Since 1986, the labor shortage and the use of foreign workers have been two hot issues in Taiwan. The appearance of foreign workers seems to be the evidence of a labor shortage, but the labor shortage facts are still under debate. Additionally, what does the appearance of foreign workers imply? How should it be treated? Do we need a policy to tackle this problem? These issues are examined in this study. The main findings are the following:
1. Before the mid 1960s, Taiwan was in a state of excess labor, which implied an unlimited labor supply in the process of economic development.
2. As the industrial sector developed, the employers competed for labor within and across the industrial sector, which gradually resulted in a labor shortage of a partial and structural nature and became a prevalent phenomenon.
3. The labor shortage appears most serious in the construction sector, textiles, and the wearing apparel & accessories industries.
4. Technical workers and basic laborers are the most critical areas for the shortage of workers.
5. Until today, the growth of population has been the major source of the increment increase of the labor force in Taiwan. Since the rate of growth of population has shrunk, and may further decline in the near future, encouragement of labor force participation will be a major method to enhance the domestic labor force.
6. In the past 40 years, persons employed in all but the agricultural sector have increased each year. However, the increasing rate declined over time because of the tightness of the labor market and the increase in workers’ compensation. In order to fully detect the intensity of labor demand, job vacancies have to be considered in addition to persons employed.
7. No matter whether it is in the 1-digit eight industries or in the 2-digit manufacturing industries, the average monthly real income showed rapid growth and proved that the increase in labor demanded outpaced the increase in labor supplied.
8. According to an official survey on the reactions of firms to the labor shortage, the construction industry tried primarily to hire workers from elsewhere while the manufacturing industry mainly attempted to raise wages and benefits. All firms in the survey utilized these two methods.
9. An official survey on the member firms of 20 associations revealed that 14 associations suggested that the government should legalize the introduction of foreign workers as soon as possible.
10. In general, foreign workers will benefit the welfare of local people. Some costs, particularly external costs, may accompany foreign workers, but they are relatively minor in comparison with the benefits of contracted foreign workers. However, one has to worry about the deterioration of income redistribution.
11. Currently, there are about ten thousand foreign workers in Taiwan. Therefore, the most urgent issue of foreign-worker policy is whether to legalize the employment of foreign workers which would help the management and prevention of permanent residency by these workers. The answer to this issue is affirmative.
12. Introducing foreign workers has positive economic effects, but incurs the injustice of income redistribution. Therefore, a design to levy a tax on the employers of foreign workers to avoid maltreatment while legalizing the introduction of foreign workers is required.
From the above-mentioned conclusions, we propose the following suggestions:
1. In the short-run, a careful study of the labor force is needed and this should try to evaluate the policy promoting the labor force participation rate.
2. Shortened working hours, which is a source of the labor shortage, is a definite result of economic development. To alleviate its negative impact on the labor force employers should improve labor productivity and enhance the efficiency of labor utilization.
3. Improving the labor quality is a cornerstone of improving labor productivity. Hence, enhancing the investment in human capital through education and job training, with due consideration of costs and benefits and well-established cooperation between the business and government, is an important strategy.
4. To introduce foreign workers legally is a way to increase the supply of labor. However, a feasible method must be established to maximize the positive effects while minimizing the negative impacts.
5. With regards to the introduction foreign workers, a method taking into account economic efficiency and worker-treatment is to auction the right of hiring foreign workers and use the revenues to subsidize job-training programs and finance infrastructure. This will not only produce the largest benefits for domestic welfare, but will also balance the possible deterioration of income redistribution through taxation (auction) and subsidy (job-training and infrastructure).
