Navigating Europe’s Socio-Economic Crisis Robin Maialeh Editor Navigating Europe’s Socio-Economic Crisis The Impact of Inflation, the Energy Crisis, and the Conflict in Ukraine on the Czech Republic and Beyond Editor Robin Maialeh RILSA Prague, Czech Republic This study was partly supported by the Ministry of Labour and Social Affairs of the Czech Republic IP70203 ISBN 978-3-031-44872-0 ISBN 978-3-031-44873-7 (eBook) This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. 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Contents 1 Introduction to the Current Challenges 1 Robin Maialeh 2 A Panel VAR Granger Causality Analysis of Wages and Labour Productivity: Evidence from Czech Regions 13 Umut Ünal and Robin Maialeh Introduction 14 Literature Review 19 Data and Methodology 21 Results 22 Conclusion 26 References 28 3 Convergence in the Labour Market: Evidence from the Czech Republic 31 Umut Ünal and Robin Maialeh Introduction 32 Literature Review 35 Data and Methodology 38 Results 40 Conclusion 44 References 46 v vi Contents 4 Migration and the Labour Market of the Czech Republic 49 Bohdana Kurylo Introduction 50 Overview of the Migrant Population in the Czech Republic 54 Determinants of the Location Choices of Ukrainian Refugees and EU Dispersal Policies 58 Ethnic Networks 58 Unemployment Rates and the Availability of Job Places 61 Dispersal Policies: Previous Experience of EU Member States 63 Labour Market Outcomes of Immigrants in the Czech Republic 66 Conclusion and Policy Recommendations 74 Appendix 76 References 76 5 Inflation Inequality: Drivers and Composition in the Czech Republic and Beyond 81 Davit Adunts and Robin Maialeh Introduction 82 The International Context of Inflation Inequality 85 Cross-Country Comparisons of Inflation Mitigation Policies 94 The Case of the Czech Republic 97 Results and Discussion 102 Conclusion 106 References 110 6 Weathering the Storm: The Socioeconomic Impact of the Energy Crisis113 Filip Mandys Introduction 114 Literature Review 118 Data 122 Dataset Construction 122 Household Expenditure Data 123 Price Data 127 Methodology 129 Contents vii Results and Discussion 132 Energy Inflation in the Czech Republic 132 Energy Inflation in Europe 139 Conclusion 145 References 148 7 Policy Recommendations and Concluding Remarks153 Robin Maialeh References 168 Index171 Notes on Contributors Davit Adunts is a senior researcher at the Research Department of Migration and International Labour Studies at the Institute for Employment Research (IAB), the Research Institute of the Federal Employment Agency in Nuremberg, Germany. Prior to joining IAB, Davit worked as a junior researcher at the Research Institute for Labour and Social Affairs (RILSA). Since 2015, he has been a PhD candidate at the Center for Economic Research and Graduate Education–Economics Institute (CERGE-EI), a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences. His research interests lie at the intersection of applied econometrics, the economics of migration, and the economics of education. His research focuses on migration selectivity and sorting, refugee labour market integration, and the impacts of migration opportunities on gender inequalities. Bohdana Kurylo is a postdoctoral researcher at the Research Centre for Education and the Labour Market (ROA) at Maastricht University. Prior to joining ROA, Bohdana worked as a junior researcher at the Research Institute for Labour and Social Affairs (RILSA). From 2016, she was a PhD candidate at the Center for Economic Research and Graduate Education–Economics Institute (CERGE-EI), a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences. Her research areas are empirical labour and education economics, with a specific interest in the impacts of schools and teachers on student outcomes, and educational inequalities between different groups of students. ix x NOTES ON CONTRIBUTORS Robin Maialeh is an economist and social scientist who holds a PhD from the Prague University of Economics and Business. He is working as the Director of the Research Institute for Labour and Social Affairs (RILSA) in Prague, which conducts independent socioeconomic research in close cooperation with its founding organisation the Ministry of Labour and Social Affairs of the Czech Republic. Prior to his appointment to RILSA, Robin Maialeh was a Vice-President at Unicorn and an Assistant Professor of Economics at the Czech Technical University in Prague and the University of Chemistry and Technology in Prague. He has also held visiting research positions at Princeton University and the University of California, Berkeley. His research focuses on socioeconomic inequalities, the political economy, and the methodology of science. Filip Mandys is working as a senior researcher at the Research Institute for Labour and Social Affairs (RILSA) in Prague. Previously, he worked as a research consultant in the Research & Market