Governmental Attempts to Reduce Unemployment in the Czech Republic

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Galatea || Creative Commons

Unemployment rate is one of the few economic indicators that is regularly discussed in the mainstream media. Therefore it is no surprise that governments all around the world try to reduce unemployment as much as they can. The Czech Republic is no different in this regard. Unfortunately, there is absolutely no political consensus as to how to proceed – which all too often results in haphazard, poorly designed laws.

Uneployment in the Czech Republic; Source: Czech Statistical Office

Social Security System in the Czech Republic

When individuals lose employment, they are directed to their local labor office (úřad práce). In theory and in name, the institution is supposed to make an attempt to find them new occupation. In practice, people who want to find work do so on various private jobs websites. Nonetheless, since registering at a labor office is a prerequisite to receiving social security, most people do register, which means that the unemployment statistics are quite accurate. Labor offices also offer various requalification courses – designed usually to allow their graduates to perform qualified manual labor.

In addition to the standard social security, the unemployment benefit is available to those who have worked for at least 1 year in the last 2. Depending on age, the payout is limited to 5-11 months (the older the unemployed person is, the longer he or she gets the support). The payout is a percentage of a person’s income in the last year with an upper cap of 60% the average wage. This assistance is considered by most people in the Czech Republic to be a sort of insurance (in fact, part of what really is the income tax is called ‘social insurance’ in thr Czech Republic) and as such, efforts to reduce the payout, or put more conditions on it are very unpopular.

2222Source: Eurostat

Notable Governmental Initiatives to Reduce Unemployment, Problems They Cause and Lessons That Can Be Learned from Them

1. Obligation to do community service while on social security

This was undoubtedly the most controversial attempt to reduce the unemployment in the Czech Republik. It was introduced by the previous center-right government. The key idea behind the law was to allow municipalities to order the unemployed for more than three months to perform up to 20 hours of community service per week. There were, however, several problems that made the law very unpopular.

Firstly, the law employed only negative enforcement – the work was unpaid and refusing to perform it meant losing all benefits. Secondly, it was arbitrary – the municipalities could order all/some/none of the eligible unemployed to do the work. Thirdly, it was immediately decried by the opposition as forced labor – the name stuck, what in turn did much to damage the public perception of the law. Moreover, in some cases the unemployed found themselves working next to convicts sentenced to community service which generated immense dissatisfaction. Lastly, as I already noted, the Czechs generally consider assistance in unemployment as something they deserve – an entitlement, not a benefit – and as such, the fact that the law could be used to compel people still drawing it to work was very poorly received. The law was eventually declared unconstitutional by the Constitutional Court.

This is one of the cases where other states thinking about implementing a measure like this might learn a lesson or two even if it does not mean transferring best practices, but avoiding worst ones. Any law mandating the unemployed must apply to all of them after some cutoff, the workers shall not work alongside convicts and most importantly, there must be some monetary reward for the work done.

2. Increasing the minimum wage

This is an initiative dear to the social democratic party (now the biggest governmental party). The current government is committed to incremental increases of the minimum wage over the years 2014-2017. The argument for it is that it increases the motivation to work instead of remaining dependent on social security. While this incentive can probably create new jobs, it can also destroy others, as employing workers on minimum wage may become unprofitable. Since the first increase was done in 2014, it is yet too early to evaluate the impact (if there was any) on the labor market.

3. Tax breaks for foreign investment

This was a very popular tool in the first decade of the 21st century. In return for building a factory in the Czech Republic, companies would be exempted from paying corporate tax for some years (usually 10-15). This tool has not been used so much lately for several reasons. Firstly, the EU regulations restrict its application to a great extent. Secondly, subsidizing the biggest companies is considered unfair by many. Thirdly, the jobs such a measure brings are most often poorly payed. Lastly, companies seeking just cheap labor have moved on to poorer countries.

This tool has had mixed results – on one hand, it resulted in creating a number of jobs, but those are most often menial jobs, where the pay is poor. Moreover, some companies relocated when their tax exemptions were about to run out. But poorly paying jobs are better than no jobs at all.

4. Wage subsidies

This is a tool most often used in regions with high unemployment: the government simply agrees to pay a portion of the new workers salaries for some time. This reduces unemployment in the short term, but many of the workers are fired when the subsidy runs out. There is also a risk of running afoul of the EU rules on public assistance to private companies. But properly used, this tool can be useful, especially if used in conjunction with requalification courses.

5. Free preschool care for children

This tool is meant to accelerate the return of mothers from parental leave, since the longer a person is not working, the lower their employability. The primary means of achieving this is building more crèches and maternal schools, but also reducing the bureaucratic obstacles for private child minding.

6. Obligatory employment of the disabled

In order to increase the employment of the disabled, the government has decreed that all companies that have 50 or more workers must employ a percentage of workers or buy products from specially designated companies that employ mostly the disabled – otherwise they are bound to pay a fine.

This policy has been a failure since most companies just choose to pay the fine. This is primarily because once hired, it is almost impossible to fire a disabled worker. What is more, the expense required to allow the disabled to move around the workplace can be considerable, especially in older buildings. The obvious way to at least partially remedy the situation would be to remove the extra anti-firing protections from the disabled. Also grants to make a “barrier-less” workplace might make companies more amenable to hiring the disabled.

Conclusions

It should be noted that since the Czech Republic is an export-based economy with one dominant trading partner (Germany), one can be very skeptical of the ability of the Czech government to actually reduce unemployment. On the other hand, there is much the government can do to make the situation worse.

Michal Hejl
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