In 2011, Kaesong workers officially received their 5th consecutive annual pay increase. In 2012, they “received” their 6th consecutive pay increase. In 2013 there was no pay increase because Pyongyang closed the complex down in a dispute with the South Koreans. In 2014, work resumed at the complex and Kaesong workers “received” a 5% pay increase, but Pyongyang wanted a 10% to make up for the 2013 year (in which they closed the complex). Now it looks like Pyongyang is raising tensions (unjustifiably in my opinion) to recover a “pay increase” they feel they are owed.
For those new to this topic, I should point out that we are not talking about wages paid to North Korean workers. We are talking about US dollar balances (cash) that are given directly by South Korean firms to the North Korean government. The North Korean government keeps all of the hard currency and pays its workers in local currency. That said, The North and South Koreans still officially refer to “wages” (even though they are nothing of the sort), so I will as well.
I am chronicling this developing story in periodic updates below.
UPDATE 8 (2015-3-18): South Korean business owners have crossed into the Kaesong complex to complain about Pyongyang’s unilateral wage increase. According to the Financial Times:
On Wednesday more than a dozen businessmen representing about 120 companies visited Kaesong, about 10km north of the border, to voice their concerns about the move, amid growing concerns about the future of the joint economic project
“The unilateral change of labour rules is a problem,” said Chung Ki-sup, head of the council of the South Korean businesses operating in Kaesong, ahead of the 14-member delegation’s arrival in the North. “But this can be easily resolved when dialogue resumes.”
Mr Chung said the North’s stance might in part be a reaction to Seoul’s refusal to ban North Korean defectors and rightwing civic groups from sending anti-North leaflets across the border.
Experts say the wage disputes are unlikely to lead to another closure of the industrial complex, but the problems have renewed scepticism over the merits of the project.
“The disputes are unlikely to be resolved anytime soon,” said Park Hyung-joong, researcher at Korea Institute for National Unification. “Pyongyang wants to use Kaesong as a political bargaining chip when inter-Korean relations are not good. So the complex will remain exposed to political problems, but closing it carries too big political risks for both sides.”
UPDATE 7 (2015-3-17): The DPRK has tried circumventing the South Korean government to reach out to the Kaesong firms themselves. According to Arirang News:
In an unprecedented move, North Korea asked the heads of South Korean companies operating at the inter-Korean industrial complex in Kaesong to gather for a meeting that was scheduled for earlier in the day.
No specifics about the meeting were announced and the South Korean government asked the company heads. not to respond to Pyongyang’s call.
Instead, the South Korean government held a meeting in Seoul this afternoon with most of the leaders of companies from the complex.
Seoul discussed possible countermeasures and urged the leaders not to abide by Pyongyang’s one-sided demands.
Watchers believe the meeting was Pyongyang’s way of pressuring the South Korean companies to go along with its unilateral decision to raise wages for its workers from a little over 70 U.S. dollars to 74 dollars a month and revise labor regulations.
UPDATE 6 (2015-3-12): The DPRK rejects South Korea’s call for talks on Kaesong wages. According to Yonhap:
North Korea claimed Thursday its decision to raise wages for its workers at the Kaesong Industrial Complex is a legitimate measure under its sovereignty, dimming hopes of an early resolution to disputes between the two Koreas over the issue.
The North’s Central Special Development Guidance Bureau, which is in charge of operating the complex, made clear that it is not a matter to be decided through consultations with the South’s government.
Last month, Pyongyang notified Seoul of its unilateral decision to elevate the minimum wage from US$70.35 to $74 starting in March. It also said it would collect 15 percent of their basic wage plus overtime payments as “social security.” Currently, the South’s firms pay 15 percent of the basic wage alone.
The South strongly protested against the decision, suggesting that the two sides hold dialogue on March 13 to discuss the problem.
Officials here emphasized that the two Koreas have agreed to decide every issue related with the operation of the joint venture through mutual consultations.
The decision on the wage hike is a “normal and legitimate” exercise of the North’s legislative rights, the bureau’s spokesman told Pyongyang’s propaganda website, Uriminzokkiri.
It’s not a subject for bargaining with the South, he added.
It makes no sense, he added, for the North to hold talks with the South at a time when it is staging a war rehearsal with joint military drills with the United States on the peninsula.
He argued that wages for the North’s workers in Kaesong are still low for their heightened skills and productivity and in comparison with the wage level in special economic zones in other nations.
UPDATE 5 (2015-3-11): Throwing fuel on the fire of this mess, the North and South Koreans are required to resolve real estate rental rates this year. There will be no practical way to resolve this issue independently of the ongoing wage dispute. According to Yonhap:
When the Kaesong Industrial Complex in the North’s border town of the same name started operations in 2004, Seoul agreed with Pyongyang to pay the rent for the North Korean land used by South Korean companies from 2015 after negotiations on the amount.
