The Impact of Rising Prices on Wages in the Czech Republic: Financial Constraints and Job Seeking Trends

At the same time, a current survey by the personnel agency Grafton Recruitment shows that finances are – along with fatigue and stress – one of the main reasons why a full quarter of employees are actively looking for a new job, and another third are open to interesting offers.

It can be expected that the employees will try to negotiate in the rest of the year, until they get bigger paychecks. The high rate of inflation, although probably already easing, still low unemployment and the growing demand of companies for labor will contribute to this.

Michal Bakajsa, co-owner of the SkyLimit group, which owns five Czech engineering companies, says that the pressure for wage growth has been continuous since 2020. The average wage increased by more than 24 percent during this period.

“Given that wage growth in most cases is not linked to growth in efficiency and an increase in company profits, after the period of covid and the subsequent development of the economy after Russia’s invasion of Ukraine – in general, the space for companies to increase wages is getting smaller and smaller,” he says. In companies that fall under it, the management tries to find a balance between the demands of employees and the possibilities to fulfill these expectations.

To this, Andrea Linhartová Palánová, a PwC expert on human resources management, adds that companies have been in a schizophrenic situation for the past two years. “On the one hand, they have to strive for budgetary responsibility, on the other hand, of course, they are under a lot of pressure to increase wages. At the same time, they have to try to keep key employees,” he says.

Energy at the forefront of wage growth

Grafton Recruitment director Martin Malo believes further wage developments will also depend on which parts of the government’s austerity package get through parliament. “Perhaps the loss of tax incentives for employee benefits will put a lot of pressure on wages. However, I do not expect that employers, perhaps outside the energy sector, will be able to add more quickly and more than they have been doing so far,” he estimates.

Energy was the only sector in the first quarter where year-on-year earnings growth exceeded inflation. In real terms, they increased by 5.8 percent to 79,221 crowns, surpassing all other industries. According to the statisticians, it was related to the payment of extraordinary high bonuses.

However, for example, interest in working at ČEZ has only increased slightly so far. “While some positions are filled very easily, others – such as technical positions in nuclear power plants – are much more difficult and we don’t see any change this year either. This is due to demanding qualification requirements and other specifics,” says Josef Lejček, head of human resources at ČEZ. However, he adds that the interest of students, high school and university students, in fields related to energy has grown significantly. “Schools are reporting that they are having success filling them, and are even reporting excess demand.”

In general, the wages of the lowest income groups, i.e. blue-collar workers in industry, mining and construction, grew the fastest. And also in gastronomy and accommodation. “The tabular increase in the salaries of civil servants was manifested in a relatively large increase, which due to savings will not be repeated in the next period. Surprisingly low increases are in administration, finance and B2B services,” ManpowerGroup recruitment and marketing manager Jiří Halbrštát also shows the reason why they grew the fastest wages in the South Bohemian and Zlín regions, while growth was below average in Prague.

Union firepower

Most companies cannot avoid the need to join anyway. The director of the personnel agency Předvýběr.CZ František Boudný mentions the May poll, according to which the share of companies ready to increase wages increased by half.

Employers’ willingness to raise salaries is the same as last year, according to a Sodexo survey. A third have already done so or will do so this year. However, the willingness to pay financial bonuses is decreasing, and employers much prefer to add benefits. 32 percent of companies will increase these this year.

This is confirmed, for example, by the head of the elevup development studio, Daniel Jay Lett. “I see room for increasing earnings, but not in the form of money, but in the form of additional benefits or services provided in the office. We plan to provide employees with lunch at the company’s expense and an unlimited drinking regime,” he says.

And Jitka Kalenská, HR manager at Algotech, specialists in corporate IT and cloud solutions, adds that the introduction of a variable component to the basic salary has been very successful for them – it also fulfills a motivational function. Some companies even say that people themselves are accepting slower wage growth due to the uncertain economic outlook.

According to Boudného, ​​the greatest willingness to raise pay will be among companies from the construction industry, manufacturing companies and IT. “But it concerns everyone who wants to maintain competitiveness. Only in the financial sector or creative professions, for example, there is more room for solving the situation by changing the number of people and more efficient organization of work,” he thinks.

Linhartová Palánová reminds that where they are strong, unions will play a big role. “It regularly shows that the Czech automotive industry is not only a leader in performance, but also in negotiations on wages and working conditions. I do not expect any change in this direction,” says the PwC expert.

However, due to weaker demand and strong global competition, a number of companies are now facing pressures that do not allow them to fully reflect higher costs, including wages, into production prices. “Increased prices must be absorbed by some companies even at the expense of their margins. However, individually, the situation is very different. According to our February survey, roughly half of them expect to maintain or increase their profits this year, while the other half predict the opposite,” says the director of the economic policy section of the Association of Industry and Transport of the Czech Republic Bohuslav Čížek.

According to Kristýna Kraftová, head of HR at the technology company ČMIS, there have been significant increases in wages in recent months. “Now, in my opinion, it needs to be compensated by the activity of the company. There is still a shortage of programmers in IT. I can imagine that their wages could increase,” he says.

Who can add?

However, companies cannot take responsibility for inflation and price increases and adequately compensate their employees’ wages. For many of them, such a situation could be liquidating. “This approach would strengthen pro-inflationary tendencies. Simpler activities in production or business services are already moving to other countries. If we become uncompetitive precisely because of high wages, there is a risk of companies moving to other countries,” says Malo.

On the other hand, due to the lack of people, companies are willing to invest more and more in them. “There are companies that have orders, but there is no one to do them. So it is not so much about sufficient funds or the need to give up profit. If getting people means that you can significantly increase turnover, you also have enough funds for salaries,” says Boudný. And given that Czechs do not like to move for work, in many cases the only realistic way is to offer “deficient” employees a better salary.

Even Bakajsa does not think that the labor market will fundamentally move and change in the near future. “The demand for labor, and especially low unemployment, will continue to hinder the freer movement of employees, because every company will, on the contrary, try to keep at least key workers even at the cost of rising wages. The labor market could be shaken up by a significant increase in the automation and robotization of production and the creation of new jobs “, he says.

According to him, in the long run, the higher the education and position, the higher the salary. However, the current state of the labor market leads to a gradual comparison of these differences. “There are also positions in production that bring higher salaries than, for example, people in middle management. From my point of view, education does not matter so much anymore, but the specification of the given position, the experience of the employee, the quality of his work and also his replaceability,” sums up Bakajsa.