About the ILO in Czechia

Amid a robust recovery from the pandemic, the economy faces recession risks due to supply chain disruption and energy inflation

Czechia was among the first countries in Central and Eastern Europe to transform its political and economic system after the fall of the Iron Curtain. The country is considered as one of the most successful states in making the transition from a centrally planned economy to a social market economy. Since the early 1990s, growth has been strong, though volatile, driven by opening markets, inflows of foreign investment supported by a competitive industrial base, a favourable geographical location, and a skilled workforce.

The rapid transformation led to EU membership in 2004 and the classification as high-income country in 2006. Income convergence with EU has made significant progress and national income per person is at 92 per cent of the EU average in 2021, the highest among post-socialist EU members. Czechia has the lowest unemployment rate in the EU and OECD (2 per cent in 2022, as compared to the EU average 6 per cent). Low unemployment levels push wages upwards. With employment rates approaching 80 per cent(77.3 per cent in 2022), the country has been facing increased labour shortages that could become a major growth hurdle. The country also performs well on other social indicators in terms of income inequality (Gini coefficient 24 per cent vs EU average of 30 per cent in 2021) and the rate of people at risk of poverty or social exclusion (11 per cent vs EU average of 22 per cent in 2021).

Czechia’s deep integration in global manufacturing value chains led to a contraction of GDP by -5.5 per cent in 2020 (EU average: -5.6 per cent) caused by the Covid-19 pandemic. Growth returned to 3.6 per cent in 2020 and 2.5 per cent in 2022, driven by a rebound in global trade. Czechia has shown strong labour market resilience supported by a robust Covid-19 response package, including job and income protection schemes (totalled 5 per cent of GDP in 2020) as well as public guarantees for firms (15 per cent of GDP in 2020). The social partners played an active role in designing the support packages.

Czechia has been very dependent on Russian natural resources and has been profoundly affected by Russia's cut in natural gas exports. The energy outlook has stabilised following a steady build-up of natural gas reserves but falling household consumption and weak external demand will weaken the country's large industrial base. Real GDP is expected to contract by 0.9 per cent in 2023.

Czechia’s medium to long term challenges are the low employment rates of women with small children, low-skilled and older workers as well as people with disabilities. The gender pay gap is one of the highest in the EU at 19 per cent (compared with 14 per cent EU27 average). At the same time, a lack of skilled labour and skills shortages pose a significant barrier to further innovation and growth.

The Czechia-ILO cooperation

Czechoslovakia was one of the founding members of the ILO in 1919. After the break-up of the country in 1993, Czechia became an ILO member state in the same year.

The ILO has assisted the country in its economic and labour market transformation and in its accession to the EU. Since 2005, Czechia has been a development partner of the ILO providing funding for ILO projects in Moldova, Serbia, Ukraine, and Mongolia on labour market policies, labour migration, social dialogue, skills for persons with disabilities and inclusion of disadvantaged youth in the labour market.

Czechia and the ILO further expanded this partnership by signing of a multi-year Partnership Agreement in 2016. Currently, the ILO implements a Czech-funded Development Cooperation project on entrepreneurship training in Ukraine.

Text last updated April 2023