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Abstract


In this article, we briefly present a background description and an outline for further study into the possible emergence of an M-shaped society in recent Taiwan.To begin with, we situate some of the most recent developments in Taiwan in the context of unbalanced growth and increasing family crises. Ironically, people in Taiwan have widely used the term “M-shaped society” for the recent developments, while the “Economic Miracle” has not yet faded out in their memories.On the basis of official statistics, such as poverty rates, unemployment rate, divorce rates, mental disease rates, child abuse rates and the like, all the increases in trend is the caution for the future development.

Unlike in Japan, the earnings of workers in Taiwan did not significantly decrease in recent years.Taiwan seems to deviate from the M-shaped society as Ohmae defined.Although Ohmae focused on the decline of the middle classm, he did not provide any statistical measurement in his well-known book. We thus develop two tentative but handy measures for examining the shift of middle class, and coined them as “the Balance Index” and “the M-ratio” respectively. The former was constructed as a relative measure among different income groups, while the latter was designed as a measure indicating the change of the middle class relative to the overall contribution of people.

1. Introduction


In 2006 when the management guru Ohmae Kenichi depicted an M-shaped society for Japan in the 1990s , the M-shaped curve has soon become the most significant symbol for the wealth distribution of a society. Ohame argued that the majority of the middle-income class in Japan had moved downward to lower middle class in the 1990s.The result was that the proportion of the middle-income class to the total population in terms of wealth distribution had gradually declined.In the meantime, the lower middle and low-class population had increased in proportion.This development trend in Japan, from Ohame’s observation, was largely derived from mistaken economic policy of the government.That is, Japan’s economic policy ignored the new world price mechanism, and adopted traditional means to cope with the so called “economic recession” such as keeping low interest rates, increasing currency supply and government financial expenditure. As a result, government debt rose sky high and the employers of private sectors would have favored jobs for short–term workers instead of formal employment.Thus, a large portion of middle-income employees in private sectors who used to have annual income of 5 to 8 million Japanese Yen had reduced in size. Both the proportion of population with income higher over 1200 million Yen and lower than 400 million Yen had increased during the same period. This income distribution structure in Japan had formed into an M-shaped curve since 1990 .


Ohmae’s concept has immediately caught the attention of the general public as well as government policy makers in Taiwan.Many have recently argued whether the income distribution structure has transformed into an M-shaped curve. For instance, consumer prices have escalated over the years, but the wage seems to have stood still. Education expenditures and child bearing costs have particularly surged and become unbearable to many families. Many people have therefore claimed themselves as “near poor” group. Those who have suffered irregular employment or unemployment may even fall into the so-called “new poor” class.On the other side of the island, it has been often reported that housing market in urban area has reached a record of high price, which is far beyond the affordable price for most people in the society.Luxurious goods have well sold at unprecedented price, which is hardly reached by the general public. It seems that a divided society is becoming a catchword for recent Taiwan society.


Immediately after the Second World War, Taiwan like other areas in Asia had suffered economic chaos. However, inequality decreased drastically with household Gini Coefficient falling from .5 to .4 in the 1950s, and continuously sliding over the next two decades . Taiwan was particularly noted as “Economic Miracle” throughout the 1970s and 1980s that demonstrated her rapid economic growth with equity . Though both Gini Coefficients and income ratioswere similar in that both had shown the trend of moderate increase since 1980, the Gini Coefficient had never been greater than .3 by 1992.Even during the financial storm in 1997 and 1998, when most of Asian countries failed in economic development, the GDP was still growing at 4%, and neither of the inequality indicator rose significantly.The income inequality increase although slightly before 2000 have been widely examined in terms of changes in demography, family and market structures .


At the beginning of the this century when most of Asian countries have gradually recovered from the financial storm, Taiwan uncommonly experienced economic deterioration and her GDP growth rate dropped even below zero in 2001.Although growth rates have returned positive in recent years, Taiwan has not yet recovered from stagnation and met ever rigorous competition in the new world economy system.In this paper, we are asking the question: Is Taiwan really an M-shaped society?Particularly when Ohmae explicated the decreasing wages of workers in the private sectors as the foremost indicator to show the decline of Middle Classin Japan in the 1990s, Taiwan seemed not the case in the recent decade.

