EUROPEAN PAPERS ON THE NEW WELFARE

3. Employment perspectives and problems

Labour market (and also macroeconomic indicators) will be affected by the changing age profile of the population.
The labour market development will depend to a large extend on the decreasing participation rate (from 70.5% to 56.3% — see figures in Table 2).
Raising employment rates is a key to ensuring sustainable public finances and higher potential growth rates.
The Czech Republic is approaching total the employment targets of the Lisbon strategy (see figures in Table 4).

Table 4: Comparison of employment rate in the Czech Republic in 2003a

a The employment rate is calculated by dividing the number of people aged 15-64 in employment by the total population of the same age group.
b The employment rate is calculated by dividing the number of people aged 55-64 in employment by the total population of the same age group.
Source: Structural indicators, Eurostat, January 14, 2004.

For strengthening the adjustment mechanisms of the labour market in the expected trend of ageing population, the ministry of Labour and Social Affairs CR has identified the following as the key labour market issues⁵:
• Limited offer of vacant jobs across most of the Czech territory, with the most critical gaps existing within the Moravian-Silesian and Ústí regions that have been most seriously hit by the restructuring and scale-downs of the current core industries;
• Skills mismatch of the released labour force offer and demand (the structural unemployment);
• Monitoring and evaluation of progress and results; and
• Reinforcing the roles of the other labour market actors and cooperation with them (social partners, regional and local partners and non-profit organizations).
From the labour market situation and the Czech membership to the EU a necessity follows to write the mid-term objectives and long-term conception of the national employment policy that shall:
• Recognize the principles and aims of the European Employment Strategy as expressed in the new generation of the Broad Employment Policy Guidelines, as well as the Lisbon process objectives;
• Set the national concept of the substantive and time scales to achieve the Lisbon process objective, while reflecting the Czech labour market situation and needs, until 2010;
• Set the Government goals relating to the unemployment solution over its term of office, as its mid-term objective.
In accordance with a decision by the European Council, the Ministry of Labour and Social Affairs CR prepared the National Action Plan of Employment (2003) oriented to four pillars: improving employability, developing entrepreneurship and job creation, encouraging adaptability of business and their employees, strengthening equal opportunities policies for women and men⁵.
The National Action Plan of Employment has similar features to those of the European Employment Strategy¹¹ and is closely linked to the Lisbon objectives¹².
The emphasis of the employment policy will need to shift towards promoting improved employability as a prerequisite to ‘an efficient cleanup’ of the labour market, while at the same time reducing high levels of long-term unemployment and focusing on prevention of social exclusion. The fundamental requirement for the employment policy during the forthcoming period will be to seek politically acceptable solutions of consequences of the structural changes. The size of the envisaged drop in employment that will translate into the growth of unemployment will, to a considerable degree, depend on the steps adopted.

4. Welfare system and competitiveness

The Czech Republic like other EU member states is confronted with an ageing of its population which is hurting its competitiveness.
These demographic forces explain why two-thirds of the budgets of the Czech Republic and other European nations are broadly directed to expenditures on education, health and pensions. When the population gets older, the objective of just maintaining the same level of benefits in health or retirement plans actually means an increase in the state’s expenses.
Adolf Wagner, a leading German economist of the 19th century, and advisor to Bismarck in establishing the German social system, already underlined long ago that the more a country becomes wealthy, the more its social expenses increase and are difficult to reduce¹³.
This so-called “Wagner’s Law” is killing competitiveness. With growth under 3%, the Czech economy and the economies of other European nations simply cannot afford to maintain their welfare systems at current levels. Reforms prove almost impossible to enforce or, at best, are adopted too slowly.

References
1. Demographic projection of the Czech Republic, published on June 11, 2004, Czech Statistical Office, Prague.

2. Czech Republic Macroeconomic Forecast, Ministry of Finance of the Czech Republic, July 2004, Prague.

3. BezdeŠk, Vl., Dybczak, K., Krejdl, A.: “Fiscal Implications of Population – Aging”, in: Czech Journal of Economics and Finance, 53, 2003, No.11-12.

4. OECD Economic Surveys: Czech Republic, Economics, March 2003, OECD, Paris.

5. National Action Plan of Employment 2003, Ministry of Labour and Social Affairs, Prague 2003.

6. Operational Programme for Human Resource Development in the Czech Republic, Ministry of Labour and Social Affairs, Prague, 2002.

7. Convergence Programme of the Czech Republic (2004-2007), An Assessment, Note for the Economic and Financial Committee, ECDGEFA, Brussels, 16 June 2004.

8. Zeman, K.: Ageing Population, Pension System Transformation and Employment Perspectives and Problems in the Czech Republic, Paper for 6th CEI Summit Economic Forum, Warsaw, November 2003.

9. Zeman, K.: Social Issues of EMU Accession Strategy – Conflict of Fiscal and Monetary Restriction with Social Demands in the Czech Republic, Paper for International Conference “Strategy of EMU Enlargement” as a part of the “EuroZone” research project, Warsaw 2003.

10. Costello, D.: “The economic and budgetary implications of ageing population: on EU perspectives”, paper for international conference “Work Beyond 60: Preparing for the demographic shock”, International Association for the Study of Insurance Economics, Vienna, March 6, 2003.

11. European Employment Strategy, EC Brussels, 14.10.2003, COM (2003).

12. Choosing to grow: Knowledge, innovation and jobs in a cohesive society, report to the Spring European Council, 21 March 2003, Brussels, 03.4.2003, COM (2003).
13. IMD World Competitiveness Yearbook 2004, IMD, Lausanne, 2004.

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