No increase in minimum wage planned for 2008

The Czech government has announced that it will not increase the minimum wage for 2008. While employer representatives have endorsed the decision, the trade unions have expressed their fundamental reservations about the decision. This latest impasse represents yet another policy disagreement between the trade unions and government, following the unions’ protests against public finance and pension reforms in 2007.

At a session of the Council of Economic and Social Agreement (Rada hospodářské a sociální dohody, RHSD), the government announced to the social partners that it would not be increasing the minimum wage in 2008; instead, it planned to maintain the current level of CZK 8,000 (about €304 as at 2 January 2008) a month, or CZK 48.10 (€1.83) an hour based on the standard working week of 40 hours. The government last increased the minimum wage twice in 2006: from 1 January 2006 by 5.36 percentage points to CZK 7,570 (€287) a month or CZK 44.70 (€1.70) an hour and from 1 July by 5.1 percentage points. In 2007, the minimum wage remained at the same level.

The Ministry of Labour and Social Affairs of the Czech Republic (Ministerstvo práce a sociálních vĕcí ČR, MPSV ČR) claims that tax adjustments for deductible items and child bonuses will in effect cause the net minimum wage to increase from 2008. At present, about 2.5% of all employees in the Czech Republic receive the minimum wage; these are mainly workers with low qualifications who perform unskilled work.

Nature of minimum wage

The Czech Republic is one of a group of EU countries where the minimum wage is defined by law or by government regulation. The thus defined minimum wage applies to all sectors. The law also makes it possible to negotiate a higher minimum wage value in collective agreements. The minimum wage regulation does not apply solely to pay in employment; it also applies to rewards due to employees working on the basis of an agreement for performance of work or agreement on work activity in accordance with the Labour Code, which took effect from 1 January 2007.

Differing views of social partners

Employer representatives welcomed the government’s decision not to increase the minimum wage. According to the Confederation of Industry of the Czech Republic (Svaz průmyslu a dopravy ČR, SP ČR), the previous increase in the minimum wage exceeded the rate of growth in gross domestic product (GDP). SP ČR believes that by not raising the minimum wage, this will enable employers to pay suitable rewards to top-level and key workers. Employer representatives believe that the minimum wage poses a problem in relation to the employment of disabled people and those with low educational achievements; the protection of the minimum wage is not necessary for skilled workers, as there is an increasing shortage of such workers in the labour market.

In contrast, the trade unions are fundamentally opposed to the government’s decision. In their opinion, the minimum wage should be maintained at a level of 40% of the average wage in the Czech Republic. The average wage stood at CZK 21,470 (€815) in the third quarter of 2007. In view of the expected 5% inflation rate, the trade unions have demanded that the minimum wage be increased by seven percentage points. The government’s decision will cause the ratio between the minimum wage and average wage to fall to just over 30%, according to the Czech-Moravian Confederation of Trade Unions (Českomoravská konfederace odborových svazů, ČMKOS).

Commentary

The reform measures implemented as part of the public finance reform are expected to have a profound impact on the national economy in 2008. However, the various protagonists do not agree on the nature and magnitude of these impacts. Following the trade unions’ protests against public finance reform (CZ0707019I) and pension reform (CZ0710029I), this latest impasse over the minimum wage represents yet another policy disagreement between the trade unions and government.

Ondřej Novák, Research Institute for Labour and Social Affairs

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