Labour market developments during the economic recession and the subsequent recovery

The economic slowdown during 2008 and the subsequent recession in 2009 affected the labour market. Its reaction can be characterised by two main features: (i) an uneven reaction to the economic contraction (in terms of speed and magnitude) across the individual branches of the national economy, and (ii) a substantial rise in work relationships other than employer/employee.

Chart 1 (Box) Employment and GDP
Industry reacted the most cyclically to the decline in output by reducing the number of employees 
(annual percentage changes; seasonally adjusted data; full-time equivalent; source: CZSO, CNB calculation)

The changes in economic activity in 2008–2011 were accompanied by a mixed response across individual sectors of the national economy (see Chart 1). The slowdown in economic growth in industry in 2008 H2 was reflected in a concurrent year-on-year decline in full-time equivalent employees. In 2009, the number of employees decreased in tandem with economic activity, although to a much greater extent. Subsequently, in the economic recovery phase, the number of employees also started to rebound, but with a greater lag than in the downward phase. A cyclical pattern in the number of full-time equivalent employees was also visible in market services, although it displayed less intensity and a longer lag than industry in both the downward and recovery phases. While the numbers of full-time equivalent employees in the above branches copied the trends in economic activity, they showed no apparent cyclicality in agriculture, construction and non-market services. This was due among other things to the nature of these branches and the length of contracts. Despite having risen, the share of part-time employment in total employment remains low (5.7%).

Another phenomenon observed in the period under review was a change in the employment structure. The number of work relationships other than employer/employee increased during both the economic downturn and the recovery. Their share in total employment thus rose from 16.1% in 2008 Q1 to 18.0% three years later. As regards individual sectors, the share of entrepreneurs (i.e. the self-employed) in employment is traditionally highest in construction, where they accounted for 40.8% in 2011. By contrast, the proportion of entrepreneurs is lowest in industry (7.7%), despite having increased in the last four quarters.

Chart 2 (Box) Entrepreneurs
The largest increase in the number of entrepreneurs was recorded in non-market services, followed by market services and industry 
(annual changes in thousands; source: CZSO, Eurostat, CNB calculation)

The number of entrepreneurs rose by 78,400 between 2008 Q1 and 2011 Q1. The largest increase in the number of entrepreneurs was recorded in non-market services, followed by market services and industry (see Chart 2). In year-on-year terms, major increases in the number of entrepreneurs in individual economic sectors occurred in two phases – first during the decline in economic activity in 2009, and later, to a greater extent, during the economic recovery in 2010. In the first phase the increase in the number of entrepreneurs was a normal cyclical phenomenon, since employees often turn to full-time independent business activity if they lose their job. The rise in the number of entrepreneurs in the current phase of the economic recovery is probably due to persisting cost-cutting motives on the part of employers and to the higher degree of flexibility of work relationships other than employer/employee.

The higher degree of flexibility of manufacturing compared to other branches is also evidenced by a microanalysis of corporate data from a CNB survey. Table 1 illustrates the use of nominal wage freezes and reductions in response to the recent crisis compared to 2002–2006. Two-thirds of corporations responded to the recent crisis with wage growth freezes in 2009, significantly more in manufacturing than in other branches and also more frequently in large corporations. In 2002–2006, only around a quarter of the firms analysed had used wage freezes, and there had been no statistically significant differences across branches and corporation sizes. The response of reducing nominal wages was less widespread, but as in the case of wage freezes was more common than in 2002–2006.

A halt in wage growth and an increase in the frequency of wage reductions at a time of recession can be regarded as signs of flexibility, although adjustment in the labour market occurs largely via a decline in employment.

Table 1 (Box) Firms' wage reaction to the fall in production
Wages in manufacturing showed the biggest reaction to the sharp fall in production
(share in %; source: CNB survey)

Note:
a) construction, trade, hotels and restaurants, transport and communication, real estate, renting, business activities.
Small firms (20–49 employees), medium-sized firms (50–199 employees), large firms (200 employees or more).
Differences compared to 2002–2006 statistically significant: ** at 5% level.

The firm-level survey, conducted in June 2009, provides evidence on the main channels of the impact of the crisis on Czech firms and on wage flexibility in a situation of economic crisis. The set of firms contacted in this survey was the same as in the 2007 survey described in Babecký et al., CNB WP 12/2008.