Real wage growth under Klaus higher than under Zeman

06-06-2002

The average monthly wage in the Czech Republic accelerated sharply in the past three months. In the first quarter, the average monthly wage in the Czech Republic amounted to slightly over 14,000 CZK, a year-on-year growth of 7.0 pct in nominal terms. In the same period, consumer prices grew by less than 4 percent.

In statistical terms, real wages were growing faster under the right-wing governments of Vaclav Klaus than under the current Social Democratic government of Milos Zeman but analysts claim that this does not necessarily mean that the standard of living grew faster under Klaus.

Economists say both the development under Klaus and Zeman have had many drawbacks -in the mid 1990s, the standard of living was growing partly thanks to an enormous amount of bank loans which remained unpaid and eventually had to be covered by the state to prevent the banking system from collapse. On the other hand, the current growth is due to expansionary fiscal policy of the Social Democratic government with a widening state budget deficit.

Under Klaus - roughly from 1993 to mid-1997, real wages grew by 7 pct annually. From the second half of 1998 until now - under the Social Democratic government of Milos Zeman - wages grew by an average 3.7 pct annually.

However, a direct comparison of the figures might be misleading, because Klaus's policies led to an economic crisis. Wage growth was too high, stimulating a fast growth of domestic demand and inflating the current account deficit which resulted in the adoption of the so-called austerity packages. The central bank and the government tightened the monetary and fiscal policies, economy fell into recession, and wage growth slowed down temporarily.

Under the Social Democrats, the Czech economy revived, also thanks to a wage hike in the public sector. On the other hand, unemployment and public budget deficits have continued to grow.