"Asia Inside: Why is Taiwan the Poorest Among Developed Countries?
On paper, Taiwan looks prosperous. Its per capita income is comparable to South Korea’s, placing it firmly in the ranks of advanced economies. Yet the reality for ordinary workers is strikingly different: average wages are barely half of Korea’s.
Even more surprising, Taiwan’s pay levels are not far above those in China, where per capita GDP is only a third of Taiwan’s. In certain skilled professions, Chinese workers now earn more than their Taiwanese counterparts...
In the late 1990s, the 1997 Asian financial crisis devastated the Korean economy. Far from investing in semiconductors or anything else, the country was struggling just to survive.
After that, South Korea regained the lead, but the per capita GDP of the two countries has remained almost the same.
Like “Hell Joseon” in South Korea, Guǐdǎo is a word that embodies the anger of Taiwan’s younger generation. Reflecting their anxiety about the future, one survey found that one out of every four university students in Taiwan approaching graduation suffers from depression.
Taiwan, a competitor at the time, did not miss this opportunity. It poured the equivalent of 70 trillion won into future industries, centering on electronics and semiconductors. The goal was clear: to turn the entire island into a “Silicon Island.”
This investment was clearly a success. Foxconn, the maker of Apple’s iPhones, grew into a global giant, and TSMC—once merely an OEM supplier—surpassed Samsung in market capitalization.
As a result, in 2022 Taiwan’s per capita national income overtook South Korea’s for the first time in two decades.
Given the strong sense of rivalry that Taiwanese people usually feel toward Korea, this should have been a source of pride. Yet unlike the politicians, the public’s reaction was cold: “Growth for whom, exactly?”
It is understandable: in Taiwan, the average starting salary for a university graduate is around 33,713 New Taiwan dollars (about US$1,100), and even a department manager at a major corporation earns only about US$2,100.
Meanwhile, housing prices in Taipei are comparable to those in Seoul—and in some areas, they even surpass Seocho, the most expensive district in the Korean capital.
Until recently, people could endure thanks to relatively low living costs. But after COVID-19, things changed: not only was home ownership already out of reach, but inflation has driven everyday expenses sharply higher.
Nothing illustrates the poverty of Taiwan’s youth more clearly than the phenomenon of the taofang. A taofang is essentially an apartment divided into multiple tiny units, often with illegal extensions that stick out like container boxes to maximize floor space. These cramped rooms, barely large enough to lie down in, rent for $290 to $360 a month in Taipei.
Since a third of their monthly salary has to go toward renting such cramped rooms, there is little capacity left to save for the future. Even if young people manage to find jobs despite a real unemployment rate in the mid-teens, their wages make it nearly impossible to ever buy a home.
Not long ago, one statistic showed that in order to afford a house in Taipei, a young worker would have to save their entire salary—without spending a single cent on food or living expenses—for 28 years.
It’s no wonder Taiwan’s fertility rate is nearly as low as South Korea’s, which already holds the world’s worst record.
Despite this housing crisis, about 20% of homes in Taipei remain vacant—simply because they are far too expensive for ordinary people to buy. Yet prices refuse to budge. With virtually no tax burden even on multiple properties, Taiwan’s real estate tycoons have little incentive to sell at lower prices, so they simply hold on instead.
Disillusioned by this reality, Taiwan’s younger generation no longer call their country the “Silicon Island.” Instead, they openly refer to it as Guǐdǎo—the “Ghost Island.” The term carries the meaning of a haunted, or even a cursed, island.
There are several reasons why wages in Taiwan have remained so low, but the most significant factor is its unique industrial structure, which is heavily centered on OEM production.
To be more precise, it would be more accurate to describe Taiwan as an ODM economy rather than OEM.
The difference is that OEM refers to manufacturing products developed by foreign companies, whereas ODM means designing and developing products with one’s own technology, but selling them under the client company’s brand.
OEM production is mostly carried out by Southeast Asian countries such as Vietnam, Cambodia, and Laos, while Taiwan, with its higher technological capabilities, is focused more on ODM. Still, whether OEM or ODM, both remain subcontracting businesses that cannot capture high added value.
