Taiwan’s Minimum Wage Hike and Economic Growth: A Closer Look
Taiwan’s Minimum Wage Deliberation Committee recently announced a decision to increase the minimum wage to NT$28,590 next year. However, many experts believe that this increase is insufficient to drive faster economic growth in Taiwan. The 4.08% increase, equivalent to NT$1,120, falls short of expectations and is in line with the minimal growth seen over the past eight years.
Slow Minimum Wage Growth in Comparison to Other Advanced Countries
Data from the Ministry of Labor reveals that Taiwan’s minimum wage growth has been one of the slowest among advanced countries since 1997. Even during the eight years of President Tsai Ing-wen’s presidency, this trend persisted. In contrast, during the late-1980s and early-1990s, Taiwan witnessed rapid growth in minimum wage, aligning with other wealthier advanced countries.
Middle-Income Trap and Economic Growth
It is evident that Taiwan is facing a middle-income trap problem, similar to other middle-income countries. The stagnation in minimum wage growth since 1997 has resulted in economic growth rates comparable to other middle-income nations rather than wealthier advanced countries. Countries with similar levels of per capita profits have shown that those with higher wages experience faster economic growth.
Impact of Minimum Wage Increase on Economic Indicators
Studies suggest that for every NT$1,000 increase in Taiwan’s monthly minimum wage, there is a corresponding NT$1,000 rise in monthly per capita wages and household consumption expenditure. Additionally, domestic profits and government expenditure grow approximately half as quickly, while average wage and monthly per capita domestic economy expand twice as fast. These findings emphasize the importance of increasing the minimum wage to boost domestic growth.
Comparative Analysis with Economically-Similar Countries
Countries at a similar economic stage as Taiwan have been increasing their minimum wages by NT$2,500 to NT$4,500 annually to align with wealthier advanced nations. To accelerate economic growth and catch up with other countries, Taiwan should aim to raise its monthly minimum wage by around NT$3,000 each year – a strategy adopted by economically-similar countries like Estonia and Lithuania.
Future Projections and Targets for Taiwan
By 2028, Taiwan’s minimum wage should ideally reach close to NT$40,000 to stimulate economic growth effectively. Prior to the 1990s, Taiwan’s average wage was on par with Singapore, highlighting the potential for growth if minimum wage had increased consistently. The government’s target of reaching a GDP per capita of US$40,000 by 2028 may be achievable based on current growth trends, but faster minimum wage increases could expedite this process.
Challenges in Achieving Higher Per Capita GDP
Taiwan’s government’s current approach of gradual minimum wage hikes may hinder the achievement of a higher per capita GDP. Despite a growing trade surplus, the lack of significant export growth beyond semiconductors indicates a need for innovation and higher-value products. Low wages have impeded household consumption expenditure and domestic economic growth, placing Taiwan at a disadvantage compared to economically-similar countries.
Conclusion
In conclusion, Taiwan’s minimum wage hike of NT$28,590 next year may not be sufficient to drive the desired economic growth. By increasing the minimum wage at a faster pace, Taiwan could potentially accelerate domestic growth and align with wealthier advanced countries. It is crucial for the government to reassess its strategy and prioritize sustainable wage growth to propel Taiwan towards achieving its economic targets.