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November 23rd, 2008
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Wages grow for some, but disparities show

Two-thirds of population earns less than ČR average

By Claire Compton
Staff Writer, The Prague Post
June 11th, 2008 issue

Recent record growth in wages across the country is not necessarily benefiting the majority of Czech citizens.
The first three months of 2008 saw a 10.4 percent rise in the average gross monthly wage, the Czech Statistical Office reported June 2. However, two-thirds of the population earns below the national average, the agency added.
The increases are likely an indication of raises for upper management as employers become more desperate to hold on to a limited labor force. The salary of one high-earning manager is enough to skew the average of 100 employees below him, according to Markéta Šichtařová, the director of NextFinance.
The income gap between management and employees will continue to widen, a typical result of an economy that is growing as rapidly as the Czech Republic’s, she said. That strong growth, coupled with the general aging of the work force, means that the current labor shortage shows no sign of slowing down, she added.
“Not only is the economy growing fast and requiring more labor, but the demographics of the available labor force show that the problem is going to persist for another couple of years,” Šichtařová said.
European Union states are facing rising food and energy costs across the board, which, coupled with a tightening labor market, gives employees in the Czech Republic greater bargaining power to negotiate higher salaries.
The income gap has been further exacerbated by the flat tax rate and ceilings on social security contributions implemented by the government earlier this year. And, while the measures haven’t necessarily hurt the middle and lower class, they are a contributing factor to wage distribution, said Philip Hemmings of the Organization for Economic Co-operation and Development.
“In terms of impact on the distribution of incomes, quite a number of the government’s recent measures haven’t taken money out of the pockets of middle-income earners, but it’s certainly boosted the net income of higher earners,” he said.
The business sector enjoyed the highest wage increase, with an increase of 4.5 percent in real terms, its highest since the first quarter of 1998. Real wages are calculated by adjusting nominal wages for inflation, which was greater than expected in the first quarter, Šichtařová said.
Across the board, real wages rose 2.8 percent and nonbusiness wage growth had its lowest increase this quarter since the end of 2005. At the low end of the spectrum, public sector employees saw their wages decrease 3.6 percent in real terms. The sector’s decline is likely a one-time event, Šichtařová said, as analysts anticipate the government will decide on a pay raise within the next year.
The income gap will continue to widen, but Hemmings said that the trend isn’t necessarily a cause for concern. The wage gap in the Czech Republic remains below that of other developed countries, and is far below that of the United States, he said.
“We don’t think the wage distribution is particularly skewed, especially once you take into account the tax and social security contributions,” Hemmings added.

Claire Compton can be reached at ccompton@praguepost.com


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Reader's comments:

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[20:24 13/06/2008] : The "median" income instead of the "average or mean" income should be used to see how the average person is performing. The median is the midpoint. Although the "mode" might be even better.
Richard Elliot
Charlotte
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