Earnings Disparities in the Czech Republic: The History of Equalisation

Abstract

Statistical and sociological surveys are used to show the long-term development in earnings disparities. A considerable equalisation in wages occurred in three phases: the first one occurred during the Nazi occupation, then in the 19451948 period and finally after the post-Communist victory. The Communist ‘rewarding’ system was characterised by the predominance of demographic factors, the decline of secondary and especially tertiary education and the priority given to productive branches. After 1989, the general “needs” principle is being replaced, however hesitantly, by the “market” principle. Increasing returns to tertiary education were observed, the gap between gender somehow attenuated and the age profile of earnings became flatter. Market adjustment is uneven between sectors of ownership and branches of industry and moreover there exists a backlash primarily in the professional public services. Czech Sociological Review, 1996, Vol. 4 (No. 2: 211-222) Income distribution probably indicates best long-term trends and the inspection of basic changes in social stratification. Although it is not often used as such (unlike educational and occupational mobility), there are several reasons for this choice. Firstly, it is because income data are relatively easily available through statistical surveys. Secondly, because the income data are relatively easily comparable over time and across countries. And thirdly, because due to the double utility of income (its material and status values), income can be considered as the “hard core” of an individual’s or a family’s social position and, then, the distribution of income can be regarded as the key breakdown of society. Each of these points can however be challenged. The availability of income data differs according to each country, given the continuity of its history and consequently the economists’ and statisticians’ concern with provision, analysis, publication and protection of data. Comparability of income data is limited in both the cross-national and temporal aspects due to the variety of income indicators, type of survey and population covered. Whether the economic history exists as a functioning discipline or not, it is of utmost importance. Finally, according to each society, the monetary income can always be disputed as an indicator of households’ economic position (the role of income in kind) and, even more, an indicator of the social status of people and families (the role of power). In this article, I focus on earnings only. First I show the available statistics to summarise the most important long-term tendencies in the distribution of earnings. Then I concentrate on the specific rewarding systems under the Communist regime and their en*) This research is supported by projects No. 403/06/0386 and No. 403/96/K120 of the Czech Grant Agency. Thanks are due to Pavel Machonin for requiring this article and giving good suggestions for its final version. **) Direct all correspondence to: Jiři Vecernik, Institute of Sociology, Academy of Sciences of the Czech Republic, Jilska 1, 110 00 Praha 1, phone + 42 2 24 22 09 79, ext. 354, fax + 42 2 24 22 02 78, e-mail vecernik@mbox.cesnet.cz Czech Sociological Review, IV, (2/1996) 212 durance. Using the after-1989 sociological surveys, I later show the recent changes in earnings disparities and structures. The basic ambition is to outline an overall picture of earnings distribution which would contribute to expose the functioning of the new regime. Here, we should have in mind all far-reaching economic, social and political effects of income distribution, contrasting with its – so far – almost neglected place in the economic and sociological research. Historical roots of equalisation Unlike some Western countries where some key income distribution indicators were kept for over one century, like the U.K. [Routh 1980], or other countries where a systematic research allowed to reconstruct a long history of income inequality, like the USA [Williamson and Lindert 1980], the Czech “written history” of income distribution begins in the Communist period. Whereas income statistics start in the late 1950s, some modest analysis of income structures start in the late 1960s and the overall critical evaluation of the role of inequality is still expected. Although the historical information is better in Czechoslovakia than in the Balkan and Eastern European countries, we can gather only fragments of its pre-war history. Actually, no income survey has been conducted in pre-war Czechoslovakia; family expenditures which are available in tables, were collected from small and nonrepresentative samples. The only usable source of information about earnings by bounds is the social insurance testimony. According to the insured daily wages of manual workers (in the Central Social Insurance Company) and insured yearly salaries of private employees (in the General Pension Office), we estimated earnings differentials using the data of 1929 (3 mil. of insured persons) and in 1936 (2.2 mil.). Although these two groups do not include all workers, the data provides us with a rough picture of income inequality: the decile ratio in the pre-recession (1929) period was about 6 and in the postrecession period (1936) about 7. Such figures rank pre-war Czechoslovakia among the family of similarly developed Western countries such as Germany, France or the UK In those countries, the range of earnings inequality was probably even somewhat higher, as the early 1950s data witness [Incomes... 