Transition  LABOR   

 

Czechoslovak Labor in Transition

by Victor Pozzani


by Michael Dean

Unemployment and the Labor Market in Czechoslovakia

by Victor Pozzani

This essay will present a review of the developments which have occurred in the Czechoslovak labor market; specifically in relation to unemployment. We will first discuss very briefly the changes which took place at the start of the transition, then examine the developments which have occurred since then, and finally conclude with some current predictions for the near future. 

"For the Czechoslovak population, emerging unemployment was a new phenomenon; for five decades, unemployment was nonexistent in this country" (Janacek, 55). The unemployment rate in the initial stages of the transformation (as of June 1990) was 0.2%, and by the end of the year it had climbed to 1.0%. "...it can be said that the changes in employment reflected mainly a reduction of overstaffing" (Janacek, 57). At this time, "the basic legal framework was prepared for the social safety net". This consisted of the passing of the "Law on Employment", which marked the introduction of unemployment compensation (Janacek, 55). This law worked in the following way: If an unemployed persons did not enroll in some sort of retraining program, they would receive compensation for up to one year. For the first six months of that year, they would be compensated "up to 65 percent of the average net wage during the last three months of employment", and for the last six months, "up to 50 percent" (Janacek, 56). However, if a person did enroll in a retraining program, they would receive 70 percent, and the benefits would be extended throughout the whole period of retraining.

Another change which occurred was the establishment of "a network of regional labor offices, whose basic task is to organize passive and active employment policy in the regions under the supervision and guidance of the Ministry of Labor and Social Affairs" (Janacek, 55).

In 1991, most of the unemployment was concentrated in the state sector. 
"...the share of the private sector in GDP reached 7 percent in 1991, compared to 3 percent in 1990", and therefore "had little effect on total employment, with the exception of some industries, such as construction, trade, and municipal services"(Janacek, 57). The composition of the industries which were affected were as follows: The industries that experienced the least decline in employment were primary industries such as "energy production, ore mining, mining and processing", while those which experienced a larger drop were the manufacturing industries. 

"Unemployment had a very differentiated internal structure" (Janacek,57). 
By the end of 1991, "total unemployment increased fivefold", (up to 6.61%). 
This increase is obviously attributable to the initial "shock" of the transition (and/ or revolution). It was "4.13% in the Czech Republic, but 11.82% in the Slovak Republic". "The CR [Czech Republic] accounted for 68% of the labor force, while the SR [Slovak Republic], with 32% of the labor force, accounted for 57.5% of unemployment" (Janacek, 57). Unemployment also obviously varied across various levels of education and skill. According to Janacek, the breakdown of unemployment in the Czech Republic and the Slovak Republic as of September, 1991 was the following: In the Czech Republic, unskilled, blue collar workers comprised 30.9% of all unemployed; skilled blue collar comprised 36.3%; those with secondary school education comprised 16.3%; and those with university education comprised 6.4%. In the Slovak Republic, the aforementioned groups comprised 29.7%, 19.7%, 17.1%, and 6.8%, respectively (note: these numbers do not sum to 100, as they should; and Janacek does not give explanation as to the content of the remaining percentages.) 

In 1992, on of the only major policy changes which occurred with regards to the labor market was the changing of the time limit on unemployment compensation. The length of time for which one receives unemployment compensation was limited to six months (Janacek, 61). For the first three months, one receives 60% of the previous net wage, and for the last three, it is decreased to 50%. "As far as retraining is concerned, the conditions are the same as in 1991: 70 % of the wage is paid during the whole retraining period " (Janacek, 62). 

"While in 1991 unemployment was growing relatively quickly, this trend was reversed in 1992" (Janacek, 62). By the end of 1992, the unemployment rate was lower in both republics than it had been one year earlier. However, "The decline in unemployment rate was very significant in the Czech Republic, where the unemployment rate fell by almost 1.6 percentage points...At the end of 1992, unemployment in the CSFR (Czecho- Slovak Federative Republic) was 5.04 percent, 2.57 percent in the Czech republic and 10.38 percent in the Slovak Republic" (Janacek, 63). 

