Ms. Luo, a 24-year-old Taiwanese, went to Hong Kong to pursue a master's degree after graduating from a Taiwanese university. When she completed her master's program two years ago, she was offered a lucrative job in Hong Kong at a monthly salary of almost NT$100,000.

Ms. Liu declined the job offer and returned to Taiwan, where she took a public relations job instead. It came with a meager starting salary of just over NT$30,000. The typical reaction from her Taiwanese colleagues was: "Everyone wants to get away from here – why did you come back?" She always justifies her decision by explaining that she did not want to leave her family and that she did not like the living conditions in Hong Kong.

But in reality she returned to Taiwan because an inner voice told her that's where she belonged. "I refuse to believe the power of our younger generation is not enough to change Taiwan," Luo declares with confidence, although her salary still remains below NT$40,000 a month.

Yes, that's how bad the situation has become. Now it takes a sense of mission to make working in Taiwan worthwhile.

University graduates have to resign themselves to jobs with paltry starting salaries of around NT$22,000. Real wages have shrunk to the level of 16 years ago. Working in Taiwan has become a synonym for holding a low-paying job.

Overworked and Underpaid

While per capita GDP grew by 2.75 percent on average in the decade between 2003 and 2012, real wages experienced negative growth during the same period, at an average rate of -0.49 percent, according to figures by the Directorate General of Budget, Accounting and Statistics (DGBAS). Civil servant salaries, which usually function as an indicator for salary levels at private enterprises, have hardly moved over the past decade. Civil service pay was adjusted only twice during the past ten years, with civil servants getting a 3 percent salary raise each time.

"Normally economic growth will naturally translate into salary growth, but the link between the two doesn't exist anymore," observes Gordon Sun, director of the macroeconomic forecasting center at the Taiwan Institute of Economic Research (TIER).

In terms of salary levels, Taiwan has not only slipped to the bottom of the league among the "four little dragons" of East Asia (which also include Hong Kong, Singapore and South Korea), but according to Charles Wang, president of human resources consulting firm Towers Watson, the salaries of middle and top managers in Chinese coastal cities have already begun to surpass the salaries of their Taiwanese peers.

Chu Yun-han, political science professor at National Taiwan University, bemoaned in a recent letter to the editor that the level of Taiwanese salaries will depend on the speed of wage growth in cities along the Chinese coast.

Chu relates in his letter that in a recent conversation with a visiting South Korean scholar, he suddenly realized how severe the problem of low wages is in Taiwan.

According to Chu, Taiwanese graduates get a starting pay 2.6 times lower than their South Korean counterparts, because Taiwan's capitalist entrepreneurs don't have to fear strong labor unions. At the same time they can play their trump card – possible relocation to China. "They use cheap Chinese labor as leverage to force our workers to accept salary freezes," Chu wrote.

The Boss's Lament

While workers feel they are treated unfairly, management also has reasons for grief.

The owner of one Taiwanese SME insists that while Taiwanese employees don't have the impression that their salaries have risen, corporate labor costs have risen sharply over the past decade. What the company owner terms labor costs also includes costs resulting from systemic changes such as a reduction in maximum legal working hours per week, the implementation of a new retirement pension system, and an upward adjustment of labor and health insurance premiums which are partly shouldered by the employer.

According to DGBAS, the total monthly compensation per employee increased by 13.4 percent over the past decade, but most of this increase stems from non-salary remuneration such as insurance premiums and benefits, which rose by 34.4 percent. This means that an employer who hires one additional employee now has to bear costs one third higher than ten years ago.

When compiling its annual salary budget, the most important consideration for the average company is still profitability. "Making money is getting harder," is the reason that most companies cite for refusing to grant pay raises.

Without a doubt, the business environment is no longer what it used to be. Data from the CommonWealth Magazine Survey of Taiwan's Top 1000 Enterprises over the past decade show that while manufacturing industry revenue tripled during that period, the average profit margin shrank by one third from 6.3 percent in 2003 to 2.2 percent in 2012. The situation is not much better in the service industry, which employs about 60 percent of Taiwan's workforce and generates nearly 70 percent of its GDP. In ten years, the average profit margin of the Top 500 enterprises in the service industry slipped from 4.8 percent in 2003 to 2.6 percent in 2012.

Charles Wang of Towers Watson observes that steady declines in corporate profitability represent deteriorating competitiveness and increasing uncertain about the future. Therefore, it is only natural that entrepreneurs turn more conservative when compiling their annual salary budgets.

