Minimum wage hike needed to spur growth
Taiwan News, Staff Writer
2014-08-28 09:23 PM

A labor group recently lodged a protest on the sidelines of a meeting between Premier Jiang Yi-huah and local business groups including the Chinese National Federation of Industries (CNFI), complaining that the minimum wage is too low without taking into account surging price hikes that make life difficult. Jiang received the representative of this labor group and made a preliminary commitment that the government will reconsider the model related to the level of the minimum wage. With stable economic growth and surplus tax revenue this year, the Ma Ying-jeou administration should reconsider its minimum wage policy and take real action to improve the well-being of the people.

Unfortunately, labor and business groups are again at odds on the gauge to determine the minimum wage, with the former favoring a minimum wage revision upward to NT$20,000, and the latter advocating abolishing the minimum wage, according to the media. Eventually, representatives of the business sector chose to snub the Basic Wage Deliberation Committee on Monday. In comparison with the minimum wage in Korea, however, the level suggested by Taiwanese labor groups is rather reasonable.

Last year, the government decided that change in the minimum wage will only be considered if the consumer price index (CPI) rises by 3% or higher. This policy was cited by business groups as a way to excuse themselves from consideration of the minimum wage hike to some degree as the January-July CPI of 1.29% is far behind the level of 3% eligible for reconsideration.

If the existing minimum wage was reviewed on the basis of Engel’s coefficient, it is indeed the right timing to reconsider the basic wage level. Ernst Engel’ coefficient represents the proportion of household income spent on food. In advanced economies and high-income families, Engel’s coefficient is low, meaning earners increase their spending on food by a smaller amount than the increase in income, and vice versa. As such, the higher the food price, the higher the pain felt by low-income families. As of July, the cost of 17 basic and household essentials increased 5.18% and the cost of dining out jumped 4.6%. Underprivileged families will be worst-affected from that if viewed on the basis of Engel’s Law.

The business sector refused to accept the proposal for another wage hike, but what employers didn’t say is that Taiwan’s minimum wage has been remained constant at NT$15,840 for ten years since 1997 and was revised upward to NT$17,280 in 2007 and in the following years. Although wage levels were slightly revised upward in three years, it is still far from the level being called high.

A significant wage hike, however, can be observed in South Korea, whose minimum wage was 786,480 won (equivalent to NT$25,010) in 2007 and then jumped between 5% and 8% each year since then. This year, Korea’s minimum wage has reached 1,177,460 won (NT$37,443) with an increase of 49.7% between 2007 and 2014. During the same period of time, only 21.6% growth was recorded in Taiwan, which is less than half of the growth level in Korea. From that point of view, a small basic wage hike for Taiwanese workers is a fairly humble request.

If viewed from absolute value, economies with higher national incomes will be naturally met with a higher minimum wage. According to numbers from the International Monetary Fund (IMF), the average national income for Taiwan and Korea was US$20,930 and US$24,328 in 2013, respectively. Nevertheless, Korea’s average national income was 13.9% higher than that in Taiwan, but the minimum wage in Korea was 79% higher than that in Taiwan. Taking weekly working hours into account, the minimum wage of Korea (44 hours) was still 66% higher than in Taiwan (40 hours).

Back to the minimum wage of NT$20,000 proposed by labor groups, the increase level will be only 3.7% which is even lower than the growth rate of the price of food and basic essentials.

Most of the nations around the world have established a minimum wage, including China, which saw an annual increase of around 20% in recent years. However, Taiwanese laborers have been suffering from a lower growth rate of minimum wage than neighboring countries and unable to catch up with the pace of food price hike. Considering a high proportion of basic essentials and food spending on income for low-income laborers, the government should take real actions to safeguard their fundamental rights for a living, and the business sector should accept the proposal for an appropriate increment of wage.

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