Partner Series | Czech Republic, an overly static labor Market?

In our ongoing ENEX Partner series featuring our global firms and the people behind, we now turn our spotlight to HILL International Czech Republic.

This time, we have the pleasure of interviewing David Petrů, Managing Partner at HILL International in Prague. He offers us a detailed look at the unique challenges and characteristics shaping the Czech labor market today.

David Petrů

I live in Prague and joined HILL International in 2006. I am the Managing Partner responsible for our company in the Czech Republic and Slovakia. I am 48 years old, completed university studies in economics and sociology, and have worked as an HR and Leadership consultant since 2002. With HILL International we provide our clients with quality executive search services, tailor-made leadership assessments, psychodiagnostics, outplacement programs, and 360-degree feedback solutions globally.

Insights into the current Czech economy, specifically regarding the labor market situation

The Czech Republic is a mid-sized country with almost 11 million inhabitants, located in the heart of Europe. It has an open, export-oriented economy with a significant proportion of industrial production (30% share of the GDP). GDP per capita is at 94% of the EU average. Prague, the capital city, ranks as one of the wealthiest areas in Europe (Prague held the number four spot in the EU regional ranking for 2022, based on GDP per capita).

The general employment rate, which measures the share of the population aged 20 to 64 years who are employed, is quite high at 81% (the EU average is 75%). Only 12% of the population was at risk of poverty or social exclusion in 2023 (the EU average is 21%).

Out of a total workforce of 5.51 million employees, approximately 825,000 are foreigners (15%). The average gross nominal wage (per employee, reflecting the type of job contract) climbed to 46,000 CZK by the end of 2023 (about 1,850 EUR).

The low unemployment and low fluctuation rates

After the COVID-19 pandemic, supply chain disruptions, Russia's war against Ukraine, the subsequent energy crisis, and two years of high inflation, the economy is stagnating.

However, despite these heavy external shocks, the unemployment rate remains steadily low. Why? How can we explain such a labor market situation?

Due to the low unemployment rate over the last decade, there is a significant shortage of employees across various qualifications. Companies are well aware of how expensive it is to recruit and retain qualified staff. As a result, they are hesitant to dismiss their employees.

There is also a culturally low fluctuation rate compared to other countries. While having mostly loyal employees sounds positive, it negatively affects labor market efficiency. In other words, large groups of employees (with various qualifications) could earn more by moving to other companies or regions, but due to their rigidity, this does not happen. Companies in growing industries often struggle to increase output due to a lack of employees. This leads to inefficiency in the labor market, preventing the economy from reaching its full potential.

Socially, there is a historic trade-off between wage levels and unemployment rates. As a result, the real income of employees is stagnating and not keeping pace with inflation. According to the Czech Statistical Office, real wages and salaries are still approximately 5% lower than in 2019.

Another source of rigidity may be the societal unwillingness to relocate for work. The willingness to commute is limited (a maximum of 50 km or 45 minutes one way is typically accepted).

Different generations in the workforce and the role of modern leadership

There is also an obvious trend of an aging workforce. Over the last 10 years, the average age of a working person has increased by more than two years, coupled with a low birth rate. Consequently, we do not foresee significant improvements in the labor market situation in the near future.

We are observing a significant shift to home office arrangements. In the long term, 32% of the working population works partially or fully from home.

Younger generations strongly prefer work-life balance and tend to avoid basic production jobs.

There is also a clear trend toward modern, inclusive leadership. Autocratic management styles seem to be a thing of the past. Candidates react positively to companies that offer opportunities for self-realization and autonomy. Soft factors like the personality of a potential manager, leadership style, information sharing, involving teams in change management, and efforts to retain and develop internal employees are now almost always part of candidates' decision-making processes.

The Czech Labor Code heavily protects employees, and the workforce regulations and laws are complex, contributing to market rigidity.

Potential solutions for the Czech labor market

To conclude, there are many reasons why the Czech labor market is not as efficient as it could be.

In my opinion, the best solution for our labor market is to increase immigration to provide “fresh blood.” The market quickly absorbed 500,000 refugees from Ukraine.

In another solution attempt, many of our clients continue to heavily invest in digitalization, automation, and robotization. Of course, here the challenge will be in upskilling the workforce to adapt to the changing demands of the global economy.

The impact of these trends on our services is positive. Our services are, and will continue to be, in demand in the coming years, particularly in executive search and direct recruitment. All the aforementioned factors create an obvious need for thorough, personalized professional assessments of managerial candidates. And we are experts in that!

Want to learn more? Go to https://www.hill-international.com