Analysis (RMA) division of the European Investment Fund (EIF) in Luxembourg. He holds a PhD in Economics from the University of Surrey, United Kingdom, as well as an MSc in International Economics, Finance, and Development and a BSc in Economics and Finance from the same university. His research interests include energy and environmental economics, labour economics, and applied econometrics. Umut Ünal holds a PhD in Economics from Florida International University (2012). He has a diverse academic career, including roles as a lecturer at Florida International University, faculty at Turgut Ozal University, adjunct faculty at Middle East Technical University, and a visiting scholar at Philipps Universitat Marburg. He holds the position of Head of Macroeconomic Analyses department in the Research Institute for Labour and Social Affairs (RILSA). His research endeavours are concentrated in the field of macroeconomics, with a central focus on empirical applications. His papers have appeared in well-known international journals such as Regional Studies, Kyklos, and Empirical Economics. List of Figures Fig. 3.1 Fig. 3.2 Fig. 4.1 Fig. 4.2 Fig. 4.3 Fig. 4.4 Fig. 4.5 Final labour productivity convergence clubs across the Czech Republic42 Final real wages convergence clubs across the Czech Republic 42 Foreign nationals in the Czech Republic, 2005–2022. (Note: Data on the number of foreign nationals in the Czech Republic in 2022 is available only as of 30 September 2022. The latest data on the population is available as of 30 June 2022; hence, the share of foreign nationals in the figure is reported as of this date) 55 Annual migration flows in the Czech Republic, 2004–2021 56 Main countries of origin: Shares of immigrants in the Czech Republic, 2012–2022. (Note: The number of foreign nationals in the Czech Republic for 2022 was reported only as of 30 September 2022) 57 Regional distribution (See the application of Münich and Hrendash (2022) on the dynamics of the regional distribution of Ukrainian war refugees) of Ukrainian war refugees. (Note: The visualisation is based on data available as of 31 March 2023 obtained from the Ministry of the Interior of the Czech Republic (2022b)) 58 Relationship between the numbers of Ukrainian immigrants and Ukrainian refugees (as of 31 December 2021). (Note: The visualisation is based on data obtained from the Ministry of the Interior of the Czech Republic (2022b)) 59 xi xii List of Figures Fig. 4.6 The distribution of available job positions across districts. (Notes: Based on data obtained from the Ministry of Labour and Social Affairs (2022) and the Ministry of the Interior of the Czech Republic (2022b). Each point on the graph on the right corresponds to a district. We excluded the three districts with the largest numbers of available job positions per 1000 inhabitants (15–64 years), i.e. Tachov, Mladá Boleslav and Český Krumlov from the right-hand figure) 63 Fig. 4.7Occupational skill levels of immigrants, as of 31 December 2021 67 Fig. 4.8 Wage development across immigrant groups, by country of citizenship, 2012–2021 68 Fig. 4.9 Blinder-Oaxaca Wage Gap decomposition across the wage distribution spectrum. (Note: The figures above reflect the immigrant-native wage gap according to deciles after controlling for an extensive set of observable characteristics including gender, education, years of experience, size of the firm, marital status, number of children, occupation, level of urbanisation of the region and year-fixed effects. The results were weighted applying probability weights) 70 Fig. 4.10 Gender composition of the Ukrainian diaspora in the Czech Republic. (Note: Based on data obtained from the Czech Statistical Office (2021)) 76 Fig. 5.1Overall shares of expenditure. (Source: Own calculation based on data from the Czech Statistical Office) 100 Fig. 5.2 Shares of expenditure by income group, 2021. (Source: Own calculation based on data from the Czech Statistical Office) 102 Fig. 5.3 Shares of expenditure by family characteristics, 2020. (Source: Own calculation based on data from the Czech Statistical Office) 103 Fig. 5.4 Year-on-year changes in the consumer price index by household income quantiles and family characteristics, December 2022. (Source: Own calculation based on data from the Czech Statistical Office) 103 Fig. 5.5 Contributions to the year-on-year change in the CPI from the considered product categories for five population subgroups based on income quantiles, December 2022. (Source: Own calculation based on data from the Czech Statistical Office) 104 Fig. 5.6 Contributions to the year-on-year change in the CPI from the considered product categories for the defined population subgroups based on family characteristics, April 2022. (Source: Own calculation based on data from the Czech Statistical Office) 105 List of Figures Fig. 5.7 Fig. 6.1 Fig. 6.2 Fig. 6.3 Fig. 6.4 Fig. 6.5 Fig. 6.6 Fig. 6.7 Fig. 6.8 