Unemployment and the Labor Market in Czechoslovakia
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.
"Unemployment had a very differentiated internal structure" (Janacek,57).
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
ANALYSES OF THE LABOUR MARKET AND UNEMPLOYMENT IN CZECHOSLOVAKIA AND THE CZECH REPUBLIC FOR THE PERIOD 1990-1992
Period of 1990:
Labour Market Changes for 1991:
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 trends in unemployment for 1992 can be atributed to a specific number of conditions:
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:
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
(Source: Ministry of Labor and Social Affairs, Czech Republic)
TABLE 2. EMPLOYMENT BY SECTORS (END OF YEAR, IN %)
(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.