Background: Taiwan has experienced stagnant wage growth in the past couple of decades. This phenomenon coincided with a series of reforms in social welfare programs including the launch of the single-payer national health insurance (NHI) system in 1995 and several social security reforms in later years.Based on the structure implied by the theory of Summers (1989) and Kolstad & Kowalski (2016), this research estimates the relationship between the statutory welfare program and the labor market.
Data: Employing monthly macroeconomic data from 1982 to 2015 from several private industrial sectors in Taiwan including finance, healthcare, engineering, information technology, manufacturing, pharmaceutical, and service, the relationships between pay variations and policy interventions were explored controlling for the economic growth rate, labor productivity, and time fixed effects.
Methods: Seasonal autoregressive integrated moving average (SARIMA) and multivariate adaptive regression splines (MARS) were adopted as the empirical methods.
Findings: The findings of the study suggest that NHI has the greatest negative effects on workers’ pay in all industrial sectors, followed by the Employment Insurance Act, Labor Pension Act, and the Labor Insurance Act. The magnitude of the effects is based, in general, on the share borne by the employers.
Policy Implication: Statutory welfare benefits explain approximately 50 to 60% of the pay deviation from the trend predicted by the models. The results are consistent with the findings of the extant researches.