EMCC European Monitoring Centre on Change

Tackling the recession: Czech Republic

  • Observatory: EMCC
  • Topic:
  • Published on: 12 July 2009



About
Country:
Czechia
Author:
Hana Dolezelova
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited or approved by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

The Czech Republic has started to address the impact of the economic crisis in recent months, that is why most of the proposed measures are still in the legislative process. No legislative changes of the Labour Code or the Act Employment containing measures addressing the negative impacts of the recession have been implemented yet.

Introduction

Companies announce dismissals, and the unemployment rate grows. However, mostly constructive cooperation can be observed between employers and trade unions that accept partial unemployment and wage reduction or freeze for this year in order to reduce dismissals. Although the attitudes of the social partners regarding possibilities for solving the crisis impacts differ in many aspects, together they cooperate to differentiate themselves from the policy of the unstable domestic politics.

1. Measures taken by government to assist businesses and protect jobs

Support to businesses

What formal or legal arrangements (such as job subsidies, bank guarantees, loans or special credit facilities) are in place in your country for supporting firms which are at risk of having to reduce employment? (Please include only measures which are aimed principally at maintaining employment as opposed to those which are aimed, for example, at increasing competitiveness or supporting investment.)

Systematically applied measures of this type have not been adopted in the Czech Republic. Individual situations can be mentioned only, usually of strategic importance, when a company was granted an advantageous loan to recover its financial situation (e.g. Czech Airlines obtained a loan of 2.5 thousand million CZK with a three-year maturity from another state-owned company.)

Are the arrangements or measures concerned permanent features of the system in your country or have they been introduced in the recent past specifically to combat the effects of the present recession? Please give an indication of the number of firms receiving support of this kind and the number of jobs protected as well as the source of funding

The Czech Republic, compared to most of the EU countries, started to deal with impacts of the economic crisis later, that is why the majority of the proposed measures is still in the legislative process. In particular, they concern a discount on the social insurance payments for employers, acceleration in depreciation of corporate assets, state-supported export loans, car-scrapping bonus amounting to 30 thousand CZK (approximately 1,100 EUR), increase and extension of the unemployment benefit, increased child tax abatements and increased child allowance.

A significant state support was allocated to the Czech building industry, which the state supported via investments. The volume of funds from the “Panel” Subsidy Programme for the renovation of prefabricated apartment buildings has been increased from 1.5 to 4.1 thousand million CZK and a new programme has been launched by the Ministry of the Environment of the Czech Republic (Ministerstvo životního prostředí České republiky, MŽP ČR) and the State Fund of the Environment of the Czech Republic (Státní fond životního prostředí České republiky, SFŽP ČR) to insulate buildings, “Green Light for Savings” (“Zelená úsporám”). Within the new project, authorities will provide ten thousand million CZK. The housing construction, which boomed in recent years, should be replaced by the infrastructure constructions. The State Fund of the Transport Infrastructure (Státní fond dopravní infrastruktury, SFDI) should earmark more funds from the state budget next year.

In May 2009, the European Commission provided the Czech Republic with authorization to grant advantageous loans to companies temporarily, without viewing this step as a breach of the economic competition. This measure will enable governments, regional and local authorities to provide time-unlimited support in the form of reduced interest rates for loans which will be contracted by the end of 2010, and thus to facilitate access to liquidity for companies.

Do the measures apply generally across the economy or are they specific to particular sectors or regions? Please indicate the sectors and/or regions concerned.

The current measures focus on the industries which are threatened by the crisis to the most extent (e.g. car-producing industry, building industry).

Is there government support available for companies which introduce short-time working arrangements, give a temporary period of leave to workers or implement similar measures to enable workers to retain their jobs where there is insufficient work for them to do? If so, please give an indication of the extent of the support concerned and the number of companies, and the workers they employ, receiving support.

