To Increase Average Wages, Raise the Minimum Wage
China Times editorial (Taipei, Taiwan, ROC)
August 21, 2014
Summary: Only good wages can retain talent, can make young people feel there
is hope. Our society needs a sense of crisis. If we do not raise wages,
our employment environment will fall behind the other three Asian
tigers. The Mainland and Southeast Asian countries may even catch up.
Large numbers of young people will become rootless "Tai lao." How will
we feel then? The government and the public must pay attention to this
Full Text Below:
Premier Jiang Yi-hua and representatives from business groups such as the Chinese National Federation of Industries recently met. Outside, labor groups protested low wages, rising prices, and difficulty getting by. Premier Jiang immediately arranged to meet with them, and promised to change the minimum wage policy decision-making process.
Premier Jiang's swift response to peoples' hardship was commendable. Economic growth is stable this year. Tax revenues are more than adequate. The government can afford a general pay raise.
During the second quarter of this year, foreign demand for electronic products, machinery, base metals, and other exports led growth and triangular trade. Domestic demand rose with stock market prices and volume. The income effect and wealth effect increased consumption. Tourism grew. Transportation equipment, construction investment, and manufacturing equipment purchases increased private fixed investment. The employment situation continued to improve. Second quarter unemployment fell to 3.89%, economic growth rose to 3.74%, and the annual growth forecast rose to 3.41%. National Tax Administration statistics indicate tax revenues from January to July approached 1.19 trillion NT, a record high. The Treasury is optimistic. If the last five months of this year match performance over the same period last year, the estimated annual revenue may increase by 30.3 billion NT.
Wages are a topic of concern for all. ROC minimum wages are established by the Basic Wage Committee, which meets and makes recommendations. The Executive Yuan approves Ministry of Labor reports. During the third quarter of last year, committee adjusted the minimum wage and made certain proposals. The consumer price index (CPI) annual growth rate must reach 3%. Only then will the committee consider adjusting wages. This resolution was agreed to by employees, employers, the government, and academia.
Prices in the ROC have been relatively stable. CPI annual growth rate in recent years has been between 1.8 to 2.5%. It rarely exceeds 3%. This year there was a slight increase in the CPI, but still within the stable range. But food prices rose 3.84% between January and July, and as much as 4.27% in July. Food price increases hit ordinary people the hardest. Last year, during the third quarter meeting, GDP growth rate was stuck at 2%. It is currently well over that. Therefore we urge the minimum wage council to reconvene as soon as possible and rethink the minimum wage.
The minimum wage and overall average wage increases may not appear related. The minimum wage was increased in one fell swoop from 15,480 NT to 17,280 NT in 2007. But between 2007 and 2010, in response to the financial tsunami, average wages fell 573 NT. Between 2010 and 2013 the minimum wage was increased 567 NT, or 6.5%. But the average wage over the same period increased only 1305 NT, or 2.9%.
Basic economics states that increases in the minimum wage will make employers vote with their feet, close their plants, and move elsewhere, or else limit total expenditures by cutting staff, pushing out the disadvantaged. But based on two theses by Princeton University professors David Card and Alan Krueger, published in 1994 and 2000, modest minimum wage increases will not result in companies cutting unskilled workers. The claim that minimum wage increases will lead to unemployment do not apply in general. It does not take into account the complexity and diversity of economic problems.
Local research indicates that in 2013 the percentage of workers earning the minimum wage, compared to those earning the average wage, was 43.97%. Among service and sales staff, entry level skilled labor and labor, the percentage was as high as 72%. By contrast, in the United States, Japan and other countries the percentage was 35% or less.
CLA data also shows that at the beginning of the year, nearly 30% of all workers receiving labor insurance, earned 20,100 NT or less. Only 27.6% of workers receiving labor insurance earned over 40,000 NT. In other words, 30% of those receiving labor insurance were earning close to the minimum wage. Nearly 75% of those receiving labor insurance were earning less than the average wage. The positive correlation between the minimum wage and the average wage is quite strong, Raising the minimum wage will increase the average wage.
Increasing the minimum wage will also have other positive effects. In recent years, taxes on business income have been cut from 25% to 17%. This means a significant increase in corporate profits. But there has been no increase in employee bonuses, and wage increase have been limited. The government should find ways to make businesses raise wages. For example, it should offer tax incentives to encourage businesses to raise wages. It should increase the amount paid for commissions, require contracting firms to raise wages, or organize activities providing information, giving outstanding employees the opportunity to change jobs, enabling them to compare wages, thereby enabling overall wage levels to increase.
Only good wages can retain talent, can make young people feel there is hope. Our society needs a sense of crisis. If we do not raise wages, our employment environment will fall behind the other three Asian tigers. The Mainland and Southeast Asian countries may even catch up. Large numbers of young people will become rootless "Tai lao." How will we feel then? The government and the public must pay attention to this issue.