Labor Market in Czech Republic and How Best to Protect It

Let us begin by looking at those European trends that might benefit the Czech Republic in this area. In September 2016, the European Parliament adopted a Report on Social Dumping in the European Union. It includes a number of recommendations that could also benefit the Czech labor market.

The first part of the report deals with combating the illegal practices that distort labor markets and thwart fair competition. For example, the report calls for improvement in the effectiveness of labor inspections. These ought to focus more on monitoring the observance of working hours, as well as the health and safety of employees. The report calls for stricter monitoring of the observance of working hours and leisure time, particularly in the field of transport but also in construction, hotel and restaurant services, and healthcare.

Cross-border cooperation among inspection services should be improved by setting up bilateral and multilateral teams, since a number of practices detrimental to workers exploit the differences in standards that apply in individual countries’ labor markets. That is why the report advocates exposing the existence of fraudulent recruitment agencies and “letter-box companies,” virtual firms that often seriously violate European labor legal provisions. It calls for a list of such companies to be drawn up and made available to the relevant monitoring authorities.

Sections of the report urging the EU member states and the European Commission to engage in a fundamental debate on how better to distinguish between employees as classically defined and the self-employed might also be of interest to the Czech Republic. This should help distinguish between employees and self-employed workers with a view to combating “bogus self-employment,” which greatly undermines insurance systems and frustrates fair economic competition.

Protection of People Who Perform Domestic Work

NB: The report gives special attention to the protection of people who “perform domestic work and provide home care,” which is quite often merely a cover term for maid services. Generally, more attention ought to be given to cases of abuse relating not only to women working in households but also to migrant seasonal workers.

From the Czech perspective the crucial sections of the report are those dealing with the convergence of wages and workers’ pay in individual countries. As we know, the fact that Czech workers’ wages lag behind the median earnings in the eurozone countries certainly cannot be ascribed solely to differences in work productivity.

Cross-border cooperation among inspection services should be improved by setting up bilateral and multilateral teams.

Unfortunately, this part of the document appears to be purely declarative in nature, emphasizing the need to establish in the territory of the Union and/or the euro area “economic, fiscal, and social mechanisms which will improve the living standards of EU citizens by reducing economic and social imbalances.”

Of all the specific steps proposed, the most important is the recommendation to establish wage floors with the objective of gradually attaining at least 60% percent of the respective national average median wage at some (albeit unspecified) point in the future. Nevertheless, Czech employers have nothing to worry about since the recommendation has no binding force of any kind and is rather a kind of wishful thinking unsupported by any economic arguments.

Another initiative that might be relevant in terms of protecting the Czech labor market is the European Pillar of Social Rights.

Great Expectations towards the Pillar of Social Rights

The idea was first mooted by European Commission Chairman Jean-Claude Juncker, in an address delivered on September 9, 2015. He explicitly defined the pillar of social rights as a step towards establishing a truly fair, pan-European labor market. He recommended launching the initiative in the euro area countries, with the other EU member countries being able to join it, if they wish.

In early March 2016, six months after it was first mentioned, the European Commission presented the first outline of such a pillar. It comprises twenty points aimed at opening a broad discussion across society.

The fact that Czech workers’ wages lag behind the median earnings in the eurozone countries certainly cannot be ascribed solely to differences in work productivity

The initiative of establishing a pillar of social rights, which would significantly affect the labor market conditions of individual member countries, has raised great expectations. The pillar of social rights is meant to counterbalance the EU’s previous policy, which has so far has been too heavily skewed towards cooperation and co-existence on a purely economic level. It is presented as the compassionate alternative to the imperative of economic competition.

However, its very status is problematic. As is well known, social policy falls almost completely within the remit of individual EU member countries. European institutions interfere in this sphere mostly in cases when it is necessary to regulate the labor conditions of employees or other workers posted to other countries. Nevertheless, the Commission expects that the discussion of the pillar of social rights would contribute to a reform process that will, in due course, bring about a convergence of labor and social conditions in individual EU countries.

Twenty Key Areas

To stimulate this discussion, the Commission lists twenty key areas. The state of all of these areas is currently not quite satisfactory, and this can have a detrimental effect not only from the social but also the economic perspective. For each of these areas the Commission defines an ideal state of affairs to aim for without, however, suggesting how to go about reaching it. Thus, all it amounts to is just another long list of good intentions rather than a thought-through strategy.

The outline of the European pillar of social rights recommends good quality in-service training programs as a way to improve the situation in the labor market. It calls for all workers, including those on temporary contracts, lower wages, and with minimal social protection, to be treated in a way comparable to those who have retained traditional work contracts. It calls for a simplification of the procedures required to switch professions in response to the changing demands on the labor market. A higher degree of certainty accompanying such transfers ought not to lead to lowering incentives for looking for a new job.

Similarly general are the recommendations for improving active employment policies with regard to young people and the long-term unemployed, ensuring gender equality in looking for jobs and the elimination of discrimination on the grounds of ethnic origin or religious and sexual orientation of job seekers.