According to Hunya, et all, by September 1993, the unemployment rate had risen 1.63% above the end of 1992's rate to 3.2%. Hunya attributes this increase to several factors. First, he states that "an extremely rapid decline of the participation rate, from 82.6% in 1989 to 77.4% in 1992 is on of the causes of the low increase in registered unemployment. The second reason, according to Hunya, is that the "private economy and the service sector including tourism, as well as work abroad, were allowed to grow just when industry and agriculture started to release workers." Yet another reason Hunya gives for the increase in unemployment in 1993 is that "layoffs in industry have been slower than the production decrease due to non- budget hardening privatization."

If the transformation of the Czech economy continues to be as healthy as it has been thus far, the already low by comparison unemployment rate should with little doubt eventually come down even further. This may take a little time, but as the Czech economy in general grows stronger; and specifically as the private sector grows bigger, stronger, and more efficient, it will [the private sector] undoubtedly prove to be one of the integral components of achieving a low unemployment rate as well as a healthy economy in general.

According to Janacek, from 1991 to 1992, the share of people employed in the private sector went from 17.6% to 27.8%. This increase translated into there being a total of 1,324,000 private sector jobs at the end of 1992, which, in relative terms, is quite a decent amount. Furthermore, a fact worth noting is that the labor productivity of firms with under 25 employees (which is comparable to the size of many small private sector firms) as of 1992 was 364.0, which was the highest of all other size firms. This is just further testament to the potential of the emerging private sector. Although the private sector has not yet had a greatly overwhelming effect on total employment, if the trend of increase in private sector employment continues as it has been, it surely will have a substantial impact on total employment in the years to come.

Initially, there may be temporary increases in the unemployment rate as these newly- formed private sector firms regroup and restructure themselves and increase their efficiency levels, but once this interim process is over, and these firms begin to grow, they again undoubtedly will be an invaluable source of employment for the Czech economy. As Janacek states, "During the whole of 1992, there was a visible shift of employment toward small enterprises (up to 25 employees) and toward self- employment or family firms. Analyses show that these types of firms will be the main source of new job creation in the next few years."

Works Cited/ Consulted

"Unemployment and the Labor Market in Czechoslovakia and the Czech Republic, 1990- 1992", by Kamil Janacek; Eastern European economics, July- August 1994. (vol. 32, no. 4).

"Central and Eastern Europe: Uneven Recovery", by Gabor Hunya, et all. pp. 
19-20. [from the paper "The Economic Situation in Central and Eastern Europe and the main CIS States in 1993 with an Outlook for 1994 distributed in class]

ANALYSES OF THE LABOUR MARKET AND UNEMPLOYMENT IN CZECHOSLOVAKIA AND THE CZECH REPUBLIC FOR THE PERIOD 1990-1992

by Michael Dean

Period of 1990:

After the start of initial economic transformations, a new phenomenon began to emerge in Czechoslovakia; unemployment. Previously unheard of it soon began to install greater fear than the thought of inflation. For almost five decades, unemployment had been nonexistent in this country; keeping it now in check, would be vital for the continuation of progressive reforms. The first changes in the labour market began to occur in the 1990's. Due to political and institutional changes, such as the elimination of central planning and the basic outline for economic transformation by the parliament, the first unemployment appeared. In June 1990, the rate was a mere 0.2%, by the end of 1990 it had reached 1%. In 1990 already, a network of regional labour offices was established, which would organize passive and active employment policys in regions under the supervision of the Ministry of Labour and Social Affairs. By the following year, a law was passed that would provide some form of limited compensation to those that were unemployed. If the individual participated in a retraining program, this compensation could be as much as 70% of the workers's net average wage. 

Labour Market Changes for 1991:

During the period of 1991, the state sector was still largely responsible for a large part of the employment trends. Although the number of private permits was growing by more than one million permits per year, only one third of private entrepreneurs were performing this private activity as their main job. With the exception of a few industries such as construction, trade and municipal services, the private sector had little effect on total employment. Certain districts and industries began to display more unemployment than others. For example, manufacturing industries started having a higher rate of unemployment than primary industries such as energy production and ore mining. In the Czech Republic, districts such as the North Moravian Region showed unemployment figures of 6.17%, while in the Slovak Republic, the West Slovakian Region had figures as high as 13.31%. 

The average unemployment rate for the two republics at this time was 4.13% and 11.82% respectively. Groups of workers also began to emerge as being more prone to unemployment than others. In March 1991, unskilled blue-collar workers represented the largest group of those unemployed, 32.7 %. By September, this all changed when the skilled blue-collar workers took over as representing the largest group with 36.3%. Also the age-structure of those unemployed began to show that those 25 to 39 years of age were growing at an alarming rate. As of September 1991 this age group was the highest in both the Czech and Slovak republics with 35.6% and 32.4% respectively. In contrast to advance economies, this showed that older people were not as prone to become unemployed.

