Sick of Cheap Labor, Czech Unions Seek Catch-Up With Germany

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The Czech Republic needs to ditch its reputation as a cheap-labor economy if it wants to catch up with the living standards of wealthier European Union states, the country’s top union official said.

The Confederation of Trade Unions is demanding a 5 percent salary increase for next year, arguing that workers deserve to share the benefits of economic growth. Josef Stredula, the head of the umbrella labor organization, said real-wage growth should be 3 percent to 5 percent annually “in the longer-term.”

“We should gradually start abandoning the concept that this is a cheap-labor economy,” Stredula, 47, said in an interview in Prague on Monday. “Otherwise we will continue to lag behind countries like Germany and Austria for another hundred years.”

While the Czechs ranked higher than any other ex-communist EU state in output per capita in 2014, the minimum wage is the fourth-lowest in the 28-member bloc, according to Eurostat. The call for higher salaries may help the central bank spur inflation after rate setters listed sluggish wage growth among the reasons to keep interest rates close to zero and limit gains on the koruna.

The koruna has gained 1.5 percent to the euro this year, trimming the loss to 5.4 percent since the central bank intervened to weaken it in November 2013. It traded 0.1 percent stronger at 27.245 against the euro as of 2:10 p.m. in Prague.

Minimum Wage

The Czech Republic booked a record-fast 2.5 percent quarterly gross domestic product growth from January to March. The economy, dominated by car production, is still running below potential following its longest recession on record.

The average monthly wage grew 2.1 percent in the first quarter from a year earlier, less than analysts had forecast, to 25,306 koruna ($1,032). The minimum wage of 332 euros ($369) compares with 1,473 euros in neighboring Germany, which is ranked fourth-highest in the EU.

“Now that the economy is advancing and the profitability of companies increased robustly last year, it’s time for this to show in wages too,” said Stredula, who chairs a group comprising 29 unions and more than 300,000 members.

A survey of purchasing managers in manufacturing published on Wednesday signals the Czech economic recovery is gathering momentum. The index jumped to 56.9, the highest in 13 months, in June from 55.5 a month earlier, beating all seven estimates from analysts polled by Bloomberg.

Jaroslav Hanak, the head of the Confederation of Industry, considers unions’ wage demands “unrealistic” because companies must look at investment plans and productivity levels in salary negotiations, the CTK news service reported June 15. Employers are expecting salary increases of no more than 1.5 percent, Hanak said.

While Czechs have rarely gone on strike over wage demands since the fall of communism in 1989, Stredula’s confederation will hold a meeting of member unions in September to bolster their position ahead of salary negotiations for 2016.

“We want to clearly show that this long-term policy of keeping low wages isn’t advantageous for the economy,” Stredula said.

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