Taiwan Today

In January, the Taipei-based Economic Outlook Bimonthly published two articles with oppos­ing views on the need for foreign laborers in Taiwan. These essays, written by two well-known local scholars, raise many pressing issues concerning the island’s labor policies. Below, Ma Kai (馬凱), an economist and research fel­low at the Chung-Hua Institute for Eco­nomic Research, supports the use of foreign labor, while San Gee (單驥), a professor in the Department of Econom­ics at National Central University and dean of the School of Management, sug­gests that the policy be severely restricted. Their viewpoints are supplemented by a Free China Review interview in mid-June with Chan Hou-sheng (詹火生), vice chairman, Council of Labor Affairs (CLA), Executive Yuan, and concurrently a professor in the Department of Sociology, National Taiwan University.

MaKai

Beginning in 1986, more and more foreign workers, mostly from Southeast Asia, entered Taiwan’s labor market, particularly in the manufacturing sector. Most were working illegally. Estimates of their number varied widely. Whatever the total, they were a source of new social problems. Although the government stepped up its efforts to find and repatriate them, as well as punish the travel agencies that broke the law by bringing them in, the number of il­legal foreign workers continued to increase.

In October 1989, the government set up formal procedures to permit local companies with contracts for the govern­ment’s ongoing Fourteen Key Construction Projects to bring in foreign workers. The goal was to alleviate the labor short­age plaguing the construction sector. Dur­ing the same month, six other industries and fifteen occupations were also allowed to employ foreign laborers. Later, indi­viduals were allowed to hire foreign household helpers, nurses, and fishermen.

Actually, there is no choice about hav­ing foreign labor in Taiwan. Rather, the choice is either to set up a sound system for hiring those who are needed or else to try to impose an all-out ban—a ban we do not have the ability to enforce. Given this situ­ation, opposing the hiring of foreign labor is simply being blind to reality.

Why have so many come to work in Taiwan since 1986? The answer lies in the drastic change in the economic structure since the mid-eighties, not only in Taiwan but in the rest of the world. Many factors have influenced labor supply and demand in our manufacturing sector. One was a strong recovery in construction, creating a demand for more workers. According to statistics released by the Directorate Gen­eral of Budget, Accounting and Statistics (DGBAS), Executive Yuan, in 1986 the lo­cal construction sector was short by 120,000 workers. By 1993, the number of construction workers had increased 72 percent, adding 370,000 persons over the 1986 figure. Nevertheless, the construc­tion sector was still complaining about a labor shortage.

A second factor was the so-called money game that swept Taiwan in the late 1980s, mainly speculation in real estate and on the stock market. In addition, better liv­ing standards drew many people into the service industries. Employees in this sector increased by 35 percent, or 1.1 million per­sons, between 1986 and 1993. The huge profits gained from the money game, as well as the more comfortable work environment offered by service industries, reduced the supply of labor for manufactur­ing and construction businesses.

Moreover, the overall labor partici­pation rate [the percentage of the popula­tion 15 or older that wants to work] declined from 61 percent in 1987 to 59 percent in 1993. During this period, the largest slump was for workers aged 15 to 19, dropping from 32 percent to less than 20 percent, or 343,000 persons. Even more noteworthy, the ratio of workers be­tween 15 and 19 in the manufacturing sec­tor decreased substantially, from 13 percent in 1986 to just under 5 percent in 1993. The manufacturing sector was deeply troubled by a labor shortage. Ac­cording to the DGBAS, the sector had 200,000 vacancies in 1987. Roughly 96 percent of the island’s manufacturers said they had difficulty recruiting new work­ers. Since 1986, as a side effect of this phenomenon, average wages in the manu­facturing sector have seen an annual two­-digit growth rate.

In 1986, the average wage of Tai­wan’s workers was 20 percent that of workers in Japan, 21.5 percent of U.S. workers, 82.5 percent of those in Singa­pore, and 89.4 percent of Hong Kong workers. In the following year, however, Taiwan’s average wage surpassed that of Singapore and Hong Kong, and narrowed the gap with Japan and the United States. And by 1989, it was already 1.2 times the level in Singapore and Hong Kong. By 1991, the average wage in Taiwan’s manufacturing sector was 1.26 times that of Hong Kong and 53 percent of the U.S. average. This drastic wage hike made the island lose an important competitive edge in international markets. Worse, the rapid appreciation of the New Taiwan dollar against the U.S. dollar dealt another blow to our export-processing industries, which relied heavily on global markets.

Even more serious, the labor short­age worsened, making manufacturers hesitant to take orders for fear of ruining their credit or suffering losses as a result of failing to honor contracts. As a result, many business opportunities and market­ing channels were lost. Businesspeople started closing their factories and moving offshore to places with lower wages and no labor shortages.

Indeed, since 1987 more and more Taiwan businesspeople have invested overseas. Official statistics show that the amount of outbound investment in that year was twenty-seven times the total amount of the previous seven years com­bined. And in each of the following three years, when labor shortages grew far more serious, the amount of investment was even higher.

