Private sector wages rising by up to 20 percent in some sectors, says ManpowerGroup CEO

High rates of inflation and rising energy prices are among the main reasons why Czechs are calling for higher wages. While the government has chosen to freeze salaries for civil servants, companies in the private sector are following demand and increasing wages. At the same time, experts are calling for wider reforms in the Czech economy.

Jaroslava Rezlerová, the CEO of the country’s largest employment agency ManpowerGroup, says that private sector businesses in Czechia do not have much choice and have to increase salaries in order to attract new employees. This is further amplified by the fact that the Czech Republic has one of the lowest unemployment rates in Europe and businesses therefore do not have a wide pool of prospective applicants to choose from, she says.

"There aren’t enough candidates. Covid slowed down the influx of people from abroad looking for work, so this factor has become even more significant recently."

The chief economist at one of the country’s main banks Raiffeisenbank, Helena Horská, says that employees should make use of this opportunity that has arisen on the job market.

“If they see that their productivity is growing and that their company is doing well, they should ask for a corresponding reward.”

In recent years, employees have been particularly interested in increasing their work benefits. For example, a significant number have placed flexible working hours above the size of their salary. However, with inflation now rising rapidly, wages have come back to the forefront, says Jaroslava Rezlerová.

“In some sectors wages are growing above inflation rates, around 15 or even 20 percent. This could have a slow-down effect on the economy, because foreign companies could decide that it is not worth it for them to have branches here.”

Jaroslava Rezlerová | Photo: ManpowerGroup

Nevertheless, she says that it makes sense for companies to raise salaries for employees who have relevant skills, because the cost of keeping them is lower than that of training a new applicant.

While this is beneficial to some, the ManpowerGroup CEO warns that the current situation is also leading to the formation of a group of low-qualified workers that are easily replaceable and therefore hold little sway when negotiating their salary.

“They can be replaced, for example, by immigrant labour. Then there are people living in remote regions of the country where there are much fewer job opportunities. They also do not have much room to dictate the terms under which they want to work.  This could lead to a widening of cleavages in society.”

The current situation also brings opportunities for the Czech economy, she says, most importantly for a restructuring of the economy in order to make it more competitive.

The Vice-President of the Czech Chamber of Industry and Trade Radek Špicar agrees.

"We can illustrate the problem of [our] cheap economy with two numbers. The average productivity, or value, that a [Czech] employee creates in an hour is equivalent to EUR 13. In Germany its EUR 42. This is the main problem that we need to fix.

"It’s not that a Czech employee works 45 minutes less than a German. It‘s about the structure of the economy. We are a sub-contracting oriented economy rather than one focused on manufacturing the final product.

“Furthermore, we are significantly controlled by foreign capital. It is good that foreign economies invest in this country. However, their dividend profits end up outside of the Czech Republic. If that money stayed here, it could be invested into research, development or better salaries.”

For this to happen, companies will also need support from the state, he says, specifically in terms of boosting the size of the labour market and simplifying authorisation procedures for companies hoping to build R&D facilities in the country.

Sociologist Daniel Prokop says that this should also include greater support for small and medium enterprises, in the form of a tax reform.

"We need to have a progressive income tax, we need to tax real estate more. Further taxes could also be raised by taxing alcohol and cigarettes even more. Environmental taxes could also be raised in some areas.

“We just have to be smarter about how we tax so that we don't have to tax labour so high. This could help more people start small companies and encourage local markets."

Authors: Thomas McEnchroe , Václav Pešička , Ondřej Skácel
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