The semi-long-term low- wages dilemma in Taiwan An examination of the role of SMEs and other institutional factors

Nien-Ti Hsieh, Ya-Ling Huang, Meng-Chun Liu, Gee San and Chia-Hsuan Wu

16.1 Introduction

Wage stagnation has become a focal point for Taiwan for more than a decade. Many people question the causes of this problem. For instance the Liberty Times (2009) reported that many Taiwanese firms have moved to Mainland China and re-established their production base there, which has eventually led to an industrial hollowing-out effect in Taiwan. In addition, as bilateral trade across the Strait has strengthened, it has had an adverse impact on Taiwan’s wage growth, since the famous factor price equalisation theorem (FPET) as asserted by Paul A. Samuelson (1948) offers strong support to the notion that policies directed at Mainland China should be curtailed and that a possible trade agreement with Mainland China should not be encouraged.

In this chapter, we argue that the so-called factor price equalisation theorem is not suitable for explaining the wage stagnation in Taiwan for at least three reasons. First of all, Japan and the USA are Taiwan’s major trading partners and, based on the FPET, they should all have a very strong role to play in boosting Taiwanese wages, although, in reality, this may not be the case. Second, since Mainland China also engages in significant levels trade with other countries around the world, all of these nations should be worried about the possibility of the emergence of the FPET effect. As a consequence, they should consider cutting off their trade relationship with China, but in reality, the opposite is the case. Third, if the FPET is applicable, the OECD countries should withdraw from the WTO and, in addition, the WTO should introduce more trade restrictions and not trade liberalisation measures to the international trade system; but again, in reality, this is also not the case at all. As such, the FPET cannot be very suitable when it comes to explaining Taiwan’s wage stagnation dilemma. What, then, are the possible reasons that are really relevant to the current dilemma in Taiwan?

After conducting a comprehensive study of all the relevant factors that may possibly affect wages in Taiwan, we found that the role of the small and mediumsized enterprises (SMEs) is one of the key factors that is relevant to the current low-wage dilemma in Taiwan. This finding is contrary to the common belief that the development of the SMEs is a good model for economic development since it can create jobs for workers and lower the subsequent unemployment rates. In this chapter, we argue that the development of the SMEs, in general, is important. Nevertheless, the continued drive to upgrade the SMEs is critical to solving Taiwan’s wage-stagnation dilemma.

In addition, in the case of Taiwan, other factors such as the low profitability of SMEs and their lack of global competitiveness, the workers’ low English proficiency, together with other institutional factors such as the rapid expansion of higher education, as well as the problems brought about by atypical and foreign workers are all identified as factors contributing to the low wages in Taiwan. Relevant attention should, therefore, be directed to these important issues.

In this chapter, we shall identify the low-wage problem first by seeking to determine who are the low-paid workers. In addition, we will ask to which industrial sector association they belong as well as their corresponding occupational groups. Section 2 will analyse the role of the SMEs and other important issues regarding the SMEs, and Section 3 will examine other important institutional factors such as education, atypical workers and minimum wages. Section 4 then summarises our conclusion and its policy implications.

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