Overhaul of labour market mooted – but would Czechs accept less security?

One of the most eye-catching of a raft of proposals from the government’s economic council is to give Czech bosses more flexibility in hiring and firing, including redundancies without stated grounds. But how much would this radical idea, backed by Finance Minister Zbyněk Stanjura, actually benefit the economy? I asked UK-based economist Tomáš Dvořak.

Tomáš Dvořák|Photo: Ian Willoughby, Radio Prague International

“In its core, it’s not a bad proposal, because we do have a problem with labour market flexibility.

“But having read the set of proposals from the economic council, this would probably come as my last priority. It’s not something I think is desperately needed at the moment.”

But would you accept that the current level of job security for Czech employees – apparently one of the highest in the EU – is actually holding back the economy?

“In the European comparison I think we are one of the more secure labour markets, that’s true.

“In the current situation I see where the economists who have made the proposal are coming from.

“Because we have a very low unemployment rate, and there is a sense that there is a sort of misallocation of labour: employees are sort of bound to companies that are maybe not doing as well, and are missing in companies that have some growth potential.

“So it could have some positive impact, because some degree of labour reallocation is needed.

“But again, of the 37 or so proposals [published last week] I wonder why the government has picked this specific one and not something else, because it will be quite difficult to do well.

“And relaxing of the hiring and firing laws really has to be – and I think the government acknowledges that – complemented by the social security aspect of it.

“So if it’s going to be easier for employers to fire employees, they also need to provide enough of a buffer, in severance pay, to make that process smooth. Otherwise it’s going to breed social discontent.”

Obviously you’re not a sociologist, but still, for Czechs – so used to having a certain level of security –could this be a terrible shock, and something that a lot of workers would not be prepared to accept?

Photo: Clker-Free-Vector-Images, Pixabay, Pixabay License

“I agree. I think, overall, Czech employees or Czech workers seem to prefer security – that sort of safety of having a job – to, for example, higher remuneration.

“The first question is, is that actually good? And the second question is, could this be something that maybe makes work more precarious but also better rewarded?

“Because I think it’s fair to say that one of the things that’s stifling pay growth is employees favouring stability or security to potentially more risks but also potentially higher rewards.

“So perhaps that’s the way to also push up the wage ladder.”

You say that there are other areas when it comes to the labour market that the government should focus on more. What do you think that the government should be particularly focusing on?

“I would personally focus on increasing participation. There’s a huge participation gap between men and women in the Czech labour market, with obviously the women’s participation rate being a lot lower. That’s an unused resource that we could be focusing on tapping.

“There have been proposals about improving childcare, to make it easier for people to go back to work, perhaps part-time. That seems to me like relatively easy low-hanging fruit, but also an incredibly worthy proposal.

“And finally what I think really needs to be done in the labour market relates to the tax structure, and that’s the incredibly high taxation we have on labour.

“That’s distorting the labour market and actually makes the sort of job hopping we’re talking about more difficult also. So that would be my first priority.”