In this sphere, the only support for companies consists in two educational programmes of the Ministry of Labour and Social Affairs of the Czech Republic (Ministerstvo práce a sociálních věcí České republiky, MoLSA) – “Extend your Knowledge” (“Vzdělávejte se”) and “Training is a chance” (“Školení je šance”). Within the programmes of the European Social Fund, the MoLSA will support companies facing the current unfavourable economic situation. Employers, (operating outside the capital of Prague), may acquire funds for the implementation of trainings for their employees. Funds can be obtained both for trainings of employees and for the employees´ wage compensations for the time of their participation in the training, up to 100% of the total costs, depending on the type of public support, training method and size of the company.

Are there are plans or proposals to introduce measures of the various kinds indicated above in order to assist businesses and protect jobs? If so, please describe them briefly

In February 2009, the government released the National Anti-Crisis Plan, drawn up based on the proposal of the National Economic Council, i.e. an advisory team to the government consisting of leading experts and established ad hoc to resolve impacts of the crisis. The Anti-Crisis Plan of the central-right-wing government comprised of rather liberal economic measures (the biggest opponent political party, the Czech Social Democratic Party (Česká strana sociálně demokratická, ČSSD), refused to appoint their experts to the Council) and the parliamentary opposition has turned it down. After the government of former Prime Minister Mirek Topolánek was expressed no confidence in April 2009, the former government coalition parties have agreed with the opposition ČSSD on the nature of the above-mentioned, broad-scale joint package of anti-crisis measures.

The final version of the anti-crisis measures, which are currently in the legislative process, is, however, still unclear. In May 2009, based on agreement of parliamentary parties, a caretaker government, consisting of experts, was appointed and should predominantly deal with consequences of the economic crisis and lead the country for early parliamentary elections in autumn 2009. Disputes are in particular on the controversial car-scrapping bonus, which separate the political stage, other than car-producing industries consider this measure irregular and the new Minister of Finance has already declared that funds for this purpose are unlikely to remain in the budget for this year.

Support to workers

What formal or legal measures (such as partial unemployment benefit or similar kinds of social transfer) are in place in your country to support workers who have been put on to short-time working by employers or who have been given temporary leave with reduced rates of pay (i.e. who still formally have jobs but who are either not working or working reduced hours)? Please describe the measures concerned and indicate the scale of support provided. Please also give any figures available for the number of workers receiving payments of this kind as well as the source of funding.

The Act no. 262/2006 Coll., Labour Code, includes a provision of Article 209 on “partial unemployement”. It concerns situations when the employers are unable to assign work to employees in the range of weekly working hours due to temporarily reduced sales of their products or reduced demand for services rendered by them. If there is an operating trade union at such workplace, the partial unemployment must be regulated by an agreement between the trade union and the employer. If there is no trade union operating in the company, the employer is obliged to apply for a permission of the Labour Office (LO) that may approve partial unemployment for the period of up to one year. In both situations, the wage compensation must not be lower than 60% of the average wage.

Whereas in previous years this measure was utilised marginally, since the end of 2008 interest in partial unemployment has been large. Only in December 2008 the MoLSA started maintaining statistics. It implies that Labour Offices have been registering an increasing number of applications which in most cases have been approved. The highest number of applications approved was in March 2009, when partial unemployment afflicted 24,711 employees (MoLSA).

Statistics do not exist on partial unemployment in companies where trade unions operate (that means in large companies in particular). Nevertheless, it can be assumed based on the available information that this measure is applied in these companies too.

Table 1: Statistics on partial unemployment, 12/2008 – 04/2009
  Provision of alternate wage in a reduced amount
Number of employers who contacted the LOs to apply for the decision in the monitored period Number of employers whose application was decided by the LOs in the monitored period Number of employees whom the wage compensation in a reduced amount concern (of the approved applications)
In total Approved applications
December 2008

197

170

158

15,501

January 2009

303

240

231

19,184

February 2009

407

395

386

24,711

March 2009

-*

-*

269

16,101

April 2009

253

254

251

11,853

Note: * No data available.

Source: MoLSA

Are the measures concerned permanent features of the system in your country or have they been introduced in the recent past specifically to combat the effects of the present recession?

The institute of partial unemployment is part of the Labour Code effective since 2007 (however, a certain, less-developed legal regulation for solving the situation in case of obstacles to work was included already in the old Labour Code valid until the end of 2006.)

