Liberal Czechs bet on flexible labor market to weather crisis

17th February 2009, Comments 0 comments

Largely convinced that the market will help itself out of the downturn, the center-right cabinet has rejected direct aid to hard-hit companies and has slammed ‘protectionist’ measures taken by EU peers.

Prague -- Unlike other European countries, the Czech Republic, which holds the European Union's six-month presidency, has opted for labor market flexibility to combat the looming economic crisis.

Largely convinced that the market will help itself out of the downturn, the center-right cabinet has rejected direct aid to hard-hit companies, which they said, would raise fiscal deficits and has slammed "protectionist" measures taken by EU peers.

Instead, the government of the former communist country, currently led by right-wing liberals, has undertaken steps to boost labor market flexibility, making radical changes to the labor code.

"The crisis has shown it is more necessary than ever to have a flexible labor market,” said Labor and Social Affairs Minister Petr Necas. “The more flexible the labor market, the better we can fight unemployment."

Speaking to the Hospodarske noviny daily, Necas said he would propose reducing the notice period to a month, extend the validity of time-limited contracts and prolong the trial period to four or, in the case of managers, six months.

Employees would also be allowed to break their contracts with employers if they paid the equivalent of five months' worth of salary. Companies would be able to "lend" their workers to rivals if they run short of work.

"We have to motivate employers not to be afraid to create new jobs at a time when the situation improves a bit," Necas added.

One of the most liberal proposals presented called for lifting the tax and social insurance burden on employers by further easing the already relaxed rules on outsourcing.

Necas had proposed to let companies outsource staff to avoid paying social and health insurance for their employees, but the plan was scrapped.

The latest statistics show Czech companies laid off more than 17,000 temporary workers between October and December last year, while more than 10,000 may follow by the end of March.

The largest Czech carmaker Skoda Auto, a unit of Germany's Volkswagen, has alone laid off 3,200 temporary workers, mostly foreigners, since October.

With silent approval from authorities, labor agencies in the past years recruited workers from Slovakia, Poland, Ukraine, Moldavia, Mongolia and Vietnam, as the economy blossomed and unskilled workers were in short supply.

Some immigrants from outside Europe paid as much as 2,000 euros to intermediaries for a work and residency permit, only to end up as little more than slaves in some cases.

The cabinet now wants to send them back, offering to pay the fare and a 500-euro bonus to those who leave the country voluntarily in a bid to avoid excessive social costs and a potential increase in the crime rate.

Until last December, Czech authorities played down all things crisis and refused to act, insisting the economy and the banking sector were healthy enough to survive largely unscathed.

But the gradually worsening economic indicators have finally pushed the government to set up a plan to cushion the impact of the global economic downturn.

The proposed measures include social insurance discounts, faster asset write-downs for companies, lower corporate income tax, guarantees for loans to small and medium-sized companies and investment in transport infrastructure.

The plan, aimed "to curb the growth in unemployment and retain the stability of public finances" also includes incentives for companies to send employees on training instead of laying them off.

After slamming EU countries that violate the EU's Stability and Growth Pact on fiscal policy, Czech Prime Minister Topolanek admitted Monday his country would also break the ceiling on public deficits set at three percent of gross domestic product (GDP).

"I expect (the gap) to be markedly higher than three percent" this year, Topolanek said, adding the anti-crisis steps would swallow 2.9 percent of GDP.

Last week, Czech President Vaclav Klaus raised his voice to defend the ultra-liberal approach to the crisis, comparing the situation to a flu that always grips the patient for seven days, whether treated or not.

"You don't treat flu with strong antibiotics, because they won't cure the disease,” said the admirer of economist Milton Friedman, a staunch opponent of government regulation. “They merely reduce the long-term immunity of the organism."
Sophie Pons/AFP/Expatica

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