The Czech Republic Reports Fall in Unemployment in September; Czech Economy Slows Down due to Lack of Workers

The fall in the unemployment rate in the Czech Republic continues following the summer holidays. The low unemployment rate is a signal of the overheating domestic economy. Employers are lacking about 200,000 more workers than at the time of the economic peak in 2006. Photo credit: Pixabay

Prepared by Berk Büyükbalcı

The fall in the unemployment rate in the Czech Republic since the beginning of this year continues. The latest data released by the Czech Labour office show a further fall in September.

In September, unemployment fell slightly fell to 3%. 224,300 unemployed people and 316,100 open vacancies were recorded in September. Previous figures from the Czech Labour Office reported an unemployment rate of 3.1% for August.

The year-on-year unemployment rate has seen a significant drop as well. According to Prague.TV, the unemployment rate dropped to 3% in September 2018 compared to 3.8% in September 2017 (“Czech Unemployment Falls Again”, October 9, 2018).

Low unemployment is one of the signals of an overheating domestic economy. “The Czech economy is growing so strongly that it is currently exceeding its capacity, in other words, it is overheating to some extent,” said Jiri Rusnok, the governor of the Czech National Bank (CNB), in March 2018 in Czech online daily (“Česká ekonomika se přehřívá, trh práce má problémy, řekl Rusnok”, March 14, 2018).

According to some, the growth in the Czech economy in recent years has been driven mainly by the growth in employment, but this will no longer be possible as the overall employment in the country is reaching its limits. Due to the lack of personnel, Czech-based companies are not able to increase production or provide more services. “The labor market is in a situation that is unparalleled in the history of the Czech Republic. The data from the Labor Office proves that. Today, employers lack about 200,000 workers more than at the time of the economic peak in 2006,” said Vladimír Dlouhý, the President of the Chamber of Commerce, in a press release published on Monday, October 15.

The shortage of workers will slow the growth of the Czech economy this year to 3.6 %, and next year to 3.3 %, according to a survey by the Czech Chamber of Commerce published this week, based on data provided by entrepreneurs. The industry and retail sectors will grow slower, according to the research.

Companies also have to deal with rising wages, and not all of them will manage to survive the pressure. The average salary in the Czech Republic has increased by almost 2000 CZK year-on-year between 2016 (27,589) and 2017 (29,504). In the second quarter of 2018, the average salary reached CZK 31,851, a rise of 8.6 % compared to the previous year.

The solution for some businesses could be automatization of the production and assembly processes or hiring people from abroad, but both ways are expensive and cannot be accomplished in the short term.