Has the coverage of the social benefit system which provides income support to workers who lose their jobs been widened in the present recession in order to ensure that those concerned are protected (such as, for example, through a relaxation of the rules and regulations governing the payment of unemployment benefits or other forms of social transfer or through an extension to workers not previously entitled to support)?

Also the “Insolvency” Act (Act no. 182/2006 Coll.) waited to see its amendment (still in the legislative process). This amendment adjusts conditions under which the company being in insolvency will pay wages to its employees – the employees should be newly preferred to payables to other creditors, e.g. banks. Amending the current legal regulation originated particularly from economic problems, which a traditional Czech glass industry encountered, where companies became insolvent and were not paying wages to their employees for several months (in this specific example, the state supported the employees by paying them a special subsidy totalling at 30 million CZK (approx. 1,1 million EUR)). Pursuant to the new legal regulation, employees will be paid a subsidy by the state already during the insolvency procedure. The objective of the amendment especially at the time of the economic crisis is to facilitate functioning of companies and their potential debt forgiveness, instead of their cessation and dissolution sale.

The Employment Act, 435/2004 Coll., comprises of many instruments of active employment policy, which, though not primarily meant to resolve economic problems of companies, are nowadays, according to the MoLSA, being used more heavily and Labour Offices thus make efforts to prevent further dismissals. This includes, for instance, a contribution for employees retraining, investment incentives for creating new jobs or a contribution at the transfer to a new investment programme.

In February 2009 government together with the Ministry of the Interior of the Czech Republic (Ministerstvo vnitra České republiky, MV ČR) opened a repatriation programme for foreign workers “Voluntary return” (“Dobrovolný návrat”). The aim of this action is to help economic migrants who have lost their jobs due to the economic crisis to return in their home countries. In order to get a state support (consisting of providing accommodation in the period between the registration into the programme and leaving the country, payment of travel costs and 500 EUR) a migrant must have valid work and residence permits and must prove that he/she lost a job due to the economic crisis. In the first run of the programme, which was planned for 8 month, 2,000 places for applicants were created. By the middle of June, approximately 1,700 migrants registered into the programme. MV ČR is preparing to open the second run of the programme for another 2,000 foreigners.

Are there any plans or proposals to provide income support for those working short-time or on temporary leave? If so, please describe them briefly.

Not known.

2. Action taken by companies to maintain workers in employment

What action, if any, has been taken by companies during the present downturn to keep workers in jobs in situations where the work for them has declined? Please describe briefly cases where companies have introduced short-time working (such as fewer hours per days or fewer days per week), temporary periods of leave or other means of maintaining people in jobs.

Partial unemployment, ordered absence for holidays, or transfer to another job with the employee’s consent are measures which were introduced in many companies. The following companies can be mentioned where mass dismissals were replaced, or partially accompanied by an adjustment of employees´ working hours:

In terms of the annual sales achieved, Škoda Auto is the largest company in the Czech Republic. The company encountered the first indications of the crisis in the second half of 2008, when the car producer had to stop the production for several weeks. The company dismissed 3.5 thousand of the total of 4 thousand employment agency workers, and since the beginning of 2009 a four-day working week applied to the company’s regular employees (24.5 thousand people). Pursuant to the agreement between the employer and the trade union, employees were paid 75% of the average wage. However, with the introduction of the “car-scrapping” bonus in neighbouring Germany, the Czech car-producing company has revived; the company cancelled the shortened working hours and nowadays, on the contrary, suffers from a lack of workers.

The Hyundai producer underwent a similar situation, with their plant began its operation after years of negotiations and preparations in November 2008 and immediately after two months the operation had to be reduced due the impacts of the economic crisis. The company agreed with the trade unions to shorten the working week to 4 days for 68% of the average wage. Alike in Škoda Auto, a significant turn occurred in March 2009, when due to the foreign state regulations the job orders went up.

Jablonex Group, one of the world’s largest glass and jewellery producers, introduced a shortened week in March, with 45% of the total headcount remains home on Fridays and receives 60% of the average rate for the four days of work.