In November, the North’s Central Special Development Guidance Bureau in charge of the industrial complex notified its South Korean counterpart of its intention to start talks on the rent issue, according to the officials.
But the negotiations are widely expected to face a bumpy road, given a wide opinion gap shown in the countries’ previous exchanges on the issue.
In 2009, the North attempted to collect up to US$10 of rent per 3.3 square meters of land, but it faced strong opposition from South Korea, so the plan was dropped immediately.
Following the North’s notification in November, Seoul has decided not accept such a level of rent as put forth by the North in 2009, which could further mount the inter-Korean tension over the factory complex down the road, according to the officials.
The joint Kaesong factory park is already at the center of an inter-Korean feud after the North announced last month its unilateral decision to raise the minimum wage of North Korean workers in the park from US$70.35 to $74 starting with their March wages.
Seoul, however, rejected the wage increase decision and said it will punish any South Korean firms complying with the North Korean demand.
April 10 is feared to become a watershed in the inter-Korean tension over the Kaesong park as South Korean firms will start paying March wages that day.
South Korean officials have previously said that the North could take extreme measures, such as the withdrawal of its workers from the complex in a bid to increase pressure on the issue.
UPDATE 4 (2015-3-9): South Korea not happy with the DPRK’s moves on Kaesong. According to Yonhap:
South Korea’s unification ministry issued a strongly-worded statement Monday against North Korea’s attitude on their joint venture in Kaesong, calling again for immediate dialogue to resolve pending problems.
It’s “deeply regrettable” that the North is not responding to Seoul’s offer of talks to discuss Pyongyang’s unilateral decision to raise wages for its workers at the Kaesong Industrial Complex, said the ministry.
“It’s questionable whether (the North) has the will for the development of the complex as the two sides agreed,” its spokesman Lim Byeong-choel said, reading out the statement at a press briefing.
The North is violating an inter-Korean agreement and rules to decide all issues related to the operation of the Kaesong zone, including working conditions, added Lim.
Last month, the communist nation announced a 5.18-percent hike in the minimum wage for its workers in the zone to US$74 a month starting in March.
“The government can never accept such a unilateral measure by North Korea,” the official said. “The government will take every necessary step for the development of the Kaesong Industrial Complex and the protection of (the South’s) firms there.”
He urged Pyongyang to hold talks with the South on Friday as proposed.
Launched in 2004 in the North’s border town, the zone is home to about 120 South Korean firms, mostly small and medium-sized, which employ more than 53,000 North Korean workers.
The South’s government has advised the companies not to comply with the North’s decision on the wage level.
UPDATE 3 (2015-3-4): South Korean government holding meeting with stakeholders to determine response to DPRK. According to Yonhap:
The South Korean government said Wednesday it will hold a round-table meeting this week with the heads of local firms operating in the Kaesong Industrial Complex to discuss how to handle North Korea’s unilateral decision to raise the wages of its workers there.
The unification ministry is scheduled to hold the meeting with the council of relevant companies at its headquarters in Seoul at 5 p.m. on Thursday, said ministry spokesman Lim Byeong-cheol. The ministry is in charge of inter-Korean relations.
“We plan to review measures regarding the recent situation,” he said at a press briefing. “Along with related government officials, Chung Ki-sup, head of the council, and about 10 other representatives will attend (the meeting).”
Another ministry official also said the meeting is intended “to share the government’s position on the matter and listen to the opinion of the firms.”
Last week, the North announced it would raise the minimum wage for its workers in the zone by 5.18 percent to US$74 a month starting in March.
South Korea said it cannot accept a decision made without mutual consultation.
The ministry spokesman said the North has not responded yet to the South’s offer of talks on the Kaesong complex on March 13.
“The government will continue to urge North Korea to hold consultations between the authorities of the two sides, which are essential for the development of the Kaesong Industrial Complex,” Lim said.
The North is apparently aware that both sides have already agreed to resolve every problem related to the operation of the joint venture, he added.
UPDATE 2 (2015-2-26): According to Yonhap:
North Korea has notified South Korea of its unilateral decision to raise the minimum wage for its workers at the Kaesong Industrial Complex by 5.18 percent, the unification ministry said Thursday.
In a fax message sent Tuesday, the North said it would increase the minimum wage from $70.35 to $74 starting on March 1, a ministry official told reporters.
In addition, the North announced that it would collect 15 percent of their basic wage plus overtime payments as “social security,” he said. Currently, the South’s firms pay 15 percent of the basic wage alone.
The North Korean workers’ average wage amounted to $141.4 per month in 2014, according to the ministry’s data.
Under Pyongyang’s plan, South Korean firms will have to pay $164 on average for a North Korean worker a month, up 5.53 percent from the current $155, said the official.
He stressed that the South’s government can’t accept the North’s move.
