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The Economic Evaluation of the Adjustment on Minimum Wage: The Case of Taiwan in 2007

No.:CM0042

Author:Hui-Lin Wu, Su-Ling Peng, Chia-Hui Lin and Ying-Yi Du

Price:Out of print

Publication:2009.12

Abstract:

In Taiwan, the minimum wage (or basic wage) adjusts since July 2007. The monthly and the hourly base pay had risen from NT$15,840 to NT$17,280 and NT$66 to NT$95, respectively. The change rates are 9.09% and 43.94%. Basic idea of setting the minimum wage is going to protect labors’ standard of living. However, there are side effects for setting basic wage. For example, this idea would add the labor (production) costs for the business and then the boss may reduce recruits or lay off some employers. And it will also move up the price level, worsen the unemployment ratio, transform the labor structure and affect the macro economic activity eventually. In order to evaluate the impact for the adjustment of basic wage, we apply the micro and macro aspects to the case study. For the micro approach, we employ questionnaire for the full time marginal labors, who insures the labor insurance at the 1st grade. The survey showed that the policy of the base wage upward adjustment of 2007 acquired understanding and support from most labors, and drastic increase in the hourly wage of part-time workers has not affected on the employment and hiring directly. But to marginal labor, it will make work welfare better, increasing in working hours, less employment, as well as has a significant affect on choosing full-time or part-time work. Compared with senior workers, junior workers preferred to adjust basic wage periodically and thought salary adjustment should follow it. However, a survey of small and medium sized enterprises showed that the upward adjustment of minimum wage in 2007 has no impact on hiring part-time workers, but has a slight adverse impact on hiring native full-time employees; especially less than 30 small-medium enterprises bear a greater impact. According to the results of this survey and the case of company’s counter-measures damaged the industrial relation occurred at the beginning period of basic wage adjustment. They remind decision-maker when proposing supporting measures, should also consider the effectiveness of remedies, therefore reduce effectively the cost of social adjustment. In the aspect of macroeconomic effect, this study found that even in 5 years the impact of adjustment of minimum wage on GDP is only 1% (in difference percentage). Take its time dynamic effects on real GDP into consideration, we can find that there is a positive effect in the short run. This is because of the growth in people’s real purchasing power would increase private consumption expenditures; and there is a negative impact in the long run, mainly due to rising wages would lead to a decline in international competitiveness. But overall, the effect of adjustment of minimum wage on macro economy is not obvious. Though the economic impacts seem small, the influence on regulations are very wide, such as labor insurance, national health insurance, foreign worker’s wage, unemployment benefits, social allowance and national pension are all influenced by the setting of basic wage. Going through the evolution of adjustment of basic wage, it has become that a price regulation on minimum wage not only disturbed labor market operation but also induced the industrial and political conflicts.

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