Earnings of older employees lagging behind

On average, employees aged over 50 years are paid less than their younger colleagues, according to a recent survey conducted by the Research Institute for Labour and Social Affairs. The structure of pay and wages in the Czech Republic appears to be more market-oriented in comparison with its neighbouring countries. The principle of seniority has almost ceased to exist in company wage systems, and employers are clearly giving priority to younger workers with respect to remuneration.

A survey carried out by the Research Institute for Labour and Social Affairs (Výzkumý ústav práce a sociálních vecí, RILSA) focused on analysing the cost of work carried out by older employees aged over 50 years. The survey draws on data from the Average Wage Information System (ISPV), which regularly monitors the wage levels of about one third of employees in the Czech economy, both in the private and public sectors. Data from 2004 were used for the analysis.

Economic activity of older people

Employees aged over 50 years represent about one third of the overall working population in the Czech Republic. The level of economic activity of older people depends considerably on their sex. While the levels of economic activity for men (90.6%) and women (86.1%) in the 50–54 age group does not differ greatly from other age groups, in the 55–59 age category, more women tend to take early retirement and their overall economic activity drops to 45.5%. At the same time, people with lower qualifications tend to leave the labour market earlier, and conversely, the percentage of university graduates increases. It seems that the lower wages received by persons with poorer qualifications are hardly an inducement for such workers to remain in the labour market for longer, even workers at and beyond retirement age.

Biggest wage gap in private sector

Wage differentiation according to age changed considerably as a result of the transformation from a centralised to a market economy. While, prior to 1989, average wages continued to increase with age under the principle of seniority in the workplace, the average peak in wages today has shifted towards the middle-aged generation of workers. At present, the wages of older employees in the private sector are below the average for employees in the 30–49 age group. The greatest wage difference between younger and older employees is evident in the private sector. The data show that wages are higher for men in the 30–39 age group and for women in the 25–29 age group, but wage levels continue to drop until retirement age (see Figure). The early retirement of women with lower wages causes an apparently higher average wage in the 50–59 age group. The same applies for men in the 60–64 age group, where mainly highly-qualified employees remain active. The dramatic decline in wages among workers aged 65 years or older is caused by both the small proportion of people actually working in this age category and the overall tendency of these workers to decrease the workload to suit part-time hours. The gap between wages of younger and older workers, in favour of those who are younger, is even greater among blue-collar workers.

On the other hand, in the public sector, where about one quarter of all persons over 50 years of age are employed, wage conditions for older people are more favourable. This is because the wage structures in this sector automatically reflect the length of employees’ professional experience.

Figure 1: Wage ratio according to sex and age compared with average in private sector, 2004 (%)

Figure 1: Wage ratio according to sex and age compared with average in private sector, 2004 (%)

Note: Ratio from averages – Average gross monthly wage for one employee in a specific age group/Average gross monthly wage for one employee in the overall private sector.

Source: ISPV, Survey by Trexima, calculations by RILSA

Comparisons with other countries

A comparison with other countries confirms that this wage trend is specific to the Czech Republic. In neighbouring countries, employees in older age groups regularly receive higher wages and better pay conditions (see Table). The disadvantageous wage situation of older employees in the Czech Republic is also clear from an analysis of the wage ratio according to the length of employment compared with the average for all employees, where the average wage in the country decreases after 14 years of employment. Conversely, according to available data, in Austria, Hungary and Poland, wages continue to increase in line with a worker’s length of service.

Wage ratio of workers in 50–59 and 30–39 age groups, 2002
Country Czech Republic Germany Austria Poland Hungary
Ratio 0.95 1.06 1.29 1.12 1.13

Source: Erzsebet Esperjesi-Linder et al, Wages in accession countries and the trends in approximation to European wages, Hungarian Central Statistical Office, Budapest, 2004

The decline of earnings among older employees can often be explained by employment changes in the transition period after 1989. In particular, discrepancies between age and professional experience, supported by a different initial earnings base, is considered a cause of the decline. However, Hungary and Poland experienced similar developments without infringing seniority principles.

Consequences of wage decreases

The decrease in wages of older employees results in these workers being squeezed out of active employment and is a reflection of the increased interest of employers in hiring a younger and more ‘productive’ workforce. However, because the Czech population is ageing, the percentage of young workers will decrease in the future. In view of this reality, Czech employers will need to reassess their attitudes towards older employees in the coming years.

Reference

Vlach, J., Survey of salaries of older employees (in Czech, 636Kb PDF), Prague, RILSA, 2006.

Renata Kyzlinková, Research Institute for Labour and Social Affairs (VÚPSV)

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