Czech Republic Faces Longest Real Wage Drop in Modern History

The purchasing power of Czech citizens has fallen back by at least five years. The cause is modern Czech history’s most prolonged decline in real wages. The average monthly gross salary increased from CZK 3,100 to CZK 43,193 in the second quarter of this year, but inflation was more significant. Unemployment is not an issue in the country, and the economy is not in decline, with high-profit margins.

According to the Czech Statistical Office, the nominal average wage increased by 7.7%, but its real value fell by 3.1% due to high inflation. This is the seventh such decline in a row. “The loss of purchasing power of earnings has not occurred for such a long period in the history of the Czech Republic,” said UniCredit Bank’s chief economist, Pavel Sobíšek.

“We work with families that are not only low-income but also directly poor. People who could cope with the situation a year or two ago are gradually falling into the group entitled to social benefits,” confirmed social worker Radka Hamáčková from Diakonie ČCE – Světlo ve Vrchlabí.

According to Vít Hradil of Cyrrus, the real value of wages is at the level of 2018. “All this is happening at a time when unemployment is almost non-existent, the economy is not declining, and profit margins in the business sector remain unusually high. It is, therefore, a somewhat difficult-to-understand economic anomaly,” he added.

Some economists are even stricter in their assessment. According to Jaromír Gece of Komerční banka, the purchasing power of citizens was even at the level of the second half of 2017 in the second quarter.

In terms of individual sectors, only employees in the electricity, gas, and heat production and distribution industries and those in producing electrical equipment and motor vehicles managed to beat inflation on average. “The latter was positively influenced, among other things, by a significant wage increase at Škoda Auto,” said Vratislav Zámiš of Raiffeisenbank.

On the other hand, wages in cultural, entertainment, and recreational activities and in the education sector grew the slowest. Although the real wage declined the least since the last quarter of 2021, and its decline will continue to slow down, it will continue to fall for the rest of the year.

According to Josef Jaroš of the Association of Small and Medium-Sized Enterprises and Craftsmen of the Czech Republic, employers are trying to accommodate their employees, and even small companies will continue to raise wages. However, he admitted that the increase would not be sufficient.

“Companies cannot compensate for past or current inflation,” he told Právo.

Two-thirds of employees do not reach the average wage. Earnings of people working in agriculture, administration, construction, catering, and accommodation, or the food industry remain significantly below its level.

The median wage, which sets the exact amount in the middle of the wage scale, is a more precise indicator of how much people earn. Half of the employees receive this or a lower amount. In the second quarter, the median was CZK 36,816, up 7.8% or CZK 2,662 year on year.

“Men earned CZK 39,847, while women earned CZK 33,862. Eighty percent of employees received wages between CZK 19,320 and CZK 70,247,” statisticians pointed out. The rest earned more.

“However, it is necessary to take into account that earnings of entrepreneurs and self-employed are not included in the definition of wages, and their number, even with the popularity of the grey economy in the domestic economy, is above the average of the European Union in the Czech Republic,” pointed out Jakub Seidler of the Czech Banking Association.