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June 24, 2017

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Better living standards must be goal of minimum wage setting

The Ministry of Labor on Wednesday said it was considering allowing local governments to adjust their regional minimum wages upwards of the national minimum. This dramatic change in the way the government tackles the task of improving the labor market is of course a well-intended attempt, and its possible benefits include the balancing of regional development.

Assigning different minimum wages to regions, or letting regions take the initiative, is already practiced by many countries including the U.S. and Canada as well as, in our neighborhood, Japan, mainland China and the Philippines, to name just a few.

The plan, however, is not without complications. The small size of Taiwan also puts the rationale of such a plan in question. At just 33,000 kilometers squared, the country's size is more the equivalent of a single territorial unit of a larger country. The proximity between regions can lead to abuses of a multitiered minimum wage system.

Clarity in designating the precise criteria for the wage level at which each firm will operate is an immediate task to be completed, if the government is serious about introducing regional variations. Pundits have begun talking about the potential for abuse with the proposed system, because firms that seek to maximize the advantage of lower rates might set up its headquarters in a remote region but outsource its work to Taipei. Minimum wage employees who need to spend a substantial amount of their time in regions with a higher minimum wage need protections via legal standards that keep track of cross-regional operations. Officials in the Labor Ministry have already identified the problem, so it is their duty to tackle it before sending their plan to the Legislature.

The exacerbation of the urban-rural divide is a more serious long-term problem. It is the first logical outcome of allowing regional differentiation, because wealthier cities will rely on their economic leverage to set a more favorable wage for its residents while attracting people from lower-wage areas.

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