“The two sides are supposed to set wages for workers at the complex and other working conditions through mutual consultations,” he said. “The government will advise our firms to pay the current level of wages until the issue is settled through consultations between the related authorities of the two sides.”
Those companies are scheduled to pay March wages for the North’s workers between April 10-20.
Earlier Thursday, the South attempted to deliver a protest letter, but the North refused to receive it, said the official.
“It’s very regrettable that the North shows such an attitude,” he said.
About 120 South Korean garment and other labor-intensive plants employ more than 53,000 North Koreans at the complex, which was created in 2004.
UPDATE 1 (2014-12-09): North Korea amends Kaesong Industrial Complex labor regulations, lifts wage increase limit. According to the Institute for Far Eastern Studies (IFES):
According to a December 5th report of North Korea’s propaganda media Uriminzokkiri, the Presidium of the Supreme People’s Assembly reached a decision on November 20 to revise the Act on the Kaesong Industrial Complex (KIC).
It reported that ten provisions in the Kaesong worker regulations were revised including the 5 percent ceiling on annual wage increase to the minimum wage.
North Korea’s General Bureau for Central Guidance on the Development of the Special Zone delivered the notice in writing to the Kaesong Industrial Complex Management Committee on December 8, stipulating that 13 provisions were revised. Out of the 49 total provisions, the 13 provisions that were modified pertain to the function of the KIC Management Committee and the wage system.
According to the decision, North Korea elucidated the labor and wage regulations will be unilaterally directed by the General Bureau, dismissing the authority of the KIC Management Committee. Furthermore, the clause that depicts the minimum wage of USD 50.00 and limit of 5 percent wage increase were deleted. Instead, the revised provisions prescribe that the General Bureau will make the decision every year.
In addition, overtime pay will be increased from the current 50 percent to between 50 to 100 percent. Furthermore, workers who have worked for more than a year will be eligible for severance pay, regardless of the condition of their leave. The previous clause stated severance pay was to be paid only when the termination incurred from “circumstance of the company”; but this condition has been deleted from the revised clause, and pay must now be given even for voluntary leave. Also removed was the provision that states the wage should be paid directly to the employee in cash.
Meanwhile, the South Korean government made a statement disproving the recent modifications to the KIC regulations. The South Korean government is refuting North Korea’s decision based on the fact that it was a unilateral decision by the North without consulting the joint committees of the KIC. The South is affirming its position to strongly counter against the North’s one-sided decision.
Revision of the labor regulations of the KIC is regarded as a violation to the general agreement that undermines the stability and the credibility of the KIC regulations. Such labor regulations clearly violate the inter-Korean agreements on wage system and various labor and tax systems newly reached by the various institutions in the North-South Joint Committee of the KIC after the KIC was restarted last year.
The current minimum wage of a KIC worker is USD 70.30, which reaches up to an average of USD 150.00 per month after various incentives are included. Each company is paying a total of USD 210.00 per employee where 15 percent of the minimum wage is allocated to social insurance, transportation, and snack costs.
North Korea has persistently demanded for a wage increase. North Korean employees dispatched to China’s Dandong City are paid an average of USD 300.00 per month. Thus, the recent move by North Korea can be seen as a move to raise the minimum wage at the KIC to a similar level. In addition, this move can be interpreted as North Korea’s intention to maximize economic gain by taking unilateral action toward tenant companies in the KIC.
ORIGINAL POST (2014-12-9): In 2011, Kaesong workers received their 5th consecutive annual “pay increase”. In 2012, they received their 6th consecutive pay increase. In 2013 there was no pay increase because Pyongygang closed the complex down in a dispute with the south Koreans. In 2014, Kaesong workers received a 5% pay increase, but Pyongyang wanted a 10% to make up for the 2013 year (in which they closed the complex!). Now it looks like Pyongyang is signaling that it intends to unilaterally raise wages.
According to Yonhap:
South Korea is scrutinizing North Korea’s unilateral decision to amend a number of wage-related clauses at the jointly operated Kaesong Industrial Complex, an official said Tuesday.
As soon as a review of the North’s demands are finished, the government will take appropriate steps, the unification ministry official told reporters.
“We are in the process of reviewing and analyzing the contents revised by the North,” he said on background.
The South and the North have an agreement over 49 items in place on the working conditions for around 53,000 North Korean workers in the zone.
Without prior consultations with the South, the North announced its decision to revise 13 of them, which include scrapping a 5-percent cap on the annual minimum wage increase rates, easing qualifications for severance pay and strengthening the authority of the North’s agency in charge of running the complex, according to the official.
North Korean workers’ wages have jumped 5 percent every year since 2007. North Korean workers are currently paid US$70.35 each month. If various allowances and incentives are counted, wages reach $130, reportedly about 50 percent higher than the average income of workers in North Korea.
Read the full story here:
S. Korea reviewing NK move over Kaesong workers’ wages