Czech Republic sees sharpest decline in real wages across EU

Real wages in the Czech Republic have dropped by 10% since the end of 2019, marking the steepest decline among all EU countries, according to an analysis presented today by XTB chief economist Pavel Peterka. Despite a 27% nominal wage increase over the same period, high inflation has eroded purchasing power, leaving Czech workers worse off in real terms.

The Czech Republic’s accumulated wage decline outpaces all other EU nations. Italy recorded the second-largest drop, with real wages falling by 5%, while the eurozone average decline stands at just 1%. On the other hand, Bulgaria saw the highest real wage growth, with wages rising 36% since 2019.

The primary driver of this wage erosion is one of the highest inflation rates in the EU. Since 2019, Czech consumer prices have surged by 41%, trailing only Poland (42%) and Hungary (52%). However, both Poland and Hungary experienced faster nominal wage growth, cushioning the impact of inflation more effectively than the Czech Republic.

Peterka identified low labor productivity—especially in construction and agriculture—as a major barrier to wage growth. Additionally, limited workforce mobility and a reluctance among employees to change jobs have further slowed wage increases. “It is empirically proven that changing jobs results in higher wage increases than negotiating with a current employer,” Peterka noted.

The analysis predicts that nominal wages will rise by 6-7% in 2025, translating to a real increase of 3.5-4.5%. However, wages are not expected to return to pre-pandemic levels until 2026. The strongest wage growth is expected in manufacturing, healthcare, and specialized industries, where employers must boost salaries to retain skilled workers.

Despite these positive trends, risks remain. Economic stagnation in Germany, the Czech Republic’s largest trading partner, and the potential for trade wars could dampen wage growth prospects, Peterka warned.

As the Czech economy gradually recovers, rising consumer demand is expected to ease employer caution around wage increases, providing some relief to workers who have faced years of declining real earnings.

Source: CTK