Putting numbers on the “Pyongyang Illusion”


Suk Lee uses some novel techniques to estimate employment and income
Marcus Noland (PIIE)



The South Korean government’s estimates of North Korean national income have always been regarded with a certain amount of skepticism. In recent years that doubt has deepened to disbelief as the Bank of Korea’s figures have implied little growth in North Korea, while visitors report an increasingly prosperous country. Or at least an increasingly prosperous capital city.

In a recent paper, KDI’s Suk Lee has mined the 2008 census to derive estimates of employment and income for the country. The official statistics depict an extraordinarily high level of labor force participation—95% for prime age males and 80% for females—which drops off precipitously to next-to-nothing after age 50 for women and age 60 for men. (As a point of comparison, prime age civilian male labor market participation in the US is 88%, falling to 23 percent for those over 65. For women, the figures are 74% and 15%, respectively.)

But the extraordinarily high levels of official employment would seem inconsistent with the abundant evidence that many people are engaged in non-sanctioned economic activity. Lee interprets figures on persons engaged in “household economic activity”—essentially growing food—and an indicator that their official work site does not provide them with a PDS ration, and hence they are not actually working there even if the site is their official place of employment. From this formulation, he estimates that the share of the population actually employed is really between 31 percent and 62 percent. That is, more than half of official employment may be fictional. 

More than half of official employment may be fictional. 

The figures are fairly stable across the country with one exception: Pyongyang. As Lee observes, the official employment share is 85% of prime aged persons; Lee estimates the actual employment rate is 61-85%--a statistically insignificant difference.

Lee then cites some astonishing statistics from the census. Forty-seven percent of households use firewood to cook, with another 46% using coal—less than 10% of the population uses electricity, gas, or oil to cook.

As per capita incomes rise, households abandon firewood as a cooking fuel. Lee uses data from the WHO and IMF to estimate a linear regression of firewood cooking on per capita income from a cross-country panel, then uses the estimated coefficient to generate a counterfactual estimate of North Korean 2008 per capita income. Depending on the estimation technique used, he generates purchasing power adjusted estimates in the range of $948-1,361. However, again, the capital city of Pyongyang stands out: its income per capita is estimated to be $2,658-2,715.

One can question the linear functional form (I would have thought that the move out of firewood would be highly nonlinear) and the data are from 2008. Nevertheless, at a minimum the extraordinary divergences in the income level and employment pattern between the capital and the rest of the country would seem to reconfirm my colleague Steph Haggard’s caution re: “the Pyongyang Illusion.” Whether these estimates are consistent with those produced by the BOK—Lee argues that they are—is less obvious to me. To me the real message of the paper is that the capital city may have roughly triple the income and employment rate of the rest of the country, an extraordinary imbalance. 

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