Analyst - Skoda deal psychological boost for unions seeking higher wages

The threat of further strike action at the Skoda Auto car plant in Mlada Boleslav has been averted after management and unions agreed a deal on pay. Most of Skoda's 24,000 workers took part in a day-long staggered strike on Wednesday, after months of inconclusive talks. That led to fresh negotiations which produced a compromise, under which wages will rise by 12.7 percent until the end of 2008. The crisis at Skoda Auto - owned by Germany's Volkswagen - has been resolved, but what does it mean for the Czech economy? We asked Ales Michl, an analyst at Raiffeisen Bank.

Ales Michl

"I really welcome that there will be no other strike in the company, but I would say that the final deal is not a win-win situation either for the labour unions or the management of the company."

Why?

"I think the growth in wages at Skoda Auto will be slightly above average in the Czech Republic. On the other hand this new strategy of Skoda Auto's management will be to keep an eye more on expenditures, and there will be more pressure on productivity."

Skoda Auto is a hugely successful company - it sold almost 550,000 cars last year. Why shouldn't its workers share in that wealth?

Photo: CTK

"You are absolutely right. I think the company's budget can easily absorb this increase. There is no problem, and you are right that the results are great. But on the other hand the growth in productivity is lower than the demand for increase in wages. So, that's a problem of productivity, not of the results or the profits of the company."

Do you think if there are similar demands for wage increases in the future, Volkswagen might consider relocating its car business further east?

"I think that this question is not valid for today. I do not expect there will be any movement of Skoda Auto to the east in the next 10-15 years."

So you think the Czech workforce can remain competitive for the time being?

"I think so."

Obviously everybody is talking about the potential knock-on effect that the Skoda settlement could have for other businesses in the Czech Republic, other sectors. Do you think there will be an effect in other areas of the Czech economy?

"Yes, I think so. I think this is a psychological signal for labour unions in other companies, and I would say that overall there is a shortage of qualified technical workers on the Czech labour market. That's why we can see the process of tightening of the market, and overall that poses a threat of faster inflation. And I would expect there will be high interest rates soon, just because of this fact."

In other words because these qualified workers know they are in demand, they can demand higher wages.

"Absolutely. So there will be bigger pressure on wages, and in the end that will lead to higher interest rates in the Czech economy."