Foreign Workers in Taiwan

Everyone in Taiwan has now heard about the riot of Thai workers in Kaohsiung. These workers were hired by a management company that was subcontracted by the Kaohsiung Mass Transit Bureau. The event and the follow-up investigation have been covered extensively in the media, even appearing in CNN. With so much information available, this post is not meant to address the situation, but to discuss what I have been told by Taiwanese managers about their feelings regarding the widespread use of foreign workers.

In general, I have got the feeling that Taiwanese managers do not want to be using foreign workers. My perception is that most managers do not feel they are necessary. It is often stated that Taiwanese will not do work that is dirty, dangerous, or difficult. I have been told that local managers have no trouble at all getting their local workers to work overtime. In fact, the vice-president of a major American drug company told me that her clerical staff protested when they found that she planned to contract out menial work packing boxes with samples. They wanted the chance to make extra money. This is not the exception. The CFO of a major, listed computer company told me that he has no trouble at all getting his local workers to work overtime when he needs it done.

It is widely stated that because foreign workers are paid less, they are cheaper than local workers. One of the vice-presidents of the above mentioned computer company told me this is not true. In addition to salaries, companies have to pay for labour brokers, transportation of workers, the cost of housing and meals, and numerous other miscellaneous costs. When you add this up, he said, you find that the cost is not significantly different from the cost of paying a local employer to do undesirable work. As in the case of the rioting Thai workers, many employers cut corners on such expenses, but the VP’s point was that the money could just as well be spent on salaries for local workers.

The VP eventually went on to a different job working with a supplier to improve the quality of the mother boards they were producing. As he took me around the new factory, he lamented that he did not like working with foreign labour because they had no commitment to the company. Law mandates their stay in Taiwan and when that’s up, they’re off. Why would they care about making good products? He told that me that one of the greatest barriers he faced was convincing the owner of the company to use Taiwanese workers in the factory so he could address product quality issues.

If foreign workers are not cheaper and have such an adverse effect on quality that managers do not want to work with them, why would owners want to use them? The CFO told me that owners like foreign workers because they have much more control over their labour. Line engineers at a different and even bigger computer company told me that the presence of foreign workers in a factory makes it a more dangerous place. Since they are willing to tolerate less safe working conditions than local workers, a workplace with many foreign workers is not a good place to work.

My experience talking to managers in diverse industries has led me to believe that local workers are perfectly willing to do the work that foreign workers are hired to do. Foreign workers are not cheaper than local workers and their use can create quality and safety problems. The reason they are used is pure and simply because their presence makes owners feel more comfortable about handling labour problems. What kind of labour problems? My guess is that one kind is the sort that create safety issues.

August 28, 2005 | Permalink
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Excellent post! I also believe that it has to do with the fact that workers sign two or three year contracts and must work the entire contract if they want to receive their overtime, bonuses, and even some deposit money they may have paid to the company that got them the job. Local workers may need to stay to the end of the year to receive some of this money, but they are otherwise free to leave as they like.

Posted by: Kerim Friedman | August 29, 2005 at 01:28

Scott,

I find your perspective very one sided. Taking your view would be like stating that people from the countryside come to live in cities because of better housing. This would be thus discounting such basic matters as better infrastructure and personal economics (possibly to the extent that a move is necessary for survival purposes).

In truth the issue of foreign employment is very deep and is filled by both factors pushing and pulling any worker from their homeland towards somewhere overseas. The argument about foreign labour being more expensive is certainly true if you are talking about ESL in Taiwan but for other industries this is not true. Take the Taipei 101 – built largely by Filipinos who also abound in the nursing and domestic care industry, take the Khaosiung MRT, built by Thais living in 2 metre long boxes. Coincidence? Maybe you are right to generalise that some Taiwanese managers do not want to use foreign labour and would much prefer to employ domestic labourers but the reality is that many do (for whatever reason). More to the point the keywords of your article are not so much ‘foreign’, ‘labour’ and ‘not cheaper’ but ‘contract out menial work’.

Posted by: Ian | August 29, 2005 at 12:12

Ian, unless you can cite more concrete evidence, I am going to have to believe that you are relating your impressions rather than the words of working managers. Let’s not forget that ALL the computer companies whose managers complained to me still use foreign labour.

