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 working hours in the Czech Republic is significantly above the EU average). 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 is especially true for women who are more likely to work in lower-ranking positions. This specifically affects women with a history of 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 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.
are more at risk in the event of societal fluctuations and crises (such as the covid, rising energy prices, inflation). Long-term low wages mean that households have limited opportunities to save, and are at risk of falling into poverty if spending rises sharply or income falls. People with unstable (‘precarious’) incomes are particularly at risk.

Purchasing power of Czech wages is below the European average

The absolute value and purchasing power of the minimum wage in the Czech Republic (despite repeated increases) is still low in the European context, and its purchasing power has been declining again in the last year. However, it is not just the minimum wage – average annual earnings in the Czech Republic in 2021 were just above half the EU average. The purchasing power of Czech wages is also low; according to the latest comparative statistics (2018), it is in the bottom third of the EU average. Moreover, they have experienced one of the highest real declines in current inflation – 7.5 per cent in 2022.

A quarter to a half of the population faces economic uncertainty

The Czech Republic has done well in comparative poverty statistics over the long term, but this is because they relate to a country’s wage level and thus measure rather income inequality, which is rather low in the Czech Republic (as opposed to wealth inequality).

As a result of the current high inflation, the number of households that cannot save any of their income has risen again to a third by the beginning of 2023. Households with children with incomes below the median in the same period did not have higher costs than incomes. According to data from the first half of 2023, nearly two-thirds of the population fear poverty or an unacceptable decline in their own standard of living.

Asset seizures indirectly affect a quarter of the population

The foreclosure map shows that in 2021, 698 thousand people were in foreclosure, of which 163 thousand with more than ten foreclosures. Another 106 thousand are going through the process of debt repayment. If we count the members of their households who are directly affected by this situation, over-indebtedness and foreclosure may directly affect a quarter of our population. The basic amount guaranteed to all people in foreclosure or insolvency is lower than the minimums in the welfare system, and people in foreclosure are not guaranteed even a minimum (and guaranteed) wage.

As a society we all end up paying:

Political radicalization and instability: Frustration stemming from uncertainty, inequalities, 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: Profits of companies in the Czech Republic are significantly higher in total volume than wages of employees. 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: Poverty can be a de facto barrier to social mobility (lack of funds for studies, the need to start work early, etc.), but it is also an experience that influences strategies and aspirations, perceived opportunities and possibilities of active effort. In the Czech education system, these inequalities are often multiplied. This contributes to internal polarisation and a lower capacity of society to respond to the challenges of a rapidly changing economy.

Low spatial mobility: Low wages in combination with a high rate of homeownership (limited availability and high prices of housing in economic centres) has a negative effect on spatial mobility and hence also on the balancing of supply and demand in the labor market.

Negative impacts on workplace relations: The psychological effects of economic insecurity associated with low wages negatively affect people’s performance, safety, self-activity, and relationships in the workplace.

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.

Awareness of the negative effects of growing economic and social polarisation is reflected in the strategic documents produced over the last decade at EU level, which emphasise the need for fair wages. In particular, the European Pillar of Social Rights, which is subsequently reflected in the EU Fair Minimum Wage Directive adopted in autumn 2022, emphasises collective bargaining and trade union membership.

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.