PM targets foreign companies over low Czech wages

Increasing wages, Prime Minister Bohuslav Sobotka has made clear, will be a key campaign theme for his Social Democrats in what is an election year; on Tuesday, he suggested with the mandate the government has left he will boost pressure on foreign owners of Czech firms to increase wages. Salaries in the Czech Republic are still seen as generally lower than what might have been expected 27 years after the fall of communism.

Jan Bureš|Photo: Tomáš Adamec, Czech Radio

For its part, the government has already raised the minimum wage several times.

I spoke to chief economist at Patria Finance Jan Bureš about wages in the Czech Republic and where they stand at present.

“Generally-speaking, it seems that wages in comparison to western European countries Czech wages are still low. We are at roughly around a third of the German level, but it depends on the sector. In terms of productivity, in the tradable goods sector we are much higher so yes, it is a bit of a strange situation that there was not a bigger catch-up with productivity. On the other hand, it is not an automatic process.”

If productivity is around 60 percent, compared to Germany, the wages generally don’t meet even that, do they?

“They don’t, but there are other factors to take into account. Wages generally respect the average wage level within the whole economy but there are some sectors where wages are low for historic reasons or due to institutional settings. Also, while I do not think that the position of Czech labour unions is weak, it is weaker than in several European countries.”

The prime minister has kind of focussed on foreign owners of Czech businesses, charging that wages there are unnecessarily low. Is there much that the government can do in the private sector in terms of putting pressure?

Illustrative photo: Tomáš Adamec

“I think that a better way than exerting pressure would be to support small and mid-level enterprises which are more innovative but can potentially have global ambitions. If we want to reach higher wage levels we should look at these small and mid-size businesses for example in Germany or Denmark which are really innovative and competitive, where they can afford to pay their employees better. I would not see the solution in trying to pressure big companies, multi-nationals who will never be as innovative and not raise wages in good times.”

There will always be firms which will try and take advantage of lower labour costs if they can…

“Definitely.”