Fig. 6.9 Fig. 6.10 Fig. 6.11 Fig. 6.12 Fig. 6.13 xiii Loss of purchasing power over the last 12 months (from April 2021 to April 2022) by income groups and family characteristics. (Source: Own calculation based on data from the Czech Statistical Office) 106 The share of energy expenditure in total household expenditure, comparing 15 OECD countries with the highest energy costs share in 2021. (Source: The data was obtained from the OECD, namely the Final consumption expenditure of households) 115 Disaggregated average household general expenditure for all households in the Czech Republic, between 2017 and 2021 124 Disaggregated average household energy expenditure for all households in the Czech Republic, between 2017 and 2021 126 Development of the monthly price indices of the four largest goods and services categories in the Czech Republic (2017–2023)—the price of “housing, water, and energy”, “food and non-alcoholic beverages”, “transport”, and “recreation and culture” 127 Development of the monthly disaggregated energy price indices in the Czech Republic (2017–2023)—prices of electricity, gas, solid fuel, liquid fuel, heat, and automobile fuel 128 Percentage annual increase in overall prices by consumer socioeconomic group between February 2022 and February 2023132 Percentage annual increase in energy prices by consumer socioeconomic group between February 2022 and 2023 133 Annual financial losses by consumer socioeconomic group caused by overall inflation, in Czech crowns (February 2022 to February 2023) 135 Annual financial losses by consumer socioeconomic group caused by energy inflation, in Czech crowns (February 2022 to February 2023) 136 Financial loss as a share of income across the socioeconomic groups due to overall inflation, between February 2022 and February 2023 137 Financial losses as a share of income across socioeconomic groups due to energy inflation, between February 2022 and February 2023 138 The twenty European countries with the highest annual general inflation rate between February 2022 and February 2023 140 The twenty European countries with the highest annual energy inflation rates between February 2022 and February 2023 141 xiv List of Figures Fig. 6.14 Fig. 6.15 The twenty European countries with the highest household financial losses from overall inflation as a share of income, between February 2022 and February 2023 The twenty European countries with the highest household financial losses from energy inflation as a share of income, between February 2022 and February 2023 143 144 List of Tables Table 2.1 Table 2.2 Table 2.3 Table 3.1 Table 3.2 Table 3.3 Table 4.1 Table 5.1 Table 6.1 Table 6.2 Pesaran (2015) weak cross-section dependence test results Panel unit root test results (Fisher PP) Panel—granger causality test Logt test results for all regions Initial convergence club specification Testing for club merging for labour productivity Detailed Blinder-Oaxaca decomposition: The effects of certain observable characteristics National inflation mitigation policies Annual average per capita household energy expenditure, Czech Republic (2018–2021) Types of energy policies aimed at mitigating the energy crisis effects (June 2023) 22 23 24 41 41 42 72 95 125 147 xv CHAPTER 1 Introduction to the Current Challenges Robin Maialeh Abstract In the dynamic landscape of the global economy, rigorous research that addresses key socioeconomic issues plays a pivotal role in terms of shaping equitable societies. This book explores several critical aspects of the economy of the Czech Republic, shedding light on topics such as the relationship between wages and productivity, the integration of immigrant workers and the distributional effects of inflation. These chapters, characterised by their thorough analysis and methodological precision, both contribute to the academic discourse and provide valuable insight for policymakers. The Czech Republic’s unique economic challenges, regional disparities and labour market dynamics provide fertile ground for exploration. The chapters reveal the intricate connections between wage dynamics, productivity and regional disparities, while addressing immigrant labour market integration and the impacts of inflation on different socioeconomic groups. By offering nuanced insights and employing advanced methodologies, this book advances the overall level of economic understanding, informs policy decisions and paves the way R. Maialeh (*) RILSA, Prague, Czech Republic e-mail: robin.maialeh@rilsa.cz 1 , 2 R. MAIALEH towards a more sustainable, inclusive and prosperous future for the Czech Republic and beyond. Keywords Socioeconomic research • Labour market • Inflation • Public policy • Distributional effects In the ever-evolving landscape of the global economy, where complexities and disparities abound, rigorous research into pivotal topics plays a commanding role in terms of shaping more equitable and