Economic Policy Reforms 2019

Czech Republic

The income gap vis-à-vis the upper half of OECD countries declined to about 30%, owing to a rise in labour utilisation. However, convergence in labour productivity has slowed, reflecting skills mismatch and low capital investment after the 2008 crisis.

Income inequality has decreased slightly over the last years and is relatively low. The population is exposed to significant levels of air pollution, as the country is among the most energy- and carbon-intensive economies in the OECD.

Policies to expand access to childcare, increase employers’ role in vocational education and promote greater research collaboration between businesses and research institutions have addressed some of the Going for Growth 2017 priorities. The priority of enhancing equity in education has been refocused on improving the vocational education system as skill mismatch poses an increasing problem for economic growth. The priority to enhance competition in the domestic economy has been dropped as noticeable progresses were made since August 2017 to guarantee the independence of network industries regulators and to improve their cooperation with the competition authority.

The population is ageing rapidly, weighing on public finances and calling for a sustainable pension system. Reducing skill mismatch and addressing labour shortages is needed to ensure economic growth. Greater engagement of firms in the design of vocational education curricula and in developing internships can play a crucial role in overcoming skill mismatch. Providing more flexible work arrangements supports the inclusion of vulnerable groups in the labour market and can increase gender equity.

Growth performance, inequality and environment indicators: Czech Republic

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases.

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Policy indicators: Czech Republic

Source: Panel A: OECD (2018), OECD Employment Outlook 2018; Panel B: OECD, Pensions at a Glance Database.

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Beyond GDP per capita: Czech Republic

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

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Czech Republic: Going for Growth 2019 priorities

Make the labour market more inclusive. Reduce labour shortages by mobilising domestic labour, especially by supporting mothers of young children to reconcile work and family.

• Actions taken: Scaling up of childcare facilities is continued with guaranteed places for children older than 3 years from 2018. Despite improvements in expanding childcare facilities, an amendment to the Education Act, in effect since 1 September 2018, has abolished a legal requirement to admission of children less than 3 years into kindergartens. In September 2017, the new Family Policy Strategy was approved, containing measures addressing barriers for establishing new childcare services.

• Recommendations: Government spending should be shifted from parental leave to the supply of childcare facilities and early childhood education. Support the re-entering of female labour into the market by increasing the flexibility of jobs by providing alternative solutions such as part-time work, flexible teleworking arrangements and shared jobs.

1Link retirement age to life expectancy and support healthy ageing. Provide an environment that promotes a healthy lifestyle to reduce the impacts of the rapidly ageing population on public finance.

• Recommendations: Reform the pension system to ensure both sustainability and adequacy of the system by linking the statutory retirement age to life expectancy. Support healthy ageing through scaling up of preventive programmes, health education and reduce exposure to environmental pollutants to reduce health spending related to ageing.

2Reduce skill mismatches by improving vocational education. Skill shortages are constraining employment and productivity growth.

• Recommendations: Provide financial incentives to employers to get more involved in vocational education, in particular apprenticeships. Retraining should encompass solutions for all skills, in particular lifelong learning that help workers to adapt and update their skills over the course of their career.

Improve R&D and innovation policies to boost labour productivity. Raising business R&D spending and innovation performance would foster productivity and growth.

• Actions taken: Support under the National Research, Development and Innovation Policy 2016‑2020 continues to increase the effectiveness of R&D spending through a better targeting of funds to the defined priority areas. Government spending on R&D through grants has been rising in the last 3 years.

• Recommendations: Develop government co-financing schemes to complement grants and increase fiscal incentives for business R&D spending. Develop re-skilling and up-skilling of the workforce to achieve economic upgrading and create an environment that facilitates knowledge spill-overs and innovation.

Improve the effectiveness of the public sector. Lifting the performance of the public sector will support inclusiveness.

• Actions taken: Framework conditions that help municipalities reaping the benefits from joint service provision are currently being developed in a special project in co-operation between the Ministry of Interior and the Union of Towns. Since 1 January 2018, a central register of real assets owners have been created to detect conflicts of interest of officials involved in procurement.

• Recommendations: Improve the co-ordination of public investment by designating responsibility for co-ordination and prioritisation on the basis of highest social return and the evaluation of investment needs in a standardised way across sectors. Improve value for money in public procurement by increasing the use of joint procurement through improved tools and rules and increasing auditing. Use and publish standardised performance indicators for publicly funded activities at all levels of government.