Taiwan Focus on High-Tech Labor Shortage

UNCLAS SECTION 01 OF 04 TAIPEI 002869 SIPDIS DEPT FOR EAP/TC, PLEASE PASS AIT/W E.O. 12958: N/A TAGS: ECON TW SUBJECT: Taiwan Focus on High-Tech Labor Shortage REF: TAIPEI 02768 ¶1. SUMMARY: Following several years of rapid expansion, high-tech companies have recently experienced difficulty finding skilled workers in Taiwan. Expanded access to higher education has led to a decrease in the number of applicants for production jobs, and the opening of a new science park in central Taiwan is expected to create more competition for both production workers and professionals. While many Taiwan companies have moved their production to the Mainland in part because of low labor costs there, rising wages in the PRC may make this option less attractive in the future. Many firms find immigration restrictions on bringing Mainland and foreign employees to Taiwan a problem, and in response the government has begun to liberalize some regulations. Affected industries and government agencies alike are focused on these issues, building expectations that the high-tech labor shortages will decrease in severity over the next few years. End Summary. -------------- - Demand for Skilled Workers Outstripping Supply -------------- - ¶2. (U) Taiwan is in the midst of a transition from a manufacturing to a service-oriented economy, as its manufacturing jobs move across the Taiwan Strait to the PRC. Many of the manufacturing jobs remaining in Taiwan are in high-tech industries such as semiconductor and flat panel display manufacturing, which require highly skilled workers. Following several years of rapid expansion, high-tech companies have recently experienced difficulty finding skilled workers in Taiwan. This report analyzes current problems in Taiwan's high-tech labor market, and initiatives to both develop more local talent and recruit more international staff. ¶3. (U) The Executive Yuan's Science and Technology Advisory Group (STAG) released forecasts for labor requirements in six high-tech industries between 2005 and 2007. The industries surveyed were: semiconductor, TFT-LCD (or flat- panel display),digital content, information services, biotech, and telecommunications. Total shortages for all six industries are estimated at 9,665 for 2005, 3,940 for 2006, and 2,475 for 2007. The semiconductor, TFT-LCD, and digital content industries all reported a particular need for electrical and mechanical engineers. Shortages and surpluses per year for each industry are given in the table below: 
 Labor Supply Shortages and Surpluses, per Year Industry 2005 2006 2007 Semiconductor -3500 1300 -1300 TFT-LCD -800 -700 -1000 Digital Content -3700 -3000 -2300 Info. Services -2060 -1770 -1500 Biotech 195 130 -75 Telecoms 200 100 3700 TOTAL SHORTAGES: -9665 -3940 -2475 ¶4. (U) The semiconductor industry is expected to undergo some fluctuation in staffing needs over the next three years. To some extent, availability of workers for semiconductor firms depends on conditions in the TFT-LCD industry. The rapid growth of TFT-LCD firms over the past two years has caused a surge in demand for engineers and other skilled staff. In interviews with human resources managers at several semiconductor firms, the TFT-LCD industry was cited as their main competitor for skilled workers. Jobseekers are increasingly attracted to TFT-LCD because salaries and stock incentive packages are more lucrative than at semiconductor firms, due to better stock performance. Additionally, workers find jobs in TFT-LCD manufacturing to be less stressful: engineers in semiconductor production perform an average of 400 processes, while TFT-LCD production requires only around 100 processes. Due to this preference for jobs in the TFT-LCD industry, some semiconductor firms such as UMC are experiencing high turnover as employees leave for jobs at TFT-LCD firms. However, it is expected that semiconductor industry stock price levels will rebound in the third quarter of 2005, and that firms will then be in a better position to recruit new workers. ¶5. (U) STAG predicts the greatest shortages over the next three years in the digital content industry, which is fairly new in Taiwan. The information services industry is expected to have shortages, especially for programmers. Biotech is still an emerging industry in Taiwan, and is not expected to experience any labor shortages in the next two years. By 2007, STAG forecasts that small shortages will begin to appear in the biotech sector, and that they may increase in following years. On the other hand, the telecommunications industry is predicted to have an oversupply of labor, by as much as 3,700 in 2007. -------------- Changing Distribution of Jobs Within Taiwan -------------- 6.