Social dialogue and the public services in the aftermath of the
economic crisis: strengthening partnership in an era of austerity –
the case of the Czech Republic
Zuzana Dvorakova * and Alexandra Stroleny**
*VŠE University of Economics, Prague; ** King’s College London
European Commission project: Industrial Relations and Social Dialogue VP/2011/001,
December 2012
Executive Summary
Introduction
The research aims to understand the particular challenges facing the social partners, what
strategies they are putting in place to manage change and what contribution forms of
employee consultation and involvement i.e. social dialogue can make in maintaining high
quality public services in an era of austerity. A key goal is to encourage the adaptation of
these systems of consultation and involvement to deal with new challenges.
The analysis builds on a series of broader underlying research questions:
1. What have been the main drivers and measures of austerity adopted in each country?
2. How have these changes been implemented and to what extent has social dialogue
contributed to the change process at national, sectoral and workplace level?
3. How have institutions of social dialogue influenced industrial relations processes/
outcomes in the public services?
A particular strength of the research has been to build on and extend our understanding of
macro level developments by researching workplace change. This has involved detailed case
study work in local government to identify how local employers are affected by, and are
responding to, national austerity measures.
This report takes into account the influence of long-term public sector reform, from the fall
of Communism and beyond, and analyses the impact of the economic crisis on social
dialogue in the Czech Republic.
Measures
The Czech public sector has been under extensive reform since the fall of communism (i.e.
since the 1990s) accompanied by a drive to democratise and create structures that allow
citizen engagement with the state. Although the Czech financial sector is stable, as a country
which is still in transition, there are pressures on public sector finances as well as pressure
for reform, however only partly stemming from the advent of the economic crisis.
Particularly since 2009 government has focused on the implementation of deep budgetary
cuts, however it has also implemented measures on the revenue side including changes to
the tax system as well as other measures such as anti-corruption measures. The measures
implemented are also related to meet the objective of the Europe 2020 Strategy as well as
to meet the criteria as set out in the EU Stability and Growth Pact.
Nevertheless, key reforms (e.g. health, pension reforms) had been delayed as Topolánek
(2006 – 2009) government’s had been constrained by its status as a Minimum Winning
Coalition government. In March 2009, after a vote of no confidence the coalition under
Topolanek fell. The fall of the government, followed by the limited mandate of the Fischer
caretaker government (2009-2010) limited change. Since 2010, the current coalition
government headed by Necas - which has declared itself the “government of budgetary
responsibility” -adopted several measures specifically relating to austerity. The main
measures of the first set of austerity measures (2011) included changes to the system of
taxes, together with the abolition of some tax reliefs and the enforcement of higher taxation
elsewhere, changes to the welfare and benefits system and a 5 per cent cut to subsidies paid
to political parties and movements. One of the most controversial measures is a 10 percent
cut in the budget for public-sector wages. Moreover, public sector pay are to be frozen until
2014.
A very important measure relates to pensions. The recent recession has emphasised the
need for ensuring the long-term sustainability of public finances and accelerated the
pressure to reform pensions. The main changes in the ‘Public Pillar’ include:
- increases in the retirement age which will continue to rise
- greater link between pensions and contributions;
- stricter indexation rules;
- extension of the assessment period for the calculation of pensions;
- tightening of early retirement options.
Austerity measures proposed in April 2012 (to take effect 2013) include several measures on
the revenue side (mainly focusing on increasing income tax and VAT) and also several on the
expenditure side. The budget is still under discussion; including further changes to the
pension system, but the government has survived several confidence votes, creating
considerable political uncertainty. More delays in the full approval of the bill are likely and
the government’s austerity plans may be modified.
Social Dialogue
Social dialogue has played an insignificant role as there is a weak tradition of social dialogue
in the Czech Republic. The model of public sector pay determination is characterized by a
sovereign employer tradition. The law largely regulates relations between the social partners
and establishes key terms and conditions for the public sector workforce through the Labour
Code. The Collective Bargaining Act, which has not been amended since 1991, regulates
collective labour relations and collective negotiations between the social partners but
longstanding traditions of state unilateralism remain strong.
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Social dialogue particularly at the national and sectoral level is very limited as institutions of
social dialogue are either non-existent or rather are mere formality and only of a symbolic
nature. Nevertheless, formally there are national level social dialogue institutions which
offer a platform for policy discussions but they remain underdeveloped. This has continued
to be the case, and in the face of the economic crisis social partners had no meaningful
influence nationally on austerity measures. At a sectoral level, there has been no social
dialogue due to the fact that no employer organisation exists which has been a longstanding problem with regards to collective bargaining. However, certain terms and
conditions are negotiable at the organisational level. There is some joint regulation on
individual municipal/ regional level, mostly in terms of certain non-pay conditions, although
possibilities to negotiate wage conditions have increased since 2011, particularly in the area
of variable pay. But trade unions play a rather weak and limited role in local government.
