Real wages in Czechia are falling at fastest rate on record, analysis shows

People protest against the Czech government in Prague, Czech Republic, Thursday, Nov. 17, 2022, during celebrations of the 33rd anniversary of the pro-democratic Velvet Revolution that ended communist rule in 1989. (AP Photo/Bundas Engler)
By M B
3 Min Read

Czechia is currently undergoing the sharpest drop in real wages in its independent history to date, as well as among the countries of the Organization for Economic Cooperation and Development (OECD).

Compared to last year, Czechs will earn approximately 170 billion korunas (€7 billion) less this year, according to a report from Cyrrus. Analyst Vít Hradil says real wages fell by 8.9 percent in the third quarter and will fall by 8.3 percent for the whole year, with high inflation being the highest contributing factor.

“The volume of wages that Czech employees would have to receive in addition in 2022 to maintain the standard of living of 2021 amounts to 170 billion korunas. That is exactly how much we will have to ‘moderate’ ourselves this year,” said Hradil.

According to him, the average Czech employee who works full-time will need 40,000 korunas (€1,600), i.e., 3,300 korunas (€135) per month, to reach the previous standard of living in 2022. Real purchasing power will thus return in time to 2018, the analyst calculated.

According to Hradil, the main reasons for the significant excess of consumer inflation over wage growth are the Russian-Ukrainian war, the resulting geopolitical conflict between the West and Russia, and the Covid-19 pandemic.

One of the consequences of the war has been the restriction of Russian fossil fuels to Europe and the subsequent dramatic increase in their prices. The pandemic also caused a global reduction in supply, as production and shipping capacities have been curtailed.

Governments and central banks responded to this crisis by drastically easing economic policies, providing the population with generous support programs and easy access to credit. The measures sustained increased demand, whose impact on limited supply caused a general rise in the price level, Hradil said.

The number of thefts and alcohol consumption will increase

Based on its statistical model, the analysis estimated that this development will manifest itself between 2022 and 2024 in higher theft, alcohol consumption, and divorces, as well as a worsening of perceived health status, an increase in suicides, an increase in the proportion of juveniles out of school and unemployed, and a decrease in trust in the government. On the other hand, it does not indicate any worsening of infant mortality, life expectancy, and homicide rates..

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