A Roadmap to Decent Wages in the Czech Republic

 

Even before the coronavirus pandemic and the current sharp price increases, a large part of Czech society was not able to earn sufficient remuneration for their work to enable workers and their households a decent material existence.

People who were not earning a minimum decent wage in previous years, or whose income was only just above it, are now extremely vulnerable to the rapid rise in energy prices and general inflation, not least because they have not been able to make enough savings from their income to meet emergencies.

Therefore, both because of current developments and for the longer-term resilience of society in the face of such crises, it is crucial to look for concrete ways to deliberately keep raising wages, salaries, and other types of income so that, at least in the medium to long term, they approach what can be considered a decent material minimum.

If we fail to do this, there is a risk of negative consequences both at the individual level and, ultimately, at the societal level. Social resilience and political stability are intrinsically linked to the decent provision of its members and the associated sense of basic security.

How to ensure decent incomes?

 

Together with the publication of the current amount of the minimum decent wage for 2021, we are therefore also presenting eight concrete steps that can contribute to improving the income situation in the Czech Republic:

 
 

I. Embedding decent remuneration in public procurement, green transition measures, and other subsidy programmes and grants

How to proceed?

The principle of decent working conditions can be applied by the state and local governments whenever they outsource services or grant institutional or project support. Public procurement already has a legal condition of social responsibility, and the commitment to pay the decent minimum wage can be a concretisation of this requirement.

Why is it important?

The selection of service providers on the basis of the lowest price offered, or the pressure for low wages in grant competitions and subsidies, often creates additional costs for the state. Especially materially, as it eventually has to make up for the low income itself through the benefit systems, but it is also a matter of eroding trust in the state as a guarantor of justice. Moreover, this principle often translates into a lower quality of work done, with corresponding consequent extra costs.

It is particularly important to provide for decent wages in programmes aimed at green transition and for structurally disadvantaged regions and groups. A positive side effect is the upward pressure on wages even where public funds are not involved, otherwise poverty and social inequalities are replicated.

Relevant legislation and documents for review:

  • Public Procurement Act
  • Just Transition Operational Programme and Territorial Just Transition Plan
 
 

II. Introducing decent pay conditions in the public sphere

How to proceed?

The State and its agencies may take the current level of the minimum decent wage into account when establishing pay scales. In particular, it is unacceptable that the minimum decent wage should not be paid to employees with longer years of service.

An example of positive practice is the increase of the minimum wage in the US public sector to $15 per hour as of January 2022, which more than doubled the current minimum guaranteed wage in order to guarantee decent pay.

Why is it important?

Public employers should set an example and provide their employees with a salary on which they can live decently. Wage growth in the public sector can then have a positive impact on wage growth in the private sector.

Specific regulations for review:

  • private sector. Specific regulations for review: Government Regulation on Salary Conditions of Employees in Public Services and Administration
 
 

III. Setting minimum remuneration standards (minimum and guaranteed wages) and non-forfeitable amounts, taking into account the decent minimum

How to proceed?

In setting minimum remuneration standards, it is necessary to take into account the costs that can be covered by the wage. A legal minimum wage or a non-forfeitable amount for people under asset seizure should provide at least for the basic necessities.

For this purpose, it must first grow significantly before being periodically indexed according to a set rule. At the same time, however, the adoption of an indexation mechanism must not serve to put future incremental increases out of the question.

Guaranteed wages linked to the minimum wage should reach a decent minimum at a faster pace, especially for highly skilled workers or workers key to the functioning of the society (essential workers).

There is currently an ongoing debate at EU level on a directive to set a minimum wage in all member states. Within the EU, minimum wages should guarantee a comparable standard of living and thus effectively combat income inequalities between Member States.

Why is it important?

If the minimum wage or the non-forfeitable minimum does not reach a decent minimum, it fails to fulfil its protective function, resulting in so-called “working poverty”, leading, among other things, to indebtedness or the topping up of low wages with benefits. A low non-forfeitable minimum after deductions resulting from asset seizure pushes workers out of the legal labour market, because they simply have to provide additional funds for necessary expenses.

It has been clearly established that growth in the lowest wages does not lead to an increase in unemployment.

The introduction of a European minimum wage offers an opportunity to improve the remuneration for work across the EU. However, it also risks perpetuating wage differentials between Member States if it is linked only to national wage levels and does not respect the living wage principle on which the minimum decent wage is based.

Relevant legislation and documents:

  • Government Regulation on the Minimum Wage, on the Lowest Levels of Guaranteed Wages, on the Definition of a Difficult Working Environment and on the Amount of a Wage Supplement for Work in a Difficult Working Environment
  • Proposal for a Directive of the European Parliament and of the Council on adequate minimum wages in the European Union
  • Regulation on Non-forfeitable Sums, Code of Civil Procedure
 
 

IV. A tax reform ensuring a decent living

How to proceed?

Lowering taxes and contributions toward health insurance and social security would leave the lower-income class with more of the resources they need to live in dignity. But this must necessarily be coupled with other steps to ensure that the cuts are compensated so that there is sufficient funding for a stable or even expanding range of free or affordable public services. These also contribute to a decent life for people on low wages.

There should be a review of tax credits, with the aim of reconsidering those that primarily benefit high-income households (and often not those with the lowest incomes), and higher tax burdens on the high-income classes, including property or capital taxes.

The determination of the tax progression rate can be based on the calculation of the minimum decent wage as a threshold for non-taxable or low-taxable income.

