Bleak unemployment outlook sparks debate over jobs

The global crisis has pushed unemployment towards the top of the agenda in the Czech Republic with nearly 8.0 percent of the labour force now seeking work. That is still lower than the EU average but the jobless rate has nonetheless shot up sharply in the manufacturing dominated, export oriented Czech economy. As well as the immediate question about how bad it will get before it gets better, there are also wider questions about where the new jobs will come from.

April’s unemployment figures produced a shock. The jump to 7.9 percent from 7.7 percent might not seem a lot but it was more than most analysts expected and came in a month when the start of seasonal farm jobs and the upturn in the building sector usually brings a fall.

But, as the director of employment policy at the Ministry of Labour and Social Affairs, Štefan Duháň explains, there was even worse news within the figures:

“We are speaking today about more than 450,000 unemployed people or people registered at labour offices. What is worse, we have lost vacancies. A year ago we had more than 100,000 vacancies and in April this year we have some 50,000 vacancies.”

The scythe of unemployment has not been even across all sectors. Manufacturing is a mainstay of the Czech economy to a degree that sets it apart from many EU countries. And that has been hit far worse by the economic downturn because it relies so heavily on orders from outside the small domestic market. Mr Duháň again:

“The labour market of the Czech Republic is specialised with a high share of manufacturing. Therefore we can see people from factories, especially low skilled people, having troubles and problems keeping their jobs. If I can be more precise, the auto industry is the most vulnerable industry.”

Photo: European Commission

This trend has helped create clusters of rapidly rising unemployment outside the still largely immune capital, Prague. The director of the Czech branch of broad based employment agency, Grafton Recruitment, Niall Keyes, continues:

“We are generally seeing all sectors of the economy affected by this economic recession, some areas more than others. In particular, the areas that have been most affected are the automotive sector and their sub-suppliers. And that constitutes a very large part of the overall Czech economy. The Czech economy is highly dependant on that. That also has had the effect that the regions around the Czech Republic as opposed to Prague are suffering much more because the industrial base is in the regions and not in Prague.”

While the picture in the auto sector has picked up in the last weeks largely thanks to the demand boosting scrap incentives in other European countries such as Germany. There is a big question what will happen when these wind down. Late to be hit by the economic crisis, the Czech Republic is far from seeing any early signs of recovery according to Grafton Recruitment’s Mr Keyes.

“One of the indicators for us of an improving employment market is an increase in demand for short term or temporary staff. Typically in the up cycle of an economy the first button pushed on recruitment is in the temporary area. Companies are a little nervous about recruiting on a long term basis and will take the temporary staff option. So demand in the market has increased for their product or service, they are taking people on but they are not convinced it has fully turned. In our organisation we have not seen that actual occurrence yet.”

There is worse still in the pipeline according to most analysts and the chance that the unemployment rate will go over 10.0 percent by the end of the year. So, what it the reaction of the jobless and the government? Czechs have repeatedly been slammed in the past for their unwillingness to move in search of work. Has the latest jobs crisis changed that? Aleš Křížek is country manager at the Prague branch of international executive recruitment company Robert Half International. He thinks mobility is still a moot point with many Czechs unwilling to travel more than 30-40 kilometres for work.

“The situation is very stable and the same for the last 10 to 15 years. Czech people are not willing to move and that is true, it is still valid. Today’s numbers are really clear: no, Czech people are not willing to move.”

The exception is of course top managers and young professionals seeking to get some experience abroad before coming back home. But Grafton’s Mr Keyes says a survey of its jobs seekers over the past year suggests mental barriers are being broken down here with more flexibility also being shown on wages.

“We have noted that over 60 to 70 percent of people are willing to travel in excess of 45 minutes in order to go to work. This would be quite a huge change in an historical perspective. Secondly, we are seeing people are being more flexible in terms of the opportunities they are willing to accept. Our survey again indicates people are willing to take positions equal or lower than they currently have and at salaries that are equal or lower to what they currently have.”

Mr Křížek says the turnaround has been so abrupt on the jobs market that it is too soon to say whether the jobless are taking steps to acquire new skills.

“Now most of them are in a new situation, they have lost their job and they are wondering whether to start re-qualification through this to get more possibilities on the market. But it is still not so common. So if people lose their job the first thing they do is to find another job.”

The Czech government is currently facing two ways, trying to persuade employers to keep on workers at some of the industries that have suffered worse from the downturn – and in all brutal honesty might not have much of a future faced with cheap Asian competition – and trying to map out a future jobs policy.

Most admit manufacturing will have less of a role in that future with the massive foreign investment in new car and tv plants a thing of the past. Higher Czech wages have eroded some of its past attraction as a manufacturing base. But Grafton’s Mr Keyes says the car sector has built up such an impetus in the Czech Republic and neighbours such as Slovakia that is still gong to be a big factor for at least a decade or more. He says the Czech Republic could try and sell itself as a centre for so-called “near shore” services – higher skill services for multinationals for whom the time differences or other drawbacks of buying these services, for example, in India or China, make these locations unattractive.

The government has taken a rather different tack as the ministry’s Mr Duháň explains.

“The idea is to support more research and development and new technologies and something similar. Therefore we would like to change our labour market a little bit so as not to be only dependent on manufacturing. We must try for the future to have more people who can cope with new challenges and technologies.”

Whatever the chosen course, a lot of adjustment looks like being the one inevitable lesson from this unprecedented economic downturn.