Economists say rate of wage growth unsustainable

Graph Average monthly gross nominal wage (CZK) and y-o-y nominal and real wage growth (%): trends, CZSO

Trade unions are preparing massive protests against the government proposed budget reform. But while doctors, teachers, and civil servants are clamoring for higher wages, many economists say that wages in the state sector have been growing faster than the state can afford.

According to data published by the Czech Statistical Office on Tuesday wages in the state sector have followed an upward curve over the past three years, rising by an unprecedented 14.5 % in the first quarter of this year. Indeed wages in the state sector are reportedly quickly catching up with wages in the private sphere, where wage growth has slowed down to an average 8 %. As a result, the present average monthly wage in the public sector - 15,400 crowns - is just one thousand crowns less that the average wage of private sector employees. Moreover, private firms have been laying off employees while the state sector has expanded even further. Economic analyst David Marek claims that the present situation is untenable. He believes that the future of the state sector lies in a diversification of wages.

"There should be greater diversification so that some people could get significantly higher wages, while other people's wages would decrease. People who are qualified and skilled should be better off."

In order to prevent a brain drain from certain sectors?

"Yes, exactly."

We've just said that wages have risen quite steeply in the public sector, which must have pleased trade unions - so why are they planning the biggest protests since the fall of communism? What are they hoping to achieve when you say the money's simply not there?

"The only way their demands could be met would be to increase tax rates in the Czech Republic. That is exactly what they are pushing for but it is something that would hamper the competitiveness of Czech firms. Some firms might be tempted to leave for Slovakia for instance where the tax rates are more advantageous. If we are not able to attract foreign investors and moreover induce some companies to leave for other central European countries the situation could worsen - not improve -so I see the demands of labor unions as being economically dangerous."

Especially in view of the county's accession to the EU next year?

"Yes, exactly because all countries in the region will be perceived as more or less similar. For foreign investors it will make little difference whether they invest in the Czech Republic, Hungary or Slovakia. One important factor in the decision making is the level of costs and tax rates are an important part of that."