The Cost and Benefit of NorthSouth Korean Reunification
----Abbey and Jizhao
North Korea, or the “Northern Part
of Korea”, Fact Book
Population: 24.5 million in 2012
 Area: 123.138 km²
 Nominal GNI: 29.3 billion USD in 2011
 GDP Growth Rate: 0.8% in 2011
 GDP per capita: 1800 USD in 2010
One of the world’s poorest and least
developed countries
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Sources: Ministry of Unification, South Korea, and CIA World Factbook
Female Life Expectancy
Labor Force Participation
Unemployment
Even though the North’s labor force participation is higher than
that of the South, the unemployment rate of South is lower
because Northern firms have been struggling since 1991.
Education
North Korea
99.9 percent literacy rate
 12 years of primary and
secondary education are
compulsory and free
 Focused on communist
ideology and supplying skilled
labor
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South Korea
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97.9 percent literacy rate
Nine years of schooling are
compulsory, private and public
schooling available
Four in five high school graduates
go to higher education institutions
Scientific and Technical Journal Articles - Medicine,
Mathematics, Engineering, Sciences
Current Situation
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GDP per capita - $1,800 in N. Korea, $33,200 in S. Korea
1in 4 children are stunted from chronic malnutrition
Two-thirds of the population faces chronic food shortage,
exacerbated by floods, droughts and mismanagement
In 2012, South Korean firms were employing 50,000
workers in North Korea
North Korean wages are set by the government versus set
by market in South Korea
South Korean firms pays North Korean government the
workers wages, unclear how much of the wage workers
receive
Current Integration System for
North Korean Defectors

Hanowan - 12 week integration center.
◦ Medical care, physical examination, counseling, introductory courses on Korean society,
job training,
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Hana Centers (29)
◦ Local centers that provide 3 weeks of intensive training on education, health
management, cultural understanding, social life and employment, with continual
monitoring for 1 year period
◦ they are provided money for transportation, food, and household expenses during their
training period, and each receives personal career counselor
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Costs approximately one billion won (about $954,016) to train and educate one defector
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Government subsidizes half of defectors wages for up to 2 years
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While unemployed, monthly livelihood protection system payments of 500 thousand won
(about $477), twice the amount given to unemployed South Koreans.
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Provide housing assistance $16,257 for one person and $43,638 for 7+ members
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Considered citizens of South Korea
Still Many Problems.
Money can’t remove sixty years of totalitarian society.
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Refugees are considered lazy, dependent, selfish, and are
treated as second class citizens
Don’t understand capitalist society, and don’t want to start
out with blue-collar jobs
Jan 2011 - N. Korean (defectors living in the South)
unemployment is 50%
Many suffer various illnesses, including psychological, due to
not receiving proper medical care in North Korea, where
there are shortages of medical supplies
Struggle to stay in Universities because they didn’t receive
the proper preparation
Struggles with Unification
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The cost of social welfare benefits paid to South Korean citizens is
nearly 1600 USD. If the number of North Korean defectors
increases, it will be difficult for the South Korean government to
manage this huge financial burden.
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If Northern workforce goes South, Economic devastation in North,
“brain drain” and increase in unemployment in South Korea will
lead to further resentment of northerners.
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Low productivity in Northern firms will lead to further
unemployment in market economy
GDP Composition of the North
Manufacturing
Services
Agriculture
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Manufacturing 47.2%, Services 29.4%, and
Agriculture 23.4% (2012 est.)
Large, but outdated, industries, especially
heavy industries
Large Heavy Industries, Especially
Military Industries
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Influenced by Stalinism, all the socialist states adopted
the state-sponsored industrialization approach, in which
the state highly and disproportionally invests in its SOEs
of heavy industries
Songun, or “Military First”, policy in North Korea
stresses that the army should play a major role in its
economic development, including huge investment in
military industries.
After the collapse of the Soviet Union and other
socialists states in the Eastern Europe, North Korea lost
its access to energy and other industrial raw materials,
greatly hurting the supply-side of North Korean
economy.
Import-Substitution Industrialization
vs. Export-Oriented Industrialization
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North Korea, indeed, adopted the approach
of ISI, while South Korea has been adopting
the EOI model since 1960s.
In the short run, the economy in North
Korea seemed promising, but it created
problems in the long-run.
E.g. inferior goods, the disparity between
market reality and central-planning directives,
outdated management systems
Increasing the economic and social costs of
North Korea
However, after the reunification…
Let us listen to the personal experience of
Ms. Kim Hee-Eun
 My name is Kim Hee-Eun, after serving in
the army for 5 years, I started working as
a worker in an arsenal.
 After the reunification,
the arsenal was dissolved,
I found a new job in Chollima
tractors factory.
North Korea Manufacturing
Products vs. Foreign Products
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However, the revenue of our factory has been declining
since most northern farmers start purchasing tractors
made in China, which are cheaper and better.
Also, it is impossible to sell our tractor either in the
south or abroad, because our products cannot compete
with those tractors produced in the US, Japan, or China.
After 2 months, our factory declares bankruptcy, but
nobody wants to buy our factory. Our machines are
really out-of-date, and our labors are not as skilled as
those from the south.
I become unemployed, but what should I do?
Solutions and Structural Reforms of
Northern Industries
Abandon military industries since military defense of
the North is transferred to the RoK army, and import
assembly lines of other products to these previous
arsenals.
 Reduce the share of inefficient and outdated heavy
industries in the north, and encourage southern and
foreign entrepreneurs to invest in previous heavy
industries.
 Using the mechanism of market to decide the future of
other industries, especially light industries.
 Keep Rason Special Economic Zone working, in order
to maintain the access to natural resources and capital
from China and Russia.
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Problems and Challenges
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Southern and foreign investors may be reluctant to
invest in these outdated industries, because it takes time
and money to upgrade old facilities and management
systems.
After the reunification, most labors are likely to go to
the south in order to get more job opportunities and
higher salaries, reducing the amount of labor force in
the north, negatively affecting regional growth and
development.
Factories in the north tend to lay off a large number of
workers for increasing the efficiency, and the large scale
unemployment raises social cost. (E.g. Xiagang, or off the
post, in China)
Problems in China in the1990s, as
well as Problems in Northern Korea
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Xiagang, or laying off workers, was prevalent in China in
1990s, when large SOEs could not feed the large
number of labors who depended on the “socialist safety
net”.
Film recommended: 24 City, directed by Jia Zhangke
and officially selected by the 2008 Cannes Film Festival,
follows three generations of people in an SOE as it gives
way to a real estate complex.
Government’s Role in the
Transformational Period
Offering financial incentives to firms and corporations
which invest in the industrial facilities in the north, in
order to regenerate the growth and development of the
north
 Offering tech-education and training programs to the
labor force of the north. Also, universities and other
higher institutions in the south should accept talented
students from the north, increasing the number of
skilled labors and managers.
 Extending the road and railway systems in the north,
upgrading the infrastructure, and investing in education,
healthcare, and social security.
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Solutions
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Restructure curriculum of both North and South
Korea
◦ Prevent Southern discrimination
◦ Give Northerners a fair shot at participating in
the economy, politics, and society,
Incentivize movement as family units to create
sense of personal responsibility
Increase access to childcare so older Northerners
can access education and job market
In the time before the transitional period,
incentivize South Korean companies to produce
extra supplies of medications and food