Why is it important?

The tax system can play a key role in ensuring decent wages, but also in ensuring overall social justice. So far, however, it is rather out of focus in this respect, although in its current set-up it tends to make the situation for low-income earners even worse.

Relevant measures:

  • Reducing the taxation of the lower-income class through a reduction in their contributions, offset by the introduction of income tax progression
  • Audit of tax credits (dependent spouse allowance) and addition of the credit per taxpayer to the tax bonus
 
 

V. Broadening the offer of free or affordable public services and basic commodities

How to proceed?

The state can either guarantee the existing free or price-regulated public services (e.g., in the areas of health, transport, or culture) or, better still, further expand them, thus contributing to a decent life independent of income from work. Particularly in the area of housing, it is extremely urgent to accept regulation and to start acting as a market actor.

The lowest income groups are also the ones most affected by the taxation of consumption through VAT on basic necessities, as they directly consume the largest share of their income. Reducing the rate on the most essential goods and services is thus another way of contributing to a materially decent life, especially in times of high inflation.

Why is it important?

The decent provision of all basic needs does not necessarily take place only through rapid wage increases. Wage growth corresponding to the current rise in costs (housing, energy) is not realistic for many employers. The availability of public services can compensate more flexibly and satisfactorily. Solutions at the level of the individual, who tries to make the best of the free market, may even counterproductively drive up prices, as is currently happening in the housing market, for example.

In many cases, the expansion of public services could also have other positive effects (e.g., replacing individual car transport with public transport also contributes to combating the climate crisis and improves the quality of life in cities).

Relevant measures:

  • Free healthcare, including dental care
  • Regulation of rent pricing, taxation of investment apartments
  • Reduction of VAT on food
 
 

VI. Bringing wage replacement benefits closer to the decent minimum

How to proceed?

The benefits which are intended to play the role of wage replacement in the benefit system must at least cover basic expenses, better still a decent material minimum, and ideally allow people to maintain the existing standard of living.

Why is it important?

A number of benefits play the role of wage replacement in the social security system – whether in situations of sickness, temporary loss of income, full-time childcare, etc. The insecurity caused by income dropping out in normal life situations such as illness has negative effects on individuals and their households, and is also seen as one of the causes of political radicalisation.

This is particularly relevant in the context of increasing pressure for flexibility in the labour market and the expected impact of technological and other changes, where short- to medium-term unemployment and retraining will become a normal part of a career. There is evidence that sufficient support also allows for better re-entry into the labour market by allowing people to wait for an offer that matches their qualifications and experience and offers an appropriate wage grade.

Specific tools to review:

  • Non-insurance benefits replacing income during childcare (parental allowance, foster carer’s remuneration, maternity allowance for self-employed persons)
  • Income replacement benefits for temporary loss of income (sickness benefit: today 60% of income, unemployment benefit: today 65% down to 45% of original income
  • Old-age benefits (disability and old-age pensions), which are based on income but the average amount will not ensure a dignified old age. This is particularly true for women.
 
 

VII. An adequate response to the arrival of refugees from Ukraine to prevent wage dumping

How to proceed?

In order to prevent downward pressure on wages and ultimately to maintain social peace, it will be crucial to advocate for decent remuneration for newcomers who join the labour market.

Why is it important?

People in need are often willing to accept poorer working conditions, work for lower wages or longer hours. They are also usually in a weaker position to bargain for respect for fundamental rights. If they are not protected, this will not only have negative effects on the foreign workers themselves (poverty, spatial segregation, etc.), but is also highly likely to lead to increased tensions in society. The experience that new arrivals lower the standards of what is normal for all people in similar positions leads to a rise in anti-immigration sentiment.

Concrete measures

  • Ensure knowledge of Czech law and access to legal protection (advice at local level, labour inspection, etc.)
  • Direct employment with full employee protections
  • Representation of newcomers in trade unions
 
 

VIII. Further options for using the decent minimum wage instrument to push for higher wages, salaries, and other incomes.

  • A starting point for collective bargaining: unions can use the minimum decent wage as a starting point for wage and salary demands in collective bargaining. Collective bargaining beyond company level, as is commonplace in many Western countries, would give them greater bargaining power to enforce it, and would enable a broader society-wide effect. So far, this has not worked in the Czech Republic because of the reluctance of employers to bargain at the sectoral level, even though it is legally possible.
  • Benchmarking for employers: employers can use the minimum decent wage as an evaluation criterion within the institution, as a tool for setting business objectives and externally as an opportunity to present themselves as an attractive employer.
  • Raising student and doctoral scholarships: student scholarships, including doctoral scholarships, are not sufficient to cover living costs while studying, so despite the fact that studying is usually considered a “full-time” activity, students must either rely on extra income, which prolongs their studies, or on a contribution from their parents, who – with generally low wages – may not be able to afford it. Here again, the minimum decent wage can serve as a guide as to what scholarships should aim for if they are to cover the real cost of living.
  • Better data on income and expenditure and its use: in many areas of the state administration, there is a lack of more detailed data for assessing the income and expenditure situation of households in the country, which is an essential prerequisite for its use in determining legislative and other support tools in this area. For example, there is a lack of reliable up-to-date information on rent levels. Investigations usually work with incomes before asset seizure or insolvency deductions, so these are not the real amounts available to people. Thus, the minimum decent wage tool can also serve as an incentive for the state to adequately quantify the income and expenditure situation in the Czech Republic and follow up on it to take this into account wherever necessary.

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