The case of the American drug company that wanted to contract out their menial labour was quite insightful. The VP, coming from a privileged life of men and women who had never labourered believed all she had seen in the news about the ‘lazy young generation’. My point was that she was wrong, and her workers wanted that work. You can’t really blame her though. Her workers are not the kind of people often met by either elite business managers or foreign English teachers.

Posted by: Scott Sommers | August 29, 2005 at 13:42

Scott,

My point was to raise another view to the overall argument and to highlight that, as much as your view is correct, the story is somewhat wider in nature. In addition, it should also be noted that working managers are a generic bunch, who are spread right across the industrial base of any nation and dealing with massively varying employee numbers within their companies. They in turn come from different social and cultural backgrounds that coupled which in turn influences their worker impression. Yes, you can be forthright if you so wish in highlighting my “impressions” (please see examples provided though to highlight my generalised case) but could you in turn please provide additional evidence to your argument based on superlative descriptions – how many computer company managers have complained to you? Isn’t this just an impression based on your sample of complaints of what the overall national picture is?

Posted by: Ian | August 29, 2005 at 15:28

I have quoted the testimony of the top managers at some of the most well-known companies in Taiwan. If you don’t believe me or feel I may have misquoted them, I will name the companies and the managers.

I have spoken to many managers other than the ones I quoted in my post. Every single one has said the same thing – including managers in construction companies.

I don’t mean to be sarcastic, but honestly, have you spoken with local managers about this situation? If you haven’t, you might be surprised by their answers.

Let me sum up my position this way: I can easily believe that there are companies using out-dated equipment or with such poor profit margins that the only way they can survive is by using foreign workers. I am not sure what proportion of the market this describes. There are a sizable number of large firms that are using foreign workers not because they are cheaper or because they can not find local workers who will do their work. Their reason for using foreign labour has more to do with its flexibility and management ease.

Posted by: Scott Sommers | August 29, 2005 at 22:31

Dear Scott and Ian:

I think both of you are right in a short term investigation. However, the long term effect of introducing foreign worker is more important than we see in the case of riot of Thai workers in Kaohsiung.
We have to admit the payment of local labour such as construction worker was too high, at least before we introduced foreign workers. I estimate a construction worker might earn more than NT$60K monthly 10-15 years ago. However, a governmental officer could only earn 30K. Could you imagine that? After the foreign workers coming into the labour market, the reasonable payment has then been rebuilt.

I would like to raise three points in this discussion:
1. The inflation risk was in a too high payment standard: The workers got too much because the inbalance of supply and demand in labour market. When the economic situation was very good, government and private section invest too much. The shortage of manpower supply made salary increasing dramatically. It’s the reason government had the foreign worker policy.
2. After a while, when the economic heat released and some industries moved to China, the demand of manpower decreased significantly. The labour market went to regression. In this condition, the relationship between payment and quality of local or foreign workers can be reasonably considered and compared again as Scott’s mentions.
3. The long term effects of introducing foreign workers are now coming out like the riot. Do you think the social situations of foreign workers are fair enough? Don’t you think that’s a kind of hierarchy robbery? It should be blamed this un-humanized policy.

Posted by: Chester | August 29, 2005 at 23:49

Chester wrote:
“I estimate a construction worker might earn more than NT$60K monthly 10-15 years ago. However, a governmental officer could only earn 30K. Could you imagine that? After the foreign workers coming into the labour market, the reasonable payment has then been rebuilt.”
Are you advocating interference with the free market for labor because you think it is wrong that laborers should make so much? This sounds like a kind of reverse communism.