1967]. However, Czechoslovakia was not an extremely equalised country at all, despite some historically enrooted specificities. Those can be summarised as a social-democratic profile of the – especially – Czech nation, reborn in the 19th century from plebeian roots, not having large nobility and never producing a numerous grandebourgeoisie of its own. Social cohesion of the Czech society was given to the absence of extreme poverty existing at the time in Poland, Hungary and also Slovakia. Despite quite considerable disparities in earnings, the final inequality in consumption was less striking, showing the ratio 1 : 3.5 between unskilled workers and higher professionals [Rodinne... 1932]. In the inter-war period, the middle classes were certainly the most important social category (35% of the population in 1930) and served as an integrative amalgam of the society. In the late 1930s, the Czech society was characterised, with an exaggeration typical of the period (resumed later in Geiger 1949), as “almost one homogeneous strata of urban workers and employees with very similar living conditions and a mentality corresponding to the unified mass culture of today” [Ullrich 1937: 43]. Jiři Vecernik: Earnings Structure in the Czech Republic: The History of Equalisation 213 During the World-War II period, the Germans introduced a policy which was directly aimed at equalisation. On the one hand, they preferred to reward manufacturing workers for producing for the German war machine. On the other hand, they simultaneously suppressed Czech intellectuals in order to break the spiritual basis of the nation intended to be Germanised. Intellectuals were considered more hostile to the Nazi occupation and less acceptable for planned assimilation. Preferences and dispreferences in rationing only strengthened what was done by deliberate diminishing of wage disparities. Whereas the ratio of manual and non-manual workers was in 1937 1 : 2.6 by men and 1 : 2.9 by women, it decreased to 1 : 1.45 in 1946 in both cases [Maňak 1967: 531]. After the war, inflation required a differentiated increase in earnings: the lower the level, the higher the growth. Equalisation had already begun by December 1945 with the first wage regulation and followed by innumerable decrees which all stressed the main criterion of need. The necessary equalisation was further strengthened through deliberate policies filled by the Communist Party and welcomed by the majority of the populace within the general climate of Socialist ideology. The tenor of the time was not to allow incomes to fall below the subsistence level and not to waste money for the comfort of higher social categories. Consequently, while the real wage of manual workers almost doubled in the 1937-1948 period, the wage of non-manual employees was kept stable [Problemy... 1949: 63]. The most important changes occurred in the period 1948-1953, when a fortified industrial growth was launched with the Stalinist emphasis on heavy industry. This orientation was underpinned by the dominant Communist ideology in which “intellectual” became a swear-word and equalisation was militantly promoted. As the main Communist ideologue of the 1950s and the first Communist Minister of education Zdeněk Nejedlý said: “what is important is that many people only measure their satisfaction by how much better off they are than others are. They need others to be worse off than they are. It is the very basis of their pursuit of satisfaction and happiness” [Nejedlý 1950: 18]. After February 1948, when Communism took complete power, a true “wage revolution” started, in which the previous trend was even intensified. Through this, in the five following years, the existing wage structure was completely reversed to the benefit of the manufacturing and construction industries (and temporarily also transport) and to the detriment of almost all other branches of the national economy (see Table 1). The main sectors of the qualified intellectual workers (health services, education, culture) fell far below the national average. One factor facilitating these changes was the large inflow of women and peasants’ labour-force nourishing the lowest ladders of manual and administrative work. Czech Sociological Review, IV, (2/1996) 214 Table 1. Earnings according to the branch in Czechoslovakia (% of the average) 1948 1949 195