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‘Sorry, Mr. Kim, but you can’t work down south’

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Oct 21,2004
A few months after reunification, you are likely to read in this newspaper an announcement from the Korean government stiffening curbs on the north-south movement of people looking for jobs in the south. North Korea-watchers here say that is a likely result of what are expected to be serious problems in integrating the labor forces of the two Koreas. Without some sort of controls, they fear, there will be a mass migration of northerners to the southern part of the reunified country. The wage and productivity gap is immense, analysts say. North Korean workers at the Gaeseong Industrial Zone in North Korea will receive $57.50 to $60 per month under the terms of an agreement negotiated by the two Korean governments. The legal minimum wage in Korea, at current exchange rates, is $560 per month, nearly 10 times greater. Those wages will be a magnet for idle labor in the North. “Migration will not stop until they can earn 60 percent of South Korean wages, considering North Koreans’ benefits and costs of migration,” said Yoon Deok-ryong, a research fellow at the Korea Institute for International Economic Policy. According to Jo Dong-ho, leader of the North Korea Economy research team at the Korea Development Institute, migration estimates range from 1.4 million to 6 million people. “It would be good if North Korea succeeded in pulling up the productivity and the wages of its workers before unification,” Mr. Yoon said. “But that seems nearly impossible, because North Korea is now caught in a poverty trap and the gap between the economic growth of North and South Korea is widening.” “So after unification, the government will have to keep the two Koreas’ labor markets divided for a while,” he continued, “until the productivity of North Korean workers reaches nearly 60 percent of the South Korean standard.” “It is the basic policy of the South Korean government to block migration of the labor force for a certain period after unification, even if that will not be easy in the real world,” said Choi Soo-young, director of the Center for Unification Data & Resources at the Korea Institute for National Unification. “Mass migration of northern Koreans to southern Korea will bring about serious social unrest, such as the expansion of unemployment and disturbances of the public peace in the south,” he added. “After unification, many South Korean companies investing or planning to invest in Southeast Asia or China are expected to convert their investment to North Korea,” Mr. Choi said, “North Korean workers have the merit of using the same language, first of all.” Lee Jong-won, a professor of economics at SungKyunKwan University, said, “In addition to the advantage in language, North Korean workers are generally well educated and have potential, especially in the information technology industry. If they are properly trained to adapt to the market economy and new technologies, their productivity will rise sharply.” But Mr. Lee criticized Seoul’s plan to segregate labor markets as “extremely unrealistic.” He said, “How can the government check North Koreans’ migration, especially for people who have relatives here?” He urged Seoul to look instead for incentives to keep people in the north, but said he opposed an equal-wage policy of the kind Germany adopted. “The German government, after unification, aggressively raised wages in the former East Germany, expecting that it would prevent the mass migration of East Germans to West Germany, and that the high wages would be an incentive to high productivity,” Mr. Lee said. “But the policy failed. The wages, higher than productivity, damaged the competitiveness of companies in the east and brought about the collapse of firms there and mass unemployment.” Neither did it prevent migration, he continued, and the unemployment rates in both the east and the west rose, to nearly 20 percent in the east and 11 percent in the west. Mr. Lee proposed financial incentives for northerners who remain there in the form of shares of companies operating there and land that will be privatized. Mr. Choi gave cautious support to such a plan. “Such a policy was adopted in some East European countries such as the Czech Republic and Hungary when they privatized state-owned assets and converted to market economies. It has not yet been concluded that the policy was successful, but it would be good for the government to consider such a policy.” But development, all agree, is key. “One way to curb migration of North Koreans to South Korea would be to develop some parts of North Korea intensively in the short term,” Mr. Yoon said. “It would be inefficient to develop many areas simultaneously,” Mr. Choi agreed. “The government has to make a maximum effect with a limited budget.” And in a challenge to conventional wisdom, the zones to be developed are not likely to be ones related to North Korea's mineral resources. The Korea Resources Corp. here says, for example, that the North has iron ore reserves of perhaps 3 billion tons, nearly 100 times greater than those in the South. The North also has gold, copper, magnesite and coal resources. But Mr. Choi said, “The mineral resources in North Korea can be said to be plentiful only in comparison with South Korea. Compared to foreign countries, the mineral resources of North Korea are trivial. The first resources that South Korean companies should develop in North Korea are human resources.” by Moon So-young


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