Both the minimum guaranteed wage and the national average wage increase

As the Czech Republic's economy continues to grow so too are wages. The average wage in November saw the single highest monthly increase since 1999 and on Monday the government approved an increase to the minimum wage, however it was not as large as originally planned. The increase in wages across the board compounded by the continuing strength of the Czech crown are raising fears that it could affect unemployment.

Both the minimum guaranteed wage and the national average wage increase

Minimum guaranteed wage, 1991 - 2003, (CTK)

The average monthly wage grew by 7.4 % to just under 15 thousand crowns or around 500 Euro in November. The increase, the highest since 1999, is largely due to record low inflation of 0.7 percent, according to the Czech Statistical Office. The largest increases were seen in the public sector where wages grew by more than 10 %. There has been a growing fear among economists that the continuing trend could negatively affect employment. Increasing wages, compounded by the strong crown could mean more layoffs in the new year. Comparatively, the average monthly wage in the Czech Republic is lower then that of Slovenia and Poland but higher then Hungary and Slovakia.

As the average month wage continues to grow the government also approved an increase to the minimum wage by 500Kc to 6200Kc or 200 Euro per month, an increase of almost 9 percent. Originally, the government planned to increase the minimum wage by 15 percent but backed down. I spoke to Daniel Munich who is a professor at the Centre for Economic Research and Graduate Education at Charles University and asked why this was the case:

"Because there is a trade off. Minimum wage is also a bench mark for mandatory payments to the state budget for students and other non-working individuals and it would increase payments of public institutions to the state budget, sometimes these institutions wouldn't have enough money. So minimum wage is also used as a bench mark for these payments."

The increase in the minimum wage is designed to make people who are currently unemployed to find work. Increasingly the Czech government has been making efforts to curb long-term unemployment. Long-term unemployment is often relatively costly for the state and the tax payer because it includes people who are no longer looking for work and rely on social benefits as their only source of income. The hope is that by increasing the minimum wage, people who normally live on welfare or unemployment benefits would be more inclined to work because of the higher wage. However, as Mr. Munich explains, there is a lot of disagreement among economists as to the actual affects of the minimum wage on unemployment.

"This is a big intellectual and scientific question and many studies around the globe are trying to measure the impact, they are only guesses. The impact could be positive or negative, theoretically. But, rather it could increase unemployment, its really a guess. But, several other effects, one is that some people claim that having to pay higher wages, firms have incentives to invest more into their employee's so that they finally get more productive and they are getting the right wages above the minimum wage. There are many studies, big attempts to measure this affect and there is no final answer to that. Most people think that the answer is known."