Czechs face biggest unemployment rate since Great Depression

Unemployment in the Czech Republic hit a record high at the start of the year. January saw close to 590,000 people out of work, the worst unemployment rate since the Great Depression in the 1930s. The government says this is largely the result of external factors, but critics and trade unions claim the government’s ill-conceived austerity measures have undercut growth.

Photo: Filip Jandourek

Czechs are feeling the impact of a protracted recession. According to a January poll close to 70 percent of people now fear unemployment and are putting any money they can spare aside for harder times. In some regions –where unemployment has reached 15 to 18 percent - the fear is substantiated and finding work is not easy. While on average there are 17 job seekers per vacancy some towns report over 100 candidates for every job opening. People over 50 and university graduates with no experience in the given field have little chance of succeeding. The prospects for 2013 are equally grim.

Trade unions are ringing alarm bells and accuse the government of exasperating the problem of unemployment with what they claim to be excessive austerity measures which have undercut growth. Confidence in the economy has been severely undermined and fear of unemployment and higher prices stemming from the VAT hike implemented in 2013 have curbed consumer spending. Small business are cautious in investing, creating a vicious circle stifling economic growth. Trade unions are now calling for a massive injection into the economy to be spent on pro-growth measures which would create thousands of new jobs. Jaroslav Zavadil is head of the country’s umbrella TU organization.

“The money that the government is spending to combat the problem of growing unemployment is quite absurd. It is ten times less than is being spent in neighbouring states. What we want to see now is a 5 to 6 billion crown injection spent effectively.”

Miroslav Kalousek, photo: Filip Jandourek

The government says: no way; it is ready to spend 1 billion from EU funds and is not prepared to create new jobs if it means running further into debt. Finance Minister Miroslav Kalousek.

“This government is not going to stimulate economic growth artificially for a certain period of time because the effects of that would only be visible until such a time when the money runs out.“

Minister Kalousek claims that the high unemployment rate is moreover the result of three combined factors which are hard to influence: the high unemployment rate in Europe which is impacting the export dependent Czech economy, the seasonal work factor in the construction and agricultural sectors and finally a 2012 verdict by the Constitutional Court which ruled that the unemployed could refuse to do community service. The finance minister claims the latter is boosting the ranks of people in the grey economy.

The chief economist at Reiffeisenbank Pavel Mertlík, who himself is a former finance minister says the problem with growing unemployment in the Czech Republic is internal and is the result of the government’s policy.

“If you compare the Czech labour market data and all other macro-economic data with that of our neighbours the first important indicator is that the Czech recession is longer. It started earlier and is more protracted. Also, before it hit, growth development in the previous two years was much milder than in Poland, Germany, Austria or Slovakia. So it is quite apparent that the Czech Republic has a problem with growth and the source of the problem is very weak domestic demand, both consumer and investment. The only factor which has been driving the Czech economy in the last three or four years is exports and that is not enough.”

Pavel Mertlík, photo: archive of Radio Prague

The country’s protracted recession is often put down to the fact that the country’s export dependent economy is reacting to the economic crisis in Europe, particularly in Germany, the Czech Republic’s biggest business partner on the continent. Pavel Mertlík says the government should look closer to home for a solution.

“The key point is that exports make up only about 30 percent of the country’s GDP, the remaining 70 percent is domestic consumption. And if you recall the situation in 2010- 2011 it was a period where the German economy had record high growth rates of around 3 percent while the Czech economy was barely growing and was very close to stagnation. So despite the fact that export to Germany and other countries was doing very well the Czech economy was not growing appropriately and instead of the convergence process which we had in previous decades these past three or four years we have been in divergence. Clearly, the problem is inside the Czech economy –not in its export sector.”

Although the unemployment rate is the worst in the country’s modern history Czechs are still generally unwilling to leave the country in search of work opportunities abroad. In contrast to this young people from Euro zone countries where the jobless rate soared to 11.9 percent in January leaving 19 million people out of work have no problem packing their bags. Fabio Oliveira, a construction engineer thought he would be living and working in his homeland but unemployment changed his plans. He now owns a café bar in Prague.

“I opened this café bar in the summer of last year. It is the only place in Prague for the Portuguese community. I recognized the opportunity and grabbed it since the number of Portuguese in this country is growing.”

Blas Palencia Lozano is from Spain. He now lives in Prague and teaches Spanish at Charles University. He too has no plans to return home.

Illustrative photo: European Commission

“At first my father thought I was making a big mistake by coming here to live. But two years later he told me the best thing for me is to stay here.”

Nadia Passone is one of close to 3,000 Italians now living in Prague. She says she is happy to have found work.

“Even if the salary is not very good for a university graduate it is better than nothing. In Italy the choice is nothing.“