Why salary in Taiwan is so low?
How much TW newbie get for starting salary?
*This is an article written by the author in his Korean blog on Oct. 2017 and is edited and translated into English for greater audience.
Prologue: Wasn’t Taiwan a well-off country?
I first remember the time when I got to know about the salary level of Taiwanese employees. Excuse my expression but I thought there must be a ‘0’ missing in the digit.
That was how shocking it was. Period.
Ever since, it lingered in my head. Why in the world Taiwanese get so little for their worth of labor? I mean, c’mon. Taiwan, after all, was one of the notorious Asian tigers — alongside with South Korea, Hong Kong and Singapore.
Since I have relative more knowledge and experience with Korea and Taiwan in this occasion, let’s take these two tigers and compare!
Korea and Taiwan — heterogeneous twins
As I got to know more about Taiwan, I found so many subtle similarities between the two. Let me just list them out.
- Their modernization heavily influenced by imperialist Japan
- Civil war with communist side and de facto divided into two different regimes
- Due to the above status, every man has to serve in military
- Both are islands — one natural, the other virtual as South Koreans only way abroad is via ship or airplane due to the North
- As mentioned, both enjoyed robust economic growth as the Asian tigers
- Both have cutting edge technologies in IT industry, namely in semiconductors
But until been told of these facts, few will recognize the similarities and rather focus on seeming differences. And when it comes to differences, I would like to point out to their respective popularity. Let’s see the buzzword for words ‘Korea’ and ‘Taiwan’ on Google Trend in the past one year.
It showed that ‘Korea’ had been searched 6 times more frequently than ‘Taiwan’ in average. And it is also not difficult to see in almost all regions of the world, ‘Korea’ was the bigger trend.
They share similar traits in terms of history and environment. But one is much more popular than the other in keyword with many other differences.
Why Taiwan became “less popular” or has seemingly grown at different pace?
My quick thoughts:
- Limitation in country brand — whereas North Korea became isolated, China now dominates Taiwan in just about every aspect of military/politics/economy. As Taiwan “cannot” be officially recognized as a normal country by nearly 90% of the sovereign states (due to the “big brother”), it is virtually non-existent in world diplomacy. Not to mention that it cannot use its official name and flag in international events. (For example, here) This results in low coverage of its identity or its brand.
- Limitation in its company brand — Samsung, LG, Hyundai.. some of the Korean brands you might have heard. They once used to be either the copycats or dust eaters in oversea retail stores in the 80–90s. But with the strong R&D and the ensuing brand marketing, they became the global brands. Whereas, Taiwan also has some big brands like Honghai (or rather known for Foxconn) or TSMC but they focus on OEM engendering less popularity among global consumers.
- Limitation in its pop culture influence — although Mandarin Chinese is a huge advantage when you think about the huge Chinese-speaking diaspora in the world (known as 華僑), Taiwanese pop contents usually struggle to transcend this community. Meanwhile, despite its relative language or cultural disadvantage that only North Koreans and ethnic Koreans in Manchuria speak Korean, the so-called “K-pop” and other cultural contents have successfully spread throughout Asia and some parts of the world. (I have talked about why this gap in cultural influence widened in a separate article years ago.)
Let’s admit. Taiwan was in tougher battle against the bigger counterpart. But aside from that, there were lots of other factors that caused these differences. (I will get into those later.)
Anyway, I just gave you some brief overview of these two tigers in the hopes of helping understand the background. Now, let’s get back into the point.
So how much does TW newbies get for starting salary?
As you see from the graph below, the nominal GDP of Korea and Taiwan are not too far apart at $22k and $27k, Korea higher only by 1.2x.
However, if you compare the fresh-out-of-school’s average annual salaries, it’s a bit shocking. 11k vs 32k, almost 3x difference!
Another part worth noticing is that the difference between GDP per capita and the starting annual salary. It means the newbie get only half of the avg. GDP in Taiwan while 17%p more than avg. in Korea.
What do you think about this number?
You graduate from a decent 4-year college, find a job and you earn less than $1,000 a month. To verify the numbers, I have looked into multiple sources, but the range seemed to be in the ballpark. (Also, there was once a term “22k” to signify the social issue of the low starting salary in a cynical way.)
Let’s look at this graph.
The monthly salary of the newbie is lower than 20 years ago!! Is this even possible? There has to be something wrong. It seems like something that can happen in an economy like deflation-swept Japan.
I had to confront these numbers with a bit of alertness. In my old memory, Taiwan was remembered as once a rich country like Hong Kong and I am sure it was richer in terms of life quality than Korea till probably mid-80s. But after three decades, the starting salary difference has widened to three times!
What made these differences?
I will get into whys in the following article.
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 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.
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