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HN: Invisible hand of market finally raising wages in ČR

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Prague, June 22 (CTK) – Wages have started growing faster in the Czech Republic of late, which is a positive trend triggered by local car makers and quickly “infecting” more and more related companies, Ludek Vainert writes in Hospodarske noviny (HN) today.

In the past years, the Czech Republic, as well as the neighbouring Slovakia, have been labelled “European Detroit.” This is far from exaggerated because nowhere else in the world the volume of car production is so high in proportion to the number of inhabitants, Vainert writes.

In addition, the Czech and Slovak lead ahead of the rest of the world continues to grow in this respect. A continuing steep extension of local car production has made the plants short of manpower they need for car assembling, despite a high automation rate, Vainert writes.

The job of an assembly line worker is rather unpopular, and a decent pay offer is the main argument companies use to attract such workers, Vainert writes.

Car makers rank among the most generous employers. The wages they pay even to unskilled workers stand above the country’s average, not to speak of the median wage in this sector, Vainert writes.

However, this is still not enough. Would a radical raising of wages be an effective solution similar to Henry Ford’s in the 1910s? Vainert asks.

He says Ford paid decent money to his employees, but still he decided to double their wages in order to curb the fluctuation of workforce that financially burdened his plant. The pay increase had the desired effect, the plant’s production rose, production costs declined and Ford became the world’s biggest car maker, Vainert writes.

The problem of Czech car makers is very similar, including the fluctuation burden. Ford’s generous gesture actually meant an offer of a share in the company’s profit to them. As a result, he gained a motivated and disciplined workforce, Vainert writes.

In the Czech Republic, not even the most resolute trade unionists are demanding the doubling of wages, though a glance at the Czech (and Slovak) car makers’ economic results shows that the plants would remain profit-making even if doubling the wages, Vainert writes.

In any case, nothing prevents wages from being increased at a two-digit pace. This is mainly true of the Czech Republic where the strength of the Czech crown, consistently weakened within the country’s monetary policy for several past years, still lags behind the country’s economic performance, Vainert writes.

The current faster increase in wages is clearly positive and in harmony with the market conditions. From car makers, the wage infection has been spreading among the supplier companies that employ people with similar work qualification, and further to other firms across the respective regions. Finally, wages must also be raised by those who stand far lower than the car makers in the supplier chain and whose gross margin corresponds to their position, Vainert writes.

This, nevertheless, is a factor that can be expected to prevent wages from soaring uncontrollably. The supplier firms that work on the verge of rentability, which are quite numerous in the country, will have to either raise their productivity or attain a better margin in negotiations with their clients. If a firm fails in this respect, it will not survive and its workforce will be available for those more successful, Vainert writes.

The state’s task is not to side with one or the other party in the wage bargaining, but to seek equal conditions for all players, Vainert says.

The state should also see to that the Czechs prepare for the time when their wages have grown so much that a part of domestic production will leave for abroad. Western European countries such as Belgium, a former car production power, have coped well with the transition and can serve an as example for the Czechs to follow, Vainert concludes.

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