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A Country with Non-Existent Unemployment the Special Characteristics of the Czech Labour Market

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A Country with Non-Existent Unemployment the Special Characteristics of the Czech Labour Market A COUNTRY WITH NON-EXISTENT UNEMPLOYMENT THE SPECIAL CHARACTERISTICS OF THE CZECH LABOUR MARKET Krzysztof Dębiec WARSAW JULY 2019 A COUNTRY WITH NON-EXISTENT UNEMPLOYMENT THE SPECIAL CHARACTERISTICS OF THE CZECH LABOUR MARKET Krzysztof Dębiec © Copyright by Ośrodek Studiów Wschodnich im. Marka Karpia / Centre for Eastern Studies CONTENT EDITOR Mateusz Gniazdowski, Jakub Groszkowski EDITOR Halina Kowalczyk, Wojciech Stanisławski CO-OPERATION Anna Łabuszewska, Katarzyna Kazimierska, Szymon Sztyk TRANSLATION Ilona Duchnowicz CO-OPERATION Nicholas Furnival FIGURES Wojciech Mańkowski, Urszula Gumińska-Kurek GRAPHIC DESIGN PARA-BUCH PHOTOGRAPH ON COVER BigBlueStudio/Shutterstock.com DTP GroupMedia PUBLISHER Ośrodek Studiów Wschodnich im. Marka Karpia Centre for Eastern Studies ul. Koszykowa 6a, Warsaw, Poland Phone /+ 48/ 22 525 80 00 Fax: /+ 48/ 22 525 80 40 www.osw.waw.pl ISBN 978-83-65827-37-1 Contents KEY THESES /5 INTRODUCTION /10 I. THE SOURCES OF LOW UNEMPLOYMENT /14 1. Preparation for an external stimulus and the central bank’s support /14 2. Low labour costs, automotive industry and ‘assembly plants’ /17 3. Capitalising on the economic boom and the proximity of (and dependence on) Germany /21 II. THE OPENING UP OF THE LABOUR MARKET – THE DIFFERENT STANCES OF TRADE UNIONS AND EMPLOYERS /23 1. A long way to employment in the Czech Republic /25 2. The government’s (overly) scant gestures towards employers /26 3. Aliens are unwelcome in the Czech Republic /28 4. Labour migration to the Czech Republic from EU member states – the last resort for entrepreneurs /31 III. THE INFLATION OF WAGES AND THE INFLATION OF DEMANDS – THE LABOUR MARKET IN THE HANDS OF EMPLOYEES /38 1. The galloping wages: can the economy take this? /40 2. The German labour market – an ideal for the trade unions /45 3. The German labour market – a nightmare for employers /46 4. The creeping change of the economic model – a challenge to investors /48 5. The minimum wage – the seed of discontent inside the government coalition /51 IV. POSSIBLE DEVELOPMENTS /54 KEY THESES 1. The low unemployment rate in the Czech Republic is an effect of a number of structural and political factors which have generated a certain economic potential. This potential was achieved when external stimuli occurred in the form of economic boom, which has been visible especially since 2014. The policy adopted by each of the Czech governments during the recent recession and stagnation was of great significance, alongside the support for the economic policy through actions taken by the National Bank of the Czech Republic (above all the low interest rate policy and interventions on the currency market). One of the reasons why the unemployment rate in the Czech Republic continues to be low is the relatively low labour costs and the high level of the country’s industrialisation where the automotive indus- try, which heavily relies on the market situation, has an essential share. So-called ‘assembly plants’, i.e. industrial plants generating numerous jobs with low added value, also play an important role in reducing the scale of unemployment. A great number of such plants have been created in effect of investment incentives over the past twenty years (the wave reached its peak in 1998–2007). They were often created with the intention of reducing unemployment. At the same time, the Czech Republic, a developed country heavily reliant on exports, is extremely sensitive to changes in the economic situation in Europe. The Czech economy is particularly strongly influenced by the situation in other EU member states, which are the outlet for almost 85% of the Czech exports. Germany is a major player in this context as it accounts for a third of Czech exports and a quarter of its imports, and has engaged its capital fairly intensively in the Czech Republic. 2. The low unemployment rate and the growing demand for labour, being an ef- fect of the economic boom, have led to a great shortage of workers, which gives rise to a number of problems. In a situation where the number of vacancies has exceeded the number of the unemployed since spring 2018, companies are forced to reject some orders, and the increasing wages make it more dif- ficult for them to remain price competitive. Furthermore, the increase in real wages in 2018 was much higher than the dynamics of the country’s economic growth and workforce productivity. It will be impossible to maintain this sit- 07/2019 uation in the longer run because it makes businesses unprofitable. However, 09/2012 this increase has been stronger in the lower part of the wage pyramid, which above all reflects demand for less qualified workers. The increase in wages also