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in 1994, then gradually increased to 42,042 NT dollars in 2001, but slightly dropped to 41,667 NT dollars in 2002, and then again increased to 44,107 NT dollars in 2006. The average income per employee in manufacturing sector reflected the same pattern of change in the past ten years. Its average income per employee is 30,803 NT dollars in 1994, increases to 39,080 NT dollars in 2000, then reduces to 38,586 NT dollars in 2001, and finally bounces back to 42,393 NT dollars in 2006. From these figures, it is hard to tell whether Taiwan have transformed into an M-shaped society. Even taking the consumer price into account, we found that the actual income decreased only in years of 2001 , 2002, and 2005, not to say that work hours had decreased over time.


In summary, the recent trend of employee income in Taiwan does not parallel to what Ohmae mentioned in Japan.Nevertheless, the general public has a strong feeling of relative deprivation in terms of their economic lives, regardless the society is labeled as an M-shaped society .In the following sections, we then use some official statistics to show the changes in Taiwan of the recent decade.On the other hand, due to the blurred meaning of M-shaped curve, we develop two tentative but convenient measures to indicate the shift of middle class, or more precisely the rising lower-middle class.Finally, we will point out the vulnerability of current social policy in dealing with the trend of declining middle class.


Table 1: The Average Wage and Working Hours for Workers in Taiwan

industrial and Service

Manufacture

year

month salary

work hour

month salary

Work hour

1994

33689

196.5

30803

202.4

1995

35421

194.2

32555

201.6

1996

36735

193.3

33911

201.1

1997

38530

193.9

35492

201.8

1998

39726

190.2

36546

198

1999

40908

190.2

37882

199.1

2000

41938

190.1

39080

198.7

2001

42042

180.3

38586

184.4

2002

41667

181.4

38565

187.6

2003

42287

181.2

39583

188.3

2004

43021

183.5

40611

190.7

2005

43615

182

41751

188.8

2006

44107

180.8

42293

187.3


2. What Does Statistics Tell ?


To begin with, we situated some of the most recent developments in Taiwan with the use of official statistics, such as unemployment rates, suicide rates, household savings, and other statistics related to the family crisis.


Unemployment Rates

Prior to 1996, the total unemployment rate in Taiwan remained below 2﹪.It ascended to 2.99﹪in 2000, then escalated to 5.17﹪in 2002, and has soon declined since then.The unemployed population was 0.4 million in 2001, and reached to a half million in 2003.Amongst the unemployed population, the number of high-educated unemployed have continuously risen as record high while other unemployed have slightly decreased in number after 2002. This is because the number of university and college graduates have rapidly increased, while the unemployment rates have slightly decreased in recent years. It is worthwhile to note that the high-educated unemployment has gradually taken a larger share of total unemployment population, particularly when the unemployment rates of lower educated counterparts have dropped at a relatively larger degree at the same time. As indicated in Table 2, in the year of 2002, there were 128 thousand unemployed population of university and college graduates, accounting for 4.28﹪of the total unemployed population. Its unemployed population increased to 144 thousand in 2005, although its unemployment rate dropped to 4.01﹪.


Examining the unemployed population by age, we found that those aged 25-29 remained the highest rate of unemployment as compared to other age groups. The majority of those aged 25-29 are university and college graduates, who are conventionally expected to be in the middle-income class.This suggests that if the unemployment rate of high-educated population remains relatively high, the middle-class will be more likely to decline in the near future.


Table 2: Unemployment Rate by Education in Taiwan 2001-2005

Total

junior high or less

senior high

college or above

year

person

%

person

%

person

%

person

%

2001

450

4.57

164

4.71

182

5.12

104

3.72

2002

515

5.17

172

5.14

215

5.92

128

4.28

2003

503

4.99

167

5.17

207

5.60

129

4.09

2004

454

4.44

134

4.31

184

4.87

136

4.06

2005

428

4.13

113

3.76

171

4.54

144

4.01

Suicide Incidences

According to Table 3, the number of people committed suicide to death has increased over time. For instance, 1,451 deaths were due to suicidein 1994. In contrast, there were 4,406 deaths , ranked number ninth high on mortality causes as of the year 2006.In other words, in every two hours there was one death from suicide in the island. The average age of these deaths was 47 years old, much younger than that of the overall deaths.Among these suicide incidences, some involved adults taking their children with them as homicide.


