Our analysis seems to suggest strongly that the labor market in Taiwan has been, and still is, highly competitive. If the labor market in Taiwan is a competitive one, then any intervention by the government to influence wages (fringe benefits included) would be unwise either from the point of view of efficiency or from the point of view of fairness. Instead, what the government should do is to see to it that a high degree of competition be maintained both on the demand side and on the supply side of labor. This is of course not an easy job to do when business firms grow in size to take advantage of economies of scale, and a degree of concentration of economic power develops.
In the past thirty years, real wages have been rising at a very high rate (about 5 percent a year) for all professions and in all industries in Taiwan, and wage differentials have narrowed. Such developments have not only enabled people in all walks of life to improve their living standards but also reduced the degree of inequality of income distribution. Our analysis suggests that this performance has been the result of rising labor productivity and the narrowing of labor productivity gaps. Productivity gains have been the key.
To raise labor productivity in a particular industry is perhaps not difficult to do, for example, by adopting highly capital-intensive technology. But to raise labor productivity in all sectors of the economy or the average labor productivity for the economy as a whole is something else. Given a certain level of savings, there is always a limit to what a nation can do to increase capital intensity. Rapid increase in labor productivity must also come from new technology, work incentives and discipline, business management, education, health, and a host of other sources. It requires a national effort from every-level of society.
