Salary stagnation: The reason Taiwan’s middle class suffers
November 16th, 2007 by MarkThe gloom in the air is almost palatable. For years now, most Taiwanese people I’ve known have not just been glum, but been down right pessimistic about the economy.
In one sense, it seems irrational. While Taiwan’s GDP growth since 2000 has been very poor, much of that can be attributed to currency fluxuations. If one looks only at PPP-adjusted 2006 data, Taiwan managed a very respectable 4.6% growth. So, why are people so gloomy? The answer is wage stagnation. Reuters reported on this:
“If salaries in Taiwan continue to stay at current levels, it will encourage white collar workers, such as managers, to go to China,” said Chou Ji, an economics professor at Shih Hsin University.
In the first eight months of the year, Taiwan’s average monthly salary rose 1.84 percent from a year earlier to T$46,646 (US$1,431), just a tad higher than inflation of 0.62 percent during the same period, statistics agency data showed.
During the same period, the average wage in South Korea rose 5.6 percent to 2.6 million won (US$2,830), Korea’s Labour Ministry said.
WAGE STAGNATION
“What you see is that wage growth in Taiwan is very weak,” said Peter Sutton, Taiwan’s head of research at CLSA, adding that the island’s strong exports were not translating into a rise in wages. “There is much more optimism in the other countries.”
“The Taiwan exports sector is really strong, but the domestic sector is protected and … has very little foreign participation. So domestic consumers face much higher costs.”
CLSA said in a survey of income earners that 29 percent of respondents in Taiwan saw their income fall and 42 percent saw no increase in the past 12 months, with 32 percent saying that they were worse off than 10 years ago.
Reuters: Salary stagnation stifles Taiwan’s middle class
The average Taiwanese wage is about half that of the average Korean wage. Just a few years ago, Taiwan was ahead and now it’s fallen so far behind. Worse still, 32 percent of Taiwanese people report that they are worse off than they were 10 years ago. No wonder the average guy on the street is gloomy.
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November 16th, 2007 at 3:27 am
Well, if average monthly salary in Korea is US $2,830 then how come in wikipedia for GDP per capita for South Korea they give number US $18,392 per year?
November 16th, 2007 at 3:49 am
That’s a very good question, V. The IMF estimates Korea’s 2007 GDP at 18,939USD/person. A simple division gives $1578/month. Perhaps this discrepancy is due to the fact that not every person in Korea is a wage earner.
Taiwan, on the other hand, has an estimated GDP of 16,161USD, or $1347/month. However, exports (as opposed to wages) make up a larger portion of the economy. There are some external indications, such as the Big Mac Index, that Korea’s wages are far higher. Barring data to the contrary, I think Reuters is a credible source. Still, it’s worth it investigate this data further.
November 16th, 2007 at 5:10 am
Wages of many Taiwanese are fairly low based on what I’ve seen in my job. For recent college grads (this includes those from two and three year colleges), a starting wage of 20-25K per month seems average. And this includes yearly bonus. What’s more, it appears that many are underemployed.
November 16th, 2007 at 8:22 am
So you’re saying the average monthly salary in Korea US $2,830, roughly NTD 85,000? Holy shit, I’m in the wrong country!
I find that figure a tad hard to believe, unless of course the cost of living is also twice that of Taiwan.
November 16th, 2007 at 10:17 pm
It was Reuters saying it, and I’ve done some fact checking.
This is from the Korea International Labour Foundation:
Korea International Labour Foundation: Current status on wage and working hours (2007-07-02)
The statistics in the Reuters article are well supported, just as one would expect.
November 16th, 2007 at 11:46 pm
“I find that figure a tad hard to believe, unless of course the cost of living is also twice that of Taiwan.”
Naruwan, I’m wondering if you might have just mentioned something quite important.
The cost of living in Korea is one of the highest in the world, with all factors considered.
Is this significant, or is it to be expected when wages are so much higher?
November 17th, 2007 at 12:10 am
That chart in your post put the cost of living in Seoul at 42.6% more than Taipei. It’s hard to say if salaries twice as high could cause that or not. I do know that the most expensive thing in the Korean CPI is housing, though. I suppose high wages would bid up those prices.
