Increasing the minimum wage by CZK 1,000 is a mistake, it may undermine the economic recovery. At the same time, it also has an inflationary effect

The minimum wage will increase by one thousand crowns to 16,200 crowns from next year. That’s eight percent. Average wage
while it will grow at a rate of only five percent, according to the October survey
Czech National Bank among domestic and foreign analysts. Minimum wage would thus grow at a rate significantly faster than wages average. In other words, state
companies and businesses and other employers by increasing minimum wage add to the lowest paid employees at a significantly greater rate than they are prepared to add on average to their employees as a whole.

Increase in the minimum wage eight percent indicates that many politicians refuse to admit economic reality. Government by making outages
coronavirus crisis loaded mainly tradesmen, corporate, banks, but also
regions and municipalities. And of course – through a significant increase in debt – all taxpayers.

Eight percent growth minimum wage, which was approved by the cabinet today, will further burden the corporate sector, as from above minimum wage derives, for example, above mezd guaranteed. They determine minimum wage for individual professional groups. But already during the pandemic, corporate employers have largely “bled” financially and now have to cut their costs.

The reason why they do not yet cut staff costs significantly and therefore do not lay off them lies mainly in government rescue programs, such as Antivirus. But as a result, they are paid by the taxpayer again. Government on one side that is, it keeps artificially out of the taxpayer’s pocket – and it must be said that even at a more significant price inflation – employment, motivates employers not to lay off workers yet side the second adds another burden to them minimum wages a mezd guaranteed.

Situations when minimum wage grows faster than wages average, is partially defensible even in times of prosperity, if there is a broader social consensus that minimum wage is too low. However, in economically difficult times, it completely loses its justification and its defense is pure populist pressure, motivated now by the approaching elections, which lacks a pinch of economic rationality and is ruthless to other socio – economic groups led by employing entrepreneurs and employers in general. And it is also ruthless to municipalities and regionsthat grow
minimum wage a mezd it also damages the wage level in the public sphere, for example in the public sphere services, which cities and municipalities pay from their own budgets.

Lukáš Kovanda, Ph.D.

National Economic Council of the Government (NERV)

Chief Economist, Trinity Bank