Table3 : Suicide Death Number and Rates in Taiwan 1994-2005

Year

Rank

Number of

Deaths

Death Rate

1994

13

1451

6.88

1995

11

1618

7.61

1996

11

1847

8.61

1997

10

2172

10.04

1998

10

2177

9.97

1999

9

2281

10.36

2000

9

2471

11.14

2001

9

2781

12.45

2002

9

3053

13.59

2003

9

3195

14.16

2004

9

3468

15.31

2005

9

4282

18.84

2006

9

4406

19.3

Household Savings

Increase in suicide incidences indicates the upsurge of family crisis, while some others may fall into poverty or economic deprivation and also increase the likelihood of the crisis.As pointed out earlier, the average wage in Taiwan has not significantly changed, however, the average household saving for lower income families has substantially reduced in recent years.Figure 2 depicts the trend of family savings by quintile group between 1991 and 2005, and shows that the richer the family is the more savings the family has.In contrast to the highest 20% family group with steady increase in trend, other family groups maintained largely the same amount of savings before 2000.It is worthwhile to note that the lowest income group cut their year saving from 26.7 thousands NT dollars in 1999 to negative savings in years 2001, 2002 and 2005, while the highest income group has maintained 65 thousand dollars of savings in average since 2000.In short, except the richest income group, the other four income groups have largely reduced their savings after 2000. When family major bread winners lost jobs, families with decreasing amount of savings are more likely to fall into poverty than ever before.

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Figure 2: Family Year Savings by Income Quintile Group in Taiwan 1991-2005

Low-income Households

As of the year 2006 in Taiwan, 1.22% of overall households are officially defined as low-income households, that can be also accounted as 0.95% of total population living below the poverty line. Comparing to most industrial societies, Taiwan has much less proportion of poverty rates by person and by household as well. According to the report from Table 4, both rates have ascended since the late 1990s.In 2006, around 90 thousand households are entitled as low-income in which 218 thousands of population live. Like incidences of suicide and unemployment, increasing number of people living in poor may delay the economic development and cause the upheaval of the society.

Table 4: Low-income Families and Population

End of year

Low income households

Low income population

Total

As % of total households

Total

As % of total population

1991

42665

0.82

116225

0.56

1992

43780

0.82

115284

0.55

1993

46279

0.84

117603

0.56

1994

48182

0.85

115748

0.55

1995

48580

0.83

114707

0.54

1996

49307

0.82

115542

0.54

1997

49780

0.8

116056

0.53

1998

54951

0.86

125426

0.57

1999

58310

0.89

136691

0.62

2000

66467

0.99

156134

0.7

2001

67191

0.99

162699

0.73

2002

70417

1.02

171200

0.76

2003

76406

1.08

187875

0.83

2004

82783

1.15

204216

0.9

2005

84823

1.16

211292

0.93

2006

89902

1.22

218151

0.95

Finally, we selected some figures that might be also pertinent to the rise of family crisis, such as divorce rates, child abuse rates and rates of mental illness, of which trends were all rising in the recent years .

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Figure 3: Statistics Related to Families Crisis in Taiwan 1977-2004

3. Measuring the M-shaped Society


We had briefly presented statistics and figures related to the recent social changes in Taiwan society that might echo what people felt about the divided society, which might not be not consistent to what Ohmae had described for the 1990’s Japan.Provided that the decline of middle class is Ohmae’s major concern, we therefore develop two tentative measures to inspect the situation in the recent Taiwan society.


The Balance Index

Instead of defining “the Middle class” in formal way we use the middle group of income quintile distribution as our working definition of “the middle class”.Therefore, “the Balance Index” can be computed as the ratio of the absolute difference in income dollar between the middle class and the highest class to that between the middle class and the lowest class. This process can be demonstrated as follows:


Let L represents the average incomeof the lowest 20﹪of total household, U for that of the highest 20﹪, and M for that of the middle-income group. We get the ratio ofto , that is /, as the Index of Balance, although L doest not necessarily turn out to be the “middle” value but usually lower simply because the extreme values are likely to appear in U. However, we believe the overtime trend of the Index may signify the direction to which middle-class is drifting.


Noted that the index can be computed with different income variables, such as the average family disposable income adjusted by the size of the household, the average family wage adjusted by number of workers in the household, and the average family property income.Figure 4 demonstrates the trends in which the indices of balance for disposable income, wage income, and property income are all below 1 in every year and descend in 2001. These three curves are alike in that indices remained basically unchanged between 1996 to 2000, and also between 2001 to 2005. Most notably, the Index computed from family property income was shown the lowest with the figure as low as 0.1 in 1996, and its trend shifted downward after year 2000. Comparing all these three indices, the balance index computed from the wage income, has maintained at 0.4 to 0.5 levels in the past ten years, and shown less degree of polarization.

