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Economic survey of the Czech Republic 2008: Tackling labour and skill shortages

 

Contents | Executive summary | How to obtain this publication | Additional information

The following OECD assessment and recommendations summarise chapter 3 of the Economic survey of the Czech Republic published on 24 April 2008.

 

Contents                                                                                                                             

Raising labour supply and skill levels requires attention to general labour market policies…

 

Figure 1.6. Trends in employment and unemployment

 

Note: Employment rate is total employment divided by working-age population, quarterly data. Quarterly population is interpolated from annual and projected for 2007.
Regions: Olo-Olomoucký, Mor-Moravskoslezský, Kar-Karlovarský, Ust-Ústecký. The four regions shown are all the NUTS3 regions that had unemployment rates over 10% in Q1 2005. There are 14 NUTS3 regions in total.
Source:  Czech Statistical Office; OECD, Economic Outlook Database; UN, World Population Prospects: The 2006 Revision, medium-variant population projections.

 

Improving the supply potential and skills base of the working age population remains the second key challenge for enhancing growth potential. The rapid pace of growth is reducing a longstanding problem of highly regionalised structural unemployment. However, it is creating a new challenge; ensuring labour supply and skills can support a higher pace of economic development. Policy primarily needs to provide the right conditions for the labour market in general. As highlighted earlier, the tax reforms head broadly in the right direction, shifting the burden away from labour taxation to indirect taxation. Also there are plans to strengthen activation in the social security system and to reform the unemployment benefit. On other fronts:

  • The removal of some restrictions in the labour code is welcome and more deregulation needs to be considered. At a minimum, notice period and severance pay arrangements ought to be linked to the length of service such that these regulations are lighter for those with short job tenure.
  • Consider full liberalisation of the rental market. Regulatory settings are still restricting rental accommodation and this has contributed to weak labour mobility within the country. Full liberalisation would have a greater impact than the current schedule of regulated rent increases.

 

… but also policies specifically affecting parents and older cohorts…

With falling structural unemployment and a period of decline in the working-age population imminent, even modest increases in employment imply tapping into additional reserves of labour. The largest of these are among parents with young children and older cohorts:

  • Deeper reform is required to help parents combine work and family. The revision to the cash parental allowance, with the option of three durations of payout, gives more scope for choice. Also, there are plans to encourage home-based private sector childcare services. However, further reforms should be made. International evidence suggests that long periods out of work damage parents’ careers and family incomes, and through this route can harm child development. On this basis, the combined length of maternity and parental leave should be cut back from three to two years, or less. However, the Czech Government has indicated that it is unlikely to act on this recommendation because it considers that the current system reflects societal preferences for family-based childcare. In any case there should be further steps to increase childcare provision. One option is to give municipalities greater incentives to offer childcare services. Alternatively, the parental allowance could be replaced partially (or fully) by vouchers for public and private childcare services. Finally, the recent tax reform does not sufficiently tackle a problem of high effective marginal tax rates for low-income family households, once cash benefits are included; a comprehensive review of this issue is required.
  • As regards older cohorts, a further increase in the retirement age is crucial to raising employment rates. And, attention is needed on post-retirement incentives to work. At present, working pensioners make pension contributions but there is no corresponding adjustment of the payout. Some consideration could be given to pushing the pension reductions for early retirement above neutrality. Measures on both these fronts are part of the proposed parametric adjustments. Indeed, given that the current PAYG pension closely resembles a flat-rate pension, there is a case for phasing out early retirement options altogether. Improvement to disability pensions is underway and needs to continue.
  • These, and other, non-working groups often have priorities and commitments that better suit part-time jobs. Removal of the barrier created by the minimum social contribution and any other impediments to non-standard work should take priority over direct subsidies.


… and education policy

The tighter labour market and the still considerable income gap relative to the EU average underscores the need for good education policy to increase human capital. Skill deepening can also accelerate structural change in the economy, for example by strengthening innovation. Two issues in particular need to be addressed:

  • The Czech Republic follows the central European tradition of early streaming in secondary education. Consequently only a small part of the population holds academic degrees. This elitism should be tackled by less streaming of students and wider access to courses that provide options for tertiary education. In addition, benchmarking of schools and students should be strengthened.
  • As recommended in previous Surveys, tuition fees in tertiary education should be introduced both to provide extra resources and to improve efficiency in the sector. This should be accompanied by publicly supported student loans in which repayments are conditional on earnings after graduation.

 

How to obtain this publication                                                                                   

The Policy Brief (pdf format) can be downloaded in English and in Czech language. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of the Czech Republic 2008 is available from:

 

Additional information                                                                                                  

 

For further information please contact the Czech Republic Desk at the OECD Economics Department at eco.survey@oecd.org.  The OECD Secretariat's report was prepared by Philip Hemmings, Alessandro Goglio and Zuzana Smidova under the supervision of Andreas Wörgötter. Research assistance was provided by Margaret Morgan.

 

 

 

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