At the same time, many Southeast Asian nations, Thailand and Malaysia in particular, improved their investment climates and offered attractive incentives to foreign businesspeople. These moves en­couraged Taiwan businesses to invest there. Many foreign companies—most of them Japanese and American—that had used Taiwan as an export-processing base also turned to Southeast Asia for a better competitive edge. As a result, over the past few years Southeast Asian nations have enjoyed a two-digit economic growth rate and their export-processing industries have boomed, dwarfing the economic performance of the “four little dragons” [South Korea, Taiwan, Hong Kong, and Singapore].

To cope with this situation, our gov­ernment adopted strategies calling for in­dustrial upgrading and production automation. At the same time, some ana­lysts argued that costly and insufficient labor would force many entrepreneurs to substitute capital and machinery for labor. Moreover, they said that these entrepre­neurs would most likely give up export­ processing industries that relied heavily on labor and in their place develop capital- and technology-intensive industries. This line of reasoning led them to conclude that if the hiring of cheap foreign labor was strictly prohibited, the subsequent labor shortage would result in wage increases and thereby make the goal of industrial upgrading achievable even sooner.

This logic has impeded the admis­sion of foreign workers into Taiwan’s em­ployment market. Even today, although the government has issued work permits to more than 200,000 foreign workers, our policy toward foreign labor has wa­vered. Hence, many unnecessary restric­tions have been adopted.

In my view, this line of reasoning will have a negative impact on our eco­nomic development. Singapore is a case in point. About a decade ago, in order to upgrade its industries, the Singaporean government adopted the experimental policy of raising wage levels by 20 per­cent annually. This was done in hopes of forcing manufacturers to replace labor­ intensive production with capital- and technology-intensive production. Four years later, however, Singapore’s economy suddenly collapsed and the gov­ernment was able to stabilize the economic condition only by freezing labor wages and even subsidizing them. I am surprised that our officials and economic experts have not learned from this case.

One absurdity of the aforementioned line of reasoning is that it divides industries into two categories: high-end industries that are capital- and technology-intensive, and low-end ones that rely heavily on labor. Moreover, it suggests that the former is the objective to pursue whereas the latter should be jettisoned so that we can regain a competitive edge by substituting capital and technology for cheap labor.

But in fact, the so-called low-end in­dustries with the advantage of cheap labor no longer exist in Taiwan. And even those industries in which labor has a lion’s share in the overall operation costs have been relocating overseas since 1986, when our industries suffered most seri­ously from wage increases and the appre­ciation of the New Taiwan dollar. The industries that remain already have the ad­vantage of advanced technology and suf­ficient support from peripheral industries—or they are industries that other countries cannot support and de­velop because of inadequate business environments.

Even technology- and capital-inten­sive industries have to depend on labor for certain steps in the production process. That explains why the Hsinchu Science­ based Industrial Park and other high-tech facilities and industries want to hire foreign laborers. Therefore, if the govern­ment turns a deaf ear to the demands from our industries by curtailing the hiring of foreign labor, the result will be either that the number of illegal foreign workers will increase or that more local industries will move offshore or close down alto­gether—and some of these may be the very technology- and capital-intensive industries we want to develop. Even Swit­zerland, which is known for being techno­logically advanced, has to depend on foreign labor lest many of its industries be forced to relocate abroad.

One major point argued by those who oppose hiring foreign labor is that our so­ciety will have to pay a high price, particularly in terms of social stability and internal security. I think this mindset is a reflection of racism. Consciously or unconsciously, such people believe we are superior to the developing countries in Southeast Asia in terms of manpower quality and cultural sophistication. They worry that our “elegant and pure” culture will be polluted or deteriorate by allowing in foreigners. They also worry that these “inferior” people will disturb our social norms and public security.

But what are the facts? As Chinese, we have always been proud of our ability to assimilate other cultures and peoples. And after each such assimilation, Chinese culture has blazed new trails. In terms of public security, we can take Switzerland as an example. Switzerland is famous for its social stability, but foreign workers constitute one-fourth of its work force, not even including those who commute to Switzerland from neighboring countries every day. In Taiwan’s case, laborers from Southeast Asia account for only 1 percent of our work force. It is therefore a great exaggeration to say that they can have a serious adverse impact on our so­cial stability.

It is certainly true that foreign workers place extra burdens on our public facilities, medical services, and police. But we can ask them to pay additional fees to compen­sate for the social costs resulting from their stay here. For example, the government currently charges employers of foreign workers a monthly employment stabiliza­tion fee. This provides vocational assist­ance for local citizens, and the income from the fee far exceeds actual expenditures.

Recently, the economies of industri­alized nations have gradually improved and our businesspeople have been receiv­ing more export orders. But as a result of the labor shortage, many companies have had to refuse orders. Hardest hit are the machinery and manufacturing sectors that Taiwan needs most. If the labor shortage cannot be solved soon, more businesses will lose their customers to foreign com­petitors or will eventually have to go overseas to survive.

