The Czech labour market : documenting structural change and remaining challenges

The Czech labour market has undergone significant changes as a consequence of economic restructuring. This paper analyses these changes, highlighting both the impact of the recent economic crisis and some of the longer-run determinants of the Czech labour market. The higher share of tertiary education graduates has increased the supply of skills. Simultaneously, the development of services and the integration into global value chains have changed the composition of employment, away from construction and agriculture, and with significant shifts within the manufacturing sector. Although at an aggregate level the labour market performs well, a deeper analysis reveals several weaknesses. In particular, long-term and youth unemployment are persistent and especially affect the lower-skilled. Skill and occupational mismatches of vocational education graduates show that the education system fails to provide the qualifications required by the labour market. At the same time, regional differences in labour market performance have grown. Raising the low employment rate of women with young children would mitigate labour force ageing and prevent skill deterioration of a highly educated labour force. Over time, the labour market has been responding faster to output shocks and output growth consistent with constant unemployment has dropped significantly. Young people are more vulnerable to fluctuations in economic output than the rest of the labour force. The volume of labour market flows increased substantially during the recent years, both for short- and long-term unemployment.