[Excerpt] Analysis of the inter-industry earnings differentials revealed that these differentials were quite small by international standards, and indeed, that earnings were rising at roughly the same rate in every sector of the labour market in Taiwan. Wage differentials in Taiwan's private sector are generally in line with the economy as a whole; quite small by international standards, with real wages rising at very similar rates throughout all of the major private sector industries, whilst also demonstrating similar growth and decline patterns. For example, the agricultural sector in Taiwan is a declining sector of the economy, relative to non-agriculture, whilst within the manufacturing industry, textiles is a declining sector relative to electronics; and yet, the incomes of farm and non-farm households grew at essentially the same rate, as did earnings in both the electronics and textiles sectors. This chapter therefore proposes a labour-market model which provides a good fit with these aspects of the private sector.
We consider three kinds of models: (i) a segmented labour-market model in which the wages in each sector are set by the demand and supply for labour in that sector alone; (ii) a Harris-Todaro-type model with wage dualism/segmentation (Harris and Todaro, 1970); and (iii) an integrated multi-sector labour-market model. This chapter aims to demonstrate why the integrated labour-market model is better suited to the Taiwan case than any of the other models and that this model can help us to gain a better understanding of some of the important aspects of Taiwan's economic development.