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 93% of the EU average, the highest among post-socialist EU members. Czechia has the lowest unemployment rate in the EU and OECD (below 2% in 2019, 2.6% in 2020, trending towards 2% again in early 2022). Low unemployment levels push wages upwards. With employment rates approaching 80%, the country has been facing increased labour shortages that could become a major growth hurdle. The country also performs well on other social indicators such as low income inequality and a small share of people at risk of poverty (9% vs EU average of 17%).
Czechia’s high integration in global manufacturing value chains led to a deep recession in the first year of the Covid-19 pandemic (-5.8%, 2020; EU average: 6%). Growth returned in 2021 at 3.3%, driven by a rebound in global trade and a full recovery to pre=pandemic levels is expected in 2022. The health crisis severely affected the country in fall and winter of 2020/21 accompanied by strict lock down measures. Nevertheless, ILO calculations show that the short-term impact on the labour markets was relatively low. 6.3% of all working hours were lost in 2020 as compared to the last quarter of 2019 (EU27: 7.4%), while the corresponding figure for 2021 stood at 1.7%, as supply chain bottlenecks hampered the recovery of various manufacturing industries. The high employment rate did not change much compared to pre pandemic times. A very robust Covid-19 response package helped to mitigate the labour market impact. The package included job and income protection schemes (5% of GDP in 2020) as well as public guarantees for firms amounting to 15% of GDP (2020). The social partners played an active role in designing the package.
Remaining challenges from before the pandemic 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% (vs 14% EU27 average). As the recovery progresses, labour shortages and the integration of foreign workers will become again a challenge, and inflation may dampen growth prospects.
The Czechia-ILO cooperation
Czechoslovakia was one of the founding members of the ILO in 1919. After the break-up of the country, Czechia became an ILO member state in in the same year (1993).
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.
Text last updated 3/22.