The government should be cautious about raising the minimum wage, as a drastic increase could create cost-push inflation and increase business closures at a time when Taiwan’s inflation remains undesirably high and the economy is slowing.
The nation’s minimum wage climbed for seven straight years, last year reaching NT$26,400 (US$865.74) per month and NT$176 per hour, after an annual increase of 4.56 percent. Local businesses have struggled to eke out profits amid the wage hikes due to constant increases in raw materials costs, transportation fees and other expenditures.
The government has pledged the wage hikes to protect workers from poverty. The consumer price index (CPI) is one of the Ministry of Labor’s seven determining factors when adjusting the minimum wage. Taiwan’s CPI remained below the central bank’s target of 2 percent before surging to 2.95 percent last year.
As the CPI is expected to expand 2.09 percent this year based on last month’s central bank projection, a minimum wage increase is justified. The question is how much the minimum wage should rise each year. Wages should be high enough to absorb consumer price increases while having the mildest effect on inflation and economic growth.
Minister of Labor Hsu Ming-chun (許銘春) last week said she supports raising the minimum wage to NT$28,000 per month next year, as daily expenses are swelling due to stubbornly high inflation. The wage hike would mean a significant increase of more than 6 percent year-on-year.
Hsu’s comments stoked fears that a rapid rise in the minimum wage could push inflation higher, given that businesses pass on higher wages to consumers. Some of the nation’s smaller businesses might be unable to afford increases in personnel costs and could reduce staff levels, critics said.
Some economists said that a 6 percent increase would be unreasonable, and would push consumer prices upward, adversely affecting the economy. Local businesses, manufacturers in particular, have said they are already under undue stress from Taiwan Power Co’s 17 percent electricity rate hike this month. China Steel Co said its electricity bill is expected to surge by NT$1.2 billion a year following the rate adjustments.
The nation’s CPI last month climbed 2.35 percent from a year earlier, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said. GDP is expected to slow to an annual expansion of 2.12 percent this year, from the agency’s earlier projection of 2.75 percent, citing weak exports and flagging private investment.
A special committee comprising employer and employee representatives, along with economists, usually meets in the third quarter to review wage policies. President Tsai Ing-wen (蔡英文) has pledged to resolve persistently low wages for young workers by boosting the minimum wage to about NT$30,000 a month before her term ends next year.
Raising the minimum wage would not solve Taiwan’s longstanding issues with stagnating paychecks, as only a small portion of workers would benefit from the hikes. In the first two months of this year, average take-home pay nationally gained 2.39 percent to NT$45,206, but contracted 0.34 percent after factoring in higher inflation, DGBAS data showed. Therefore, curbing inflation and boosting industrial upgrades to facilitate economic growth should be the government’s priorities in efforts to address low incomes.
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