The Effect of Foreign Workers on Plant Productivity and Wage— Evidence from Taiwan Manufacturing Industry
Date Issued
2009
Date
2009
Author(s)
Lu, Chyi-Horng
Abstract
Foreign workers have caused a lot of controversy in Taiwan since 1989 when employment of foreign workers formally took effect. This paper aims to clarify the economic effects brought by foreign workers through empirical practices, and thereby locate corresponding policy inferences. Instead of proving the relationship between foreign and local workers to be complementary or substitutional, this paper uses the Matched Employee-Employer Data of Taiwan manufacturing and electronics industry from 1998 to 2003 to analyze the productivity of foreign workers while outlining the influence of their productivity on the added value of the plants, the average added value of the labor, Levinsohn-Petrin productivity and the wages of local workers. When all the variables induced by plants and workers are effectively controlled, the empirical results indicate that the marginal effect of the added value brought by the employment of foreign workers diminishes quickly. When foreign workers are employed in manufacturing or electronics industries, the added value will rise 13.0% and 13.6% respectively. With an increase of 1% of the foreign workers employed, however, the added value will only rise 0.0735% and 0.0327% respectively. On the part of productivity, the employment of foreign workers will elevate the productivity by 20-30% generally. With the rising of the percentage of foreign workers employed, however, their contribution to the productivity decreases accordingly. As for the wages, local workers’ average wage in plants with foreign workers employed is higher, but it may reflect the simultaneous causality that higher wages cause the employment of foreign workers. However, when the employment rate of foreign workers gets higher, the average wage of local workers becomes significantly lower, proving the hypothesis that foreign workers can bring negative impact on local workers. From the perspective of “shortage of labors,” the empirical results prove that the employment of foreign workers can effectively solve this problem and thereby raise the productivity. With the employment rate of foreign workers getting higher and higher, however, the demand of labor provided by local workers will be getting lower and lower, and the percentage of local workers replaced by foreign worker will rise, causing the lowering of wages of local workers and the decline of productivity at plants. When the variable “shortage of labors” is controlled, the added value, AVL, Levinsohn-Petrin productivity, and the average wages of local workers of those plants that are "beyond the shortage of labors" all demonstrate a downward trend, but not entirely obvious. On the other hand, we can see that, when compared to other industries, employment of foreign workers in the information & electronics industry induces highest productivity growth and brings the least impact on the wages of local workers. In conclusion, in spite of the contribution to productivity, higher proportion of foreign workers would reduce both the plant productivity and the wages of local workers. Therefore, the inference of the result is that when opening up the vacancies to foreign workers, our government should base on the "real number of the shortage of labors," while improving the labor rights of foreign workers in Taiwan at the same time. As a result, the incentives for employers to employ foreign workers to replace local ones will be reduced, and the decline in the plant productivity and wages of local workers propelled by increased proportion of foreign workers can thus be avoided.
Subjects
foreign worker
productivity
wage
shortage of labors
manufacturing industry
electronics industry
Matched Employee-Employer Data
SDGs
Type
thesis
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