Czech wage rises trailing company performances

Photo: FrameAngel /

Economic figures and most analysts agree that the Czech economy is growth bound this year and the next. But strong performances by manufacturers, exporters in particular, are not always sharing the good results with their workers. That realization has to some extent united trade unions and members of the central bank board in pointing that there is room for higher wage rises.

Photo: FrameAngel /
There was a time not so long ago that central bank governors and board members would issue solemn warnings of cataclysmic economic consequences if one or other group of workers gained the wages hike they were seeking.

That was in the age of rampant inflation and with prices rises now flat lining at just above zero the rhetoric of central bankers has changed. Now some members of the Czech National Bank board are reportedly urging high wage rises which could help increase domestic demand and push up inflation to a bit nearer the central bank’s 2.0 target figure.

Bank board member and the man tipped to be the next bank governor, Jiří Rusnok, told Czech Television Sunday that wage figures for the last quarter of 2014 showing a rise of 2.3 percent increase, a real rise of 1.8 percent after taking into account inflation, were an unpleasant suprise. The bank had been hoping for something more substantial than the increase which took average Czech monthly wages to 27,200 crowns.

Some members of the board of the central bank consider wage hikes of around 4.5 percent to be in order for this year, according to a report in Thursday’s edition of the daily Hospodářské Noviny. Rusnok though on Sunday distanced himself from that specific demand.

The impression however holds that while the Czech economy has clearly emerged from the worst over the last 18 months and manufacturers and, in particular, exporters appear to be thriving – in part helped by the national bank’s low crown policy – the benefits in terms of higher wages do not seem to be being shared around. It’s estimated that industrial producers, for whom exports generally represent a sizable slice of overall demand, saw their turnover surge ahead by more than 8.0 percent last year. But wage rises in the same sector only advanced by around 3.0 percent.

For those seeking signs that the situation might be changing soon, last week’s pay settlement of 3.5 percent for the country’s biggest and most successful industrial exporter, car maker Škoda Auto, will not offer much encouragement. Josef Středula, the head of the biggest Czech grouping of trades unions, maintains that wage rises of around 5.0 percent this year are in order to make up for the real falls in living standards suffered by many workers in recent years and reflect improved corporate performances and profits.

Rusnok reflected on Sunday that domestic demand in the Czech Republic, partly due to relatively low wages, counts for a smaller slice of the overall economy compared with other developed countries. It’s estimated that wages paid out to workers represented 32.1 percent of national wealth creation in 2013 and had advanced timidly over the last 13 years. That figure compares with the EU average of just under 39 percent, 42.3 percent in Germany, and 37.2 percent in Hungary.