Why do TW newbies earn so little?
In my previous article, I wrote about my surprise on encountering the seemingly “indecent” salary level for the newly recruited in Taiwan.
The subsequent curiosity is this.
Why is it so DAMN low?
Here are my thoughts.
Macro-factor #1: Government Policies
Both Korea and Taiwan governments took the commanding role in driving the economic growth, by encouraging export. However, there are major difference in how they pursued the export-driven growth.
a. Korea: favor big and allow inflation
Korea nurtured big conglomerates (so called chaebol), namely Samsung, LG, Hyundai, in strategic export areas. It maintained the low interest rate to supply low cost funds that they desperately needed in order to expand their businesses. In return, they actively collaborated to the government campaigns.
The low interest rate resulted in high inflation, which also resulted in low household savings. Since there isn’t much of savings from household, the corporates had to rely mostly on government funds.
b. Taiwan: favor small and restrict inflation
Taiwan, on the other hand, focused on small-to-medium enterprises (SME) and was not particularly interested in buffing the biggies. At the same time, it maintained the high interest to suppress the inflation. Thus, unlike its Korean bro, the household savings increased and this became the source of fund for the corporate activities.
Now, let’s check out the inflation rate for the past 40 years.
Korea’s has almost continuously topped Taiwan’s, meaning the price level has risen considerably steeper in Korea than Taiwan. This accumulation can be quite powerful when considering the compounding effect.
So simply speaking, the income or salary level is linked to price index. And it can be assumed that with the higher inflation, Korea’s avg. wage level would have increased much more than Taiwan’s.
Also the difference in their policies also lead up to the brand competitiveness in global markets, thus the company profit margin and the salary level.
Macro-factor #2: Global Brands
Due to the above policy difference, Korea now has bigger conglomerates with better-known brands.
Let’s check out the Fortune 500 list.There are 15 Korean companies whereas only 3 Taiwanese in terms of revenue size.
For brand power, 14 Korean but only 2 Taiwanese.
But let me ask, how many of you have really heard of these Taiwanese brands? Do you even know what they make? Maybe Foxconn as Apple’s smartphone parts manufacturer.
Yes, the reason is Taiwan enterprises specialize in OEM or ODM. Simply speaking, they make parts for other global consumer brands like Apple, meaning they have less brand exposure to the consumers.
This results in less premium or added value for these companies. Because if you have more popular brands, then your margin tends to be better as well. (see more here)
Apple’s profit margin was 32.4% for the year, while Samsung ‘s margin was 11.6%.
So what does this say about Taiwan’s top companies? Their profit margin is likely to be lower than Korean counterparts due to weaker brand equity. If there is less profit, then less to share with the employees, thus lower salary.
Plus, the consumer brands usually have the upper hands in terms of sourcing negotiation and OEM companies, unless they have unique superiority, have to focus on cost competitiveness or cost reduction. Where can they cut the cost? In no small portion, from labor cost…
Micro-factor: Unfavorable conditions of strong labor union
A. People Characteristics
Another observation I had on Taiwanese is that they are relatively patient and kind in nature. In a way they are like herbivores whereas Koreans are more like carnivores.
You can easily find many Taiwanese just waiting for restaurants, cafes, buses, banks, etc. without much complaint.
Speaking of their kindness, my examples are endless.
When you say “謝謝xiexie (thank you),” your expression of gratitude almost always comes back with “不會buhui (You’re welcome)” with a grin on their faces. It’s a small thing and many might regard it as granted but I personally found it very appreciated.
Another case of this small customs I love is when taxi drivers say greetings on your way in and out of the vehicle. Saying hellos and goodbyes. I realized how these small gestures were so heart-warming when I took cabs in China and Korea, whose drivers were mostly emotionless.
It even looked cute when they utter “xiexie(thank you)~baba(bye bye)~”
Japanese drivers are also very polite and kind but I find the Taiwan kindness more genuine. It’s not one of those gestures with service face on.
There is a reason why Taipei was selected as the friendliest city by foreign travelers in a survey.
So all in all, there are fewer cases of altercation in this country. But on the other hand, fewer confrontations may mean there can be many cases in which one doesn’t express the complaint for the sake of creating no hassle.
This happens in Korea too. Many have to shut up for the sake of the socially powerful like your boss or your organization. But the difference is they make complaints and turn those into an organized movement.
From the ’70s, there were lots of movements and protests to enhance the labor conditions in Korea, not to mention all the other demonstrations to seek for democracy. So Koreans are very eager to fight for their rights and interests, which led to democratization in regime but also the protection of more labor rights by labor laws.
I don’t see as many organized demonstrations in Taipei as did in Seoul. Comparing the annual number of officially reported labor-related protests may provide the more objective picture of this status.
But the recent news shows a step forward in this movement in Taiwan.
It’s through this kind of social conflict and adjustment that a society finds the right balance. Although it’s not always to give into the laborers’ requests for “distribution” before the size of pie reaches a certain level, the right amount of sharing with the components of an organization surely helps to attract the right talents in a stable manner.
One example that tells the difference in labor condition between Korea and Taiwan is the pension system. In both countries, companies pay for the labor pensions in case an employee loses jobs. But the difference is:
By labor law, Korean companies have to give one month worth of salary for one full year’s employment, meaning if an employee worked for five years, then when he/she leaves, the company has to give at least five months worth of salary as pension. But in Taiwan, unless you are fired, an employee does not get such pension.
It’s just an example but it shows that there is still a long way for Taiwan’s labor environment. And think about it, if you’re a competitive talent from foreign countries, why would you ever want to come work for Taiwan companies if the basic welfare system protected by labor law isn’t so sexy, on top of the fact that the salary would be likely to be low?
In the end, the gold won’t drop from the sky. Companies won’t do that out of nowhere for employees. It means laborers must, to some extent, have to fight for it “in an organized way.”
B. Salary System: Seniority vs Meritocracy
Many Korean companies, especially big ones, stick to the salary system based on seniority (hereafter “S”), meaning the longer you worked in this company, the more you get paid. The salary is mostly determined by how many years you worked. So there is a pre-defined pay grade chart and every employee follows this more or less. One survey says 72% of Korean companies still tend to follow this rule.
Meanwhile, most other countries including Taiwan, take the salary system based on meritocracy (hereafter “M”). They decide how much you’ll get every year based on your performance.
Under “S,” the labor union fights with the management side every year on behalf of the employees to negotiate a higher raise in the pay scale. Where as under “M,” each employee has to deal with the company on his/her own. Of course, the employees with competitive expertise (esp. those who have years of experience) would pull off favorable outcomes in negotiation but the employees who are not, including the rookies, won’t be able to dictate the terms on their own.
The below graph shows that the the salary level of Korea — whose “S” portion is the highest — rises faster as the working years increase, compared to Japan in the middle and EU,
Another factor may be the rigidity in labor market. Because of the emphasis in “S,” Korean companies have to put more effort in attracting fresh graduate talents. The longer you stay at the same company, the more salary or benefit you will get so it’s less likely for them to change jobs. So competitive Korean companies may offer more salary to allure the smart fresh graduates and lock them in.
Conclusion
In summary, the government policy created an economic environment for lower inflation and weaker global consumer brands, which resulted in 1) less overall pressure for price/wage increase and 2) the smaller profit margin from brand premium, subsequently decreasing the size of pie for the employees.
Also the weak negotiation power by laborers (or labor unions) in Taiwan gave less pressure to the management to improve the salary conditions of employees.
Some of the assumptions should be supported with more data-driven evidences, but they can provide a few points for further discussion.
