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July 23, 2017

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Time for a conditional minimum wage hike

Minister of Labor Pan Shih-wei (潘世偉) came under fire last week after suggesting the establishment of a minimum wage for each geographical district, hinting at a mechanism that would evaluate the degree of change required to keep up with differences in costs of living for each region. Even though the minister later pledged to keep the national minimum wage system intact, his original idea of setting different living wage levels based on costs of living for different areas actually makes a lot of sense. Why?

Currently, government guidelines dictate that minimum wage remains constant throughout the country, a policy that an increasing number of people wish to adjust in order to boost employment in less developed areas. If one resides in Taipei, for example, it would make a lot of sense to raise the minimum wage when the costs of living go up, but this sentiment might not be shared by those who hire people in rural areas, where unemployment is on average higher than in cities. In other words, it might be time to consider region-based minimum wage hikes in Taiwan.

But, what is a minimum wage in the first place? A minimum wage is the minimum income necessary for a worker to meet basic needs. Currently, the minimum wage stipulated by the government stands at NT$19,273 throughout the country, even though there is a disparity in the costs of living between Northern, Central and Southern Taiwan. With this in mind, Taipei Mayor Hau Lung-bin (郝龍斌) and Taichung Mayor Jason Hu (胡志強) have rightly stressed the need to raise the monthly minimum wage to NT$22,639 for employees working for city governments. In this case, a minimum wage hike would not only improve the living standard of government staff, but also strengthen the competitiveness of these major urban centers in vying for highly skilled laborers.

But could such a move also discourage skilled workers from working in Southern Taiwan? The chiefs of several local governments have also warned that such a move could hinder skilled workers from working in southern areas, widening the wealth gap between rural areas in Southern Taiwan and urban areas in Northern Taiwan. Yet, the truth is that paying all skilled workers the same minimum wage doesn't make any sense either. By taking advantage of lower wages in the south, more companies could be willing to set up factories there, which could help buoy the local economy in that region. In this case, such a measure would not necessarily widen the gap between the south and the north, but could help encourage economic development in rural areas where young people usually struggle to find jobs. The same is true for many countries around the world.

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