Rapid Pay Rise in Some North Korean Companies Signals Reforms?

A commentary by Andrei Lankov
nkorea-space-2012.gif North Korea technicians work at the satellite control room of a space center in the outskirts of Pyongyang, April 11, 2012.

Recent reports from North Korea say that there has been a considerable increase in the monthly salaries of laborers at Musan Iron Mine and other heavy industry sites. Up until recently, these laborers had been receiving monthly wages of just 3,000 to 4,000 won, about 30-40 cents. This changed in October when their monthly income has increased about 100 times to 300,000 won.

It is hard to verify, but the companies that raised their monthly wages are likely those that have earned good money through foreign currency earning schemes like trade. It is likely that these companies were given permission to use some of the profits from their trade activities to raise the income of their workers.

This new development can be viewed from two perspectives. First, this raise in wages could bring more harm to the economy. Second, it shows that the North Korean leadership may have begun to feel the need to implement economic reforms.

While the laborers who have enjoyed an increase in their incomes are surely happy, this development is potentially full of issues.

First of all, what about the laborers in other companies who do the same work? In most countries, there are differences in monthly wages depending on how successful a company is. However, such differences are generally smaller than the massive gap in wages now created in North Korea because of the recent rise in the monthly incomes in just a few companies.

If other companies begin to raise their wages to this level, it could potentially spark a rise in commodity prices, and bring about inflation. This would make North Korea a market economy, not a socialist one where the government decides the prices of commodities.

Rise in product prices

In a market economy, when people acquire a great deal of cash in the absence of a major rise in product supply, this leads to a rise in commodity prices. In other words, if the North Korean government were to increase the salaries of all workers in the country 100 times than they are now, this would lead to the rise in product prices in the country’s local markets, or jangmadang, within two or three months. This is a law of economics that neither the Party leadership nor the Great Leader can do anything about.

So, the drastic rise in the wages of laborers could bring about social conflict or a rise in commodity prices, rather than an improvement in the economy.

At the same time, however, this development could also mean that the Kim Jong Un leadership may intend to change the country’s economic system.

North Korean leaders know that as time passes they will fall even farther behind China, South Korea, and other neighbors. They also know that they cannot revamp their economy through ideological education. It is possible they are now attempting a change in how they manage the economy.

Of course, this attempt has not been successful. Nonetheless, it is only their first attempt.

If the North Korean government does in fact intend to enact changes in the country’s economy, it will surely make many more attempts at reform in the future.

There may be a lot of mistakes along the way, but their attempts will eventually allow them to find a way to improve the country’s economy.

Andrei Lankov, a professor at Kookmin University in Seoul, is a Russian historian, North Korea expert, and regular RFA contributor.

Translated by Robert Lauler.

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