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NK demand for pay rise poses hurdle to Gaeseong complex

Publication Date : 18-03-2014


North Korea’s demand for a 10 per cent pay rise for its workers at the joint industrial park in Gaeseong is posing a fresh hurdle to the park’s operations, which are returning to normalcy following a shutdown last April.

Pyongyang has recently requested that the base wage for some 52,000 workers at the park be increased by 10 per cent, more than double the mutually agreed ceiling of 5 per cent.

The North argues that as the pay did not increase last year during the shutdown of the park, there should be a 5-per-cent rise in addition to the annual 5-per-cent increase, which the two sides have agreed to during their regular negotiations every July.

Seoul officials said that they would not consider the “unilateral” demand until the two sides hold the regular wage negotiations later this year, and that 123 South Korean firms cannot afford the pay hike given their financial woes stemming from the shutdown of the park last year.

South Korean employers at the park expressed concerns over Pyongyang’s call for the pay increase.

“A sudden demand for a pay rise would further worsen the financial difficulties facing the firms at the park, especially when the operations … have yet to return to normalcy following the shutdown last year,” said an employer, declining to be named.

“As it was Pyongyang that halted the park’s operations, the pay rise should come in a gradual manner, which South Korean firms can possibly cope with.”

South Korean firms pay an average of $67 each month for each worker to the North Korean government. With their bonuses and additional overtime payments, the average pay is estimated at around $130.

The annual cost of hiring all the workers for the park amounts to around $80 million. Should Seoul accept Pyongyang’s call for the wage hike, the South Korean firms will have to pay an additional total of $8 million per year.

According to a recent report by the U.S.-Korea Institute at the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University, North Korean workers at the Gaeesong park may have been getting less than $2 per month out of the total $130.

In short, the North Korean regime takes the “lion’s share” of wage payments, said a report written by Marcus Noland, the executive vice president and director of Studies of the Peterson Institute for International Economics.

The report said the North Korean government was believed to have taken about 30-40 per cent of workers’ pay on the pretext of covering social security payments, transportation and other in-kind benefits.

Although South Korean firms pay in U.S. dollars, the North pays its workers in its own currency, converted using the “widely overvalued” official exchange rate. Given the more realistic black-market rate, North Korean workers are believed to take home less than $2, the report said.


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