(U) Currently, firms at Hsinchu Science Park in northern Taiwan have access to the largest pool of skilled workers, but face the greatest competition for workers from other firms within the Park. Firms at the newer Tainan Science Park in southern Taiwan have a more limited supply of workers, but face less competition for them from local firms. The recent opening of Taichung Science Park in central Taiwan and the projected rapid growth of the TFT-LCD industry there will likely attract some workers away from Hsinchu and exacerbate the growing competition to attract skilled workers among all three of the Science Parks. However, Hsinchu is still likely to find it easier than the other Science Parks in attracting graduates as the majority of universities are in northern Taiwan. -------------- -------------- Education and Population Trends Related to Shortages -------------- -------------- ¶7. (SBU) In addition to competition between expanding high- tech firms for a finite number of workers, there are a number of other factors behind the current high-tech labor shortages. Dr. Lin Dah-June, counselor at the Council for Economic Planning and Development (CEPD),cited the rapid expansion of universities in the past ten years as a contributing factor (see reftel). Taiwan's labor participation rate, or the percentage of the working-age population in the workforce, is a relatively low 58% and has declined as more people spend more time in school. Additionally, Taiwan's low birth rate and aging population may be expected to lead to further shortages in the future. The implications of Taiwan's aging population will be examined septel. ¶8. (SBU) Because a larger percentage of senior high school graduates now go on to post-secondary education, there are fewer high school graduates interested in working on the production side in high-tech firms. In the semiconductor industry, entry-level production jobs are high-pressure, require 14 to 16 hour days, and pay relatively little - an average starting salary is US$750 per month. These working conditions make it difficult to recruit applicants in Taiwan. Some firms, such as Winbond Electronics, have begun using Filipino production workers to fill the gap. For positions requiring a university degree, many firms prefer to recruit only from the top institutions, where they are more confident of the quality of graduates. Graduates from the newer and less prestigious institutions find it more difficult to get jobs. ¶9. (SBU) Lin also noted that to date there has not been sufficient investment in vocational training programs. In 2003, the Council of Labor Affairs, the Ministry of Education, and the German Trade Office cooperated to establish a vocational training program on the German model, and are expanding the program this year. One semiconductor company interviewed noted that it had not yet participated in any government vocational training programs because of the heavy reporting requirements placed on the companies. -------------- Decreasing Competition from Across the Strait -------------- ¶10. (SBU) In the past, the expansion of high-tech industries in the PRC and the growing availability of a highly skilled and educated workforce there have caused some Taiwan companies and workers to look across the Strait for opportunities. Currently, the Taiwan government strictly limits the ability of semiconductor companies to move their operations to the PRC. Freddie Liu, CFO of the Taiwan semiconductor packaging and testing company Advanced Semiconductor Engineering (ASE),expressed to AIT the longstanding opposition by industry to limitations on cross strait investment activities. Liu explained that if restrictions were lifted on packaging and testing firms, ASE would expand operations to the PRC not just because of the market opportunities, but because China could provide the human resources ASE needs to meet the demand of the Mainland market. ¶11. (SBU) Liu commented that the Chinese labor market had advantages in terms of quality as well as quantity. According to Liu, the strong work ethic of Mainland workers is similar to that of Taiwan workers twenty years ago, and it is difficult to find similar workers in Taiwan today. However, he may not represent the majority view with respect to the relative skills of Taiwan and PRC workers. A recent survey of Taiwan employers by the 104 Job Bank, a large employment agency, found that most employers still think workers in Taiwan have better professional and management skills and more valuable work experience than mainland workers. ¶12. (U) The wage gap between high-tech industries in the PRC and Taiwan, which has been an incentive for Taiwan companies to invest in the Mainland, is narrowing. In 2004 the average monthly wage for a university graduate in Shanghai was US$483, compared to US$953 in Taiwan. 