Organized Exports of Labor: Welcome to the Echo Chamber

June 1, 2015 6:45 AM

In a meeting last week with government officials, the issue of the “echo chamber” effect came up, specifically the tendency, in the absence of reliable data, for a quantitative claim regarding North Korea to appear in the press and then be repeated uncritically whether or not it originally made any sense (or perhaps made sense at one time but no longer does due to changing circumstances). A past example would be a claim regarding North Korean revenues from missile sales made by an unnamed, probably DIA, official in Seoul in 2002, and repeated ever since. Sadly we seem to be watching an echo chamber regarding revenues from organized exports of labor developing right before our eyes.

We can all agree that working conditions for North Korean workers abroad are abysmal. The work is harsh and unsafe, workers retain little of their earnings, and the whole system is fundamentally exploitative. Some have made the argument that this form of “engagement” may have some subversive potential, but the degree of concern over “spiritual pollution” and consequent regimentation is such that for these contract laborers contact with the outside world is minimal and one has to expect that little learning about market economies, new ways of doing things, etc.—the positive spillovers of engagement—is occurring.

There is less agreement on the scale of labor exports and the economic importance of this practice to the North Korean regime. A recent paper by Seung-ju Lee for the Database Center for North Korean Human Rights on which I was a discussant at a recent event hosted by the Korean Economic Institute, cites a figure of 50,000-60,000 workers. This estimate is in line with a recent estimate by the Asan Institute that put the number at 52,000-54,000. A study by Mikael Weissman of the Swedish Institute for International Affairs arrived at a higher estimate of 74,000-81,000.

Yet even this estimate may be too low. Back in 2013, before the purge of Jang Song-taek, China and North Korea were expanding the program of legal work visas, with some reports putting it as high as 120,000. Given the subsequent deterioration in China-DPRK relations, the actual number of North Koreans legally working in China may be lower than this. But anecdotal reports seem to suggest that the numbers of North Korean contract workers working in China is rising.

My conclusion is that the Lee paper may underestimate the scale of this phenomenon.

But paradoxically I also think that the paper may overestimate its economic significance.

The paper asserts that the revenues earned by these workers amounts to $1.2-2.3 billion per year. This claim has been reproduced uncritically by both by Holly Lafon at Marketwatch and Sarah E. Mendelson at Foreign Affairs. But as I observed at the KEI event, this estimate strikes me as extremely high. If correct, it would imply that the revenues are $20,000-46,000 per worker.

World per capita income is roughly $10,000.  This implies that these North Korean contract laborers—the majority of whom are construction workers, while others work in mining and garments—all low wage occupations—would be earning 3 or 4 times the average level of world income, and multiples of what local people earn in the countries where many are employed.

And the nice thing about balance of payments accounting is that the figures have to add up—and if the North Koreans are really earning $2 billion a year from labor exports, where is this money going?

Alternatively, if one adopts what I think is the more plausible assumption that these workers cannot earn more than the average local income, then the estimated revenues are in the 100s of millions of dollars, probably less than a half billion dollars.

I can think of three explanations.

One possibility—and I am not being facetious—is that the Database Center for North Korean Human Rights has literally made a decimal error when translating from Korean into English. It’s not as uncommon as one might think: Korean speakers use 10,000 as the basic counter of numerical magnitudes, English speakers use 1,000 (i.e. a “billion” is 1,000 “million”). So when the numbers get big, it’s easy to put the comma in the wrong place. Once when I worked for the government and we were negotiating with the Japanese I caught the interpreter making precisely this mistake. I interrupted the proceedings and it took us a couple of minutes to sort it out, but when we resumed at least we and the Japanese were talking about the same figure, not two figures that differed by a factor of ten. Another example would be the claim made by a researcher at a well-known Washington think-tank regarding Chinese aid to North Korea which upon further inspection turned out to reflect a Korean to English translation error which rendered the researcher’s claim ten times its intended value.

The second possibility is that the revenues are really that high, but they are not solely for labor. In essence countries are paying large sums for labor as a screen for payments for weapons. It is essentially money laundering.

The third possibility is that the Database Center for North Korean Human Rights just got it wrong. The paper attributes the estimate to refugee interviews, but it is not at all clear how these respondents could know the aggregate revenues to the regime from this class of transactions.

Maybe it’s too much to ask business reporters much less commentators at Foreign Affairs to subject numerical claims to the laugh test before repeating them, but the next time you hear the claim of $2 billion annual earnings from the organized export of labor echoed, remember not to believe everything you hear.

https://www.youtube.com/watch?v=CK3uf5V0pDA

Comments

paul white

You're quite right about the maths. It is common all over the Far East (It's a Chinese system, after all) to find even professional translators confuse large figures as millions, billions, etc.because they work from a base of 10 thousands. Incidentally a ``billion" in British English is one million million, not 1,000 million as in the US.
While we're on the subject of labor (labour?)exports, when the ROK exported thousands of workers to the Middle East in the 1970s and 1980s (maybe they still do) the workers were not alllowed to handle their own wages. The South Korean contractors took the foreign currency paid as wages, left their employees a living allowance, converted the FX into South Korean won at an enormous profit to themselves, and deposited the ROK won in thier workers' bank accounts in Seoul. So the workers had to return home to get their money, which, then as now, was unconvertible.

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