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How hard will the landing after the coronavirus crisis be?

UGLY TRUTH: We're in for a harsh autumn. Unemployment is looming over the heads of hundreds of thousands of Czechs

David Budai
03.Jul 2020
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4 minutes to read
Smutný muž sedící na lavičce.

At first glance, it looks like we have overcome the coronavirus crisis and things will only be better from now on. But our country has yet to face an even heavier blow - namely huge unemployment. After years of prosperity, few of us can imagine what it will be like once companies lay off hundreds of thousands of people.

Ekonom Lukáš Kovanda
Náměstek MPSV Michal Pícl
Graf ukazující klesající ekononiku a expert s tabletem

We are currently enjoying a peaceful summer, but already in autumn, we may have to suffer through an unpleasant ice cold shower. If politicians stand idly by, hundreds of thousands of people will have to head to the labor office within a couple of months. The state will be bleeding financially because social security contributions from salaries will be reduced. In addition, expenditure on social benefits and unemployment benefits will skyrocket.

So far, so good, the numbers are still at a record low and the unemployment rate is at 3.6 %, which puts us among Europe's finest. However, many economic experts, such as economist Lukáš Kovanda, warn that 10 % of people may be out of work as soon as next year, which is almost three times more. In hard figures, this means almost 750,000 unemployed people. And if we include people who are already unemployed, but aren't in the records of the labor office, or are operating in the so-called "gray" economy, we can add another tens of thousands of people. One million unemployed people, that sounds pretty unreal today. But this may not always be the case. After all, we lived in the 1990s, when in certain counties (Ostrava, Most or Karviná) one in five people was out of work.

Autumn won't bring anything good

The Organization for Economic Co-operation and Development (OECD) produced a similar estimate, expecting unemployment of 9.6 % in the Czech Republic, i.e. essentially the same figures. The estimates are based on the expected behavior of companies, which will gradually begin to realize that they have no need of certain employees.

Luxusní byt na pronájem Praha 1 - 27m
Luxusní byt na pronájem Praha 1 - 27m, Praha 1

"The main impact will come in the autumn, when the current government rescue measures will end. They consist in the state paying people for not working, so that they wouldn't have to be fired," says economist Lukáš Kovanda.

The prospects are not good and experts at the Ministry of Labor and Social Affairs are aware of it, too. "Predicting unemployment rate today is more like crystal ball divination. Unemployment will, of course, rise as support measures are lifted. The Ministry of Finance predicts up to 7 % unemployment this year, and I personally think that if we end up at this number, it will be a success," Deputy Minister of Labor Michal Pícl told LP-Life.cz.

According to him, the situation is still calm, partly due to a number of support measures taken by the ministry, but also due to the two-month notice period. "If someone was fired at the beginning of the coronavirus crisis, it will only reflect on the labor market in the coming months," says Pícl.

Some jobs will be performed by machines

The ever-faster development of automation will also play a role. Its effects will be more pronounced in the Czech Republic than elsewhere, because we are still more or less an "assembly plant" and we don't focus so much on the development of expensive technologies. By the way, Michal Pěchouček, a professor and expert on artificial intelligence, also spoke about mass dismissing of employees due to robotization in an interview for LP-Life.cz. He believes that a lot of human work will disappear completely. "Thanks to automation, a large number of jobs will disappear as well, people cite up to two billion jobs, so about a half of the entire job market on the planet. It's all fields with monotonous, manual labor that can be automated," he said in the interview, adding that it will affect tens of thousands of people in the Czech Republic.

Pronájem bytu Praha 1 - 43m
Pronájem bytu Praha 1 - 43m, Praha 1

Ministry of Labor officials now have to put themselves to work and figure out how to prevent the black scenario, otherwise things will end up in tears for us all. "We focus primarily on ensuring that people do not lose their jobs and are not at risk of falling incomes. This would, of course, have an impact on consumption, which could exacerbate the whole economic crisis. That is why we came up with the Antivirus program, support for the self-employed, or an increase in the care support for families with children," states Michal Pícl.

It can be managed... With a plan

Will it be enough? We'll see. The problem may be that once the measures have been lifted, the situation will become more dramatic. When all the exemptions or payrolls payments are suddenly gone, will the companies we well off enough to manage without the state support? The measures should certainly continue in some form, and politicians need to start discussing it. At the same time, however, they have to be smart and consider not only what steps to take to help the companies, but also the impact that the expended billions will have.

The time to think about the future is now, as economist Kovanda points out. "Government measures and the measures of central banks can only 'solve' the demand shock. All they do is pour money into the economy, i.e. the missing demand. However, governments put future generations in debt by doing so, and central banks are directly taking money from the pockets of these generations by manipulating interest and printing hundreds of billions," he says, adding that a record budget deficit of 500 billion crowns is already planned. And the interest on it will be really something.

HARD NUMBER: 63

That's how many counties in the Czech Republic have already seen an increase in unemployment due to coronavirus. There are a total of 77 of them, and it is already clear that unemployment will rise in all of them in the autumn at the latest.

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