Czech Labor Ministry to Cut Unemployment Benefits From January as Job Market Stays Strong

The Czech Ministry of Labour and Social Affairs is preparing to reduce unemployment benefits starting January 1 of next year. According to the minister, given the stable labor market and one of the lowest unemployment rates in Europe, spending state budget funds on elevated benefit payments is no longer justified.

The move would reverse a decision made under the previous government of Petr Fiala, which had raised the benefit rate in the first months of unemployment from 65 to 80 percent of a person's previous salary. The new measure is expected to save the state between 4.5 and 5 billion crowns that had previously gone toward these higher payouts.

What Exactly Will Change

The rate is set to return to its previous level on two fronts. First, during the first two months of unemployment, people will once again receive 65 percent of their prior salary instead of the current 80 percent. Second, the maximum benefit ceiling will change: the unified cap for both unemployment benefits and retraining allowances will be set at 60 percent of the national average salary for the previous year, down from the current 80 percent.

The Fiala government had justified the earlier increase by arguing that it allowed people to avoid grabbing the first job available out of stress and instead search for better-paying positions — since changing jobs can boost salaries by up to 12 percent. The ministry, however, considers this argument insufficient: in its view, a higher benefit alone doesn't guarantee someone will find a better job, and job searching can just as well be done while still employed — especially now that the notice period for dismissal begins on the day the notice is received.

The ministry stresses that the purpose of unemployment benefits is to help people get through a period without work, not to create an incentive to stay unemployed longer than necessary. Given the continued high demand for workers in the labor market, officials consider a return to more moderate benefit levels justified.

Pensions May Rise More Than Expected

At the same time, the ministry has submitted for interdepartmental review a draft proposal for the January indexation of all pensions by 300 crowns per month. An earlier option under consideration involved an emergency increase of 590 crowns, though a final decision has not yet been made.

According to the minister, updated macroeconomic data won't be available until September, and the calculation could still shift upward. A 300-crown increase corresponds to indexation of 1.4 percent, while a government resolution could raise payments by up to 2.7 percent — which nominally would amount to that 590-crown figure. However, this is ultimately a political decision that will be made as part of coalition negotiations based on September statistics.

The difference in cost is significant: the draft budget for next year allocates roughly 740 billion crowns for pensions, including the 300-crown indexation. If the 2.7-percent option (590 crowns) is chosen instead, spending would rise by an additional 7.8 billion crowns.

Special Regime for Physically Demanding Professions Postponed

The ministry is also preparing proposals for regular age-based pension indexation after age 80 and for increased payments to working pensioners. There had been earlier promises to raise pensions not by a third but by half of real wage growth — but this step is being postponed for now, since real wages in the country still haven't returned to pre-inflation-spike levels. Forecasts suggest this may not happen before 2028.

As for early retirement for workers in physically demanding professions, the decision will be made together with social partners based on data from unified monthly employer reporting. Discussions are planned for next year, with the aim of having the measure take effect from July 2028. It remains unclear whether this will take the form of preferential early retirement without reduced payments, or additional employer contributions to pension savings — both schemes are already applied to certain categories of demanding professions.

Source: novinky.cz