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Figure 4: The Indices of Balance in Disposable Income, Wage Income, and Property Income in Taiwan 1996-2005

M-ratio

The Gini coefficient is generally used to measure the income distribution for overall households. It represents the proportion of total income that would have to be redistributed to achieve perfect equality.It cannot be used for measuring the change in a certain class of the distribution.The Balance Index as previously introduced is considered to signify the relative difference using the middle income group as the reference.However, the outcome may be contaminated by the changes of “U” and “L” regardless the change in “M”, and it may fail to catch the net change of the Middle class.In this section, we develop the M-ratio as a relative position for middle income group with respect to the gross contribution of national production. The M-ratio is calculated from the disposable income of middle group households, adjusted for the size of household, as proportion to the per capita Gross National Product .If the M-ratio is getting smaller by year, it indicates that the higher income class outweighs the middle-class income groups

It shows in Figure 5 that per capita GNP in Taiwanslightly increased over time, but the trend of the M-ratio unevenly decreased from 1996 to 2005.However, the M-ratio was above .5 before 2000, but it declined radically in the following two years.In the recent three years the M-ratio still remained relative low with values around .45. This ratio may indicate the decline of the middle class with respect to the overall production contribution.

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Figure 5: Per Capita GNP and M-ratio 1996-2005

4. Policy Implications


Based on the previous discussion, it is suffice to say that Taiwan is hardly for describing as an M-shaped society but does show the decline of the middle class to some degree. Considering that more people have experienced hardship in life because of worsened social economic circumstances in the recent years, we believe the surge in family crisis and near poor population who might fail from the middle class in the near future. It is also striking that most people who have committed suicide in recent years were not official defined poor but were those promptly falling into financial crisis.According to the Public Assistance Actin Taiwan, being entitled as Low-income household three regulations need to be met.

First, .the average family income, adjusted for the family size, should not exceed the official defined “the Minimum Cost of Living” calculated by DGBAS yearly, as the 60 percent of the average household expense from Taipei, Kaohsiung, and Taiwan Province respectively.[1] Second, the family overall property should not exceed the official defined threshold. Third. the average family savings, adjusted for the family size, should not exceed the official defined threshold. Each requirement is not rigid if taking GNP or cross-national comparisons into account. For instance, in Taipei, the monthly income threshold is about 450 US dollar per person. The property threshold is about 150 thousand US dollar of official defined value for a household, and the average savings is no more than 4,550 US dollar per person.In comparison to the poverty threshold of the United States, a family of four persons was 20,000 US dollars in 2006 that amounts to 416 US dollars per person per month.The income threshold in Taipei is even higher than that in the US, not to say that the per capital GNP in Taiwan is less than half of that in the US.


To some extent, it is not rigid to meet anyone of the regulations but not all concurrently for people in need.Most importantly, due to an overly broad definition of “family members”, many low-income-applicants fail to meet the family property regulation.Therefore, the practice of living allowance for low-income family would have restricted a certain portion of claimants to receive assistance from the government. On the other hand, due to the lack of lucid regulations in Social Assistance Act for local governments to carry out the crisis relief programs, the regulations of low-income family were often used as the reference. Therefore, the “crisis relief program” has also helped very limited number of needy people.As we can see in Table 5, the annual budget expenditure of crisis relief is in a very limited amount , taking a very small portion of total Public Assistance Expenditure. In contrast, the expenditure of living allowance for the low-income households continuously increases overtime, and takes the major portion of the total budget.


Table 5:Expenditure for Social Assistance

Unit: thousand NT dollars

Year

Living allowance

Amount of disaster relief

Amount of medical relief

Amount of crisis relief

1991

513900

55202

1136712

151124

1992

573974

87916

995410

162356

1993

662545

63873

1162770

194949

1994

1840780

829938

646241

231723

1995

2118948

93638

608224

271702

1996

2285657

374208

145223

311433

1997

2417268

295539

157616

210483

1998

2583390

212541

167584

235284

1999

2839550

*29963122

102525

235417

2000

3157904

629456

96947

239487

2001

3362186

968864

101728

214057

2002

3363857

178999

104851

205360

2003

3543917

81288

89631

199140

2004

3807748

662712

105217

245921

2005

4053452

547739

94632

218622


*due to 921 earthquake


We then suggest that the three-in-one regulation for entitling low-income household needs to be partially relieved, especially for the regulation of family property.It is not only because property is hard to transform into cash in a short period of time, but because property owned by all “ family members” may easily exceed the threshold.It is therefore better to set limited direct lineagesfor identifying “family members” if they do not cohabit or live together.In addition, for helping those who suffer family emergency due to sickness or unemployment of major breadwinner in the family, we suggest the government to advocate a “Fund for assisting family in crisis” by allocating a certain portion of Lottery Earnings, when both budgets of the central and local governments are unlikely to increase in the coming years.In Taiwan, the revenue of public welfare lottery sales has reached NT$ 20 billion every year since 2002.This amount of surplus has been allotted by one half for the central government in the use of subsidy for National Pension and for National Medical Insurance, and the other half for local governments in the use of welfare related programs and measures which are not allowed for substituting the annual budget.If one tenth of the allotmentgo for “the Fund for assisting family in crisis”, providing loan for needy people with low interest, it may save some lives and help people to overcome the immediate economic difficulties.

