100x Wage Hike: What’s the Impact?

Following North Korea’s move to increase wages for heavy industry laborers by a factor of 100 in an attempt to raise productivity in the steel and mining sectors, the key question is how the change will affect livelihoods.

The increased wages include 200,000 won in goods and 100,000 won in local currency. In the event that the industries involved can increase productivity and export more as a result of the shift, they will have the necessary capital to maintain production and keep paying higher wages. In such a case, standards of living for those so-affected may improve.

However, if foreign investment cannot be attracted and export markets do not materialize then the current wage system will prove unsustainable over the long-term. Equally, an export-oriented industry is naturally subject to exchange rate and commodity price fluctuations, which, particularly given that North Korea has a limited international market for its goods, is a dangerous state of affairs.

Moreover, it has been pointed out that unless supplies to the markets are sufficient to hold down prices, spikes in demand will be incited by workers with significantly increased purchasing power. Workers have reportedly been told to rely on the distributed goods and refrain from purchasing goods in public markets. However, workers are likely to ignore this, and seek to purchase expensive items that they were previously unable to obtain. Such actions could trigger fresh inflation, eroding the value of the wage rises.

Cho Bong Hyun, a researcher with IBK Economic Research Institute, explained why the move is therefore insufficient. “When a wage hike occurs, there is a corresponding rise in inflation. The increase in wages will cause the value of North Korea’s currency to nosedive, precipitating a rise in exchange rates. This cycle will likely continue if North Korea does not fully adopt a market economy.”

In North Hamkyung Province alone, the wage rise has an impact on approximately 60,000 workers; 20,000 each at Musan Iron Ore Mine, Sungjin Steel Mill, and Kim Chaek Iron and Steel Complex. Assuming a family of four, that means that 240,000 people are directly affected by the move, a similar number to those affected around Kaesong by payments from the nearby Kaesong Industrial Complex.