Policy context for employment and skills in the Czech Republic

The Czech Republic has made significant progress toward creating a stable and attractive climate for investment following its transition to a private market economy. Its unemployment rate is significantly lower than the EU average and while the recent economic crisis has increased joblessness, its impact has been less than in many other EU countries. However, long-term unemployment has been persistently higher than the EU27 average and women are also much less likely than men to participate in the labour market. While youth unemployment remains lower than the EU average, it is a growing concern as young people find it increasingly difficult to integrate into the labour market. Since 2008, the Czech Republic has introduced significant reforms within the employment and training system, which has altered the institutional landscape and the way in which policies and programmes are managed at the local level.

Czech Republic’s economy and labour market

The Czech Republic has a population of 10.5 million inhabitants. It is a parliamentary republic which came into being in 1993 as a result of a peaceful split between the Czech and Slovak Federative Republic. The Czech Republic has a strong industrial tradition dating back to the 19th century, when Bohemia and Moravia were the industrial heartland of the Austro-Hungarian Empire. At the time of the 1948 communist takeover, Czechoslovakia had one of the higher levels of industrialisation in Europe. The “Velvet Revolution” in 1989 led to major economic reform and since then, the Czech economy has been characterised by privatisation, large inflows of foreign investment, and increasing domestic consumption.

The Czech Republic has made significant progress towards creating a stable and attractive climate for investment. As a small, open economy in the heart of Europe, economic growth is strongly influenced by demand for exports and flows of foreign direct investment. The Czech Republic became a European Union member on 1 May, 2004, a process which has had a positive impact on reform but has meant tougher competition for Czech producers.

As in other countries, the Czech Republic has been affected by the recent economic recession. In 2009, after a decade of continuous growth, GDP showed a year-on-year decrease of 4.1%, representing the deepest slump in Czech modern history (Bakule, 2011). Slight growth was restored by the end of 2009, however the recovery is less dynamic than in other economies and further risks are being created from the international slowdown and sovereign debt crises. Between 2000 and 2012, the Czech Republic has maintained a similar labour market participation rate to the EU27 average (70.3%). This has remained relatively stable over this period with little withdrawal from the labour market even during the crisis. The Czech Republic has a significantly lower unemployment rate than the EU27 average (7.0% compared to 10.5 in 2012 % - See Figure 1.1).

While the recession resulted in increased joblessness across all regions in the Czech Republic, Prague had the lowest unemployment rate in 2012 at 3.1%, followed by Central Bohemia (4.6%). The highest unemployment rate was found in Osti nad Labem (10.8%). The large regional differences in the unemployment rate suggest that there might be barriers to the geographical mobility of labour (Kuczera, 2010). Between 2007 and 2012, some of the largest increases in unemployment occurred in regions that had relatively lower levels prior to the recession (e.g. South Bohemia and Hradec Kralove), while lower increases took place in regions which were suffering high levels of unemployment before the crisis, such as Moravia-Silesia and Osti nad Labem.

The long-term unemployment rate in the Czech Republic has been persistently higher than the EU27 average and oscillated around 50% of the unemployed between 2000 and 2008 (Bakule, 2012). There is a high difference in unemployment by gender in the Czech Republic, with women significantly less likely than men to participate in the labour

Figure 1.1. Trends in the unemployment rate in the Czech Republic and European Union, 2000-12

Source: Eurostat, Labour Force Survey, http://epp.eurostat.ec.europa.eu/portal/page/portal/employment_unemployment_lfs/ data/database.

Figure 1.2. Regional unemployment rate, 2007-12

Source: Czech statistical office, Labour Force Survey, http://vdb.czso.cz/vdbvo/en/maklist.jsp?kapitola_id=13&expand=1&.

market - 56% of women have jobs compared to 74% of men, a gender difference which is higher than the OECD average (13%) (OECD, 2013d). This has remained relatively stable over the last 20 years, and women also earn around 18% less than men on average.

In some regions, unemployment reacts poorly to new vacancies, indicating that jobseekers’ profiles do not apply to the jobs on offer and suggesting a potential skills mismatch rather than insufficient demand. It is interesting to note that where the number of vacancies was highest prior to the crisis, the decline in the vacancy rate has been most pronounced (e.g. Pilsen, Pardubice and Prague regions). The share of hard-to-fill vacancies also decreased from 2007 to 2010.

Figure 1.3. Job vacancy rate by region, 2007 and 2010 (%)

Note: The job vacancy rate is calculated as the number of job vacancies in relation to job vacancies plus the number of employed people.

Source: Czech Statistical Office, Labour Force Survey, http://vdb.czso.cz/vdbvo/en/maklist.jsp?kapitola_id=13&expand=1&.

The quality of human resources is recognised as a limiting factor for economic growth. Despite the modernisation of technology in the workplace, Czech workers spend 20% more time at work than the EU15 average. One hour of Czech labour costs slightly less than 20% of the EU15 average. Lower wage costs are accompanied by low labour productivity (62% of the EU15 average) which tends to outweigh the comparative advantage (Potueek, 2005). The downturn has led to a decline in labour productivity rather than in employment - over 70% of the drop in GDP between Q2 2008 and Q2 2009 translated into a fall in labour productivity. The average person earns less than the OECD average (USD 16 614 a year, compared to USD 22 387).

Youth unemployment is a growing concern in the Czech Republic. A booming economy, shrinking cohort sizes of young people, and a rapid expansion in school and post-secondary education enrolment have largely kept Czech youth unemployment levels low. However, the financial crisis has led to less favourable economic conditions and a rapid increase in youth unemployment. While youth unemployment increased more than it did in most European countries it still remains below the EU average (19.5% compared to 22.8% - see Figure 1.4). There is a smaller number of NEET (not in education, employment or training) youth at 8.9% compared to 13.2% in the European Union (2012).