Posted by: Scott Sommers | August 30, 2005 at 08:25

Yes, free market seems the ideal world in western economics. However, it’s not true in many other fields, even neither in economic issues themselves. Governments have planned projects and budgets every year. They are not free operated. Social security programs are not free market, too. I don’t agree that we should treat labour market just like we go for shopping groceries. Even in daily consumption, why Taiwan government reduce tariff only temporary after the flooding damaged local vegetable production. It’s certainly because government don’t want market being too free. In other words, government controls the markets.
I bought an apartment 12 years ago when the salaries of construction workers were very high. Citizens paid much more for their housing than now. It’s not a good thing for society. I am definitely not a communism supporter. On the other hand, I don’t think a free market is a “healthy” market. When inflation is coming unexpectedly, everybody loses. That could be the outcome (inflation) if we didn’t try to manipulate the too high salary situation (in free market?) by policies such as introducing foreign workers, investing overseas, etc.
In short term, policies lowering the payments to labours made the society more stable.
However, the effect of introducing foreign workers in long term is not so optimistic.
Of course, discrimination to foreign workers come from Thai and Phillipine is one of the issues. The unbelievable high charge of brokers is another scandal.

Posted by: Chester | August 30, 2005 at 23:42

Fair enough Chester, but what you’re arguing for is really a system of morality. Unless I have you wrong, you’re arguing that it is unjust that labourers should make so much money in the Taiwan economy. To address this ‘injustice’, you defend a system of employment exploitation that borders on slavery. This policy-driven mass exploitation of foreign labour driving down wages also permits the continued operation of businesses that would otherwise have to close because they operate unsafe, inefficient, or otherwise poorly managed operations. And all this is done on the name of making sure that educated people are paid what ‘what they should be paid’.

Perhaps a little harsh, but I feel this is the direction you’re arguing.

Posted by: Scott Sommers | August 31, 2005 at 13:17

Dear Scott:

“This policy-driven mass exploitation of foreign labor driving down wages also permits the continued operation of businesses that would otherwise have to close because they operate unsafe, inefficient, or otherwise poorly managed operations.”
What you said is right in some way, but we couldn’t underestimate the influence of high-wage and inflation to the society. That’s probably one of the main reasons that government, companies and majority of Taiwan society, except the high-wage workers, accepted the introduction of foreign workers. The temporary high-wage phenomenon caused by short-term shortage of labors could be then adjusted.
If I said the payment to “educated” people and labor workers should be similar, I would be like a communist. I am not, hopefully. In my point, how we pay to a worker should depend on what he did for company; depend on what his roll is; not on how many hours, how dirty or how dangerous his work is. Otherwise, nobody will invest for his education to be an engineer. We will have a lot of uneducated workers without a leader guiding them. The value of education is defined well for long time in history.
However, I could only see the labor-right activists fighting for their revolution by political way even by violence.
On the other hand, companies facing to pressure of upgrade or transformation chose diversified strategy to solve their problems. Some of them have chosen to hire foreigners even they probably underestimated the costs. Some have chosen to invest overseas, mainly in China. Some are still here, employ local skilled workers, and have chosen to improve their facilities to meet the upgraded regulation of government, and try to improve their quality or design. All these solutions direct to: keep the wages stable, or get people be trained or educated for higher level of skills.
My brother is now in U.S. and trying to apply immigration. I know the U.S. regulation to foreign workers is stricter than Taiwan’s. I have to admit that I prefer the U.S. strict regulation to Taiwan’s policy nowadays.
“To address this ‘injustice’, you defend a system of employment exploitation that borders on slavery.” Basically, I don’t like using foreigners to solve the labor worker issues. Especially there are some social discrimination problems. However, the unreasonable payments to local workers are also not acceptable. If workers didn’t ask too much, everything would not be worse than ever.

Posted by: Chester | September 01, 2005 at 22:40

My concern is that companies are using foreign workers to do work that local workers could easily be hired to do. Rather than generating policy that encourages more productive work practices, the government is creating policy to force down the costs of doing business. This practice not only damages the labour market in Taiwan, it allows the continued existence of unsafe, inefficient workplace. This policy is being abused by industrialists who see this as a method of gaining control over workers. In the long-run, industries that use foreign labour will develop bad management practices that rely on subservient workers rather than better forms of organization and production.

