Low unemployment in the Czech Republic has its pros and cons
As Radio Prague reports, according to the latest statistical data, the unemployment rate in the Czech Republic rose slightly in July 2016 to 5.4 percent. In June, it stood at 5.2%. Unemployment in the Czech Republic has been intensively declining since February of this year. In July, 392,667 unemployed were registered at the labor office, about 8,000 more than before the start of the summer holidays.
At the same time, the number of vacancies, according to the Labor Office, is the highest since September 2008. In July, employers offered nearly 135,760 vacant jobs. In international rankings, the Czech Republic holds strong positions in terms of unemployment; unemployment in the Czech Republic is the second lowest in Europe after Germany.
“The Czech labor market shows good results. People are finding jobs, and today anyone who really wants to work will find a job,” comments economist Lukáš Kovanda. “And not only in regions like Prague and Pilsen, where unemployment has been the lowest for a long time – below 4%, but also in areas where the rate is much higher – for example, in North Bohemia or North Moravia. On the other hand, employers are now facing a serious problem – they cannot find workers with the appropriate qualifications. All good specialists are already employed, while there is still work, but there are no personnel. Unfortunately, this can sometimes limit production, for example, in the industrial sector.”
The only “cure” for this – though employers do not like to hear it – is raising wages. Compared to the period of the financial crisis, when employers were the masters of the labor market, the situation has now changed. Now they have to fight for employees, which entails the need to increase salaries. Overall, from a macroeconomic perspective, the situation is positive, but we are facing certain limitations: labor market constraints, the skill level of the Czech workforce, and so on.”
Naturally, the question arises: is there room for wage increases in the Czech Republic? Logically, the level of wages should reflect labor productivity. According to Lukáš Kovanda, labor productivity in the Czech Republic is affected by the structure of the economy. The Czech economy is oriented toward assembly, so it is often heard that the Czech Republic is an assembly workshop for more developed European countries, a subcontractor. It is precisely because of this that labor productivity suffers compared to, for example, Germany.
“It is not that we do not work; rather, this reflects lower capital investment, worse management. If we increase labor productivity, then we can talk about wage growth. The second point is that the Czech economy is heavily dependent on industry. Our economy is the most industrial in the entire EU,” notes Lukáš Kovanda. “And if you depend on industry, that means you have to invest a larger share of profits in production development. If you compare this to the service sector, there is no need to invest such sums in development as in industry; you do not need to modernize factories and so on. Therefore, in the service sector, a larger share of the employer’s profit can go to employee salaries. A lower share of services in the economy in the EU exists only in Romania after us.”
As Lukáš Kovanda explains, the flip side of low unemployment in the Czech Republic is low labor productivity. For example, in countries with large capital investments in the economy, one machine replaces ten workers. In the Czech Republic, however, 10 employees are hired, but their labor productivity is lower than that of a modern machine. At the same time, as already mentioned, the Czech Republic is experiencing a serious shortage of skilled labor. Could foreign labor at least partially cover this? This question is answered by Markéta Šormová, an expert from the Chamber of Commerce of the Czech Republic:
“Yes, in the short term the situation can be resolved by hiring employees from abroad, of course provided they have the necessary qualifications and can integrate into Czech society without problems. For example, a government project for employing Ukrainians is currently being implemented. However, this problem undoubtedly needs to be addressed in the long term. There is currently a certain structural mismatch. That is, it is necessary to connect employers and companies with educational institutions now so that graduates leave with the qualifications needed in the labor market.”
What is the situation with employment in practice? Entrepreneur Yevgeny, whose company is engaged in house insulation and other construction activities in the Czech Republic, answered questions in this area for Radio Prague. Yevgeny’s company employs five people, and as needed, employees are hired for specific orders – on average from 10 to 20 people per project. How can one characterize employees who want to find work on a temporary project?
“A qualified employee is a nugget that is very difficult to find. And if a good qualified employee comes along, they try to keep them and not let them go,” says the entrepreneur. “When I say that we constantly have five people working, I mean people who know their job, know how to do it, and do it 100% qualitatively. Those we hire are not 100% qualified labor, often they are foreigners, because, unfortunately, there are very few local representatives of the Czech Republic, there aren’t enough. Often people come who previously worked as guards in supermarkets and the like. We have to train them along the way and break the work down into elementary steps so that we can complete this order.”
“During the crisis, unfortunately, many Ukrainians who had been here for a long time and had already learned to do our work left. During the crisis, when there was very little work, they dispersed, and today there is an acute shortage of them. Now guys are coming to us, for example, from Romania, who have a very poor idea of the European standards that must be observed for quality order fulfillment.”
Lukáš Kovanda’s words that employers have ceased to be masters of the labor market are confirmed by Evgeny: “I would not say that people are simply running away. Although today, due to the shortage of professionals, they are trying to 'squeeze out' the best possible amount for the work we want from them.”
To the question of how valuable employees can be retained nowadays, the entrepreneur says: “Mostly it is offers of stability, some bonuses from the company, such as a company phone, and of course, bonuses – for good work, for these people staying with us. I believe that they should be financially rewarded for this.”