Czech Republic Witnesses a Five-Year Low in Citizen Purchasing Power due to Prolonged Wage Decline

The purchasing power of Czech citizens has regressed by at least five years, primarily due to the most protracted decline in real wages in modern Czech history. Despite an increase in the average monthly gross salary from CZK 3,100 to CZK 43,193 in the second quarter of this year, inflation has outpaced wage growth. The situation is further exacerbated by seven consecutive quarters of declining real wages.

The Czech Statistical Office reports that while the nominal average wage recorded a 7.7% increase, its real value saw a decline of 3.1% due to soaring inflation. This prolonged loss of purchasing power has raised concerns among economists and social workers. Pavel Sobíšek, Chief Economist at UniCredit Bank, remarked, “The loss of purchasing power of earnings has not occurred for such a long period in the history of the Czech Republic.”

Social worker Radka Hamáčková of Diakonie ČCE – Světlo ve Vrchlabí corroborated this concern, noting that people who could previously manage their finances are now slipping into the group entitled to social benefits.

The anomaly of declining real wages in an environment characterized by low unemployment, a stable economy, and high-profit margins has puzzled experts. Jaromír Gece of Komerční banka stated that the purchasing power of citizens had regressed to the level of the second half of 2017 in the second quarter.

Sector-wise, only employees in electricity, gas, heat production, electrical equipment, and motor vehicle manufacturing managed to outpace inflation with their wage growth. Other sectors, particularly cultural, entertainment, recreational activities, and education, reported slower wage growth.

Despite a slowdown in the rate of decline since the last quarter of 2021, real wages are projected to continue falling for the remainder of the year.

Josef Jaroš of the Association of Small and Medium-Sized Enterprises and Craftsmen of the Czech Republic emphasized that employers are trying to raise wages to accommodate their employees, but such increases may not be sufficient to offset past or current inflation.

The issue of wage disparities is also apparent, with two-thirds of employees earning below the average wage. Workers in agriculture, administration, construction, catering, and the food industry tend to earn significantly less than the national average.

To provide a more precise picture of income distribution, statisticians refer to the median wage, which stands at CZK 36,816 in the second quarter, representing a 7.8% increase year-on-year. This indicator reveals that half of the employees receive this amount or less, with men earning CZK 39,847 and women earning CZK 33,862 on average.

However, Jakub Seidler of the Czech Banking Association noted that the definition of wages excludes the earnings of entrepreneurs and the self-employed, whose numbers in the Czech Republic are above the European Union average, even when accounting for the informal economy.

Article by Prague Forum

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