Local Government
Financial restrictions began to have a significant effect on municipalities from 2011 municipalities experienced a record drop in total revenues due to a cut in subsidies and this
required a cut in spending. However, other changes are also having an impact on the
financial situation of municipalities. These changes are affecting municipalities in different
ways such as the structural changes to the system of tax redistribution. In both of the case
studies this has been mentioned as an important factor influencing the municipalities’
strategy.
Municipalities, such as Brno, are also affected by the recession and state of economy as a
whole but mainly by the reduction of subsidies from national level as well as from the EU
However, while Brno, the larger municipality, had stronger financial position, and did not
have to implement any specific measures in response to austerity. Vsetin had to respond
much more drastically with organisational restructuring, changes to work organisation,
redundancies and wage cuts. There is no indication that there has been any dialogue on this
issue prior to the approval of these measures.
On the whole, it is apparent that local government has been particularly affected by recent
changes that are leading to a much higher decline in employment than in central
government. However, these changes do not solely relate to the economic crisis or austerity
but link to the wider history of the Czech public sector, which has been subject to frequent
structural/fundamental changes in recent decades. The report also includes the results of a
questionnaire survey which has been conducted in order to gain a wider picture of the
situation in local government in a period of austerity.
Conclusion
In the era of the global financial crisis the Czech public administration and services are under
severe pressure to make cuts. Social partners in municipal authorities and in other sectors
(e.g. health care sector) can negotiate some pay and conditions but discretion is heavily
circumscribed by legal regulation, especially the Labour Code. In reality, social dialogue is
very under-developed at national (tripartite) as well as at sectoral levels in public
administration. There is more evidence of dialogue at the organizational level, but the
effects are limited and do not alter the overall pay policy. Austerity measures implemented
by the government are normally imposed rather than agreed with the unions and the
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mechanisms used to cut pay have almost always been decided on centrally. Cuts seem to be
the first round of cuts as it is judged to be insufficient and it is predicted that pay will be
reduced in coming years.
However, the cuts in public administration are not solely linked to austerity but are linked to
longer term reforms of the pay system, as amended in the Labour Code. In relation to this,
the main issues relate to the elimination or reduction of variable pay, benefits and other
indirect personnel costs as well as attempts to increase wage gaps between the higher paid
and the lower paid due, although this is challenging in a context of budget cuts. Pay and
terms and conditions of employment are discussed, but not negotiated at national level.
There is also no sectoral level collective bargaining, however organisational/enterprise level
collective bargaining is possible. Once a collective agreement has been concluded it is legally
binding. Such collective agreements would mostly cover non-pay terms and conditions
(working hours etc.) as all public sector employees have their basic pay and conditions
determined centrally.
Overall, the institutional architecture of social dialogue has not changed much since the
advent of the crisis and remains very underdeveloped in terms of both quantity and quality.
The scope of collective agreements is the same today as before the crisis as the law is almost
unchanged, but potentially greater scope exists in terms of pay after 2011. The industrial
relations climate remains difficult and trade union influence has been low prior to and after
the crisis. This is not to conclude there is no social dialogue as discussions occur at various
levels but it remains under-developed and produces few tangible results. Austerity measures
are therefore being implemented in a context of an evolving public sector. Austerity
measures contribute to ongoing pressure to reform the public sector and employment
relations practice and to implement reforms effectively.
Key sources/references
 Baccaro, L. and Heeb, S. (2011) Social dialogue during the financial and economic crisis:
Results from the ILO/World Bank Inventory using a Boolean analysis on 44 countries,
Employment Sector - Employment Working Paper No. 102.
 Bryson, P. and Corina, G. (2004). Public Sector Transition in Post-communist Economies:
The Struggle for Fiscal Decentralisation in the Czech and Slovak Republics, PostCommunist Economies, Vol. 16, No. 3.
 EPSU (2012) Funding of Local and Regional Government: Key challenges, solutions to
growth and alternatives - A very difficult economic context, Initial report for a joint CEMR
EPSU workshop: January 2012 Labour Research Department
 Kameníčková (2012) Rozpočtové určení daní – vývoj financování, naděje a očekávání ,
Denik - veřejné správy, Municipality and finance magazine 4/2012, available at:
http://www.dvs.cz/clanek.asp?id=6566995
 Špacek, D., Špalek, J. (2007) Communication and Electronic Public Administration: Some
Issues in the Context of the Czech System of Public Administration. In Lessons and
Recommendations for Improvement: Central and Eastern European Public Administration
and Public Policy. Bratislava: NISPAcee, pp. 217-238.
 Veverková, S. (2011) Czech Republic: Representativeness study of the European social
partners organisations: Public administration sector, Eironline, available at:
http://www.eurofound.europa.eu/eiro/studies/tn0912027s/cz0912029q.htm
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