The problem of foreign labor is an in­tegral part of our overall economic devel­opment. It is not an issue we can easily manipulate. To date, in face of the drasti­cally changing international economic en­vironment, if we can make the best of the advantages offered by cheap foreign labor, we will improve our global competitive­ness. But if we adopt a closed-door policy, our economic prospects are gloomy.

San Gee

The number of foreign laborers approved by our government has already broken the 200,000 mark, while the duration and conditions of their stay have been ex­tended or eased. At the same time, more and more categories of businesses have been allowed to employ foreign workers. Moreover, the government’s management of them has many loopholes. According to the National Police Administration, as of the end of January 1994, there were 850 cases of legal foreign laborers run­ning away from their workplaces. The number had increased to 3,495 by Sep­tember 1994. But the Council of Labor Affairs (CLA), being pre-occupied with hiring an additional 15,000 foreign laborers, has failed to effectively manage the foreign labor force.

Taiwan’s foreign-labor policy has encountered very serious problems. First, the policy was ill-considered. Take the wage difference between local and for­eign labor as an example. According to official statistics released in March 1994, the cost of hiring a foreign worker in the manufacturing sector was 56 percent that of hiring a local male worker, while the payment for a foreign worker to work overtime was 59 percent that for a local male. Foreign laborers are obviously paid much less. No wonder local employers are eager to apply for them. Facing this pressure, the CLA cannot help but allow more and more in to meet the demand.

I am not suggest­ing that there is no real labor shortage. But I am concerned that the increased de­mand for foreign workers is based mainly on cheaper wages. I doubt that the current practice of using foreign workers to replace local ones, or even to delay or suspend factory auto­mation, is really worth it. To be frank, I don’t think foreign labor is needed to up­grade our industry.

Imported labor has also become a po­litical issue. Under the existing regulations, foreign workers can be brought in only through authorized employment agen­cies, and these have therefore become lu­crative businesses. Recently, several leg­islators have urged the government to inves­tigate whether there are “privileged per­sons” with fingers in the pie. I worry that these agencies are us­ing illegal means to force the government to approve a larger quota on labor im­ports so that they can make larger profits. In other words, interest groups may try to lobby for their own advantage. We have to watch carefully their influence on our foreign-labor policy.

Those who sup­port hiring foreign workers believe technological upgrading has not been proceed­ing fast enough and that the traditional means of production have become too costly. The result, they say, is that our in­dustries could collapse without foreign labor. Even if they are right, they still should tell us when foreign workers will no longer be needed, and should deter­mine the number of foreign laborers actu­ally needed to upgrade industry. After all industrial upgrading never really ends. Are we going to bring in foreign laborers forever?

The CLA has promised that the hiring of foreign workers is a short-term, tem­porary, and supplementary measure. It says that Taiwan will never base its in­dustrial development on foreign labor. But so far, neither the CLA nor the Coun­cil for Economic Planning and Develop­ment (CEPD) has set a timetable for requiring local companies to reduce their foreign labor force or to eliminate them altogether. Instead, we see more and more foreign laborers replacing local workers.

If Taiwan continues importing for­eign workers, it must limit them to the manufacturing sector or to public con­struction projects, because foreign labor in these sectors will not replace local technicians or capital and hence will not hinder our industrial upgrading. Unfortu­nately, our foreign-labor policy has be­come a monster out of control.

I have three suggestions for our for­eign-labor policy. First, the government must ensure that foreign and local work­ers get equal pay. This will help us attain the goal of hiring foreign workers to sup­plement rather than replace local workers. In line with this policy, employers should remit the salaries of their foreign employ­ees into a bank account designated by the government for individual foreign laborers. Moreover, the monthly employ­ment stabilization fee paid by employers of foreign workers to the government can also include a certain amount of deduc­tions for “household allowances” to be taken from the salaries of their foreign employees. These allowances would be given back to the laborers when they leave Taiwan after their work contracts expire. These savings would serve as an incentive for foreign workers not to leave their legal jobs.

Second, the government should keep a computerized record of all foreign laborers, including information on their workplace, health condition, accumulated household allowances, and entry and exit records. If this cannot be done, then we are not prepared to allow more foreign laborers in.

Third, a timetable should be set for employers of foreign laborers regarding the period of employment. For example, the government could make it clear that certain companies are allowed to use for­eign laborers for a maximum of five years. A timetable would help ensure that they make efforts to achieve production automation and thus reach our goal of in­dustrial upgrading as scheduled.

If these suggestions are followed, they will put great pressure on govern­ment agencies and local industries. Op­position can be expected. But it is high time for our industries to show sincerity in their promise of gradually reducing re­liance on foreign labor and pursuing in­dustrial upgrading. Moreover, it is the government’s responsibility to take con­crete, effective measures to address the issue of foreign labor before it is further aggravated.

—translated and abridged by Chen Wen-tsung