Review of Salary Related Researches

There are many societal and economic factors that influence salary level in Taiwan.

Current literatures focus on dimensions such as macroeconomic factors, labor supply, and labor demand. Economic index such as GDP, CPI, and unemployment rate in macroeconomics are frequently used by economists to relate to wage fluctuation in Taiwan.

Increase of labor supply is explained through increased foreign labors and expansion of higher education; decrease of labor demand is explained through increased minimum wage and globalization. There are many aspects in the international areas such as Foreign Direct Investment (FDI), Original Equipment Manufacturing (OEM), excessive expansion of higher education and international trade are frequently discussed as one of the main causes to salary level stagnation in Taiwan. Taiwan’s industrial structure and companies’

corporate strategy were reformed to adapt to the changes from globalization, thereby affecting growth of salary level.

Among many literatures, globalization, the structural imbalance of the industries, and the imbalanced labor supply and demand are commonly identified to be the main causes.

2.1.1 Foreign Direct Investment

Outward Foreign Direct Investment (outward FDI, hereafter) is often seen as one of the causes that leads to the stagnant growth of salary level. 李長泰(2013) points out outward FDI is one of the main causes of the studied event. In his report, outward foreign investments to different countries and different industries were observed. Samples of foreign investment to China and the rest of the world were taken and quantified to conduct the analysis and induct the statistic conclusion. The result is that FDI to China has positive impact on salary level growth in only one industry of many, but all of the other industries suggest the negative impact on salary level growth.

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陳劍虹(2012) observed the changes of Taiwan’s average wage from different time segment and the comparisons of the average in Taiwan between different industries, and the average wage comparison between Taiwan and many other countries. Based on the observation, he concluded that factors’ globalization directly or indirectly affect the demand for and supply of labor markets; and thereby, it influenced the employment and the salary. When low cost labor forces from the developing countries are poured into global market, salary growth in developed countries will slow down based on factor-price equalization theory.

2.1.2 The Structural Imbalance of Production Industries

陳劍虹(2012) observed the growth rate of real GDP in different industries and the industries’ contribution to Taiwan’s GDP growth. The author found that the growth rate of manufacturing industries’ real production has increased 10% and service industry’s dropped around 5% in the 2001-2010; and manufacturing industry’s contribution to GDP increased, but service industry’s kept on dropping. With the observation, the conclusion is drawn that the structure of the industries become imbalanced: manufacturing industry’s added value dropped, leading to stagnant growth of salary; and, the service industry has not received enough attention to develop. Due to the fact that the service industry accounts for more than 50% of GDP in Taiwan, its lagged development leads to Taiwan’s stagnant growth of salary level.

王健全(2012) also observed both manufacturing and service industries’ growth rate of real production over the last five years, and connected the observation with that of the changes of labor supply, demand and salary level. Based on the observation, the study presented how job creation in different industries drives salary growth. The conclusion is that Taiwan’s service industry hires about 60% of entire labor forces, but the small local market and slow upgrading of service industry make its contribution to the economy low, let alone to drive salary growth.

2.1.3 The Imbalance of Labor Supply and Demand

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陳劍虹(2012) explained that Taiwan’s industrial upgrading is slow and the labor market demand low-middle managements and technicians, not the advanced talents.

However, in Taiwan, higher education expands in a rapid pace; and, labor supply of college degree and above increases tremendously. More and more people holds at least college degree that leads to the decrease of graduates of high school and under, resulting in the imbalance of labor supply and demand in the job market. The job market is like a pyramid.

When the upper layer undergoes excess supply, the middle will then be squeezed. Layer by layer, misplacement of labor forces must lead to a negative growth of salary level eventually.

王健全 (2015) pointed out that the excessive expansion of higher education leads to oversupply of graduates holding college degree and above. Oversupply of white collar labor force is also one of the important causes of low wage. Higher education expansion lead to the admission rate of 95% or above. It is much harder for applicants not to be admitted than to be admitted. When more and more people going for higher education, those higher education graduates become late to the employment at the age of around 25-29, resulting in the oversupply of labor forces aged between 25-29. This situation of oversupply suppresses the growth of salary level.

2.1.4 The Consumption of Fixed Capital

陳 昱 璋 (2016) collected the ratios of compensation of employees to GDP, operating surplus to GDP, and consumption of fixed capital to GDP; and based on these statistics, he pointed out the fact that the ratio of consumption of fixed capital to GDP kept climbing from 12% in 1998 to 18% in 2008. Whereas, in the same period, the ratio of compensation of employees to GDP dropped from 52% to 49%. The conclusion derived:

the rapid expansion of physical equipment leads to a fast depreciation of those equipment, making the cost from fast depreciation transfer to labors so much as to drag salary growth.

2.1.5 The Lack of Labor Bargain Power

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Comparing Taiwan and South Korea, 朱雲漢 (2013) indicated two key factors that lead to Taiwan’s stagnant salary: Different global competitiveness and the imbalanced wage negotiation system between employers and employees.

First, the global competitiveness of Taiwan and South Korea is different. The phenomenon of low salary in Taiwan is related to Taiwan’s global competitiveness among in the global supply chain. Taiwan’s export-oriented companies choose to manufacture for worldwide brand name companies to earn the little profit. For this reason, naturally, they keep upgrading their production efficiency and lowering cost. Conversely, South Korean companies emphasize on research and development, branding, differentiation, so they are able to cover the increase of labor cost.

Second, the wage negotiation system can be applied to explain why the difference of salary level between Taiwan and South Korea is wide. In the article, he revealed the important insights to the exploration of our studied event. In South Korea, only those globally well-known Korean star companies enjoy competitive advantage derived from differentiation strategy¹; most of the enterprises do not have aggressive international competitiveness, especially those in the service sector that accounts for the major part of the economy.

However, South Korean companies still manage to provide relatively reasonable package to their labors because labor unions in South Korea are able to ask those leading companies to raise the salary by their collective bargaining power. Once some of those leading companies raise the salary of employees, other companies can be influenced to raise the salary as well. The effect can thus ripple through across all the other companies nationwide. Conversely, many of Taiwan’s small-medium enterprises play key roles in the global supply chain, but rarely, they design reasonable package to the labors because the

1 According to Michael Porter’s generic strategies, differentiation strategy requires a firm to seek to be unique in its industry along some dimensions that are widely valued by buyers.

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few influential labor unions with strong negotiation power fell apart at the time when numerous state-owned companies were privatized.

He them concluded that when the government is unable to make changes, the outflow of senior personnel is unstoppable. What’s worse, Taiwan’s salary overall will then be dependent on the coastal regions of mainland China. Only when the salary of coastal regions of mainland China is catching up does that of Taiwan start to elevate.

Whereas, we want to ask the question: why our studied event did not arise before the 14 years? We will later address this question in Chapter five.