However, Taiwan’s minimum wage has grown faster under Tsai than it did under the country’s previous two leaders. Tsai has pointed out herself that the minimum wage increases she has made over the past three years is “on par with that of the previous government over the past eight years.”
Tsai is right. One key reason why Taiwan’s minimum wage stagnated was because her predecessors, Chen Shui-bian (陳水扁) and Ma Ying-jeou (馬英九), allowed it to.
Since martial law was lifted in 1987, Taiwan has had four elected presidents. The first, Lee Teng-hui (李登輝), increased Taiwan’s monthly minimum wage by a compound annual growth rate (CAGR) of 6.25% from 1988 to 1999. (Lee spent eight years in office before winning Taiwan’s first democratic presidential election in 1996.)
Taiwan’s next two presidents did not improve the wage situation much. Minimum wage only grew by a 1.25% CAGR under Chen from 2000 to 2007 and a 2.12% CAGR under Ma from 2008 to 2015. Once Tsai came into power, however, the minimum wage rose by a higher CAGR of 4.43% from 2016 to 2020.
In fact, Taiwan’s minimum monthly wage was raised only once under Chen, in 2007. Under Ma, the minimum wage was allowed to stagnate for three years: 2008, 2009 and 2015.
Nonetheless, returning Taiwanese businesses seeking government support have been required to invest in higher-value production under the government’s 5+2 innovative industries plan, which Tsai’s administration says is focused on higher-value businesses and sustainable development. In fact, businesses are required to pay a minimum salary of NT$30,000 to workers under this plan.
Tsai’s strategy has arguably been successful. A United Nations research paper reported Taiwan as being the main beneficiary of the trade war, as U.S. companies look to Taiwan for replacement of intermediate products which they previously sought from China. However, in her bid to attract Taiwanese businesses to return, Tsai may feel compelled to hold back on further minimum wage increases to attract contract manufacturers who would otherwise turn to other lower-cost manufacturing sites in the region such as Vietnam, Thailand or Malaysia.
But Taiwan’s continued reliance on the low-cost and low-wage model has repercussions.
While Taiwan has seen successes in, for instance, becoming the world’s top market for semiconductor equipment, Taiwan has become stuck at the level of contract manufacturing. This produces slim profit margins, therefore putting a further squeeze on workers’ wages and reducing the resources necessary for innovation, thereby leading to a decline in innovation among Taiwan’s big businesses. Taiwanese brands have thus struggled to compete at the level of countries like South Korea, which have built up global brands like Samsung – even though, prior to the 2000s, Taiwan had greater economic leverage than South Korea. In fact, Taiwan once had a higher GDP per capita than South Korea. But as Taiwan’s minimum wage became depressed and went below South Korea’s in 2004, so did its GDP per capita.
Tsai has recognized these problems and has thus focused on developing higher-value industries and increasing wages. Last month, she unveiled a proposal to turn Taiwan into a “high-end research, development and manufacturing hub.” At the first live policy presentation a few days ago, she also proposed providing youth entrepreneurs with up to NT$1 million in 100% guaranteed loans.
Tsai has also increased minimum wage at the fastest pace in the last 20 years. During her presidency, starting salaries for university graduates grew to NT$28,116 in 2016, surpassing 1991 levels for the first time, and real average wages this year finally grew to the level they were 17 years ago.
But Tsai is faced with the challenge of undoing what her predecessors had locked Taiwan into: A low-cost model, powered by low wages. Undoing this sticky situation is going to take time. Tsai has spent her first four years trying to reverse the situation, but she might need more time to bring Taiwan back on track with the growth momentum it has lost due to an excessive dependence on the low-cost model. Whether she will be able to do so will depend on whether she takes bold moves to uplift workers’ wages to a level more commensurate to the cost of living, and whether her investment in higher-value production will pay off to create higher-paying jobs. First and foremost, her government must pass the minimum wage bill and strengthen labor laws so that workers can be empowered to push for higher wages.