Czech Republic Economy News Politics

Czech Republic to increase minimum wage next year

Prague, Czech Republic – The Czech Labour and Social Affairs Minister Jana Malacova announced earlier this week that the government will increase the monthly minimum wage by 1.150 crowns as of January 2019, bringing it from the current 12.200 crowns to 13.350 crowns per month (around 530 euros).

“This is not just good news for the 150.000 people who work for a minimum wage (around 4% of the workforce) but for all employees since a growth in the minimum wage will inevitably influence wage growth in general”, she pointed out, adding that it was the second highest increase of the minimum wage since 1991.

This hike had been the subject of intense debates and discussions between the Czech government, trade unions and business federations, as well as within the ruling coalition. Finance Minister Alena Schillerova (ANO) wasn’t as enthusiastic as her colleague from the Social Democratic party. Talking to reporters, she repeated that she would have preferred a milder increase to reflect the average wage growth in the country, and highlighted that the new minimum wage would have a negative impact on companies’ competitiveness and costs.

Meanwhile, Ms. Malacova said she is planning legislation to ensure that the minimum wage will automatically increase every year and suggested to amend the Czech Labour Code to make sure the minimum wage represents, every January, at least half of the average gross wage from two years before that.

While the Social Democrats aim to bring the monthly minimum wage to 16.000 crowns by the end of the current government’s term, Prime Minister Andrej Babis recently set the goal of 15.200 crowns by 2021.

The Czech Republic currently has one of the lowest minimum wages in Europe, and is only ahead of Bulgaria, Lithuania, Romania, Latvia, Hungary and Croatia as of July 2018, according to Eurostat data. The gross minimum wage in the EU spans from 261 euros in Bulgaria to nearly 2.000 euros in Luxembourg – and it should also be reminded that six EU countries have no national minimum wage at all (Denmark, Italy, Cyprus, Austria, Finland and Sweden).

However, the disparities are much smaller once price level differences are eliminated and when the minimum wages are expressed in purchasing power standards (PPS): it ranges from nearly 550 PPS in Bulgaria to less than 1.600 PPS in Luxembourg (around 700 PPS for the Czech Republic this year).

The Czech Republic’s planned hike is not an isolated case in Central Europe. Earlier this month, Slovakia’s Prime Minister Peter Pellegrini announced that the country’s minimum wage will increase by more than 8% next year, from 480 euros today to 520 euros. In September, the Polish government also proposed to increase the minimum wage in January 2019 and bring it to 2.250 PLN (around 520 euros a month).

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