The pillar of social rights is meant to counterbalance the EU’s previous policy, which has so far has been too heavily skewed towards cooperation and co-existence on a purely economic level.

Employers are requested to provide full information on labor conditions in the jobs they offer. The report recommends that a minimum wage be introduced in countries that have not yet done so. As for health and safety, these principles should be observed regardless of the type of employment.

The final section of the pillar of social rights relates to social policy. It recommends that all those interested should be provided with high-quality health care, a dignified level of old age pensions, decent unemployment benefits, a proper level of the social minimum benefits, and access to other social amenities, including accessible public transport and own bank accounts. Sadly, however, in none of these points is it made clear where the funding is to come from.

An Ambiguous Document

From the perspective of the Czech Republic, the document is somewhat ambiguous. What might be of interest to us is the fact that it speaks to issues that affect people who live in countries that have attained a certain level of wages and social security, yet enjoy working conditions that are at a significantly lower level than those of most of their colleagues.

However, it does not deal with people working full-time in countries with significantly lower average wages and lower standards of social security than those found in countries in what used to be called Western Europe. The document certainly does not tell us what we should be doing to ensure that the Czech labor market provides wages that correspond to the level of labor productivity achieved. The document fails to resolve the problem of wage convergence and a general upward trend in labor market conditions between individual EU countries.

Let us now look at those European Union initiatives that might pose a considerable risk to the Czech labor market, in particular the impact of the wave of migration and the related EU attempts to impose a system of automatic asylum-seeker allocations on individual member countries.

Although the claim that new arrivals will revitalize the labor market is one of the key arguments for the desirability of migration, this is not backed by evidence.

Given the professional background and education levels of the vast majority of migrants, it is increasingly obvious that their arrival will be most likely to affect the labor market in two key ways.

Before we elaborate on this impact, a few words for those who believe that the Czech Republic has been immune to the influx of migrants. Relevant European Parliament committees have already begun to discuss the European Commission proposal for automatic allocation of migrants in all EU countries.

Given the professional background and education levels of the vast majority of migrants, it is increasingly obvious that their arrival will be most likely to affect the labor market in key ways.

The proposal includes a provision that would fine those countries that “do not temporarily participate” in the reallocation scheme 250,000 euros for each rejected claimant. However, the Commission’s proposal does not refer to any ceiling on the number of allocated claimants that must not be exceeded. Thus in the case of countries such as the Czech Republic the fines might range from several dozen million euros annually to dozens of billions. Instead of rejuvenating our economy we would see our economy ruined.

The Gap between the Lowest Wage and the Average Wage

Just out of interest, it is worth noting in this context that, should the Czech Republic refuse to accept the same number of migrants as Sweden, a country of ten million inhabitants, has accepted over the past two years, the fines would amount to nearly a trillion crowns, i.e. approximately the country’s entire annual budget.

At the same time the European Parliament’s committees have suggested making the allocation of European structural and investment funds conditional on the willingness of individual countries to accept migrants.

Should these proposals be adopted, our obligation to contribute to European funds would remain unchanged, while our right to draw funding from them could be severely curtailed.

Now to the two most likely consequences of the arrival of a large number of migrants to our labor market. In terms of successful integration into the new society, the requirement for the labor market to absorb these people has comparable chances to succeed as their attempts to acquire the language of the host country.

Given the professional training structure and average education levels of the new arrivals it is obvious that a vast majority of them would end up in jobs that require the lowest levels of training. That would definitely not result in wage growth in these jobs, particularly as the Czech Republic is already, as is well known, one of European countries with the greatest gap between the lowest legally permitted wage and the average wage.

A Higher Number of New Arrivals as a Great Burden on the Social Systems

The stagnation or even the decline of wages that is likely to follow in this sector might, to some extent, affect the general level of wages, further deepening the process of divergence between wages, purchasing power, and living standards in the Czech Republic and countries of the euro area.

Another, perhaps more likely, scenario is that a large proportion of the new arrivals will remain outside the labor market in the long term. This, of course, would be detrimental to their chances of social integration. At the same time, a higher number of new arrivals would place a great burden on the insurance and social security systems. Ensuring adequate funding for these systems would be quite difficult and make it necessary to increase the contributions of those who are employed. That, in turn, would affect both the living standards of the employees themselves and the competitiveness of the companies that employ them.

Should the Czech Republic refuse to accept the same number of migrants as Sweden has accepted over the past two years, the fines would amount to nearly a trillion crowns, i.e. approximately the country’s entire annual budget.

A cursory list of various factors that might, to a varying degree, affect the quality of our labor market and its protection further confirms the ambiguity of the European Union’s proposals. The program documents include some aspects that, if applied to the Czech Republic, might help improve the functioning of the country’s labor market. However, practical policies that have, over the past three years, been mostly related to the migration crisis include provisions that could have a devastating impact on our labor market and national economy as a whole.

What is particularly disturbing and alarming is that while the potentially beneficial EU initiatives suffer from a lack of specificity and are worded merely as recommendations, those initiatives that pose a danger to our economy are highly specific and of a wholly and uncompromisingly binding nature.