By Jan Lopatka (Reuters 30. 8. 2016)
A jump in wages would benefit the Czech economy and help prepare the country for eventual adoption of the euro, new central bank board member Tomas Nidetzky said on Tuesday.
Nidetzky told Reuters companies should stop focusing on wage competition and said workers had a chance to use low unemployment to demand higher wage hikes than in the past, which would narrow the wage gap with Western Europe.
"Wages in the Czech Republic are still holding quite low," said Nidetzky, a former insurance an banking executive who joined the bank's seven-strong board in July. "There has been no significant increase, although it would certainly benefit the economy. It would also show in prices."
Prime Minister Bohuslav Sobotka is trying to make a reduction in income disparities - part of the reason for migration from the east to west of the EU - something the EU should focus on after Britain's vote to leave the bloc.
Czech GDP has reached 85 percent of the EU average, but wages have lagged.
Measured by purchasing power parity, the average wage stood at 49 percent of Prague's biggest trading partner Germany, according to latest available Eurostat data from 2014. In nominal terms, Czech wages are at around one third of the German level.
The average Czech gross monthly wage grew by 3.9 percent in real terms to 26,480 crowns, or 980 euros, in the first quarter.
The Czech Republic is a trade-dependent country with a large portion of the economy in manufacturing. A significant proportion of the industries are foreign-owned automotive and electronics manufacturers who have some of their production in Czech plants.
"It has become engrained that we compete on price. And cheap labour is reflected in the prices of our products," said Nidetzky.
Nidetzky said in the financial sector returns on capital were higher than at firms' parent operations abroad, which could be party attributable to lower pay at their Czech operations.
He said there were signs of higher wage growth ahead the labour market tightened. The unemployment rate was down to 5.4 percent in July form 6.3 percent a year ago.
A rise in wages would also help prepare for an eventual adoption of the euro, Nidetzky said. The country is obliged to adopt the euro at some point but has no target date.
"We can adopt the euro, but we should in my opinion first get closer to the euro zone in wages and prices," Nidetzky said.