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In Taiwan, unpaid leave instead of layoffs carries its own cost

The practice gives workers some security but, over time, employee morale still suffers. There are cultural and practical reasons behind avoiding termination.

March 09, 2009|Don Lee

HSINCHU, TAIWAN — As California and the rest of the nation stagger from massive layoffs and soaring unemployment, companies in Taiwan have largely opted to cut pay and work hours to deal with the economic crisis.

Here in Hsinchu Science Park, modeled after California's Silicon Valley, about 100,000 of its 130,000 workers are taking up to 10 days of unpaid leave a month.

Part of the reason is pressure from Taiwan's government, they say. Another may be the cost: Taiwanese laws require companies to pay severance of one month's salary for every year of service. There's also a cultural factor.

"The Western way is just too brutal," said Chang Chia-yua, 28, an engineer who supervises production for a computer memory maker in Hsinchu.

In the U.S., corporations have generally balked at across-the-board pay cuts and leaves as an antidote to a business downturn. As companies eliminate jobs at a furious pace, some managers see layoffs as an opportunity to prune their staffs and keep the strongest performers.

Their logic: "You reduce wages and you might piss everybody off, whereas if you dump some of them on the street, they're gone and you don't have to worry about them," said Jim Klein, an adjunct economics professor at Savannah Technical College in Georgia who has three decades of industrial relations and corporate experience in Taiwan.

Sharing the pain with everyone may not be the most efficient approach, people here concede, but at least everybody has a job. It gives some security to workers and also has helped curb the island's unemployment rate, which hit 5.3% in January, up 1.5 percentage points from a year ago. California's jobless figure rose almost as much in a single month, spiraling to 10.1% in January. (The U.S. rate was 8.1% in February.)

But as Chang and others in Hsinchu are finding out, the Taiwanese way can be pretty cruel too -- and may in the end prove no better than layoffs for some people.

When his company started to get walloped by the global financial crisis in November, Chang and his colleagues were told to take three or four days off without pay that month. Chang didn't mind so much at first; the single engineer used the time to volunteer at a nearby hospital, greeting and helping patients and their families with their questions.

But then, as business fell further this year, Chang's employer, whom he was reluctant to identify, told workers to take eight or nine days off a month. In February, that sliced a third of Chang's $1,325 monthly salary. Worse, he and others fear that eventually there will be layoffs.

"The atmosphere in the company is pretty nervous these days," he said. "After all, we have been having unpaid leave for so long."

So fearful are some workers that they're going into the offices on their stay-at-home days to impress bosses in the hope of keeping their names off any existing or future layoff list.

"It sucks," said a 40-year-old engineer for a flat-panel screen manufacturer, who would only give his last name, Tsai, because he didn't want to draw any attention and increase the risk of losing his job.

Tsai was sitting in a dimly lit Starbucks on a rainy February afternoon at Hsinchu's leafy campus, commiserating with a fellow engineer who was also on unpaid leave. Both men said their bonuses had been eliminated and that they were currently required to take one day off a week.

Tsai's rest day was Friday, but he didn't take a long weekend trip with his wife and two children. "We don't go shopping anymore. We eat at home." In fact, he went to work that day.

"I just show up and try to tell the boss I'm still working," he said with a wry smile. "I don't know what else I can do."

In recent months, distraught workers from Hsinchu and elsewhere have massed in the capital city, Taipei, to complain about their shrinking paychecks as employers add more days of unpaid leave. In one demonstration, workers hoisted rice bowls and banners saying, "No Work, No Pay," and demanded that the government stop employers from forcing workers to take leaves and cutting workers' pay below the national monthly minimum wage of about $500.

So far this year, the 430 companies at Hsinchu Science Park have largely held the line on mass layoffs, said Tu Chi-hsiang, deputy director-general of Hsinchu park, which is run by the Taiwanese government.

For all of last year, he said, about 4,400 people lost their jobs, mostly in the fourth quarter. Most of them were temporary employees and contracted foreign workers, mainly from the Philippines.

Overall, the figure pales next to job cuts announced recently by companies in California's Silicon Valley: 24,000 at Hewlett-Packard; up to 6,000 at Intel; 5,000 to 6,000 at Sun Microsystems; 1,500 to 2,000 at Cisco Systems; and more than 1,000 each at Yahoo and eBay.

"The U.S. is more efficient in operations," said Scott Huang, an associate researcher at Hsinchu's administration. "We pay more attention to tradition."

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