The nominal manufacturing wage rate in Taiwan has shown a faster rate of increase than labor productivity, faster, in fact, than the comparative figures for the United States, Japan, the philippines, Korea, Hong Kong, and Singapore since the 1970s. Consequently, manufacturing unit labor costs have also grown by the highest rate of increase in Taiwan. This trend will likely result in a deteriorated position for Taiwan’s labor-intensive exports.
To redress this situation, it would be best if Taiwan could improve its labor productivity, at least to the extent that labor productivity and wages rise in tandem. Inflation could thus be avoided.
This continuous rise of unit labor costs in Taiwan indicates that Taiwan’s labor-intensive products are beginning to lose their comparative advantage. It also shows that labor’s share in total cost has been growing. This would lead us to expect that in the near future the products enjoying comparative advantage in Taiwan will be found in the capital-intensive and skill-intensive sectors of the economy.