stimulates inflation, and the need to make efforts to achieve the inflation target motivates the central bank to further raise interest rates. As a result of PRACEOSW REPORT OSW 5 all of these factors, it is expected that the Czech Republic’s economic growth will slow down from 4.4% in 2017 and almost 3% in 2018 to around 2.5% in the next two years. Furthermore, the administrative difficulties employers -en counter during attempts to employ workers originating from outside the Eu- ropean Economic Area serve only to exacerbate the problem with the shortage of workers. Given the fact that employees have continued to have more say on the Czech labour market over the past few years, the difficulties employers are facing are also aggravated by the Czechs’ decreasing mobility and falling willingness to compromise in the search for employment and due to the low popularity of part-time employment. 3. The political dispute which overlaps with the talks between employer asso- ciations and trade unions is not helping Czech firms solve their problems. The centre-left government led by Andrej Babiš is looking for a golden mean that will make it possible to find a balance on the labour market between the employers’ needs (and to guarantee maintaining production at least on the present level) and the trade unions’ appeals for increasing wages and improv- ing the living standards. Even though Babiš’s cabinet has been making efforts to facilitate the employment of immigrant workers from selected countries (in particular, Ukraine), employers view these efforts as insufficient. Babiš must also take into account the opinion of his coalition partner, the Czech Social Democratic Party (ČSSD), which co-operates with the trade unions and is appealing for caution in offering workers from outside the European Union access to the Czech labour market, since they usually have lower demands re- garding wages than Czechs or workers from other EU member states. The So- cial Democrats also want to support local employees with significant rises in the minimum wage (the rise that was pushed through towards the end of 2018 was the second highest in history). The ČSSD is also emphasising its concern for innovativeness of the Czech economy: a dramatic influx of cheap expatri- ate workers would reduce the pressure on capital investments. Meanwhile, only investments of this kind can cause an increase in workforce productivity and wages (however, this would also cause the liquidation of some of the ex- isting jobs). Given the lack of consensus, there is uncertainty over the future of the proposed amendment of one of the acts currently in parliament (it was put forward by the previous Babiš’s cabinet) which envisages the possibility 07/2019 09/2012 of issuing so-called extraordinary annual employee visas to citizens of third countries in quantities adjusted to the needs of the labour market. 4. Given the limited possibilities of recruiting employees from outside the PRACEOSW REPORT OSW EU, one solution for Czech production plants is to hire employees from EU 6 member states. At present, they account for as much as 65% of immigrant workers in the Czech Republic. After Slovaks, the second largest group are Polish workers, whose number on the Czech labour market more than doubled in 2014–2018 to reach around 45,000 at present. A new surprising phenomenon is the influx of expatriate workers from Southern Europe to the Czech Republic; unemployment rates there have been the highest in the EU over the past few years, especially among young people. The number of Spanish and Portuguese employees working for Czech firms has tripled over the past decade, and the number of Greek and Italian workers has doubled. 5. Comparisons to the German economy play an essential role in the Czech public debate on wages. The political left and the trade unions argue that local workers can have wages on a level nearer to those of their German counterparts with the help of regulation (including on the minimum wage), wage rises in the public sector and pressure on large private employers. In the opinion of employers, artificially raising wages is not the solution (as this will not work in the longer term, given the low added value of produc- tion). They claim efforts to change the existing economic model (based on ‘assembly plants’) need to be made towards a typical German model with high added value and high workforce productivity. This model in the longer term may succeed in generating wage rises that will not pose a risk to pro- duction. In other words, employees are arguing that it is necessary to put an end to the ‘cheap economy’ before it will be possible to put an end to ‘cheap labour’ (something the trade unions are insisting upon). In fact this model change is already gradually taking place. It has been forced in part due to a slower increase in workforce productivity as compared to the increase in wages seen over the past few years. 6.
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