just societies. This book considers a range of critical issues that lie at the heart of socioeconomic research. The chapters featured herein, each of which embodies meticulous analysis and methodological rigour, shed light on fundamental aspects of the economy of the Czech Republic. By exploring the intricacies of the relationship between wages and productivity, the distributional effects of inflation and the labour market integration of immigrants, this collection both advances the academic discourse and provides indispensable insight for policymakers and stakeholders alike. In recent years, the Czech Republic has provided fertile ground for economic transformation and has been faced with formidable challenges, which has prompted both scholars and policymakers to consider the intricacies of the country’s economic dynamics. The Czech Republic comprises distinct regions, each with its own socioeconomic characteristics and potential for growth. This heterogeneity provides an ideal “laboratory” for the investigation of the factors that contribute to regional disparities and the dynamics that underpin the convergence or divergence of economic performance across regions. Secondly, the prevalence of relatively low wages in the Czech Republic serves as a crucial point of interest for scholars and policymakers alike. The country’s labour market landscape is characterised by a competitive environment in which low wages have the potential, as the archetypal textbook conclusion suggests, to attract foreign investment and stimulate employment. However, it should be noted that such conclusions are conditioned to numerous aspects and generate mixed effects. Low wages may also push the unemployment rate below sustainable levels. A low unemployment rate may, in turn, then serve as a balancing factor that acts to support already weaken consumer demand caused by low wage levels. 1 INTRODUCTION TO THE CURRENT CHALLENGES 3 In addition, the low-wage scenario also raises questions concerning the adequacy of remuneration for workers and the negative impact on standards of living and, potentially, income inequality since the income composition of the top earners is usually dominated by capital rather than labour incomes. Moreover, the examination of the role of policies and labour market institutions in terms of determining wage levels becomes paramount in the quest to shape a sustainable and inclusive economy. Furthermore, the juxtaposition of regional economic disparities and low wages leads to the uncovering of several intriguing connections between these factors. How do regional disparities influence wage levels, and vice versa? Does the prevalence of low wages in certain regions exacerbate disparities, or does it present an opportunity for economic convergence? Unravelling these interrelationships allows for a nuanced understanding of the broader economic landscape and the discovery of potential pathways for fostering equitable and robust economic growth. In addition to the structural differences in regional economic development, the Czech Republic’s recent experience with a substantial influx of war refugees from Ukraine and the challenges posed by rampant inflation have further solidified its position as an exemplary case for investigation. The significant influx of refugees has introduced complex dynamics into the Czech Republic’s social and economic fabric. The integration of these refugees into the labour market and society at large presents unique challenges and opportunities. The investigation of how the arrival of war refugees impacts the labour market, wage dynamics and overall economic performance has the potential to yield valuable insight for policymakers facing similar situations globally. Forming an understanding of the potential impacts on the labour supply, skills transferability and human capital development is vital in terms of designing targeted policies that promote inclusive growth and social cohesion. Moreover, the issue of rampant inflation has emerged as a pressing concern for the Czech Republic, and the detailed study of its impacts on society is crucial. High inflation rates potentially erode purchasing power, exacerbate income disparities and impact wage bargaining dynamics. The analysis of inflationary pressures in the context of incomes and regional disparities assists policymakers in terms of devising measures aimed at protecting vulnerable groups and maintaining economic stability. Moreover, the exploration of the link between inflation and labour market outcomes sheds light on the efficiency of monetary policies and their implications for employment and wage levels. 