South Korea to Penalize Kaesong Firms Complying with North’s Wage Hike Demand

by REERA YOO | @reeraboo

The South Korea government announced Tuesday that it will penalize firms operating in an inter-Korean industrial complex that comply with North Korea’s unilateral decision to raise wages for North Korean workers, reports Yonhap News Agency.

An official from the South Korean Ministry of Unification told reporters that the government will soon send out a formal notice to companies operating in Kaesong industrial complex, asking them to not yield to North’s wage hike demand. Firms that comply with the demand will face sanctions, such as “restriction on company officials visiting the North or cuts in financial supports.”

On Feb. 24, North Korea announced a unilateral decision to raise the minimum monthly wage from USD $155.50 to $164.10 starting on April 10, with corresponding social insurance premiums by 15 percent.

If the measure is implemented, North Korea would earn about $450,000 in additional revenue from the Kaesong industrial complex, according to Yonhap.

About 124 South Korean companies operate in the Kaesong zone, with more than 50,000 North Korean employees. Since the ministry’s announcement, South Korean firms have voiced their concerns about incurring losses from North Korean workers refusing to work overtime to a complete withdrawal of its workforce from the complex.

The ministry, however, said that it will do its best to reduce losses to the South’s firms. It also noted that half of the South’s firms in Kaesong already possess government-sponsored insurance in case their factories are shut down due to inter-Korean tensions.

The Kaesong industrial complex was established as a symbol of cooperation in 2004 when South Korea was still pursuing the “Sunshine Policy,” a foreign policy that was intended to encourage interaction and economic assistance between the two Koreas.

“The only way to resolve the problem is consultations between the authorities of the two sides,” said the ministry official. “We have a problem with the process of North Korea’s decision (on the issue), not its demand for a wage increase itself.”


Featured image by Andrew Salmon/AFP