Raise Wages to Drive Wage Growth
China Times editorial (Taipei, Taiwan, Republic of China)
February 21, 2014
Summary: Salaries on Taiwan are too low. They have not increased for years. After accounting for inflation little remains. Private consumption is increasingly conservative. Salaries are apparently the most critical economic issue. Overall, salary increases will spur domestic consumption, thereby increasing revenue for all industries. They will enable Taiwan to lift the lid on its stifled economy, and advance toward greater growth and equal prosperity.
Full text below:
Salaries on Taiwan are too low. They have not increased for years. After accounting for inflation little remains. Private consumption is increasingly conservative. Salaries are apparently the most critical economic issue. According to reports, between January and November of last year, average real wages in the industrial and service sectors was 44,700 NTD. This is lower than the 44,900 NTD wage figure 15 years ago. The main reason is that in comparison to 1998, the consumer price index has increased 16%, while wages have increased only 15.5%. As a result, real wages have decreased relative to 15 years ago.
Subdivide real wages into industrial sector wages and service sector wages. Stagnation in industrial sector real wage growth began in 2007, and in the service sector in 2001. In 2007 the average real wage in Taiwan's industrial sector was 45,500 NTD. By 2012, it had fallen to 43,400 NTD. Exclude allowances, bonuses, and other non-recurring income. These sources of income are the most easily influenced by external conditions. Look only at regular salaries. One will find they have stagnated in recent years, or even retreated.
Regular salaries have decreased rather than increased. This is not because the economic situation is poor, or corporate profits have fallen. Double-digit growth is a thing of the past. We live in the aftermath of the financial tsunami. But Taiwan's average economic growth rate over the past 5 years has been 3.3%. Over the past 10 years it has been 4%. Taiwan's labor productivity has kept pace. Since the 1980s, it has risen in a straight line. Over the past 10 years, the labor productivity index for all industries rose, from 87.9 in 2003, to 105.8 in 2008. In 2012 it rose to 119.27. The 10 year average growth rate was 3.5 %. The 5 year average was 2.5%.
Labor productivity rose. But wages did not. This led to declining company unit labor costs since 1999. This means that in the production of a given unit of goods or services, labor compensation as a proportion of total production costs has declined. The labor cost burden on businesses is increasingly light. Considered separately. the most obvious decline has been in the industrial sector. In 2003 the index was 109.3. In 2007 it was 95.6. In 2012, it was only 80.7. Over 10 years, it declined 26%.
Consider overall economic performance. As past editorials have noted, the employee compensation to GDP ratio has decreased. The GDP is the sum of employee compensation, net indirect taxes, consumption of fixed capital, plus the total operating surplus. Our nation's enterprises operating surplus to GDP ratio shows a long term upward trend. This is the oppositie of employee compensation to the GDP ratio. During the 1980s and 1990s, the ratio was approximately 3%. After 1996 the corporate earnings to GDP ratio increased. In 2003 and 2004 it increased to 35%. Since 2007 it has fluctuated between 32.5% to 35.5%. In 2011 it again exceeded 35%. According to the latest first quarter data, the 2012 operating surplus to GDP ratio is 33%.
Corporate surpluses account for more and more of the GDP ratio. In recent years, average real GDP growth was 3.3%. Taiwan business performance has been quite good. Profits have also been handsome. But this means companies have benefitted from their employees' productivity gains. Yet the companies have not shared enough of the fruits of growth with their staff. The result has been a decline in real wages. As a result, wage earners enjoy no economic growth, and feel exploited. This has exacerbated the antagonism between employers and employees within the community.
The government has recently undergonoe significant restructuring. The establishment of the Ministry of Labour underscores the government's increased attention to income differences. The new structure has introduced a new climate. We urge the Ministry of Labour to act swiftly, and promote the "Ten Year Basic Salary Adjustment Plan."
Over the past five years, labor productivity has grown an average of 2.5%. The Ministry of Labour should consider making this figure its targe for real wage hikes over the next 10 years. That way wages and productivity growth can be synchronized. Diligent workers' job performance will then receive the rewards they deserve. Over the long run the national distribution of wealth will become more equitable.
Such a mechanism would not make corporate profits decline. Rising labor productivity increases will not erode the surplus. They will merely slow down the growth of corporate earnings. For enterprises, there may be other benefits. Productivity gains can become a criterion for raises. This will give staff members a further incentive to improve their productivity. Businesses may become more efficient. This would favor any company that seeks sustainable development.
Overall, salary increases will spur domestic consumption, thereby increasing revenue for all industries. They will enable Taiwan to lift the lid on its stifled economy, and advance toward greater growth and equal prosperity.
中國時報 編輯部 2014年02月24日 04:10