Czech Republic: latest working life developments Q2 2018

The new government taking office, a new low for the unemployment rate, the end of cheap labour and a call for more foreign workers are the main topics of interest in this article. This country update reports on the latest developments in working life in the Czech Republic in the second quarter of 2018.

New government plans changes to working life

The second quarter of 2018 was marked by negotiations regarding a new cabinet, after the first government to emerge from the October elections failed to gain the confidence of the Chamber of Deputies. The new government was appointed on 27 June 2018 as a minority government of the ANO movement and the Social Democratic Party, with the support of the Communist Party. The Social Democrats made their participation in the government conditional on ­– amongst other things – the abolition of the three-day initial unpaid sick leave period included in the government’s proposals. The government also promises to increase the parental allowance, to introduce early retirement for employees working in physically demanding professions, to support non-traditional forms of work and flexible employment, and to set up rules to raise minimum wages so that growth is predictable.

Unemployment rate reaches new low

The unemployment rate in the Czech Republic, which has been the lowest in the EU since 2016, fell further in the second quarter of 2018, reaching its lowest level since 1997 (3% according to the Czech Labour Office, 2.3% according to Eurostat). The Czech labour market reached an unprecedented low point in April, when the number of job offers exceeded the number of available job candidates; in May, the Labour Office reported 283,243 job offers against 229,632 job candidates, of whom only 207,287 were available for work. According to experts, the Czech Republic has now attained its natural unemployment level and there are no suitable labour forces available in the market.

Wages rises spell the end of cheap labour

The struggle for employees in the Czech Republic has resulted in the fastest growth in earnings since 2003: nominal wages grew by 8.6% in Q1 2018 and real wages by 6.6%. The average monthly salary reached CZK 30,265 (€1,177 as of 22 August 2018). Trade unions have increased the pressure on companies, demanding wage increases which often attain double figures, as illustrated by new collective agreements in Škoda Auto (20%), most retail chains (20% on average), and many other companies. On 12 June 2018, trade unions held protest action, demanding a salary increase of 15% for teachers and a flat pay increase of 10% for all other state employees, and rejecting proposals for increases that would only affect selected professions in the public sector.

In addition to rising wages, employers are offering an increasing number of benefits in order to attract potential employees, including part-time options, telework facilities and flexible working-time arrangements. Hence, the pattern of cheap labour force and low flexibility, which have been characteristic of the Czech labour market, appears to be evolving.

Boost in union membership

The favourable economic situation and labour shortages have greatly strengthened the negotiating position of trade unions, which are attracting new members. On 27 April, the re-elected chairman of the Czech-Moravian Confederation of Trade Unions (CMKOS), Josef Středula, presented an ambitious new proposal. In addition to further wage growth, the proposal includes an increase in the statutory annual leave from four to five weeks, abolition of the three-day initial unpaid sick leave period, the possibility of early retirement for workers in physically demanding professions and, notably, a controversial reduction in the working week from 40 to 37.5 hours without a wage reduction.

Call for foreign workers

Lack of workers, in particular in technical and low-qualified professions, leads to production limits in many companies and aggressive headhunting practices. To solve the problem of worker shortages in the Czech Republic, employers urged the government to simplify conditions for the recruitment of foreign workers. It is clear that the demand cannot be met by workers coming from EU countries and Ukraine, despite the government having increased the quota for Ukrainian workers from 9,600 to 19,600 people in 2018.

In April 2018, the government launched another programme, making it easier for companies to employ up to 1,000 people from Mongolia and another 1,000 from the Philippines. The Confederation of Industry of the Czech Republic (SPCR) also called for the process of bringing in Ukrainian workers to be speeded up, by removing the obligation to offer vacancies to domestic job seekers first. The Ministry of Labour and Social Affairs already plans to streamline the process of issuing work permits and visas for Ukrainian workers from industry and social care.

Commentary

In the longer term, the current situation opens the way for more intensive automation and digitisation. In addition to the shortage of workers, wage growth in a number of industries exceeds the increase in labour productivity, pushing firms to invest in new technologies. Industry 4.0 may therefore become a reality in the Czech Republic sooner than expected.

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