to fluctuate in accordance with market demand. Doing this would cause Taiwanese manufacturers that have gone overseas to relocate back to Taiwan, or at least move production lines back to Taiwan to handle new orders. An output of NT$1 in the manufacturing industry generates an output of NT$1.4 in the service industry, so Taiwan’s GDP would rebound, or at least improve.
For example, if overseas laptop or smartphone assembly operations were to relocate back to Taiwan, they could create at least 1 million new jobs. Even if they employed 700,000 foreign workers, they would still have to hire 300,000 local workers. The oversupply of local workers would disappear and demand for labor would increase, causing employers to increase the starting salary for Taiwanese entering the workforce to NT$30,000 per month, or they would be unable to hire enough local workers.
Unfortunately, Lin, Hsin, Cyrus Chu and Sun all support upgrading Taiwanese industry, innovation and transformation, while opposing the relaxation of Taiwan’s foreign-worker policy or pursuit of low-value-added goods.
William Kao is president of the Victims of Investment in China Association.
Translated by Eddy Chang
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