"All the warning signs are telling employers, be very cautious with salary adjustments," remarks Wang, who conducts an annual survey of salaries at Taiwanese companies and is therefore familiar with the concerns of company owners.

Cash-rich Companies Reluctant to Invest?

Ironically, companies are awash with cash, even though their profit margins are getting thinner and employment costs keep climbing. Over the past ten years, Taiwanese companies have doubled their cash reserves.

Faculty and graduate students at the Department of Finance of National Chung Hsing University have compiled statistics on the cash-to-asset ratio of companies that are listed on the Taiwan Stock Exchange and the GreTai Securities Market. They found that the cash-to-asset ratio hovered around 9 percent ten years ago, but it began to steadily rise in 2003, reaching 18 percent in 2012.

Then they compared companies' cash reserves to GDP. A decade ago, listed companies' total cash reserves were roughly the equivalent of one tenth of Taiwan's annual GDP, whereas that ratio had risen to 26 percent in 2012. In other words, Taiwan's companies have a mountain of cash on their hands that is worth one fourth of the island's GDP.

Yang Sheng-yung, professor at the Department of Finance at National Chung Hsing University, suggests that companies have increased their cash reserves to be prepared for contingencies, given that the global economic trend is not very clear.

"What is cause for concern is that capital, which could have been used as a magic bullet to stimulate GDP growth, now sits idle in the hands of corporations," notes Yang. In order to raise the cost of holding onto cash, legislator and finance expert Alex Fai is currently mulling the idea of raising the 10 percent surtax on undistributed retained earnings to force companies to put their idle capital back into the economy.

Invest in Talent for Good Returns

When ideas and attitudes change, all sides may win. While a certain amount of pressure needs to be put on companies to distribute profits, enterprises must also change their attitude toward talent. When bosses recognize and treasure talented employees, both sides can join forces to create new opportunities, and thrive.

Chiu Yi-chia, head of the Graduate Institute of Intellectual Property at National Chengchi University, points out that in the past companies customarily used linear thinking, which made them believe that salary raises depended on whether a company made money and whether the boss was willing to share profits with employees. If this was the case, profits were distributed based on performance.

"Now we have entered the era of dynamic thinking," states Chiu. Money-making, profit-sharing and performance-based distribution no longer follow each other based on a fixed order, but are all part of a company's growth strategy.

Minister of Economic Affairs Chang Chia-juch has said, "With regard to salary raises companies still need to change their thinking. They need to retain talent on their own account, and regard talent as an investment, not a cost, so that talent can pay back to the business." As Taiwan aspires to move up the value chain while competing with the rest of the world for superior personnel, the most important investment for companies is talent.

A Pay Raise for the New Year?

In his New Year's address, President Ma Ying-jeou urged the nation to work for an economic turnaround. "We must take decisive action and overcome all difficulties to change our situation," Ma said. The president declared that Taiwan needs to adjust its industrial structure and amend outdated laws and regulations. "With countries everywhere now striving mightily to bolster their economies, only by seizing the present can we secure our future," he said.

Time has come for Taiwan to abandon the business models that guaranteed success in the past. TIER's Sun points out that while exports contribute 80 percent of Taiwan's annual GDP growth, private consumption accounts for 60 percent of overall GDP.

If bosses have the courage to raise salaries, they can create a win-win situation for enterprises and the nation alike. "When companies raise employee pay, not only are the companies going to make money, but the country benefits too," Sun explains. When companies boldly invest in their employees and raise salaries, employees have more money in their pockets to spend, which boosts domestic consumption and eventually stimulates GDP growth.

There is a change underway in corporate thinking as a rising number of companies have begun to regard their employees as an investment. While several industry standard bearers such as Taiwan Semiconductor Manufacturing Company, apparel maker Makalot Industrial Co. Ltd, precision machinery components maker Hiwin Technologies Corp. and Sinyi Real Estate Inc. have granted pay raises nearly every year in the past, several other large employers, including the Uni-President Group, Giga Solar Materials Corp. and Hota Industrial Manufacturing Co. Ltd., pledged to hike salaries in the coming year, in the wake of Ma's New Year's address.

A CommonWealth Magazine survey of the CEOs of Taiwan's 2000 top enterprises in late 2013 showed that employees can expect to get higher pay in the coming year. Forty percent of CEOs are optimistic about the economy in 2014, a three-year high. At the same time, 72 percent of employers are considering pay raises this year.

Investing in talent means investing in a company's future and in the future of Taiwan. May all our corporate bosses muster the courage to grant pay raises!

Translated from the Chinese by Susanne Ganz