Low Unemployment: A Curse or a Blessing?

Czechia has one of the lowest unemployment rates in the whole EU. Is it a curse or a blessing in disguise?

Aerial photograph of people at the Old Town Square in Prague
Aerial photograph of people in the Old Town Square in Prague. Photo: iStock.com / Eblis

Czechia has long had the lowest unemployment rate in the European Union. However, what at first glance may seem like a significant economic advantage is slowly becoming a curse, according to many economists and employers. So how is it? Is long-term low unemployment an advantage or a handicap?

Long-term favorable development

The unemployment rate in Czechia last peaked in April 2021 at 3.4% and has been declining since then, oscillating around 2.5% with a few exceptions. The absolute highest unemployment rate was in January 2000 with 9.3%. A look at the unit statistics is also favorable. There are 283,100 job openings for 282,500 unemployed as of March 2023. Thus, the market continues to be dominated by jobs over the unemployed. 

If we abstract from the nature of those jobs and the qualifications of the unemployed, there would be zero unemployment in Czechia. However, such a situation can never be achieved because there will always be a certain percentage of people in the population who will not be employed even under the best wage conditions.

But is such low unemployment a problem? The simple answer is no. However, the problem comes from the surplus of vacant positions with not enough available workers. Many employers, especially in the service sector (e.g. restaurants and hotels), complain of a chronic worker shortage that is undermining their development. There is simply nowhere to take new employees from.

Low unemployment and external factors

For many economists, the persistently low unemployment rate is surprising for several reasons. The first is the unfavorable economic situation in European and global markets. The high monthly domestic inflation rate, which reached 16.7% in March 2023, high energy prices, and disrupted supply chains have not yet impacted the Czech unemployment rate.

The second significant factor was the arrival of 500,000 refugees from Ukraine who were granted temporary protection visas. This has opened a path into the Czech labor market, allowing them to participate in active economic life. Of course, not all 500,000 were adult refugees of working age. However, tens, if not hundreds, thousands of new workers entered the Czech labor market anyway, and the Czech labor market simply swallowed them up. Even so, this large inflow of fresh workers did not affect the overall statistics. 

Moreover, many economists are disturbed by the low unemployment rate and warn of potential problems. According to them, the Czech economy is above its equilibrium potential, and the whole economy is dangerously overheating. They warn that what seems like a blessing is a dangerous trend that could send the entire country into recession.

Low Unemployment Club

The leader of such a club would be Czechia. In national statistics, it has an unemployment rate of 2.6 % as of January 2023. Eurostat’s differently compiled statistics show the Czech unemployment rate is 2.5%. According to the same European statistics, Poland shows an unemployment rate of 2.8%, ranking as the second-best in the EU.

By comparison, the European Union has an unemployment rate of 6.1%, and the Eurozone (countries using Euro) has an unemployment rate of 6.7%. Cyprus, Italy, and Greece are at the tail end of the European Union, with unemployment rates of 7.4%, 7.9%, and 10.8%, respectively. Spain comes last in the European unemployment statistics with an unflattering 13%.

Current forecasts do not predict any significant increase in unemployment. Czechia will likely continue to face a tight labor market that will slowly ease. And even though many large companies are warning of redundancies due to high energy costs, we are unlikely to see an unemployment apocalypse.

Marek Koten

A Ph.D. student in economics, specializing in nuclear energy from the Czech Republic, he also serves as a political consultant to the Czech government and the U.S. Republican Party.

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