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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