Why is it important?

Inadequate financial resources may cause people to:

fall into a cycle of debt as a consequence of little or no savings;. According to research conducted by Median (2018), assets seizures by debt collectors is often the result of people taking out loans for everyday items or to cover their rent or phones;
work in their free time, in order to have enough money (e.g., according to OECD, the number of hours worked in 2018 in the Czech Republic was the third highest in the EU). This often has a negative effect on health and family life;
often have health problems. Research points to the negative effects of a long-term uncertain economic situation, notably in term of
mental health or cognitive abilities;
get trapped in unequal or dependent relationships. This primarily concerns women who often have lower paying jobs, and in the case of being the sole breadwinner, their chances of
slipping into poverty are even greateru. Specifically, this affects women who have experienced domestic violence;
often make purchases based on price rather than quality. This can also mean that organic or local products are unattainable for them (which otherwise
need not necessarily be purchased only by those with higher wages);
not be able to manage quickly rising housing prices. The increase in rental prices mainly affects households with lower incomes, as they often rent housing;
have poorer access to health care. Mainly this refers to paid procedures, such as dental care, psychological services, supportive and preventive medicine, and for the poorest i also even copays for medicine, etc.;
have fewer opportunities for educating their children. Results from PISA illustrate a strong correlation between the socio-economic standing of parents and their child’s (lower) achievements in school. The negative effects on a child’s education are extremely exacerbated by housing instability and their parents’ asset seizures;
have limited opportunities to engage socially, whether due to a lack of finances (i.e., lack of money for free-time and cultural activities) or existential worries causing them not to have time or energy.

Purchasing power of Czech wages is below the European average

Despite the repeated raising of the Czech minimum wage, its current absolute value and purchasing power is among the lowest in Europe. This, however, does not only concern the minimum wage, as gross hourly earnings in the Czech Republic are three-fifths of the EU average (data from 2017) as well. Similarly, the parity of Czech purchasing power or, in other words, what one is able to buy with one’s wage, is below the European average in the Czech Republic according to available data from Eurostat (2014).

Wage inequality amongst EU member states is not detected in comparative wage and poverty statistics, as most of these studies use the median income of the given country. The Czech Republic, a country with relatively low income inequality (low wages across the board), therefore factors relatively well in such statistics.

A quarter to a half of the population faces economic uncertainty

In 2018, more than a quarter of households (albeit nearly 50% in some regions) were not able to pay were not able to pay for an unexpected expense or a week-long vacation, even though unemployment was slightly over 3%. According to a current analysis from 2019 by Český rozhlas, 40% of Czechs (“threatened” or “destitute” class) are affected by a below average income and economic uncertainty.

However, only a small group of people threatened by economic uncertainty receive social benefits that prevent and address poverty.

Asset seizures indirectly affect a quarter of the population

A map of asset seizures by debt collectors from 2018 illustrates that 821,000 people faced this issue, while 500,000 of them faced more than three different cases of asset seizures. When we take into consideration family members who are directly affected by this situation, a quarter to a third of all Czechs are immediately affected. Even after the recent raising of the so-called “non-confiscatable amount”, the money that these people are left with from their wages after these seizures, is often less than the amount defined as absolute material minimum.

Debts were in most cases the result of not being able to pay off loans for everyday items or rent or phone contracts – yet, the owed amounts increased to current levels due to long-term efforts to deregulate the debt collector sphere.

As a society we all end up paying:

Political radicalization and instability: Frustration stemming from uncertainty and the feeling that no one cares or that no one is addressing these problems can result in a loss of trust in the current political system. It could take on the form of political radicalization or populist party inclinations or even resigning from participation in democratic processes.

Populations low purchasing power: Economic uncertainty disproportionately impacts inhabitants from various regions. The weaker purchasing power of a region’s inhabitants has negatives impacts on the entire development of the local economy and, in turn, contributes to the growth of spatial inequalities.

Dependence on social benefits: The state’s budget has to be used to compensate for lower wages, as the poorest groups of the population must supplement their pay with social benefits. This is relevant in the Czech context mainly in terms of the growing importance of social benefits for property renters due to a rise in housing prices.

Outflow of profits to foreign countries: The low level of wages (combined with other factors related to the tax system and its “optimization” possibilities) contributes to the fact that a large part of the finances generated in the Czech business sphere flow abroad in the form of dividends.

Increased threat of poverty for women: Lower wages are concentrated in professions where women often are employed. Among other things, this results in a greater threat of poverty for single mothers and senior citizens.

Intergenerational transfer of poverty:Poorer access to education can lead to an intergenerational transfer of poverty. This contributes to internal polarization and lessens society’s ability to react to the challenges of a quickly changing economy.

Mezigenerační přenos chudoby: Horší přístup ke vzdělání vede k mezigeneračnímu přenosu chudoby. Toto přispívá k vnitřní polarizaci a nižší schopnosti společnosti reagovat na výzvy rychle se měnící ekonomiky.

Low spatial mobility: Low wages in combination with a high rate of homeownership has a negative effect on spatial mobility and hence also on the balancing of supply and demand in the labor market.

Growth of the black market: A high rate of debt, a secondary effect of low wages, leads to the growth of the black market and is costly for society because of both tax evasion and the long-term social issues associated with it.

The possibility of adequate pay is key to social cohesion.

The inclusion of a decent wage as a right in international documents (whether the Declaration of Human Rights or documents from the International Labour Organization) created after World War II is not a coincidence; rather, it reflects the experience of war and the awareness of the negative social consequences of inequality that caused pre-war political frustrations and preferences for radical political parties.

The negative consequences of growing economic and social polarization also plays a role in current strategic documents that were created on the EU level in the post-crisis period (European pillar of social rights).

The growth of wages of low income earners will also contribute to economic growth.

According to a recent analysis by the International Monetary Fund, an increase in the wages of 20% of high income earners will lead to a decrease in gross domestic product (GDP), while an increase in the wages of 20% of the lowest wage earners will have precisely the opposite effect.