The Czech Republic’s economy has been doing well in 2004, but towards the end of the year the most successful and best-performing firms have started making mass redundancies, or will do so soon. These workforce reductions have not brought about any industrial action as yet and social peace remains intact.
The Czech economy has been successful in 2004. Results in industry and also, for example, the banking sector have paved the way for greater growth in gross domestic product (GDP) than predicted by official forecasts. The Ministry of Finance has already raised its quarterly GDP growth forecasts, from the original 2.8% to 3% and then in October to as much as 3.8%. The main reason for the adjustments is an economic revival in the Czech Republic and globally as well as the favourable consequences of enlargement of the European Union, with the Czech Republic now a Member State.
However, employment is displaying an ostensibly contradictory trend, with many of the best-performing and most successful firms having started to make mass redundancies or are planning them. Rising unemployment is apparently one of the reasons that the public seems to take a different view of the positive economic development, seeing it as 'a worsening of the economy'. According to a recent poll by the Centre for Public Opinion Research (Centrum pro výzkum veřejného mínění, CVVM), 53% of respondents stated that during the past two years they had regarded the economic situation in the country as bad, whereas in 2002 just 39% of CVVM’s respondents took this view of the economy.
Workforce reductions
With some exceptions, the largest firms in the Czech Republic are reporting higher year-on-year sales of products and services and growing profits in 2004. Rising profits have, for example, been declared by: two of the three biggest Czech banks (which are, in terms of registered capital Komerční banka as, Česká spořitelna as, Československá obchodní banka as); by the Mladá Boleslav-based motor works Škoda Auto as, one of the most important firms in the country; Česká pojišťovna as, the company with the biggest share of the Czech insurance market; and Český Telecom as, the largest provider of telecommunications services. Česká spořitelna has announced that its net profit for the first nine months of 2004 was 5.7% higher than in 2003, while Československá obchodní banka has seen its profits rise by 5.3%, Český Telecom by 4.5%, Česká pojišťovna by 2.9% and Škoda Auto by 2.4%.
In addition, one of the biggest metalworking companies in the Czech Republic, ISPAT Nová huť as, expects its profits to be up on 2003, when they reached CZK 1 billion. Another successful firm is the Brno-based tractor manufacturer, Zetor as, whose operating profit for the first three quarters of 2004 was CZK 57 million, compared with CZK 31 million in 2003. Even a company that was until recently severely loss-making, Czech Railways (České dráhy as, ČD), has been posting relatively good results since its conversion into a joint stock company in 2003.
One of the most profitable firms in the country is its largest electricity generator, the state-owned ČEZ as, which reported net profits of CZK 10 billion as at the end of September 2004 - a result comparable with 2003, when profits included the revenue from sale of a majority share in its subsidiary ČEPS as. ČEZ’s strong position on the Czech domestic market is giving it major ambitions abroad and making it focus on foreign acquisitions - the firm wants to become the leader in the central and eastern European electricity market. Besides the expansion drive, the firm is currently also undergoing extensive restructuring: the current conglomerate of entities comprising dozens of companies is to be refashioned into a holding group composed of one parent and 10 subsidiaries. At the same time, the employer intends to cut its workforce radically - no definitive decision has been made yet, but thousands of redundancies are being considered.
ČEZ is not the only successful company planning to cut its workforce despite high profits. Český Telecom has already started making cuts, with another 2,000 employees set to be made redundant by the end of 2004. České dráhy is also considering slimming down its workforce drastically, by as many as 20,000.
Banks are also continuing to cut employment levels. Česká spořitelna, for example, which employed almost 11,000 staff as at 30 June 2004 year, is planning to make 10% redundant. The other two major banks - Československá obchodní banka and Komerční banka - have already dismissed staff in 2004.