4 R. MAIALEH The combination of the shocks that have severely affected the Czech Republic over recent years provides a unique opportunity to set the background for examining the interconnectedness of these phenomena. The integration of war refugees into the labour market and society, coupled with the impact of inflation on different social groups, and regional labour market disparities, presents a multifaceted economic landscape. Via the exploration of these intricate dynamics, researchers are able to provide evidence-based recommendations for policymakers in terms of fostering social cohesion and sustainable economic growth in the face of complex and interconnected challenges. As we embark on this scholarly journey, the various chapters in this book offer a testament to the enduring pursuit of knowledge in the field of economics and policy research. Each contribution represents a step forward with concern to enriching the understanding of the key economic phenomena that shape the Czech Republic’s economic landscape. The rigorous methodologies employed in these chapters underscore the commitment to empirical precision and intellectual rigour and converge at the vanguard of contemporary economic research by illuminating critical themes that resonate with the host of complexities of the global economy. Through diligent inquiry and methodological precision, the book provides a major contribution to the understanding of the economic dynamics of the Czech Republic. As we navigate through the chapters that lie ahead, the insight gleaned from this collection will serve to foster a deeper appreciation of the interplay of economic forces that will pave the way towards a more sustainable, inclusive and prosperous future for the Czech Republic and beyond. The second chapter proposes that the intricate relationship between real wages and labour productivity lies at the heart of economic performance, and includes a thorough analysis of the causal dynamics that underpin this pivotal relationship in the regional context of the Czech Republic. Leveraging an extensive panel dataset spanning the period 2000 to 2021, the study comprises a comprehensive investigation into the intertwined trajectories of real wages and labour productivity. Aimed at unravelling this complex interplay, the chapter applies the panel vector autoregression (VAR) Granger causality test, which is widely recognised as offering an effective methodology for such investigations. In addition, the research employs the generalised method of moments (GMM) methodology, which is known for its capacity to address diverse econometric challenges, including endogeneity issues. The results provided by the rigorous analysis shed light on the reciprocal relationship between real wages and 1 INTRODUCTION TO THE CURRENT CHALLENGES 5 labour productivity across the various regions of the Czech Republic. The identification of this interdependence, which suggests that changes in real wages have the potential to influence labour productivity, while shifts in labour productivity concurrently impact real wages, is of profound significance. These findings reveal the intrinsic nexus that binds these two key economic indicators, which has ramifications for both policymakers and stakeholders. As we progress through this scholarly endeavour, the significance of understanding the causal relationship between real wages and labour productivity becomes evident. The chapter provides important insight into the determinants that shape economic performance within the regional landscape of the Czech Republic, and the findings pave the way for the implementation of informed policy interventions that optimise the interplay between real wages and labour productivity and foster sustainable economic growth and social well-being. Policymakers should leverage these research findings so as to design targeted strategies that enhance labour productivity, thereby elevating real wages and promoting the economic prosperity of the nation as a whole. Moreover, the application of advanced econometric methodologies such as the panel VAR Granger causality test and GMM makes a significant contribution to the application of this methodological repertoire and bolsters the credibility and robustness of the economic research. By employing these sophisticated techniques, this chapter addresses potential endogeneity challenges and serves to enhance the level of accuracy concerning the causal relationship between real wages and labour productivity. Continuing with the issue of wages and productivity and with concern specifically to the realm of regional economic dynamics, forming an understanding of labour productivity and real wages convergence patterns is of paramount importance. The third chapter undertakes a rigorous analysis aimed at investigating and dissecting the diverse convergence patterns across the fourteen distinct regions of the Czech Republic over the period 2000 to 2021. Employing the clustering algorithm, this chapter ventures into uncharted territory by offering novel insight via the modelling of the variables in a non-linear manner, thus accommodating both heterogeneity and transitional dynamics at