For the past three years, Jan worked as a scaffolder for a building company across the border in Germany. Recently, he returned to the Czech Republic after finding a job at a local construction firm.
But his friend, Petr, is now heading in the opposite direction. “Because of the pandemic, I came home. Now restrictions have ended, I’m going abroad,” he said in a quiet pub in Olomouc, eastern Czech Republic.
The Czech economy has long faced a dilemma. It has maintained one of the lowest unemployment rates across Europe in recent years. It now, in fact, has the lowest rate across the whole of the EU, at just 2.2 percent, according to a recent update published by Eurostat, the bloc’s statistical office.
But economists warn that the rate is low because of a shortage of workers, a concern for Czech industries.
At the end of January 2022, the Labor Office registered 267,076 job seekers. But the following month there were more than 364,000 job vacancies, meaning that for every available job there are only 0.7 applicants, according to reports from Jana Steckerová, an economist at the Commercial Bank (KB), a local bank.
Lowest on the continent
The exact unemployment rate in the Czech Republic varies due to different metrics and classifications, but nonetheless is still one of the lowest on the continent. The latest estimate from the Czech Statistical Office, which counts labor-force sample surveys, put unemployment at 2.3 percent in the fourth quarter of 2021. But the Czech Labor Office, part of the Ministry of Labor and Social Affairs, says it was 3.6 percent.
The number of unemployed people across the EU is falling — down from 7.5% in January 2021 to nearly 6.2% in January 2022 — as economies recover from the COVID-19 pandemic.
A spokesperson for the Czech Ministry of Labor and Social Affairs said the unemployment rate is indeed “very low” and no significant changes are expected in the near future.
“At the same time, however, we have hundreds of thousands of available jobs,” the spokesperson said. “People who want to work can still find a suitable job in the Czech Republic.”
One reason for this divergence is the COVID-19 pandemic. Experts say the international health crisis has altered people’s approach to work. Rather than salary and location, the main concern now is job security. Workers are becoming more choosy and patient. In January 2022, a total of 90,021 people received unemployment benefits, only a third of all job seekers, according to the Labor Office.
The war in Ukraine
However, concerns have been raised about longer-term problems. Russia’s invasion of Ukraine on February 24 has seen more than 2.2 million refugees, mainly women and children, flee into central Europe, according to the UN refugee agency. More than 100,000 have entered Czech Republic so far.
“It is premature to predict the impact of the war in Ukraine on the Czech labor market,” said the spokesperson for the Ministry of Labor and Social Affairs. An estimated 195,000 Ukrainians were working in the Czech Republic last December, a three-fold increase since 2018, according to reports by the Czech Labor Office. Around a third of all foreigners who live in the Czech Republic are Ukrainian, many in temporary and low-paid jobs.
Earlier this month, the Czech government imposed a state of emergency in a bid to help its bureaucracy cope with the number of refugees. This week, Vít Rakušan, the interior minister, warned that Prague’s center for registering refugees is overwhelmed, and it was forced to close last Monday.
Michal Skořepa, an analyst at Česká spořitelna, the country’s largest bank, has argued the refugee crisis could lead to a slight increase in unemployment. On the one hand, he told local media this week, Ukrainian workers could head back home, either to take up arms or join the humanitarian assistance. It remains unclear how many Ukrainian nationals have left the Czech Republic since the war began.
There will also be an end to Ukrainian men coming to the Czech Republic. On February 25, the Ukrainian president, Volodymyr Zelenskyy, signed a general mobilization that forbids men between the ages of 18 and 60 from leaving the country.
This is a big concern for the Czech Republic’s construction industry, which has typically relied on Ukrainian workers, especially as Czech builders migrate for better-paying jobs in Germany or western Europe. About one in five workers have left the industry since 2010, Pavel Dolák, an expert on the construction from the consulting company KPMG, recently told ČTK, a local news outlet.
On the other hand, plans are underway to assimilate Ukrainian refugees into the Czech Republic’s labor force. Its government is looking into wavering work permits, usually a requirement for non-EU citizens, for Ukrainains. Schools, which have faced severe problems with recruitment because of the COVID-19 pandemic, are being advised to offer short-term and part-time employment.
“Suitable for women”
The spokesperson for the Ministry of Labor and Social Affairs, noting that the vast majority of Ukrainian refugees are women, stressed that many of the jobs available in the Czech Republic are “suitable for women.”
Had the war in Ukraine not started, the new Czech government, which took office in December, might have enjoyed a successful year economically. Before the war, the Czech economy was expected to grow by 3.1 percent in 2022.
Buoyed by economic recovery, in December the five-party coalition government rejected the draft budget set by the outgoing prime minister, Andrej Babis, whose administration markedly increased state expenditure, a problem also exacerbated by the pandemic.
The public finance balance hit a deficit of 6.1 percent of GDP in 2021, nearly double EU limits, when the budget deficit reached a record €16.2 billion. Petr Fiala, the new prime minister, campaigned at last October’s general election on the promise to significantly cut state spending and tighten the state purse.
In early February, his cabinet approved a draft budget for 2022 that will cut spending by around €3.1 billion and increase revenue collection by around €2.4 billion. “We will save on the expenditure side and we will better manage taxpayers' money,” Fiala promised.
Under these plans, the government says it will reduce the budget deficit to around €10.8 billion for 2022, compared to the €14.6 billion envisioned by the former government’s draft budget that was rejected in December.
However, the war in Ukraine puts Fiala’s austerity measures at risk. Fuel prices are spiking. The euro is falling against the Czech koruna, lower purchasing power for imports. Inflation, now around 9.9 percent, is expected to soon hit double-figures. The government may be forced to alter its budget cuts before parliamentarians vote on it at the end of this month.
For workers, that means a higher cost of living, which any increase in wages won’t be able to compensate for, especially if the Ukraine war dents economic activity.
This week, the Czech Statistical Office released its latest data on earnings. Although the average gross salary rose to around €1,590 per month in the last quarter of 2021, the high rate of inflation meant in real terms wages fell by more than two percent.
In the last quarter of 2021, inflation stood at 6.1 percent. Today, it is around 9.9 percent — and likely to keep on rising.