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     Apr 25, 2012

North Korea redefines 'minimum' wage
By Andrei Lankov

SEOUL - When one talks about virtually any country, wages and salaries are one of the most important things to be considered. How much does a clerk or a doctor, a builder or a shopkeeper earn there? What is their survival income, and above what level can a person be considered rich?

Such questions are pertinent to impoverished North Korea, but this is the Hermit Kingdom, so answering such seemingly simple questions creates a whole host of problems.

We could look first at official salaries but this is not easy since statistics on this are never published in North Korea. Nonetheless, it is known from reports of foreign visitors and sojourners that in the 1970s and 1980s, most North Koreans earned between 50 to 100 won per month, with 70 won being the average salary.

As time went by, the average wage slowly increased, reaching the


level of some 100 won by the early 2000s. In 2002, the North Korean government conducted a price/wage reform, so the average wage increased dramatically, to the level of 2,000-6,000 won a month and have remained at this level ever since.

The official exchange rate of the North Korean won is now fixed at 135 won per US dollar, but few if any people use this rate in actual transactions. The market rate is far more indicative, and currently it fluctuates around the 3,400 won per a US dollar mark. Therefore, the official salary is between $0.5 and $1.50 a month.

The above information is technically correct, but also quite meaningless because, in North Korea, wages have had a rather unusual role: they were merely one part of a compensation package given by the employer to its employees, and not the most significant part (until the early 1990s, there was only one employer in North Korea - that is, the North Korean state).

North Korea of the Kim Il-sung era, roughly from the late 1950s until the early 1990s, was a society of comprehensive rationing. Almost nothing was sold, nearly all foodstuffs and many consumer items were distributed by the state. The state - essentially the employer - decided how much grain its employees should eat daily (700 g if he or she was an adult), how much soy sauce he or she can use and how much meat or fish can appear on the family table.

All this might sound unattractive to the Western reader, but we should not overlook an important peculiarity of the entire system: distributed items were also heavily subsidized by the state. Essentially, the state delivered to its employees a survival package for a token price.

Sufficed to say, the price of grain within the public distribution system (and for decades this was the only way to obtain grain) was fixed between 0.04 and 0.08 won. The entire subsidized food ration (cereals, soy sauce, some vegetables and few eggs and fish) would in the 1980s cost between five and 10 won a month, in other words, 5-10% of the then average monthly salary. This is an impressively low share even by the standards of a modern developed society, which the North is not.

At least two generations of North Koreans saw this system as perfectly natural and tacitly assumed that it is the natural role of the state to provide its entire population with subsidized rations. I remember a story told by a South Korean colleague who in the late 1990s interviewed North Korean refugees in China.

An old North Korean farm woman told him that she learned about the richness of the outside world, especially the distant United States. She said: "America is so rich, that even American infants are issued daily rations of 800 g or pure rice". In North Korea, such rations were issued to the mid-level officials, and were indeed seen as a sign of earthly success. And the old lady, who had lived on the rations her entire life, could not imagine a society without rationing.

The rationing system was seen by the North Koreans not as a way to limit and control ones' consumption but rather as an unusual form of social welfare. The best analogue might be military service: a soldier at a conscript army is supposed to fight and work, whilst the state is expected to take care of his reasonable consumption needs and also provide him with a certain amount of pocket money.

Indeed, in the North Korea of the Kim Il-sung era (that is, before the early 1990s) a wage was little different from pocket money. People could use it to buy stationary, movie tickets or other supplementary needs, whilst essential goods and services were provided all but exclusively through the rationing system.

One must also remember that education and healthcare were also free, even though the best schools and hospitals were normally open to those who had high positions in the official hierarchy and/or good connections.

In North Korea of the 1980s, an unskilled worker would probably make 50 won (in North Korea salaries are paid and counted in terms of months). An engineer or low-level manager, on the other hand, would probably earn about 100-120 won, whilst a party official or university professor would be paid 150-200 won a month.
In practice, though, these seemingly large income disparities mattered less than the difference in the quantity and quality of their rations. An unskilled worker in a small town would probably subsist on a diet of corn-based porridge and a variety of seasoned vegetables - not because of his lack of purchasing power, but because this is what he was issued as his daily ration.

Meanwhile, an engineer in a major city or a university professor would probably eat fish every week, while a party bureaucrat would feast on pork and apples anytime he wanted.