the regional level. The exploration of the outcomes provides valuable information on the nuanced dynamics that underlie labour productivity and real wages and, further, serves to shape our comprehension of the diverse economic performance and wage levels that are evident across the regions. In the absence of conclusive evidence 6 R. MAIALEH in support of overall convergence, the identification of two (three) sub-­ convergence and one non-convergence group for labour productivity (real wages) revealed the varied trajectories and distinct factors that influence regional economic growth and wage distribution in the Czech Republic. The findings should serve as a call to action for policymakers and researchers to meticulously analyse and comprehend the intricate convergence patterns that underpin regional economic dynamics. By gaining a comprehensive understanding of the unique factors and influences that shape labour productivity and real wages in each region, targeted strategies can be devised aimed at addressing regional disparities, fostering inclusive economic growth and ensuring an equitable wage distribution across the Czech Republic. The analysis of labour productivity and real wages convergence patterns stands as a cornerstone in the quest for equitable regional economic development. The understanding of the presence of sub-convergence and non-convergence groups helps to unravel the complexity of regional disparities and dynamics, thus presenting new opportunities for policymakers to tailor intervention measures that address the specific needs and challenges faced by different regions. The insight offered by this chapter enriches our understanding of the heterogeneous nature of regional dynamics and serves as a crucial reference point for guiding policymakers and researchers towards the design of informed strategies that promote economic growth, mitigate regional disparities and bolster an equitable wage distribution system. Continuing with the theme of the Czech labour market, the immigrant labour market integration process comprises a complex and critical area of inquiry in an increasingly interconnected global economy. The fourth chapter provides an incisive overview of the labour market integration of immigrants in the Czech Republic employing comprehensive data obtained from the European Union—Statistics on Income and Living Conditions (EU-SILC) survey over the period 2006 to 2021. As the nexus between immigrant-native wage differences and the effectiveness of immigration and integration policies becomes ever more pertinent, this chapter presents a nuanced exploration of this relationship and offers valuable insight for policymakers. Moreover, it explores the various factors that shape the location choices of Ukrainian war refugees in the Czech Republic, including the influence of ethnic networks and employment prospects, that contribute towards the unequal distribution of refugees. Employing the Blinder-Oaxaca decomposition for unconditional quantile regressions method, the chapter rigorously quantifies wage differences 1 INTRODUCTION TO THE CURRENT CHALLENGES 7 across the entire wage distribution spectrum and provides crucial insight into the economic realities faced by immigrants. The analysis reveals that immigrants from Eastern and Southern Europe, on average, earn lower wages than native Czechs. Notably, low-­ earner immigrants face a more considerable wage disadvantage than their high-earning counterparts. These disparities underscore the urgency of investigating the determinants responsible for the immigrant-native wage gap across the entire wage distribution spectrum. The chapter reveals the myriad unobservable factors that comprise the key determinants in terms of shaping wage disparities, thus enriching our understanding of the multifaceted interplay of diverse variables. Education and experience play pivotal roles in determining wage disparities between immigrants and natives. Immigrants often encounter lower returns on their education and experience, which can be attributed to the imperfect transferability of skills, challenges in terms of the recognition of foreign educational qualifications, and lower returns on foreign education. This finding underscores the necessity for the implementation of targeted policies that address the specific hurdles faced by immigrant workers concerning in particular ensuring equitable access to opportunities and resources and facilitating the seamless integration of immigrants into the labour market. The findings of the fourth chapter resonate as a clarion call for the design and implementation of more effective integration and equal treatment policies aimed at narrowing the immigrant-native wage gap. By acknowledging the complexities of labour market integration, policymakers will be better able to craft informed strategies that foster social cohesion and promote inclusive growth by