Predicted wage increase will affect only a minority of workers

While it is predicted that the average gross monthly wage will increase in the Czech Republic, it is unlikely that this will have any real impact on a large proportion of the country’s working population. In fact, some analysts predict that there will be a fall in real incomes for some workers, if incomes do not at least grow at the same level as the rate of inflation. At the same time, although Czech purchasing power has increased, the average pay of an employee in the Czech Republic is still only a fraction of that of employees in other European countries, while wage differentiation between regions and professions also persists.

Although analysts expect average gross monthly wages in the Czech Republic to rise to around CZK 21,000 (about €744 as at 14 January 2007) in 2007, and civil servants’ pay to rise by CZK 1,050 (€37), many of the Czech Republic’s other four million employees are not likely to experience any increase in real incomes; in fact, some workers might even face a drop in real incomes. This is due to the fact that not all companies have accepted the trade unions’ recommended 7% pay rise ([CZ0611089I](/search/node/efcms OR download.php?oldIndex)).

The development of real wages will be fundamentally influenced by the expected rise in inflation, which is forecast to reach 3% as a result of the increase in energy prices and rent.

According to Milan Štech, Senator and Chair of the Czech-Moravian Confederation of Trade Unions (Ceskomoravská konfederace odborových svazu, CMKOS): ‘There will be a fall in real incomes for employees whose pay does not grow by at least the rate of inflation, that is, by 3%.’

High cost of living offsets real wage growth

In the case of families of employees on low incomes in particular, pay increases of around CZK 500 (about €18) a month may be offset by the increase in rent and the price of energy and other goods and services.

The most commonly paid monthly wage in the Czech Republic will continue to range between CZK 15,000 (€531) and 19,000 (€673) in gross wages. It is estimated that only around 37% of employees will receive an above-average wage; the incomes of the remaining 63% of the total workforce will probably remain below the average gross wage level. According to unofficial estimates by analysts from the Ministry of Finance of the Czech Republic (Ministerstvo financí Ceské republiky, MF CR), the group of employees earning over CZK 30,000 (€1,062) will grow; nonetheless, it is not expected that the number of employees earning this kind of income will exceed 400,000 workers, that is, approximately 10% of the workforce. These forecasts are also confirmed in a survey and estimates by the Ministry of Labour and Social Affairs of the Czech Republic (Ministerstvo práce a sociálních vecí Ceské republiky, MPSV CR) and the Czech Statistical Office (Ceský statistický úrad, CSÚ).

Wage differentiation between regions, sectors and professions

In relation to real wage growth, a Raiffeisenbank analyst, Aleš Michl, predicted that: ‘Year-on-year, wage growth will be around 5.5% after deducting inflation (estimated at 2.9%); real wage growth will be 2.6%, which represents a slight slowdown in growth compared with 2006. The reason for that will be lower GDP growth.’

In 2000, the average wage in the Czech Republic was equivalent to €382 a month; in 2007, it will reach €777 a month. As Mr Michl explains: ‘Czech purchasing power expressed in euros has thus doubled. That is a result of the combination of the strengthening of the Czech koruna and the growth in pay in koruna.’

Even so, the average pay of an employee in the Czech Republic in 2007 will be approximately 28% of the average income of an employee in Austria. Differences between regions and professions will also remain significant. ‘For example, the difference between the capital Prague and a smaller town like Karlovy Vary in pay terms is CZK 8,000 (€283) to CSK 10,000 (€354) gross a month. Reducing these differences is a long-term endeavour. One of the solutions is to support completion of secondary general education with school-leaving exams,’ Mr Michl points out.

Other big cities in the Czech Republic, like Brno in the southeast and Plzen in the west of the country, have the potential to come closer to Prague in wage terms in 2007. These cities are increasingly used as headquarters of transnational companies operating in strategic services and technology sectors, where pay tends to be above average.

In line with tradition, lower wages will be paid in the textile and clothing sector in particular, despite the fact that this sector encompasses some leading companies which have invested in new technologies and expertise, and which have achieved favourable results as well as paying above-average wages. At present, the highest wages in the Czech Republic can be found in the financial and banking sector and in the information technology (IT) sector.

Sona Veverková, Research Institute for Labour and Social Affairs