Business News

This week we take a closer look at the issue of unemployment, its development historically and what labour market experts think about the government's efforts to fight the most serious problem - long-term unemployment. We also have a round-up of other economics news.

Inflation remains low in September

The Czech inflation rate decreased by 0.5 percentage point in September as compared to the previous month but grew 0.8 percent year-on-year. Analysts say the low rate of inflation is mainly due to favourable development of prices of foodstuffs and fuels.

Central Bank, Trade Unions at odds over wage growth

The Czech central bank and the Trade Unions are at odds over wage growth in 2003. The unions demand a 7-percent nominal growth. However, the Czech National Bank governor Zdenek Tuma said after meeting union representatives that such a high wage growth was unacceptable and did not correspond to the current development of the economy. The main difference is in inflation predictions - whereas the unions expect inflation rate of 3.5 percent next year, the Central Bank believes it will be slightly under 2 percent.

Phare project to help Czech Rep. harmonise tax, customs laws

The EU's Phare programme is launching new project to help the Czech Republic harmonise its customs and tax laws with EU legislation. The project will last two years during which French and German will work with the Czech Finance Ministry. The EU considers taxes and customs duties as the cornerstones of an effective functioning of the single market.

Czech tobacco black market on the grow

Czech customs officers say illegal trading with tobacco products in the Czech Republic has been growing. The black market damages legal producers and decreases tax revenues. While in 1998 customs authorities seized some 250 thousand packs of cigarettes smuggled to the country, from January to September this year it was almost a million. Judging form imports of certain items the supreme customs authority assumes that cigarettes are also produced illegally in the Czech Republic.

Unemployment stagnates at 9.4 percent

The Czech unemployment rate stagnated at 9.4 percent in September. At the same period of 2001, the unemployment rate stood at 8.5 percent. The result is in line with expert predictions. The unemployment is expected to grow in the coming months to reach 9.9 percent in 2003 due to an economic slowdown and strong Czech currency. The lowest unemployment rate in September remained in Prague and Central Bohemia, whereas 17 districts reported unemployment higher than 12 percent. The absolutely highest unemployment is in the North-Bohemian district of Most, at almost 22 percent.

Government to fight long-term unemployment

In a related story, the Czech government recently announced two new schemes within the national action plan to combat employment. The new projects, called "First Chance" and "New Start", respectively, focus on recent graduates and people who have been unemployed for a period of more than 12 months. My colleague Martin Hrobsky spoke with Daniel Munich who is an assistant professor at the center for economic research and graduate education at Charles University, and began by asking him about the history of unemployment problem in the Czech Republic.

"Unemployment was nonexistent during communism, it was zero. Although there were people without work statistically it was zero, it was not reported at all. In fact it stayed at very low levels until mid 1996. May people questioned if it was a Czech miracle or whether the government was subsidizing firms or banks in some way in order to keep jobs. So now we know it was mostly this effect, keeping all industrial structures in state hands. So in mid 1996 unemployment started to grow, in fact it indicated that something wrong is happening in the economy. An economic recession appeared in 1997 which lasted till 2000. In those times we got into an opposite direction of movement compared to Europe and now this year we are going back on the same track as Europe, meaning we are in recession in fact. If you look into current growth of unemployment it indicates that we in a recession as Europe."

Given the fact that unemployment has been growing across Europe, how well has the Czech government fared in its efforts to deal with the problem? Daniel Munich again.

"I think they did relatively well. In relative terms the system is working properly since early 1990's when it was established. The system provides information to people and it tries to bring people back to work and depending on the money available it tries to create jobs, this is called active employment policy. This was on relative terms compared to Europe and the rest of the world and if I forget what is around I would see several ways how to improve the performance, this is called the national employment plan. Now we have an employment plan for 2002 and we will have one for next year because it is a part of the European agenda that every state in Europe has its own national plan. Its quite a long plan of measures to be developed and expanded. I think there is a few which might help us and these are recently introduced programs trying to bring young people to work after six months and older people before one year of unemployment. The question is of course how these programs will be run, how tough these programs will be on those who in fact don't want to work and want to live on benefits and in the shadow economy. The second good point is that the administration feels that they do not know much about the efficiency of these active programs and they decided to subject these programs to more of a detailed analysis because it is not clear today if the billions that are spent on these programs is money well spent."

A major element of the government's plan to get young people back to work is increasing cooperation between the different levels and ministries of government. How effectively have the various ministries been working together?

"I see an improvement, I think the situation was extremely bad in the past so its improving but it is still not good. I think it is the accession to Europe, the forces from the EU that forces people from different ministries to cooperate on individual programs. This brings people from different ministries together and forces them to share responsibilities on unemployment. In the past it was the education administration focused on education and the employment industry on employment and they blamed each other for poor graduate or poor labour market institutions and the solution was nowhere."

Another issue of course is the Czech Republic's planned accession to the European Union. How does Economics Professor Daniel Munich see the employment situation developing in the future?

"We should distinguish short term fluctuations from long-term. Short-term, I mean business cycle of a few years where the economy is going up and down and unemployment is fluctuating accordingly which is everywhere in market economies. Concerning long-term trends we are behaving like the rest of Europe. Meaning that our labour market is sclerotic, there is hysterics on the market. So the unemployment is growing much faster then it goes down during times of economic boom, that is why unemployment is growing steadily in Europe for the last 30 years. The Czech labour market seems to be no different then other European markets so what we can expect is that unemployment will fluctuate following business cycles but in the long-term it will go up. So if we are now around almost 10 percent if there is not substantial change in social programs in general including unemployment policies we are likely to stay at two digit levels during our first decade in the European Union, that's my guess."

Professor Munich has written a study comparing long and short-term unemployment the Czech labour market to that in several EU countries, including Germany, Great Britain and Spain. On the whole, he was optimistic for the future of the Czech labour market.

"We compared a hypothetical development in UK Germany and Spain, what would happen there with short and long-term unemployment. Would they have the same recession we hap in 1997. We found out that the Czech labour market seems to be much more flexible then the German or Spanish one. We compared the U.K, the labour market in the U,K is understood as relatively flexible and they have very low unemployment as compared to the European Union. So we can still be optimistic but it depends what the government will do in the future."