Posted by: Scott Sommers | September 02, 2005 at 12:10

Scott, I AGREE with you, UNDOUBTEDLY, on “This practice not only damages the labour market in Taiwan, it allows the continued existence of unsafe, inefficient workplace.”
A company which doesn’t want to upgrade its process to meet the regulations is not welcomed. Two months ago, ducks’ eggs produced from somewhere in Changhwa County were investigated to have Dioxine which could be released from industrial factories. I agree with that government raised the standard of industrial process and pushed the companies being more environmental friendly.
A company which is improving its efficiency should be encouraged. In addition, workers who want to learn more and then make themselves more skillful are also appreciated to be a part of society. However, if workers want to be paid higher than what citizens could pay, while nothing be changed about efficiency, it is inevitable that companies go overseas or introduce foreigners. Actually, not only companies but also citizens have benefited from foreign workers. They keep the Taiwan’s living standard in an acceptable level. We don’t want to pay our housing by spending 30 years’ salaries because the non-stop increasing wages.
I also AGREE with “My concern is that companies are using foreign workers to do work that local workers could easily be hired to do.”, only if local workers don’t ask too much. That’s why I prefer the U.S. strict regulation to Taiwanese policies. However, we have to admit that the illegal immigrants in U. S. are also balancing the wage’s level in some way. U.S. government plays the same game by doing something but not saying it.

Posted by: Chester | September 02, 2005 at 22:20

Your point about illegal immigrants in the USA is significant. I will have to think about it more.

Of course there are benefits to the use of foreign workers. The problem that the government has to deal with is whether the benefits of the policies outweigh the problems that they produce. It is dangerous policy for a democracy to start relying on the lower wages of a non-voting group of workers to keep prices down. It creates a class of workers to whom the government does not answer to. It is one of the factors that led to the downfall of the South following the American Civil War.

You look at the question from the point of view of a Taiwanese professional and ask who would go to university if workers make so much money? I am looking at this from the point of view of long-term economic growth. Who is going to want to be a worker if you can’t make a living wage? Who will be willing to do this kind of work except foreign workers? Once this downward spiral is started, it’s impossible for employers to stop it. The use of workers with lower productivity and less commitment to the company and the nation becomes necessary because the jobs have become so bad that local people are unwilling to work under those conditions.

Posted by: Scott Sommers | September 02, 2005 at 23:31

Talking something about unsafe and inefficient workplace, I would like to point some realistic feelings of workers.
Not like environmentalists or socialists who do the demonstration not only for themselves but also for whole society, most of workers fight for themselves. In many cases, they accepted a higher payment to compensate the unsafe working environment. As a result, the unsafe situation was not improved at all, but the living standard of whole society was getting higher and higher.
I think most of companies are running safe industries. Otherwise, Taiwan has to suffer the bitter results of abusing environment in the coming decades. I hope the minority which companies could not meet the regulations have moved away from Taiwan.
On the other hand, the higher efficiency means running business or processes in other way. Workers need to learn how to run work more productively. However, there is, in fact, little difference in productivity between paying high wages to local workers and low wages to foreigners. What are the advantages of hiring local workers?

Posted by: Chester | September 02, 2005 at 23:53

Scott, it’s an interesting point of views that I have never thought about it.
“It is dangerous policy for a democracy to start relying on the lower wages of a non-voting group of workers to keep prices down.”
It’s really kind of slavery, not a democracy, eventually.
That’s why I like neither the foreign worker policy, nor inflation caused by high wages. Ironically, the situation of workers, which is affected by foreigners, is now worse than they asked for better-paid 10-20 years ago.
A very basic principle, payments to labors should not be a free market. What we pay to worker is because what they did deserve it, not because nobody is willing to do the work. It’s not something like groceries after natural disaster.
Otherwise, cleaning or garbage collecting, which doesn’t need any training or education, would be the higher-paid job.
“Who is going to want to be a worker if you can’t make a living wage?”
I have to remind you that the construction worker’s wage was once two times higher than a citizen’s servant who had passed National Exam for his job. We should know the reasons as well as results. Why did we introduce foreign workers? And, what are the results of introducing them? Moreover, how will it go in the future?
There is no answer to how much should we be paid. However, struggling among hierarchies like Marxists state will be still there in coming centuries.
The war between (new) Communist and Capitalists has not gone to the end.
A new age, so called “Knowledge based Economy” is coming? Will it change the controversy of industrialized era?

Posted by: Chester | September 03, 2005 at 01:12

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