Academic journal article The Economic and Labour Relations Review : ELRR

Is It Possible to Decouple Foreign Workers' Wages from the Minimum Wage in Taiwan?

Academic journal article The Economic and Labour Relations Review : ELRR

Is It Possible to Decouple Foreign Workers' Wages from the Minimum Wage in Taiwan?

Article excerpt

1. Introduction

In response to the labour shortage brought about partly as a result of the 1980s economic boom, the Taiwanese government allowed hiring of foreign worker in 1989 but on a restricted basis, calling it 'moderated replenishment.' As international competition became more intense, the majority of Taiwanese corporations relocated their operations to China in order to reduce their operating costs and to take advantage of China's emerging market. The trend toward relocating operations off-shore has resulted in both severe unemployment and wages plunging so steeply that there has been negative growth in wage rates. Increase in the minimum wage has resulted in a declining gap between the minimum wage and the average wage declining in a number of regions in Taiwan, creating a situation where the starting wage for young workers is the same as the minimum wage. However, in contrast, increases in the minimum wage in 2007 and 2011 resulted in foreign workers receiving increased wages.

The practice of applying the minimum wage to foreign workers in Taiwan was not motivated only by the government's insistence on the principle of equality; the purpose is also to comply with conventions of the International Labour Organisation (ILO) and to present a favorable image to the world. However, there has never been any serious debate on the issue of decoupling foreign workers' wages from the minimum wage until now.

In the midst of growing unemployment and declining wages, the government's policy of moderated replenishment (allowing hiring of foreign workers to a limited extent) and minimum wages for all workers has been subject to a great deal of criticism. Opponents argue that the policies cause social unrest and the minimum wage should not be applied to foreign workers since that implies robbing domestic labourers of their employment opportunities, and aggravating the unemployment problem. Many business enterprises have requested that the government review policies pertaining to application of minimum wage to foreign workers. Given the growing opposition and discontent, the government has started paying attention to the issue. On issues of the minimum wage, the major political parties, the Kuomintang and the Democratic Progressive Party (KMT and DPP) share a consensus: both recognise that the minimum wage standard and its adjusting principles will be closely related to Taiwanese economic growth.

These debates raise two fundamental and contentious questions that require further examination: first, during periods of high unemployment, should foreign workers be hired; and second, should minimum wages apply to all foreign workers? This article will provide an in-depth discussion of the feasibility of decoupling foreign workers' wages from the minimum wage. The first section offers an overview of foreign worker policy and the minimum wage system in Taiwan, followed by a comparison with minimum wage systems adopted by other labour importing countries. Next, we examine the feasibility of excluding foreign workers from coverage of the minimum wage, followed by conclusions.

2. Taiwan's Foreign Worker Policy and Wage System

Until 1989, in Taiwan, importation of low-skilled workers was forbidden and importation of other types of foreign workers was strictly restricted. However, rapid changes in industry structure caused the demand for foreign workers to increase. When the government initiated work on 14 major infrastructure projects in 1984, the first batch of low-skilled workers from abroad was hired. This was treated as a special project to cover a labour shortage in Taiwan (Tseng 2004). In 1990, import of foreign workers was officially allowed. In 1990 the number of legal foreign workers working in Taiwan was approximately 2,999 but by 2000, the figure had soared dramatically to 326,515 (Council of Labor Affairs 2010a). When Taiwan joined the World Trade Organisation (WTO) in 2001, it became necessary to align the issue of import of foreign workers with the latest international conventions and regulations. …

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