November 17th, 2007 at 12:11 am
Sorry, the cost of living in SEOUL is one of the highest in the world….not Korea. But I assume if the cost of living in Seoul is that much higher than in Taipei (down in the 40s on the list), then the cost of living in general in Korea should be higher than the cost of living in Taiwan.
November 18th, 2007 at 1:18 am
actually my wife was sent to korea for two weeks to open a regional office for her company, and she was shocked to discover the employees there made almost 3x more than their taiwanese counterparts.
November 19th, 2007 at 7:47 am
[...] Doubting to shuo on salary stagnation. [...]
November 19th, 2007 at 1:25 pm
The analysis above is too simplistic and isn’t giving a full picture.
Unlike the US, South Korea, or Japan, there is a very big difference between looking at salary in Taiwan and income. What? Yep, today’s Taiwanese economy, especially in the greater-Taipei area, Hsinchu and Tainan Science Parks, and in the major cities (but not in the countryside regions), there are all sorts of sources of income that are not related to your salary. For the high-tech companies, the big thing is hoping for a big payoff from your stocks, which is not part of your salary. Engineers at these companies can regularly get one time payoffs of USD $100,000-$1,000,000–many of which right afterwards start their own business, invest in real estate, etc, putting yet another low to no salary BUT very high income kink into our analysis here.
Also, there are tons of side projects. Ever hear people talk about accepting cases (接案子, taking on projects)? In big cities here, there is tons of opportunities for supplementary income, and really, Taiwan is in a sense just further ahead in the global trend towards outsourcing and contracting. You get paid for what you do, not for a long-term career.
Also, consider that 1 in 7 Taiwanese is a 老闆 (business owner). Unlike the Japan or the US, the payoff for trying to go the lifelong career/salary route is very low in Taiwan. On the other hand, the chance that you could start up your own little business, everything from the smallest street vendor (and believe me, some of them make hundreds of thousands of dollars US a year) to globally dominant corporations like TSMC, Hong Hai is relatively high. Low salaries plus skilled workers makes for a very flexible labor market and is very conducive to startups.
That’s income. On the consumption side of the coin… have you guys actually been to South Korea or have significant knowledge of what it’s actually like living there? Costs are super high, ESPECIALLY for big ticket items like housing and cars. Did you know Samsung makes cars? Do you think a Samsung car would be any good (hint: if it was, don’t you think they’d export it to the US?)? The much more closed economy of South Korea (yeah, the FTA might change things, but not yet) leads to very high prices for goods that are protected. I mentioned this in other comments–jack up the prices of everything (inflation), jack up all the salaries by the same percentage–you’re in same place you started but you have nice looking numbers and you’re hurting your export industry. You gotta compare apples to apples and oranges to oranges. Otherwise it’s really meaningless.
Well, the picture isn’t obviously all rosy. The Darwinian economic planet of Taiwan means that people that do not have skills are left behind those that do. The difference in economic opportunities between the countryside and large cities in Taiwan is also a problem.
Unlike what it would be in the US, I would really really hesitate to call this unskilled class the “middle class”. Everywhere you turn your head in Taiwan you are running into a 老闆. You’ve all heard it before–Taiwan is very medium and small business heavy. I think there needs to be a political solution here to help this unskilled class, whether it is retraining, social subsidies, housing or what not–but the salary situation… really… the true picture isn’t being painted by such a simplistic analysis.
November 21st, 2007 at 1:38 pm
[...] Salary stagnation: The reason Taiwan’s middle class suffers Doubting to Shuo writes about the real reason there is so much angst about the economy. It’s a good post, and ties in nicely with my belief that the problem with the economy is perception, not necessarily reality, because the overall numbers are decent. (tags: Economy) [...]
December 19th, 2007 at 4:00 am
[...] ein interessanter Vergleich ist der der Einkommensentwicklung in beiden Ländern. Zahlen und Beurteilung sind bei tushuo.com zu haben. Mir fehlen noch Zahlen [...]
June 9th, 2008 at 1:14 am
[...] Salary stagnation: The reason Taiwan’s middle class suffers Doubting to Shuo writes about the real reason there is so much angst about the economy. It’s a good post, and ties in nicely with my belief that the problem with the economy is perception, not necessarily reality, because the overall numbers are decent. (tags: Economy) [...]