In the 1970s and 1980s, South Korea concentrated the resources of its conglomerates on developing heavy industries, whereas Taiwan relied on its small and medium-sized enterprises to drive growth by contract-manufacturing American electronics. This subcontracting—OEM production—was aimed at leveraging Taiwan’s low-cost, high-efficiency labor.
Above all, without the burden of sales and marketing, Taiwanese firms were able to secure easier and more stable profits. The conservative economic ecosystem, shaped in part by state-owned enterprises leading the early stages of industrialization, clearly played a role as well. In any case, thanks to this, Taiwan was able to stay ahead of South Korea in per capita GDP until 2002.
However, OEM had a clear limitation: it lacked pricing power. For example, companies like Samsung, LG, or Hyundai Motor—global power brands—can raise prices and keep the profits for themselves. But Taiwan’s Foxconn doesn’t have its name on any iPhone it produces for Apple, and even if the product price goes up, it cannot earn beyond the contracted amount.
Far from enjoying higher margins, OEM companies are under constant pressure from their clients to cut costs, leaving little room for wage growth. On top of that, Taiwan has an overwhelming number of small and medium-sized firms doing similar work, making competition incredibly fierce.
To survive in the market, these companies focused not on creating added value, but on minimizing production costs—and the easiest way was to push down wages. Against this backdrop, China’s entry into the World Trade Organization in the 2000s and its full-scale participation in global trade turned into a nightmare for Taiwan. Domestic competition was already tough enough, but now they also had to fight with China to win contracts. And, of course, Chinese labor was even cheaper.
A surge of Taiwanese companies closed down as they were crowded out by Chinese competitors. As a result, both Taiwan’s economic growth and wage increases came to a standstill.
Meanwhile, South Korea surged ahead, with its conglomerates backed by strong global brands fully reaping the benefits of China’s rapid economic growth. Taiwanese firms, desperate to survive, moved directly into China—seeking both its cheap labor and its rapidly expanding market.
At the peak in 2011 alone, Taiwanese investment in China reached about US$136.4 billion, and nearly 10% of Taiwan’s population—around two million people—had gone to China for work.
China needed Taiwan’s capital and technology, and since they shared the same language, Taiwanese firms could establish themselves there more easily than anyone else. But in terms of wages, this was a disaster for Taiwan. First, the mass exodus of domestic companies meant jobs disappeared. On top of that, the Taiwanese government pursued policies to keep prices suppressed in order to maintain the competitiveness of the firms that remained. Naturally, this also held back wages, which tend to move in line with prices.
If labor costs rose, Taiwanese companies would lose out to China in contract bidding. As a result, low wages became entrenched over the long term.
When youth unemployment grew severe, the Taiwanese government introduced the so-called “22K policy” in 2009, an internship program under which companies that hired university graduates as interns received a subsidy of 22,000 New Taiwan dollars. This initiative did create about 34,000 jobs.
However, Taiwanese companies took advantage of the situation—where there were more graduates than available jobs—to lock in 22,000 New Taiwan dollars as the starting salary for university graduates. From then on, young people in Taiwan began their careers earning what was essentially the minimum wage. Starting at the bottom made it even harder to raise their salaries later on.
In addition, family-run businesses with opaque decision-making, rigid corporate cultures that make it difficult for employees to demand improvements, and weak labor unions that hinder wage increases are also cited as key reasons why wages in Taiwan remain so low...
There is a measure in economics called the labor share of income, which refers to the proportion of national income that goes to wages...
It is only 41%. In other words, if Taiwan produces US$1,000 in a year, its people take home just US$410, while companies keep US$590. To put this into perspective, the level is almost the same as Vietnam or the Philippines. On paper, Taiwan’s national income places it among advanced economies, but its distribution looks more like that of Southeast Asia. In most developed countries, where industries are more advanced and labor costs are higher, the figure is typically in the 70% range.
By contrast, South Korea stands at 68.7%, close to the advanced-economy average of 70%. Yet in Taiwan—where one in four people lives on the minimum wage—per capita luxury goods spending reaches US$366, higher than in either South Korea or Japan. This figure alone shows just how deeply economic inequality has widened during Taiwan’s era of persistently low wages."
