Real wages decreased by 6.7% in RC: Territorial and sectoral differences and outlook for the future
Comparison with the previous year
Wage increases have failed to counter the growth of consumer prices in the first quarter of 2023, according to Jitka Erhartová, head of the labor statistics department. Despite the median gross monthly wage in the Czech Republic reaching 41,265 crowns, showing a growth of 8.9% compared to the previous year, it has not kept up with the domestic inflation, which reached 16.4%. Overall, real wages have decreased by 6.7%. These are the findings from the Czech Statistical Office (ČSÚ). Compared to the last quarter of the previous year, the growth of the average wage, adjusted for seasonal effects, was 2.2 percent. In this context, we highlight the wage differences between men and women, with men earning an average of 37,696 crowns compared to 31,856 crowns for women. The Czech Statistical Institute also points out that 80% of Czech workers receive a salary ranging from 18,601 to 65,512 crowns per month.
It is important to remember that inflation dynamics are not expected to persist in the long term, as a decrease in inflation is anticipated as early as the upcoming summer season, which will likely bring inflation back to single-digit figures. This will lead to a diminishing impact of inflation on nominal wages. Companies can – and should – afford wage increases because last year the share of profits for businesses and companies increased significantly due to the phenomenon of so-called profit inflation. Despite recent interest rate hikes by the ECB aimed at slowing down the economy, the labor market remains very “hot,” and the unemployment rate continues to be the lowest in the EU. In this context, there is an excess of job demand compared to supply. Therefore, if companies want to retain their employees, they are forced to consider further increases in nominal wages.
In the current year, wage growth will ultimately keep pace with inflation, as we expect a real decrease in profits of only 1.5% throughout the year.
Sectoral differences
Trends and average wages vary significantly depending on the sector in question. In the energy sector, for example, wage growth has surpassed the inflation rate, with average wages increasing by 23.1% to reach 79,221 CZK. “This development has been related to the payment of extraordinary bonuses above the standard,” states the Czech Statistical Office (CZSO) in its current labor market analysis. On the other hand, in other sectors, real wages have decreased. Statisticians have recorded the largest year-on-year decline in purchasing power in the education sector, where it decreased by 10.7%, while in the financial and insurance sector, the decline was one-tenth.
Overall, across all sectors, wage volume has increased by 9.8% in this first quarter, and during the same period, the number of employees has grown by 1.1%.
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Workers’ choices and conclusions.
Wage dynamics, both overall and by sector, certainly influence workers’ choices. The main differences can be observed among individuals earning a higher salary of over 40,000 crowns. In fact, 60% of those earning over 40,000 crowns live in Prague, while less than 50% are distributed among the various other regions of the Czech Republic. Prague residents have higher earnings, but they are offset by a higher cost of living. Housing and services cost more. At the same time, there is also a different composition of employees in Prague, with over half of them having a university education, which allows them to access higher wages. “People who work for an IT company in Prague or in the financial sector, working remotely and living outside Prague, are better off. On the other hand, the worst situation is for an employee with a less qualified profession living in rented accommodation in Prague,” says Erhartová. According to Creditas analyst Petar Dufek, the published data does not support concerns about a wage inflation spiral. He states that “Overall, the numbers show that the wage-inflation spiral is more of a theoretical scenario or risk in our country, which does not currently require a response in the form of interest rate hikes. Real earnings are declining sharply for the second year, along with household consumption. After all, it’s one-tenth less than before the start of the pandemic. This certainly doesn’t indicate any extravagance among Czech families.” Furthermore, the head of the Czech Banking Association, Jakub Seidler, added, “Real wages, after a significant decline of 8.5% last year, will also decrease this year, although at a more moderate pace, around 2%. Therefore, wage growth will catch up with price growth only at the end of this year and will begin to surpass it only next year.” This is a message aimed at reassuring people about future wage dynamics.
Source: https://www.kurzy.cz/; https://www.patria.cz/
Graphic Source: https://storyset.com/
Source of Images: https://pixabay.com/
