In a bold move amid economic challenges, the government has decided to slash public sector wages by two percent as a pivotal component of its public finance recovery plan. This decision comes at a time when real wages have experienced a two-year decline, and prices stand at more than a third higher than pre-COVID levels.

Despite this overarching reduction, there are notable exceptions, with police officers, firefighters, teachers, and doctors expected to be shielded from the wage cuts due to specific operational expenditure constraints. In fact, the state budget envisions an increase in the average teacher’s salary to CZK 52,400 monthly.

Contrastingly, politicians will maintain their existing earnings, adding a layer of uncertainty for the remaining state employees. The potential reduction in positions and job responsibilities further complicates the outlook for these workers.

The backdrop of these decisions is a complex economic scenario. While the average wage in the third quarter of the previous year saw a 7.1% year-on-year increase to CZK 42,658, the real wage, when adjusted for an eight percent inflation rate, registered a 0.8 percent decrease.

Looking ahead, the central bank forecasts an average inflation rate of 2.6 percent in 2024, while the Ministry of Finance anticipates 3.3 percent. Despite nominal wage growth not keeping pace with inflation in the last two years, economists remain optimistic about the prospects of real wage growth in the upcoming year, fueled by a projected decline in inflation.

A survey by Randstad adds a positive note, revealing that nearly half of companies are planning wage increases ranging from six to ten percent, while 46 percent aim for raises between one to five percent. Sectors such as banking, insurance, financial services, energy, and gas are expected to lead in substantial wage hikes. The recent minimum wage increase to CZK 18,900 and a modest forecasted unemployment growth add layers to the multifaceted economic landscape.

Article by Prague Forum