Czech Labor Market
Czech Labor Market
During the Communist era, the labor force participation had been artificially high and the Czech Republic had 100% employment rate. Czech workforce is still characterized by high level of education, compared to the EU (90% of the workforce has an education that is higher than elementary school level). However, as the first stages of liberalization took place, there has been a steady rise from 2.9% in the early 1990s to 10.5% in 1998. The reasons for the unemployment were:
1. Governmental spin off of its more productive entities, followed by dismissal of many employees.
2. Fast development of industrial facilities, followed by dismissal of many less skilled, older, or unnecessary workers.
3. The middle decline of the EU economy.
4. Rise of Czech worker productivity.
5. Low minimum wage laws, in comparison with government supported unemployment benefits.
6. Low average wage, lagging far behind those in the highly developed Poland, and are instead competitive with wages in less developed Slovakia.
7. Wages are growing much faster in the public sector than in the more productive private sector.
8. A wage structure, which overvalues unskilled workers relative to professionals. This structure reduced the monetary incentive for individuals to acquire skills through education, hampering this way technological development and the economic growth.
Since 1998, the Czech government had implemented some important measures in order to diminish the unemployment level:
1. FDI encouraging policy, which resulted in high levels of FDI from Germany, the Netherlands, the USA, Austria, England, and France.
2. Continuous development of infrastructure, which resulted in the rise of local goods quality and export expanding.
3. Directing the FDI to high return economic sectors.
The employment encouraging policy in Czech Republic is based on socialist values, characterized European countries. In 1990, the Council for Social and Economic Cooperation (RHSD) was created to promote various issues, such as: economic and social development, labor relations, the labor market, social protection and the environment. In 1995, the Council for Dialogue between the Social Partners (RDSP) replaced the RHSD. The Government also introduced the Social Conference; an ad hoc forum to extend consultation to groups not represented on the RHSD, such as pensioners, the disabled, tenants, non-profit organizations, community services, experts and more. The consultative mechanisms helped maintain social harmony during the crucial period of transformation to a market economy and democracy.
Weaknesses of the Czech labor force and market:
1. The sectoral employment structure is still different from that of the EU. For example, the share of industrial employment is much higher than in the EU, while employment rates in finance and business services are still far below the EU average.
2. Persistent, structurally entrenched unemployment.
3. Large share of long-term unemployment (50%).
4. Generous early retirement schemes. As a consequence, the labor force participation rate among 55-64-year-olds is extremely low (42.5%).
5. Impact of the communist educational system that was aimed primarily at learning facts and not at analytical and creative thinking. This system also neglected important subject areas, such as economics or law.
6. Few young people have the opportunity to obtain higher education.
7. Regional labor mobility is very low.
In 2004, the standardized unemployment rates were 8.3 in total, 7.1 for men and 9.9 for women.
The statutory minimum wage in the Czech Republic had been very low until June 2006, but was raised in order to encourage employment.
The tax burden on labor in Czech Republic is close to that in continental Western Europe, but higher than in the UK and the US. The Czech Republic doesn’t have modern taxation system like the highly industrialized market economies, so that the government expenditures are mostly financed by labor taxes. The share of labor taxes in total tax revenue is disproportionately high.
The law that states a maximum of 40 hours limits the normal weekly working hours in the Czech Republic. In the mining industry and some related industries normal weekly hours are limited by law to 37.5 hours. The total working hours are limited to 150 hours of overtime per year (and 8 h of overtime per week). Additional hours of overtime may be agreed to by mutual consent between employer and employee up to an absolute upper limit of 416 h annually. Large companies must pay high overtime payment set by collective agreements: up to 50% on ordinary working days and up to 100% on weekends. All the workers are entitled by law to an annual paid vacation of 4 weeks.