5. Conclusions

Economic growth is a major marker of development, although the growth does not guarantee the equality and leave no people behind.Taiwan has been facing a new world economy where more and more countries have further integrated into world markets, notably through a reduction in trade barriers.As what Ohame Kenichi suggested for Japan’s economy, Taiwan also needs new monetary, trading, financial policies, as well as gains in competitiveness.

In this article, we briefly present a background description and an outline for further study into the possible emergence of an M-shaped society in recent Taiwan.To begin with, we situate some of the most recent developments in Taiwan in the context of unbalanced growth and increasing family crises. Ironically, people in Taiwan have widely used the term “M-shaped society” for the recent developments, while the “Economic Miracle” has not yet faded out in their memories.On the basis of official statistics, such as poverty rates, unemployment rate, divorce rates, mental disease rates, child abuse rates and the like, all the increases in trend is the caution for the future development.

Unlike in Japan, the earnings of workers in Taiwan did not significantly decrease in recent years.Taiwan seems to deviate from the M-shaped society as Ohmae defined.Although Ohmae focused on the decline of the middle classm, he did not provide any statistical measurement in his well-known book. We thus develop two tentative but handy measures for examining the shift of middle class, and coined them as “the Balance Index” and “the M-ratio” respectively. The former was constructed as a relative measure among different income groups, while the latter was designed as a measure indicating the change of the middle class relative to the overall contribution of people.

We find that the widened gap among classes could be mostly explained by the increasing disparity in property income, especially between the upper class and the others.That the middle class has gradually shifted toward the lower class was evidenced by using the Balance Index, and reduced its importance as evidenced by using the M-ratio, both notably appearing since 2000.To some degree, we may conclude that Taiwan is not yet an M-shaped society but transforming toward it, because of the declining middle class.We believe that, else of economic and trading policies as Ohmae suggested for Japan, it is the right time for the Government in Taiwan to advocate some social policies to stop or slow down the declining middle class to near poor.We suggest that the Social Assistance Act needs to be revised in order to release the regulation on family property as a threshold of low-income families, concretely speaking, to re-define “the family members” as primary direct relatives if these family members do not live in the same household.Finally, we also suggest the government to advocate a “Fund for assisting family in crisis” in order to provide low interest loan for families in economic crisis.

REFERENCES

Chu, C.Y. Cyrus and Lily Jiang , “Demographic Transition, Family Structure and Income Inequality: Theory and Empirical Evidence of Taiwan,” Review of Economics and Statistics 4:665-669.

Department of Health http://www.doh.gov.tw/statistic/index.htm , Report of 2005 Human Power and Resource Survey.

DGBAS http://www.stat.gov.tw/public/Attachment/41141183071.doc , Growth with Equity: The Taiwan Case. NY: Oxford University Press.

Hung, Rudy , “The Great U-turn in Taiwan: Economic Restructuring and a Surge in Inequality, “ Journal of Contemporary Asia 26:151-63.

Kuo, S.W.Y., G. Ranis, and J.C.H. Fei , The Taiwan Success Story. Colorado: Westview Press.

Lin, Ching-yuan,“The Effects of Household Compositional Changes on the Distributions of Income ad Economic Well-being in Taiwan,” Journal of Social Sciences and Philosophy 9:39-63.

Lin, C.Y and Y.P. Chu , “Intertemporal Changes in Wage Income Inequality in Taiwan: An Application of Factor Analysis, Journal of Economics,” Taiwan Economic Review 30:341-61.

Ministry of the Interior, “2005 The Statistics of Social Assistance” http://www.moi.gov.tw/stat/index.asp , The Impact of Rising Lower-Middle Class Population in

Japan.


[1] The Standard of Minimum Cost of Living in Taipei City is NT$14,881 per person per month in 2007, which is higher than in Kaohsiung Cityand in Taiwan Province . As of June 2006, there are 12,849 low-income households, 31,810 low-income citizens, account for 1.36% of total households and 1.20% of total population of Taipei City.