North Korea's Per Capita Income Just 1/29 of South Korea's Amid Deepening Inequality

North Korea has seen rapid marketization, but the institutional framework to support it remains inadequate. Analysis indicates that when external economic shocks occur, the impact is disproportionately felt by the lower and middle classes, who lack political connections and capital, exacerbating income inequality.

According to a report released by the Bank of Korea on August 23, North Korea's per capita nominal Gross National Income (GNI) is projected to be 1.72 million won in 2024, just 1/29th of South Korea's income. This level is comparable to the lowest 'low-income' group as classified by the World Bank.

The North Korean economy operates under a dual structure, consisting of an official sector based on a planned economy and an informal sector centered around markets.

The Bank of Korea estimates that the informal market sector has grown significantly, now comparable to the official sector. Previous studies indicate that approximately 70% of the average resident's income is earned in the market.

However, the pace of marketization has outstripped the establishment of supporting institutions. While market activities have spread widely, legal and institutional protections such as fair competition, tax and redistribution systems, and property rights have not been adequately established. This has led to a 'quasi-marketization' structure where economic opportunities are distributed unevenly based on political connections and access to capital, according to the Bank of Korea.

This structure has shown that external economic shocks further exacerbate income inequality. Analysis reveals that from 2015 to 2019, income inequality in North Korea's informal sector significantly worsened compared to the period from 2011 to 2014.

The widening inequality is attributed more to a substantial increase in the lower-income population than to growth in the upper-income group. Even after economic shocks are mitigated and market activities recover, once income inequality has expanded, it tends to persist for a considerable time.

The Bank of Korea assesses that these findings indicate that merely expanding the appearance of a market economy does not guarantee equitable improvement in the economic conditions of residents.

Jo Yong-sin, head of the Economic Security Research Office at the Bank of Korea, stated, "External economic shocks in a quasi-marketization context can provide opportunities for the upper class to increase their economic benefits through rent-seeking and risk-free arbitrage, while the relatively economically vulnerable middle and lower classes may absorb the shocks, leading to asymmetric outcomes."