These workforce reductions have so far not caused any 'social shocks' or disrupted social harmony. One reason apparently lies in the scale of the financial compensation paid out to employees in the form of severance pay. The minimum severance pay in the event of redundancy or reorganisation is fixed by Czech law at twice the employee’s monthly pay. This level of severance pay tends to be exceeded several times over by the abovementioned firms and certain others. For example: Český Telecom offers six to 10 months' pay; ČEZ four to 10 months' pay; Česká rafinérská as four to 14 months' pay; Vítkovice Steel as up to seven months' pay; České dráhy up to four months' pay. The level of severance pay tends to be staggered, usually according to the number of years the employee has worked for the employer.
The method used to make workers redundant at ISPAT Nová huť- which belongs to LNM Holdings, registered in the Dutch Antilles - is currently attracting attention (CZ0411104N). After months of negotiations on the wage details of an enterprise-level collective agreement had passed without agreement being reached, some trade union officials at the company resigned from their posts and the trade union structure at enterprise level broke down (some lower-level trade union organisations are carrying on collective bargaining independently of each other). Under these circumstances and as part of the intended redundancies, the employer made a generous offer to employees who consent to sever their employment by agreement: they will obtain severance pay of 17 to 25 times their average monthly pay (the firm has set aside a total of CZK 1.4 billion for this purpose). Over a very short period (up to the end of October 2004) almost 1,500 employees accepted these redundancy conditions (2,000 workers are expected to be dismissed in total).
Commentary
The abovementioned aspects of the current development of employment in the Czech Republic are the outcome of several factors. A number of specific reasons can usually be identified in each case of workforce reduction. In general, it is fair to say that fundamental structural transformations are currently taking place in the Czech economy. These are related to costly technological changes and large-scale organisational changes, and their consequence is that excess labour is being shed. In fact, it is only now that over-employment in firms that until recently were or still are state-owned or semi-state, which is a legacy of the pre-1989 period, is being resolved (the Czech Republic still lags behind in labour productivity, which makes it in many regards less competitive). This state of affairs in the development of corporate employment is thus directly linked to completion of the process of privatisation and subsequent restructuring, which in this phase involves manufacturing and other concerns, particularly in sectors like metalworking, electricity generation and distribution, telecommunications and, recently, banking as well.
In the steel industry, for example, there is only one firm left to privatise, Vítkovice Steel as; the other major companies are already private. According to the Steel Federation (Hutnictví železa as, HŽ), Czech metals companies have managed to improve their results substantially since 2000; for example, they have successfully made major progress in a key economic category - labour productivity. Their labour productivity in 2004 is twice that in 2000, reaching CZK 5 million per employee per year. The Federation identifies the worldwide steel boom and large-scale job cuts as the main stimuli for this improvement (the Federation states that over 16,000 employees have left metals firms in the Czech Republic since 2000).
The expected and actual social impacts of this kind of behaviour by large firms on a regional and national scale, in the medium and long term, have not yet been analysed in detail in the Czech Republic. There can be no doubt, though, that despite the high levels of financial compensation paid out to departing employees by employers, the related demands on the state budget will also be considerable, as the course of implementation of the 'national programme of the restructuring of the Czech steel industry' demonstrates (the updated national programme dating from December 2002 formed part of the basis on which the Czech Republic's EU Accession Treaty was signed and is transposed into the Treaty on Accession in Protocol no. 2 on the restructuring of the Czech steel industry). In line with the annex to Protocol no. 2 of the Accession Treaty, the Czech steel industry restructuring process will be completed in accordance with a common EU position on Chapter 6 ( 'economic competition') by the end of 2006, when reductions in the number of jobs in the basic operations of the entire Czech steel industry is meant to bring about a target workforce of 8,500 employees. The social impacts of restructuring in the industry are tackled by an accompanying social programme set out in Government Order no. 181 of 2002. More than CZK half a billion was paid out to a total of 4,400 redundant steel workers by the end of 2002 and contributions are expected to be paid out to a further 460 departing workers in 2004 and in the last year of the programme. (Charlotte Kadavá and Jaroslav Hála, Research Institute for Labour and Social Affairs)