Business Czech wages fall, but not as fast as the figures suggest

12-03-2014 13:45 | Chris Johnstone

Czech wage falls are not as dramatic as the latest quarterly figures suggest and the trend could help company competitiveness. But the downside is that households will continue to cautiously watch their outgoings and unbalanced economic growth could result.

Photo: Ladislav BábaPhoto: Ladislav Bába Attention grabbing figures about a record breaking steep drop in Czech wages at the end of 2014 epitomise the phrase about lies, lies, and statistics.

It’s not that the Czech Statistics Office has adopted Greek-style calculation methods. Rather, the figures showing a 1.8 percent fourth quarter year on year fall in wages, 2.9 percent taking into account inflation, are based on a skewed comparison.

Bosses hiked up fourth quarter wages at the end of 2012 when they rushed to pay out bonuses to avoid higher taxes from the start of 2013. This time round, the bonuses are being paid as normal in the first quarter of 2014.

Most of those sort of generous pay outs went to top and middle managers with a regional and sector breakdown of the figures showing an even greater statistical confusion as a result. For example, in Prague, where most of these managers are based, the statistics office figures show a 1.3 quarter on quarter fall in wages over the 12 months. In the Zlín and Moravia and Silesia regions they are down by 0.3% and the rest of the country enjoyed modest increases.

Sector wise, in financial services, where fat or ample bonuses topping up wages - which are already often around twice the national average - are common, pay slumped by 8.6 percent in the fourth quarter year on year according to Tuesday’s figures.

Changing the comparison parameters to reduce the distortion, average wages in the last three months of 2014 were in absolute terms 1.6 percent higher - taking account of inflation were down by 1.3 percent – compared with the last three months of 2011.

For the whole of 2013, average wages increased by just 16 crowns to 25,128 crowns and in real terms lost 1.3 percent of their value when inflation is factored in. That follows a 0.6 percent fall in real wages for 2012. In neighbouring Slovakia, there is a similar picture of minimal absolute raises in wages, the 2013 average increasing to 824 euros from 805 euros in 2012, and real declines when inflation, of 1.4 percent, is subtracted.

Another picture of the Czech situation emerges when you zoom out and examine unit labour costs, usually a favourite economic indicator for estimating competitiveness. In a scenario of stable productivity and falling real wages, the unit costs of Czech labour should have dropped by around 1.9 percent last year, according to an estimate by Prague based brokerage Patria Finance. The competitiveness of Czech businesses should have risen as a result.

Add those lower unit wage costs to the devaluation of the Czech crown caused by the Czech National Bank’s currency interventions from November and Czech labour costs could have dropped by just over 5 percent last year against foreign rivals, according to the brokerage.

The downside to that good news is that the real drops in wage values and continuing high unemployment – most surveys expect the jobless situation to improve little this year – mean that Czech households will continue to be cautious with their spending and export orders will have to be the main factor in economic growth.

The latest, second quarter, employment outlook survey for the Czech Republic by the Manpower agency this week actually suggests an actual downturn in the jobs outlook. Five percent of hirers survey said they expected lay-offs, 4% expected to fill vacancies and 89 percent predicted an unchanged situation. This slightly negative scenario compares with the unchanged outlook given in the first quarter.

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