Czech Republic: Latest working life developments Q3 2018

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Labour force shortages, companies’ attitudes about the union proposal to shorten working hours and discussions over the minimum wage and wage increases 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 third quarter of 2018.

Labour market overheating due to worker shortages

Unemployment in the Czech labour market has fallen below its long-term natural rate. Persistent high demand in the labour force has resulted in an unprecedented situation where there are no more than 0.7 jobseekers per vacancy.[1] Labour shortages continue to put pressure on employers to increase wages above the growth in labour productivity and offer flexible forms of work.[2] Both analysts and employers agree that the record low unemployment rate is the biggest obstacle to the country’s economic growth.

The president of the Czech-Moravian Trade Union Confederation (ČMKOS), Josef Středula, says that the shortage of workers, particularly for low-qualified jobs, is due to insufficient investment in new technologies, and that economic and technological changes are being replaced by cheap human labour. He calls not only for wage growth, but also for investment in technology and shorter working hours.

Employers, on the other hand, believe that the shortage of workers is the result of an inadequate educational system and the unwillingness of the government to admit more migrant workers into the country – therefore, they have called for larger quotas for foreign workers and a faster recruitment process. The government has already approved the proposal of the Czech Chamber of Commerce to extend recruitment to Serbia. Around 2,000 Serbian workers per year are to be employed under the new system, which started on 13 August.

Given the current labour market situation where the demand for labour exceeds the supply, the number of illegal workers is increasing. Since September, the State Labour Inspection Authority (SÚIP) has been conducting more thorough checks and additional inspections at workplaces where illegal employment is suspected.[3]

Mixed attitudes to shorter working hours

At its congress meeting in April, the Czech-Moravian Trade Union Confederation announced that it will seek to reduce working hours by half an hour a day. While employer representatives strongly opposed this proposal due to labour shortages and the unpreparedness of domestic firms with respect to technologies, the Business Expectancy Index survey ( Index očekávání firem) carried out by the Czechoslovak Commercial Bank (ČSOB) among small and medium-sized enterprises showed that 37% of companies are positive about shorter working hours. These companies appreciate that employees would be more satisfied and rested, labour productivity and efficiency would increase, and the potential to recruit new workers would open up. Only a third of the companies surveyed strongly disagreed with the proposal. At the same time, however, 58% of companies indicated that shortening working hours would have no real advantage from their point of view.

Social partners in dispute over minimum wage increase

Increasing the minimum wage was the main theme of social partner negotiations in Q3. In agreement with the main trade union confederation, the Minister of Labour and Social Affairs proposed a 12.3% increase as of 1 January 2019. However, after disapproval from employers, coalition partners, and the second largest trade union confederation, the Association of Independent Trade Unions (ASO), the proposed increase was revised to 9.8%, amounting to CZK 13,400 (€518 as of 19 October 2018) per month. Another disputed point is the mechanism of raising the minimum wage. The Ministry of Labour and Social Affairs (MPSV) proposed that, from 2020, the minimum wage could be increased to correspond to 50% of the average wage of the year before last, instead of 44% of the average wage as discussed during previous tripartite meetings. Employer representatives accused the Minister of reneging on social dialogue and only considering the preferences of trade unions. Although trade unions support the proposed model, they want to reach a tripartite agreement on the final mechanism with the employers and the government first.

Moreover, after long negotiations with trade unions, the government agreed that salaries will increase by an average of 8% next year in the public sector. Hence, salaries will grow faster in the public sector than in the private sector, like in previous years. This trend has been criticised by employers: the Confederation of Employers and Entrepreneurs' Associations of the Czech Republic (KZPS) points out that Czech companies struggle to compete with the disproportionate increase in salaries in the state administration.

Generally, average wages are expected to rise nominally by 8.3% for the whole of 2018. Afterwards, the increases should fall to a more sustainable level. Union leader Josef Středula has appealed to trade unions to demand wage growth of between 7% and 9% in companies. Employers are not happy about the fact that wages are growing faster than labour productivity and would instead propose an increase of around 4% next year.

Outlook

The MPSV plans to submit a proposal to the Parliament for a substantial amendment to the Labour Code. Among its provisions, the amendment would introduce a new minimum wage setting mechanism, change the concept of holiday entitlement and unbind the rules for its transfer to the following year, legally establish job-sharing arrangements, increase compensation in the case of death due to an accident at work and adjust the terms and conditions for employees working under out-of-employment agreements. In addition, the MPSV intends to push for the abolition of the three-day initial unpaid sick leave period from mid-2019. In compensation, it proposes to reduce the sickness insurance premium paid by the employers. The proposal regarding sick leave was passed on 3 October at the second reading of the Chamber of Deputies.

 

[2] Czech Statistical Office (2018), Vývoj českého trhu práce – 2. čtvrtletí 2018 , 4 September.

[3] Ministry of Labour and Social Affairs (2018), Od září se zintenzivní kontroly nelegálního zaměstnávání , 30 August.

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