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Cablegate: Taiwan Focus On High-Tech Labor Shortage

This record is a partial extract of the original cable. The full text of the original cable is not available.

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.

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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

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