leveraging the potential of immigrant workers for the collective benefit of society and the economy. The knowledge provided by this chapter offers a valuable lens through which to comprehend the immigrant labour market integration dynamics at work in the Czech Republic. The contribution of this chapter extends beyond mere data analysis; it serves as a beacon for guiding policymakers towards designing evidence-based intervention measures that prioritise inclusive economic growth and social cohesion. By placing immigrant labour market integration at the heart of policymaking, we can collectively create a more harmonious and prosperous society that nurtures the diverse talents and contributions of all individuals, thus fostering an environment of equal opportunities and shared prosperity. Currently high levels of inflation comprise a further important issue for the labour market. As the global economy experiences bouts of 8 R. MAIALEH inflationary pressures, the exploration of the distributional effects of this phenomenon is imperative in terms of forming an understanding of the implications for different socioeconomic groups. The fifth chapter presents a comprehensive analysis of the distributional effects of currently high inflation rates, focusing specifically on the investigation of studies that have addressed inflation in the European context. Drawing upon innovative methodologies that integrate microeconomic surveys with national accounts and employ panel quantile regression with fixed effects, the chapter unravels the intricate relationship between inflation and income inequality. The findings highlight that higher inflation rates exacerbate income inequality, particularly in regions characterised by lower initial income inequality. Moreover, the chapter explores the complex interplay between inflation and well-being by disentangling the contributions of profits, wages and import prices to inflation dynamics within countries. In the context of the Czech Republic, the chapter adopts a meticulous approach employing data obtained from the Czech Household Budget Survey and the Consumer Price Index to create consumer price indices for various population subgroups. This thorough analysis allows for a nuanced understanding of the distributional impact of inflation on different segments of society, particularly those whose budgets are most affected. Notably, the chapter emphasises that subgroup-specific inflation rates align closely with that of the inflation rate for the non-elderly population, with the exception of single-parent households, which experienced a higher inflation rate in 2022 than the other subgroups. Although this difference was reasonably modest, the findings are significant in view of the potential negative implications for the well-being of single-parent households. Importantly, the fifth chapter sheds light on the disproportionate burden borne by low-income and single-parent households in terms of inflationary costs related to essential expenses such as housing, water, electricity, gas and other fuels. While all households are facing the impact of rising living costs, the analysis indicates that single-parent and low-income households are particularly vulnerable to the inflationary pressures that arise from these essential items. The stark contrast in terms of the inflation burden between single-parent and two-parent households, especially with regard to housing, water, electricity, gas and other fuel costs, reveals the heightened susceptibility of single-parent households to the adverse effects of inflation The disparities identified in the distributional effects of inflation signal the pressing need for the introduction of targeted policy intervention 1 INTRODUCTION TO THE CURRENT CHALLENGES 9 measures that specifically address the challenges faced by vulnerable households. In particular, the recent increases in electricity and gas prices underscore the urgency of providing government support aimed at mitigating the adverse impacts on single-parent households. By prioritising support for single-parent and low-income households, policymakers will contribute towards fostering social equity and stability, alleviating the burden of rising living costs, and promoting a more inclusive economic recovery. The insight gained from this analysis serves as a critical reference point for informed policymaking that aims to mitigate the adverse consequences of inflation on the most susceptible segments of society and support the creation of a more equitable economic landscape. The results presented in this chapter contribute to forming a more complete understanding of the complex interplay between inflation and income inequality, thus paving the way for a more resilient and just economic future for all. Finally, European countries have recently found themselves grappling with a pervasive surge in inflation, exacerbated especially by the rapid