A four-day (or even shorter) working week was introduced for a certain time also in other companies, such as Zetor Tractors in Brno (60% of the average wage), the rubber-making company Gumotex Břeclav (75% of the average wage), lorry producers Avia (80% of the wage) and Tatra Kopřivnice, car-components producer Brano Group or Bosch Diesel.

How extensive has such action been in terms of the number of companies and workers concerned and the sectors in which it has occurred?

There exist no exact statistics. However it can be assumed that the shortening of working hours concerned mainly large companies in the industries most heavily afflicted by the crisis, i.e. in the processing, car-producing, mining and glass sectors.

Have particular types of company (e.g. multinationals or domestically-owned firms) or firms in particular sectors been more prepared to take this kind of action than others?

The information is missing.

Has the action in question typically entailed a reduction in pay? If so, please give an indication of the typical extent of this.

The economic recession is also accompanied with a wage drop. This link, however, has certain inertia, therefore the decline in wages did not show in the available data for 2008, and can be expected only in statistics for 2009.

The wage reduction was chosen by many companies in order to limit losses and avoid thus dismissals. Numerous companies froze 2009 wages and declared that bonuses would not be paid this year. Management of the Czech Railways (České dráhy) promised to cut wages by 15% in 2009 for their executives, who additionally will not be entitled to any bonuses. Salaries were reduced also by other companies, e.g. in the financial group PPF, car-producer Tatra (10%), the largest private TV Nova (15%), Bosch Diesel, or Brano Group.

The management of the Czech Airlines also cut wages by 15% and agreed with trade unions, despite the existence of the collective agreement and the guarantee consequent upon this to increase wages every year, to reduce wages for employees by 6.5% (only the Trade Union Organization of Aeromechanics did not accept the wage cut and the employer acceded to dismiss almost 30 mechanics).

To what extent has this kind of action been accompanied by the provision of training or education to the workers concerned – i.e. how far have companies taken advantage of the lack of work to improve the skills of their work force?

Statistics on the current state of the corporate training are not available. According to the MoLSA, large industrial enterprises show big interest in educational programmes (see Section 1). As programmes are currently under way, any statistics or efficiency evaluations have been not carried out yet.

3. Joint action taken by companies and trade unions to maintain jobs

How far has the kind of action described in Section 2 above been the subject of collective agreements between companies and trade unions? Please give summary details of the content of some of the most important collective agreements.

Shortening the working week and partial unemployment must always be preceded by an agreement with the trade unions that are active in big companies mostly. In such companies (e.g. Škoda Auto) the shortening of the working hours and the related wage adjustment (decrease, freeze or smaller increase than determined by the collective agreement) were based on the cooperation between the management and the trade union organization and adopted measures were accompanied with an amendment of the collective agreement. Social partners´ efforts can be observed to reach a consensus in the issue on the cutting of working hours and wages so that the company could avoid dismissals (e.g. mining company OKD or metallurgical company ArceorMittal Ostrava extended the validity of the corporate collective agreement for 2009, without increasing wages).

In some cases, however, disputes between the employer and trade union organizations have also arisen (e.g. ČSA or Bosch Diesel, where a part of employees did not want to accept the cutting of working hours and wages).

To what extent has other action been taken under collective agreements to reduce business operating costs so as to avoid job losses? Has there been an increase in instances of trade unions, or worker representatives, agreeing to accept cuts in pay, or to work longer hours without additional pay, in order to maintain employment levels? If so, please give an indication of the extent of such agreements and describe briefly typical cases.

Exact statistics are not at disposal. Trade union organizations are aware of seriousness of the situation and they generally accept the wage cut preferably to dismissals. Rather than incidents of unpaid overtime work, attempts to shorten working hours occur due to the lower volume of orders.

Are such agreements more prevalent in some sectors than others?

In the sectors more afflicted by the recession (see Section 2), these agreements are likely to be prevalent.

What other forms of action have trade unions taken, apart from strikes and other action designed to put pressure on employers, in order to try to prevent job losses and maintain employment levels? How effective has such action been?

Apart from the fact that the crisis influenced the social dialogue at the company and sectoral level and company and sectoral partners have been searching methods to face the recession, the government anti-crisis plan is in the focus of the Czech social partners, namely their national representations.

