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Skoda Workers Want VW Wages

Eastern Europe Pricing Itself Out of Cheap Labor Market?

Skoda workers went on strike for higher wages on Tuesday. But while the automaker can afford it, the region may not be able to. Eastern Europe is endangering its own boom with rapidly rising wages.

At first glance, it seems like the kind of labor story that plays out almost daily in factories the world over. Autoworkers at Czech carmaker Skoda walked out on Tuesday to underline their demands for a wage increase. Management is offering less than union members want, and with further negotiations on Wednesday, workers sought to strengthen their hand with a warning strike.

A closer look, though, shows that the Skoda strike is more than just a garden-variety work stoppage. Workers are demanding an eyebrow-raising pay increase of 12 percent over the next two years. Eventually, workers at Skoda would like to see their wages move towards those of their colleagues assembling cars in Germany for parent company Volkswagen.

"We want to approach the monthly incomes of those at Volkswagen," said Jaroslav Povsik, union head at Skoda. "The work we do is just as good as theirs."

There is little doubt that Skoda can afford to up the wages it pays to its workers, whose salaries are already 10 percent higher than the Czech average. The firm sold a company record of 549,667 cars last year and is hoping to up that to 580,000 this year -- and seems to be well on its way, having set a monthly record for production in March this year. But just how high can and should wages go?

"The company leadership has been saying all along that it wants to reach an agreement so both sides are satisfied and the possibilities of investments in the Czech Republic is maintained," company spokesman Jaroslav Cerny told Reuters on Tuesday.

Not such a bargain any more

Cerny's reference to the "possibilities of investments in the Czech Republic" is a question that economic experts across Eastern Europe are asking themselves these days. As the economic boom in the region continues, with the former communist countries routinely booking growth rates well above those seen in the euro zone, wages too are rising quickly.

Since 2002, median hourly earnings in the Czech Republic have jumped by 45.5 percent, according to the London-based Federation of European Employers. In Hungary, the jump has been 70.1 percent. Latvian wages started low, but have skyrocketed by 168.3 percent, the think tank reports. Slovakia's plus has been 67.6 percent in the same time frame. And even pokey Poland has seen an average wage rise of 29.8 percent -- still much higher than France's 17.9 percent bump and Holland's 20.7 percent in the same period.

Indeed, the economic resurgence has been so profound that experts are now concerned about Eastern Europe pricing itself out of the very market -- affordable labor -- that fueled the boom in the first place.

"It has happened before -- Mexico, Singapore, Thailand -- and will continue to happen as long as there are lower cost places with the human and political potential to be developed," Charles Barnhart, a senior consultant for California-based Technology Forecasters, told the Associated Press earlier this month.

What's more, according to a 2006 report by the Austrian National Bank, an increasing shortage of qualified workers may drive wages even higher. "Anecdotal evidence suggests the development of bottlenecks in certain areas of the labor market in (Czech Republic, Hungary, Poland, Slovakia and Slovenia), which may become the source of stronger wage pressure in the future," the report reads.

There have already been some examples of companies skipping over Eastern Europe and heading further eastward in the search for cheap labor. A number of firms, including American auto parts company Delphi, have recently started investing in even-cheaper Ukraine.

The change, of course, is not likely to happen overnight. Cultural similarities to the United States and Western Europe make Eastern European countries attractive to companies looking for cheaper locations. Generally high standards of education are likewise a plus for manufacturers -- witness the growth of Romania's IT sector by 35 percent in 2006 to over $1.6 billion.

In Czech Republic, unions at a number of other factories are keeping a close eye on the goings-on over at Skoda, hoping to get a larger piece of the growing economic pie for themselves. The carmaker's management has yet to change its offer of a 7.5 percent hike this year followed by a further 3 percent in 2008.

No matter what the outcome, though, the country still has a long way to go before wages can be compared with those of Volkswagen employees in Germany. According to the Federation of European Employers, average Czech wages are still only 20 percent of those in Germany.

cgh/ap