Higher wage growth to help Taiwan’s household sector and support consumption outlook in near-term - DBS

Taiwanese wage growth is rising modestly. The labor report released yesterday showed regular earnings of all employees in all industries rose 1.6 percent year-on-year in the first six months this year from the 1.4 percent rise in 2016 and 1.3 percent in 2015, noted DBS Bank in a research report. Overtime pays rose 8.2 percent in the first half of 2017, also a bigger rise compared to 6.1 percent last year and 0.3 percent the year before.

The economic recovery, which has been driven by exports began in the second half of 2016 and lasted for a whole year so far. The recovery has been spread into the labor market. The seasonally-adjusted jobless rate dropped to 3.77 percent in July 2017 from April 2016’s peak of 3.97 percent. Unsurprisingly, faster base wage growth was recorded in the exports-related manufacturing sector, trade and transportation/storage services.

In the meantime, the government’s 5 percent rise in minimum wages, which took effect at the start of 2017, has directly stimulated wage growth. The revision of the workweek rules also urged firms to hike overtime pays in the labor intensive sectors, such as retail trade and accommodation & food services.

Wage growth, adjusted by CPI inflation, rose more notably in the real terms. Real regular wages rose 0.9 percent in the first half of this year, as compared to 0 percent in 2016. This is because inflation decelerated in 2017, owing to the weaker-than-expected global oil prices and the Taiwanese dollar’s appreciation.

Higher wage growth is expected to benefit the household sector and underpin the consumption outlook in the near term. From the corporate perspective, costs burdens would rise, stated DBS. However, a rebound in export earnings and increase in productivity growth should assist firms to cope with the rise in wage costs.

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