Unemployment rate in the Czech Republic reaches record high

Le chômage à l'Etat tchèque, source: CTK

The Czech unemployment rate reached a record high of 10.2 percent in January. This is the first time unemployment has exceeded the 10 percent psychological barrier since the fall of communism in November of 1989.

Unemployment rate, Graph: CTK
The labour and social affairs ministry reported that the unemployment rate increased by 0.4 percent from 9.8 in December. Employment offices registered just over 500,000 job seekers last month. The highest rates of unemployment were recorded in the Northern regions of Bohemia and Moravia, reaching over 20 percent in some areas. The lowest unemployment is in Prague - a mere 3 percent.

I spoke with Daniel Munich who is a professor at the Centre for Economic Research and Graduate Studies at Charles University and specializes in the labour market. I asked him first, what are some of the reasons behind the increase in the unemployment rate:

"The growing unemployment has at least two or three reasons. First, there is a European wide recession and one would conclude that it should impact the Czech labour market. The second impact is through the welfare system, which attracts more and more people who stay long-term unemployed collecting benefits and not being interested to work or work in the informal sector and not being taxed. So while the European recession will change the impact on the welfare system is permanent and contribute to growing unemployment of there is no change in the welfare system."

Do you know what percentage of the unemployment rate is short-term and long-terms unemployment?

"About 40 percent of unemployed are long-term unemployed, meaning more then 12 months. Currently we are a little bit above the European average but the trend is upwards, so soon we will likely belong to the group of countries like Italy or Spain with a very high share of long-term unemployment."

What are some of the problems with long-term unemployment?

"Long-term unemployed are losing their skills, their work habits so its decreasing their productivity. So their possible wage rate is decreasing over time. And second, if these are parents it is likely that these parents transfer these habits of no work and living on welfare to their children, this is especially the case in North Bohemia and Moravia. Some kids in these families have never seen their parents working so they think this is the style of living, not to work and collect benefits."

I also spoke to David Marek who is the chief economist at Patria finance. I asked him if the unemployment problem could have something to do with the fact that the Czech Republic needs to do more to diversify its export market away from that of Germany which is currently experiencing an economic slowdown.

"Yes, it's the right idea because Czech exports are concentrated. Imports to Germany are very important, about 40 percent of the total value of Czech exports. So a higher diversity of Czech exports would be helpful for a lower impact of bad economic conditions in Germany."

Both Mr. Munich and Mr. Marek agree that the unemployment rate will decrease slightly because of seasonal factors, but both expect the rate to end the year in double digits.