Everlight, the world’s largest supplier of LED lights and lighting components, asked its employees to go on two to three days’ leave without pay in November and a further five days in December. This was to ride out a period of slow demand in the last quarter of the year and to facilitate inventory adjustment, the company said. Yeh added that the unpaid leave scheme would give Everlight the flexibility not to lay off workers.

 

A storm of protests from labour groups and politicians swiftly followed. Yes, things were slowing down but why was the company resorting to unpaid leave when it was in sturdy financial health, many asked. Everlight posted a pre-tax profit of NT$538 million in 1Q followed by a pre-tax profit of NT$425.86 million in 2Q. For 3Q, revenue is expected to decline by 10% from the previous quarter, due to a downturn in demand. However, the company reassured analysts that 3Q margins should remain at the same level as the previous quarter owing to costcutting measures.

 

At least six manufacturing companies in Taiwan have begun implementing unpaid leave schemes. The number of employees affected is 1,380, says the Council of Labour Affairs. The government has promised to monitor firms that put their staff on unpaid leave but stresses that the situation is “not serious”. In a TV interview, president Ma Yingjeou took pains to underscore that Taiwan is not facing a recession, defined as two consecutive quarters of GDP contraction, and that the government expects the economy to grow 4.81% this year.

 

The mere mention of unpaid leave triggers jitters for many employees because it brings back memories of the recession over 2008 and 2009 that export-dependent Taiwan suffered. During the worst of the slump, almost 18% of Taiwanese businesses put their workers on unpaid leave.

 

Over 200,000 employees were affected and the average length of unpaid leave was four days a month, according to the Council of Labour Affairs.

 

Unlike many multi-national corporations, Taiwanese companies prefer the unpaid leave approach to permanent cuts to employment. While this gives staff some level of job security, the downside is that they sometimes end up with a take home pay that is less than the minimum wage of NT$17,880 a month. What good is minimum wage legislation if companies can pay their workers less by making them work less?

 

The unpaid leave situation is naturally drawing scrutiny from labour rights groups and legislators. However, it is also of interest to followers of financial markets as it is a measure of the pulse of the economy. With a good chunk of its companies in the manufacturing supply chain for the high-tech industry, Taiwan’s economy is highly correlated to global demand for electronics and industrial goods as well as the technology cycle. That makes it a little different from the US economy, which is consumer- driven, or Hong Kong, which is dominated by services.

 

Economists use a variety of tools to gauge economic activity. Key indicators include asset prices, interest rates, business confidence, credit trends and manufacturing orders. However, depending on economic composition, certain factors stand out more. For example, for the US economy, analysts watch housing starts like hawks, as well as non-farm payrolls. In Singapore, we track non-oil domestic exports and retail sales. In China, it is the Purchasing Managers Index and new orders that matter and in Japan, the Tankan survey is followed religiously.