104 Job Bank estimates this gap will disappear in the next five years. Additionally, the premium paid for Taiwan engineers working on the Mainland is decreasing. Previously, Taiwan engineers were able to double their salaries by working in the PRC, but are now only earning 30% to 50% more than their Taiwan salaries. These trends make it difficult to predict the impact of labor costs on future Taiwan investment in the Mainland, but it appears that rising wages among PRC workers may make labor costs less of an incentive to move production to the Mainland in the future. -------------- Problems Hiring Foreign Workers -------------- ¶13. (U) Many Taiwan and international firms have complained about the bureaucratic difficulties they face in both hiring foreign workers and bringing their PRC staff to Taiwan for events, training, or short-term work. There are currently minimum investment and revenue requirements that prevent many smaller entrepreneurial companies from bringing foreign staff to Taiwan. It is also difficult for multinational companies to get work permits for foreign interns, which leads many interns interested in working in East Asia to choose positions in China instead. ¶14. (SBU) The government's restrictions on bringing workers from the Mainland to Taiwan stems from both political issues and concerns about competition for jobs between Mainland and local workers. However, ASE's Liu noted that the current lack of engineers in Taiwan could be addressed in part by allowing skilled Mainland workers to come to Taiwan for two to three-year short-term assignments. He added that the increased competition would also be beneficial to the quality of Taiwan's labor market. ¶15. (U) Regulations have been liberalized to some degree in recent years, and in May, the Council of Labor Affairs announced some further changes that made minimum salary and revenue requirements for hiring foreign workers somewhat more flexible. However, further liberalization is required if firms are to be able to bring Mainland and other foreign employees more easily to Taiwan. The American Chamber of Commerce highlighted these issues in its May 2005 White Paper, proposing the formation of a Taiwan government interagency human resources task force to streamline regulations. Prompted in part by the concerns raised by AmCham, CEPD plans to hold a ministerial-level meeting on high-tech human resources policy in July. The meeting, which will include CEPD, the Ministry of Economic Affairs (MOEA),Ministry of Finance, Council of Labor Affairs, and Mainland Affairs Council, will address new proposals for reducing shortages of high-tech workers and relaxing restrictions on foreign employees entering Taiwan, especially professionals from mainland China. -------------- Other Policy Initiatives -------------- ¶16. (U) In 2003, STAG and CEPD developed a joint plan for dealing with high-tech labor shortages, which focused on strengthening cooperation between academia and industry, promoting vocational education, and recruiting foreign workers and overseas Taiwanese. To promote cooperation with academia, the Ministry of Education and MOEA now provide subsidies to companies working closely with universities (described in reftel). Cooperating firms contribute funds to top universities for scholarships, and in return students sign two-year contracts with the firms. This year, the National Science Council established a summer internship program, the Taiwan Tech Trek, aimed at overseas Taiwanese students in science and technology. The program arranges paid internships with national laboratories and firms in the science parks to expose students to future work opportunities in Taiwan. ¶17. (U) A short-term solution that has been implemented is the reserve military service, which permits men with masters degrees in electrical engineering and IT fields to substitute employment in the private sector for their mandatory two-year military service. If selected for this program, they are required to sign a four-year contract. The program currently accepts 3000 people per year. AmCham recommended in its White Paper that this program be expanded and streamlined to permit more people to enter as soon as possible. However, the program may instead be reduced or ended in the near future, due to complaints from legislators and academics that it violates the spirit of the constitutional requirement of military service. ¶18. (U) COMMENT: The shortage of skilled workers for Taiwan's high-tech industries has received serious attention recently. Companies are concerned that they are unable to fill vacancies and government agencies have noted serious shortages in the fast-growing TFT-LCD and digital content industries, which are key elements in the Taiwan government's plans for economic growth. The upcoming July inter-ministerial meeting on high-tech labor issues could produce some useful initiatives and changes in regulations to promote the freer flow of labor across the Strait, and will prove an important indicator of the government's seriousness in tackling this problem. In addition, continued attention to the development of closer relationships between firms and universities, strengthening of vocational programs, and liberalization of immigration laws to permit short-term work by Mainland professionals are necessary to provide the workers Taiwan's high-tech sector needs. End comment. PAAL