escalation in energy prices. The Czech Republic has been hit particularly hard by the ongoing energy crisis. The implications of such inflationary pressures warrant meticulous investigation. Thus, the sixth chapter explores the phenomenon of general and energy inflation in the Czech Republic. Employing data obtained from highly respected sources including the Czech Statistical Office, Eurostat, ONS and OECD, the chapter endeavours to explore the profound economic ramifications of the crisis, identifies those socioeconomic groups that have been most severely affected and suggests strategies for targeted governmental support aimed at mitigating the losses incurred. Of all the realms of economic dynamics, inflation represents one of the pivotal indicators; it significantly influences the financial well-being of households and shapes overall economic performance. The sixth chapter attempts to explain the specific drivers of inflationary pressures focusing particularly on energy prices, the rapid increase in which has exacerbated the already precarious economic situation. Drawing upon a comprehensive dataset spanning the period February 2022 to 2023, the chapter quantifies the toll inflicted by general inflation and the exclusive impact of energy inflation on the average Czech household. The alarming findings indicate that households have suffered a staggering loss of 12.2% of their annual net income due to overall inflation and an additional 3.5% due to energy inflation alone. These figures both underscore the gravity of the crisis and underline the urgent need for the introduction of effective policy 10 R. MAIALEH intervention measures aimed at alleviating the burdens borne by vulnerable segments of society. Moreover, the chapter strives to identify the distinct socioeconomic groups that have borne the brunt of energy-crisis-driven inflation. Through rigorous analysis, pensioners, the poorest families in society, single parents and households located in small municipalities were identified as the most vulnerable group and those that experienced the most substantial financial losses. The implications of these findings are profound and signal the need for targeted government support that prioritises the addressing of the unique challenges faced by these groups. By devising measures that align with the specific needs of these socioeconomic segments, policymakers can contribute towards fostering social cohesion, reducing inequalities and safeguarding the well-being of the most vulnerable members of society. Aimed at contextualising the Czech Republic’s position in the wider European landscape, the chapter further compares the nation’s inflationary experience with that of other European countries. The identification of the Czech Republic as the fourth most affected country in Europe emphasises the gravity of the crisis and underscores the shared urgency for cohesive, collaborative solutions at the regional level. The experience of other European nations provides valuable information for the development of policy measures that effectively address inflationary pressures and their consequences on the overall economic stability and social welfare of the region. In summary, in the context of today’s rapidly evolving socioeconomic landscape, the three pivotal topics explored in this compendium—the relationship between wages and productivity, the influx of immigrants and the distributional effects and decomposition of inflation—have emerged as fundamental issues for economic research and policy decision-making. These interconnected themes have the potential to reshape our understanding of economic dynamics, labour market efficiency and income distribution in the face of evolving global challenges. The nexus between wages and productivity has a number of critical implications for policymakers who wish to encourage economic growth and increase productivity levels. A comprehensive understanding of the labour market integration of immigrants is imperative in terms of effectively harnessing their economic potential. The examination of the distributional effects that arise from inflationary pressures is essential in terms of devising equitable policies that act to reduce socioeconomic disparities and ensure macroeconomic stability. As we progress through the diverse chapters of the book, 1 INTRODUCTION TO THE CURRENT CHALLENGES 11 the intrinsic value of these topics for current socioeconomic research becomes increasingly apparent. The findings and methodologies presented in this compendium contribute to the shared knowledge base that guides policymakers and researchers in terms of formulating evidence-based policies, fostering inclusive growth and mitigating economic imbalances. The insight provided resonates with the complexities of the contemporary global economy as we strive to build a sustainable, equitable and resilient future for the Czech Republic and beyond.