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

Reporting from 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."

As in Japan and South Korea, larger Taiwanese companies tend to be more paternal, and workers still cling to Confucian values of loyalty and identify with their employer.

Huang says many workers are making good use of their unpaid leave. Some are taking training courses in management subsidized by the government. One large group of engineers and technicians, he says, formed a cycling club, riding up the hills in nearby Fei-feng Mountain on their days off.

Hsinchu itself evokes images of Silicon Valley, with its tree-lined streets, low-rise buildings and dorm-style apartments. The science park, about 45 miles southwest of Taipei, is dominated by manufacturers of semiconductors, computers and peripherals -- Taiwan's mainstay exports, which have been clobbered by the global economic downturn.

Siliconware Precision Industries, one of Hsinchu's largest companies with 15,000 workers, shows just how fast and hard sales have fallen. Siliconware supports semiconductor companies, assembling and testing wafers.

"Prior to the fourth quarter [of 2008], we were doing very well," said Janet Chen, investor relations director. Then the bottom fell out: Revenue plunged more than 50% in January from the previous year. Sales were off 35% last month.

Siliconware began by cutting expenses, including phone bills, travel and entertainment. Salaries were slashed 10% to 15%. About 200 mostly temporary workers were let go, Chen said. Then, most everybody else was told to take four to six days of unpaid leave a month.

"Management doesn't want to cut jobs right away," Chen said. "It's very sensitive. . . . The government may say something."

Taiwanese officials worry about social unrest and other destabilizing effects of mass layoffs, including further erosion in consumer spending, exacerbating the pain and deepening the recession.

One weapon the government uses to press its case with employers is the threat of restricting future entry of foreign workers, says Wu Yu-jen, an associate professor of labor relations at National Chung Cheng University in Taiwan's Chia-yi County.

Wu says Taiwanese companies had recruited about 380,000 foreign workers, predominantly from Southeast Asia, to work in factory and other jobs that were previously hard to fill. Thousands of them have been let go in recent months, but when the economy improves, employers will need government approvals to bulk up again.

"The government can freeze the number of foreign workers if they don't listen," Wu said. On the positive side, he said, Taiwan has been giving training subsidies for each worker on leave.

Wu and other analysts say it's too early to tell how long Taiwan's no-layoff stand will last.

In the short term, it could be cheaper to put people on leave than pay severance for layoffs. And if business rebounds soon, companies will be positioned to ramp up production quickly by adding hours.

But if the unpaid leaves drag on, that could demoralize the staff and add to the financial hardship for employees and the company.

"It really comes down to your best-guess estimate: How long is this going to last?" said Klein, the Georgia economics professor and consultant to businesses in Taiwan. "It's tough, tough, tough," he added, because the outlook is so foggy.

"There's no visibility," he said. "You've got to make a gamble in this environment."

Cao Jun in The Times' Shanghai bureau contributed to this report.