Editor's Note

Under Kim Jong Un, marketization has been somewhat introduced to the current socialist system. In this commentary, Moon-soo Yang, Professor and Vice-President of the University of North Korean Studies, discusses the recent phenomenon of marketization in North Korea, the development of an informal labor market, and its implications on the regime. According to surveys cited in the commentary, there has been an increase in the number of enterprises run or owned by individuals. The author suggests that this would lead to an increase of people employed by such businesses. While the development of private enterprises remains a largely illegal process, privatization in North Korea nonetheless proceeded within a certain scope of institutional foundation; institutions and policies have facilitated the demand and supply for private employment.

In North Korea, marketization has been incorporated into the existing socialist system to a considerable extent during the Kim Jong Un era, but the labor market remains trapped in the realm of illegality. The deployment and movement of the workforce has remained tightly controlled by the authorities. However, due to the irresistible trend of marketization in North Korea, the principles of market economy began to penetrate into the labor sector as well. As employer-employee relations have appeared in a rudimentary form, an informal labor market has been formed and developed as well.


These relations can be observed in the service sector between shop owners and clerks, in the food service industry between restaurant owners and workers, in the transportation industry between bus and truck owners and workers, in the construction sector between builders and construction workers, in the fishing industry between ship-owners and maritime workers, and in the mining industry between mine managers and workers. Likewise, in the manufacturing industry, wage labor relations have been formed and developed between noodle-production base operators and workers and between artificial meat production operators and workers.


However, there are no official statistics reported on private employment, wage labor relations in general, and the size and level of private companies that employ them. Therefore, all assessments must depend on estimations obtained through surveys of North Korean defectors.


A private research institute recently conducted a survey on individual enterprise activity in North Korea among more than 1,000 defectors. The question was as follows: “What percentage of companies (e.g., local factories) are de facto run by individuals in the region (city/county) you lived in?” To identify mid-term trends, the survey divided the years from 2001-2019 into four periods by five-year unit: 2001–2005, 2006–2010, 2011–2015, and 2016–2019. For state-run stores, the rate of individually-run enterprises increased from 10.7% to 17.0%, 32.2%, and 49.9% during this period. The number of individually-run restaurants also increased, from 16.1% to 26.4%, 40.3%, and 58.7% over the same period. In case of local factories, the rate increased from 6.3% to 10.4%, 16.6%, and 21.4% over the same period. The greater increase in the service sector suggests that recent trends in North Korea match the initial system transitions experienced by other socialist countries.


The Institute for Peace and Unification Studies at Seoul National University conducts a survey of about 150 North Korean defectors every year, most of whom defected in the calendar year right before the survey. To the question of whether they had experience hiring others, in 25.0% responded that they did in 2012, followed by 29.4% in 2013, 23.6% in 2014, 34.9% in 2015, 36.1% in 2016, and 44.5% in 2017, showing a steadily increasing trend almost every year. As for the size of the employment, 59.5% responded that they employed less than five people, followed by 5-9 people at 19.0%, and 10 people or more at 21.3% in the 2016 survey. As for the term of employment, 39.0% replied that they employed others for less than 3 months, 46.4% for 3 months to less than 1 year, and 14.0% for 1 year. In other words, small-scale and short-term employment is still predominant. Nonetheless, this shows that there is a considerable amount of medium-sized (more than 10 people) and mid-term (more than 1 year) employment.


The results of this survey on private employment are consistent with the increase in the number of enterprises actually owned or operated by individuals. A growing number of private businesses that are employing others would lead to an increase in the number of people employed by such businesses. The survey results indicate that it is possible that both the numbers of businesses (i.e., employers) and employees are increasing.


We briefly review the mechanisms of the formation/development of the labor market in North Korea. First, we examine the demand side of labor. As marketization progresses, it is natural that demand for labor grows. In the past, people carried out economic activities alone or with family members. An increase in the scale of economic activities led to a shortage of labor, increasing the need to hire others. Then, following a period of economic hardship, industrial production plummeted, causing a fall in factory operations. As a result, the number of people with no work to do even if they went to work and those who did not receive adequate salaries or food rations increased rapidly. Among such, those who did not have a source of funds even if they tried to engage in a personal commercial activity or business in the market or who went bankrupt due to their ‘business’ reemerged as suppliers in the labor market.


Then, what about the government policy? North Korea’s policy on private enterprise and employment are like two sides of a single coin. Although private enterprises are not legal, they nonetheless exist. As marketization accelerated significantly due to the socialist corporate responsibility management system during the Kim Jong Un era, the number of private companies invested and operated by individuals also significantly increased.


However, in North Korea, privatization proceeded within a certain scope of institutional foundation. For example, in the category of “8.3 Workers,” which first appeared since the 1990s, if a worker pays in kind or cash to workplace, they are exempted from the duty. This is a form of paying money in return for free time. In addition, if a private company borrows the name of a national institution or corporation and pays in kind/cash in return, the institution or corporation is considered to be engaged in “extra income” activities, which appears as a follow-up measure to 7.1 Economic Measures in 2002. As a private enterprise is not legal entity in North Korea, it must be registered as an affiliate of a governmental institution or enterprise to gain legality. It is similar to what China called “putting a socialist hat” on privately owned township-village enterprises in the early days of reform and opening up.


North Korea has laid a foundation for such institutions and policies that promote the development of private enterprises. Thus, it creates and facilitates the supply and demand for private employment. Undeniably, the regime has never implemented policies that directly promote the development of the labor market. Its behavior has the effect of actually or indirectly promoting the labor market, which became somewhat institutionalized.


Of course, the informal labor market in North Korea is still in its infancy. It lags far behind compared to the development of the consumer market or producer goods markets. However, as marketization has caused inevitable changes in the labor sector, the regime cannot afford to sit back and wait.



Moon-soo Yang is Professor and Vice-President of the University of North Korean Studies. He received his Ph.D. in Economics at the University of Tokyo and is a graduate of the Department of Economics at Seoul National University. He has formerly served as a Policy Advisor for the Ministry of Unification, President at the Korean Association of North Korean Studies in 2019, and has been a contributing editor at the Maeil Business Newspaper. His notable works include Marketization of the North Korean Economy (2010), “Inter-Korean Economic Cooperation in the Era of Denuclearization and Peace Regime” (2018) and many more.



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Marketization in North Korea