Employers ask particularly for a strengthening of the banks´ credit policy, simplification of the utilisation of resources from the Structural Funds, support of export, determination of the date for the euro adoption, acceleration of the implementation of the investment programmes by the state (transport infrastructure, ecology), tax reduction or postponement of payments of social and health insurance without application of the interest for delay. Additionally, they also support the liberal draft of the amendment of the Labour Code which would bring in more flexibility in the labour-law relations. Although employers and trade unions agree in many issues (e.g. state’s investment activity), regarding the upcoming amendment of the Labour Code the trade unions represented by the Czech-Moravian Confederation of Trade Unions (Českomoravská konfederace odborových svazů, ČMKOS) are radically against and plan protests. Moreover, trade unions request mainly an increase and extension of the unemployment benefit and criticize a potential tax reduction, which would not provide for a sufficient flow of funds into the state budget to cover social expenses of the state.

Nevertheless, the Czech Confederation of Industry (Svaz průmyslu a dopravy ČR, SP ČR) and ČMKOS together with Confederation of Employer and Entrepreneurial Associations (Konfederace zaměstnavatelských a podnikatelských svazů ČR, KZPS ČR) and trade Union Association KOVO (Odborový svaz KOVO, OS KOVO) demonstrated their constructive approach via a joint action and publishing joint requirements addressed to the Czech government, where, among others, they appeal to involve social partners more in the solving of the crisis and urge upon a prompt and effective reaction in the economic policy of the state.

Additionally, ČMKOS established advisory centres in all regions for people who loose their jobs due to the current economic situation.

4. Measures to provide income support

To what extent do collective agreements include provision for higher rates of compensation in the event of workers being made redundant than they are entitled to under national legislation? How far do collective agreements providing more generous compensation than the statutory amount vary between sectors?

The changes in social security contributions in effect from 2009 were not prepared as anti-crisis measures. They arose as a political consensus between strongest government party right-wing Civic Democratic Party (Občanská demokratická strana, OSD), which wanted to decrease income tax, and other parties. However, the measures provided income support, (even though rather minor,) for all subjects on the labour market. Social security insurance premium rate of employees decreased about 1.5% (from 8% to 6.5%), by employers (paying part of the insurance for employees) about 1% (from 26% to 25%) and self-employed pay about 0.4% less (29.2% instead of 29.6%) from the basis of insurance assessment.

A severance pay beyond the limit defined by the Labour Code is a standard part of company collective agreements. Its amount is usually more generous in larger companies. Differences can be also found among sectors, high severance pay was agreed in the steel industry (e.g. in ArceolMittal Ostrava, according to some sources, the severance pay for the dismissed employees amounted in extreme case up to 36 monthly salaries) or in the mechanical engineering industry (e.g. in Prague Siemens kolejová vozidla paid their former employees a severance pay at the level of 9-12 salaries).

Has there been an increase in the number of collective agreements which include such provision during the present downturn?

Trends are not evident yet regarding changes in the number of collective agreements including specific provisions during the present downturn, according to the author’s estimate, however, there appears a tendency to moderate advantages agreed in the collective agreements.

To what extent are redundancies being concentrated on older workers, i.e. taking the form of early retirement, in the present downturn? Is there any evidence that the use of early retirement as a means of effecting reductions in employment has increased in importance during the present downturn?

The amount of the severance pay is mostly linked to the seniority, indirectly then to the physical age. Collective agreements often include a provision that an employee planning to retire earlier is entitled to a certain wage advantage.

5. Lessons from research studies

Have any studies been undertaken in the past in your country on the effectiveness of attempts made in previous periods of recession to maintain employment levels similar to those covered here? If so, please outline the studies concerned and their main findings.

No study has been undertaken.

If partial unemployment benefit, short-time working or similar schemes which provide income support to those working short hours are a permanent part of the social security system in your country, please briefly describe any studies which been undertaken on their effects and the main conclusions to emerge from them.

The efficiency evaluation of active employment policy is in its early days. Up to now, any study evaluating examples of the above-mentioned measures does not exist.

Hana Dolezelova, Research Institute for Labour and Social Affairs

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