This system collapsed in the mid-1990s. Rations stopped being delivered around 1993-1995. The state-controlled agricultural sector could no longer produce the grain required to feed the entire population, and the collapsing state-industry could not produce enough in the way of marketable goods that could be sold on the international market to finance the necessary grain purchases.

For virtually all North Koreans, this came as a huge shock - and some 600,000 people would perish in the famine of 1996-1999.

Survivors of this disaster, though, discovered the power of money and trade. In the mid-1990s, North Koreans essentially rediscovered the market economy. But the money they used to purchase food (and other things necessary to survive) did not come from their salaries.

Essentially, in Kim Jong-il's North Korea, a society of chaotic grassroots capitalism, wages became even more useless than in the North Korea of his father, a society of total rationing and state-supervised distribution.

Technically, the sale of grain outside the rationing system has been illegal in North Korea since 1957, and this ban was never formally lifted. However, since around 1990, this ban ceased to be enforced. By the mid-1990s, nearly all North Koreans had no choice but to buy grain and other foodstuffs privately.

By 2000, one kilogram of rice would cost some 40-50 won. Therefore, the official average monthly salary would buy less than two kilograms of rice - and nothing else. This meant that the official salary was well below the level of physical survival, so there is little surprise that most people began to make their living outside the state economy.

Statistical information about the North is notoriously unreliable, but nevertheless it has been estimated that the average North Korean family makes some three quarters of its income in the private economy. North Koreans toil in unofficial and semi-official private fields, they are employed in private workshops and eateries, they are engaged in a multitude of service-related activities, and they run their own businesses of different types.

Even at the height of the famine, there existed a lucky few who still received rations and their numbers began to increase again in the early 2000s, but this group still remained a minority. Full or near full rations were - and still are - issued to mid- to high-level officials, military and police personnel and employees working in the military-industrial complex.

However, these lucky few even now constitute less than one third (back in the late 1990s less than 10%, nowadays - some 35%).

The remaining majority is issued rations only sporadically, a few times a year. It seems to be the norm when two weeks' worth of rations were issued before major official holidays - like, say, the birthday of Kim Il-sung, the founder of the dynasty. For the most of the time, people have to procure their own food.

In 2002, the state attempted to adjust to the new situation. It increased the official state price of rice and other foodstuffs to the then market levels and increased salaries to match the new prices. Under the new system, rice in state shops was supposed to cost 44 won per kilo, whilst salaries were to be within the range of 2,000-6,000 won.

It appears that the government thought that through such reforms, prices could be made to correspond with state wages - and for a brief while, even toyed with the idea of abolishing the rationing system officially. But even Marshall Kim Jong-il could not make up for the lack of purchasing power of the state sector and its moribund productive capacity.

The dramatic increase in salaries meant a corresponding increase in the amount of cash in circulation and therefore unleashed hyper-inflation. In 2004, rice cost 1,000 won per kilo - some 25 times the then official price of 44 won. Since then the price of rice kept increasing slowly and nowadays it is approximately 3,000 won per kilo. Salaries have not changed significantly since 2002.

The average North Korean still can buy one or, if he or she is lucky, two kilos of rice with his entire monthly salary. However, few people care about it. Those who can still try to get a job where rations are delivered more or less regularly while others look for all imaginable opportunities to earn money in the private sector.

How much do they make? Now, in 2012, refugees agree that the survival income for a family of three or four would be 50,000 won (some $15 according to the current exchange rate) - roughly 10 times the official salary.

This will suffice for survival only - a diet of corn gruel and marinated vegetables, second-hand Chinese dresses and barely enough fuel to keep the house temperature above freezing point in winter.

No statistics are available, but this author's interlocutors say that the actual average monthly income in the relatively influent parts of the country is close to some 100,000 won per family (roughly, $30 a month).

However, rich entrepreneurs make much more. A corner shop would provide a North Korean merchant with an equivalent of $100 a month, and owners of small workshops can make much more, up to $500 or even $700. Those people constitute a minority, though.

But for nearly all North Koreans their official wages do not really matter. It is important whether they are given rations, and it is even more important whether they can earn money outside the declining state sector. But wages - nobody cares about them excessively.

Andrei Lankov is an associate professor at Kookmin University in Seoul, and adjunct research fellow at the Research School of Pacific and Asian Studies, Australian National University. He graduated from Leningrad State University with a PhD in Far Eastern history and China, with emphasis on Korea. He has published books and articles on Korea and North Asia.

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