Some reason that since modernization of backward technologies was not proceeding at the desired rate, there had been no cause to dismiss the older workers. Fresh university and secondary-school graduates were finding it very hard to find jobs. Some figures estimate that up to 65% of graduates had problems finding their first jobs. Finally, the duration of unemployment was also increasing. Between March and September of 1991, the share of unemployment lasting between 3 and 6 months, grew by 7.2 percentage points to that of 28.2%. A survey completed by the labor offices in the Czech Republic, showed that more than 34% of those who were unemployed, had no serious commitment to finding a job. One theory for this was the allocation of the unemployment allowance for one year and its non limitation by further conditions. This discouraged people from trying to re-enter the work force. Also the situation was complicated by the high level of the minimum income and minimum wage. 

Changes in the Labor Market for 1992:

The period of 1992 saw a relative stabilization of the unemployment rate as compared to 1991. In the first few months, unemployment fell moderately in both republics and by the middle of the year, it was the same as what it had been for the same period in 1991. By the end of 1992, the unemployment rate in the Czech Republic stood at 2.57% and for the Slovak Republic it was down to 10.38%. The ratio of vacancies to the number unemployed began to improve which in turn began to alleviate the tension within the labor market. 

The trends in unemployment for 1992 can be atributed to a specific number of conditions:
1. Change of the institutional setup.
2. Growing efficiency of the labor offices.
3. New dawning of job creation in the private sector
4. Postponement of some key issues regarding the law on bankruptcies.
5. The "preprivatization" type of expectations on the part of enterprise 
managers.
6. Positive results from active employment policys.

Many districts in both republics however, still suffered high unemployment figures. Those that were worst hit, usually suffered from a one-sided orientation of production, industrial or agricultural. On the other hand, the capitals in both republics showed relatively low unemployment which is often seen as a contrast to many advanced economies where unemployment is often more a feature in large cities. This difference can be connected to the stage in transformation: a concentration of entreprenurial activities, the inflow of foreign capital, and of the representation of foreign firms. 

From the outset of transformation, an active employment policy formed an integral part of the economic policy for the Czechoslovak governments. These policies concentrated on new job creation and on public projects. In the Czech Republic these results concluded with the creation 93,700 new jobs until the end of 1992 and 50,000 new jobs in the Slovak Republic. 

Unlike in Poland, Hungary, and Slovakia, the development of unemploymentin the Czech Republic in 1992 did not follow the decline in GDP. This was due to:
1. An intense active employment policy.
2. Growth of the share of the private sector.
3. Growth of the share of the tertiary sector.(see Table 2)

Small firms are not only the new main source for employment, they are also achieving the fastest productivity growth (see Table 1). In contrast, the slow growth in large enterprises can be attributed to the slow privatization process within these old state firms. 

TABLE 1. PRODUCTIVITY GROWTH IN THE CZECH INDUSTRY, 1992

Size 

of firms

 Output No.

employees

Labor 

Productivity

Under 25 400.0  110.0  364.0 
25 - 99 118.0  121.5 97.1
100 - 149  94.0  91.2  103.1 
150 - 299  89.8  88.5  101.4 
300 - 599 85.0   84.9 100.1 
600 - 1,199  84.3  85.2  99.0 
1,200 - 2,499  81.0  86.6  93.4 
2,500 - 4,999  86.6  89.2  97.1 
Over 5,000 87.7 88.2  97.7

     (Source: Ministry of Labor and Social Affairs, Czech Republic)

TABLE 2. EMPLOYMENT BY SECTORS (END OF YEAR, IN %) 

  1991  1992  1992/1991 
Primary Sector 9.8  8.5 86.7
Secondary Sector   46.6   45.4 97.4
Tertiary Sector  43.6  46.1 105.7
Total   100.0 100.0 

(Source: Ministry of Labor and Social Affairs, Czech Republic)

For this particular period, the promotion of an active employment program, seemed to be one of the prime objectives of the new government policy. Under this condition was it possible to stabilize social tolerance and social feasibilty for the next transformation procedures.

SOURCE: 
Kamil Janacek: Unemployment in Czechoslovakia and the Czech Republic, in Eastern European economics, July-August 1994 (pages 55-68)

 

 

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