Agreement signed on pay rise in public sector

In December 2007, the government and public sector trade unions reached agreement on an average wage rise of 5% for 2008. In effect, this means that there will be no real wage increase in the sector, as the government forecasts annual average inflation of 4.8% for 2008. The agreement can be viewed as a bargaining success for the government, as – unlike previous years – it was concluded before the lengthy negotiations for the private sector agreement ended.

Background

On 5 September 2007, the 2008 wage round for the public sector began at the National Public Service Interest Reconciliation Council (Országos Közszolgálati Érdekegyeztető Tanács, OKÉT). The government subsequently submitted a review of the 2007 income developments in the public sector, along with plans for the 2008 budget. It also proposed an agenda for further negotiations, which are to take place as a result of last year’s agreement between the government and the strike committee of public sector trade unions, concluded in the wake of the government’s austerity package involving significant cuts in the budget, services and staff of public institutions (HU0703029I). As part of these negotiations, the government envisages reviewing the possibility of further corrections, in light of the actual results of its convergence programme.

In the autumn of 2007, OKÉT held five more sessions before the agreement was signed. Although the representatives of local governments – which run a significant proportion of public sector services in education, healthcare and social work – did not sign the agreement, nor did they use their veto power to object to it.

Provisions of agreement

The preamble of the agreement emphasises that it is the shared objective of the government and trade unions that real wages would not drop in the public sector. Given the 4.8% forecast for annual average inflation for 2008, the main provision of the agreement, which provides for a 5% increase in base salaries, meets this objective. Nevertheless, in effect, it means that there will be no real wage increase in the sector. This nominal rise will be implemented for each salary bracket in the tariff systems of both public service employees and civil servants.

However, wage supplements for public service employees will only be raised by 2%. The agreement endorses the temporary solution proposed last year, namely, that in 2008 monthly wages would be topped up by advance payments, and that employees would in turn not receive their 13th month salary – a traditional supplement in the public sector. Although the agreement did not change the original schedule of this temporary measure, the government promised to pay a supplement corresponding to half of the 13th month salary amount, due in January 2009, provided that the measure did not deter it from meeting the budget deficit criteria of its convergence programme. Nonetheless, the agreement also allowed for further sectoral wage negotiations – for instance, in the armed forces – which should be in line with the 2008 state budget.

In terms of financing the wage rise, the government is to finance just 60% of the increase in base wages from the central budget, while the remainder is to be funded using other resources. With respect to public administration and public service providers, local governments will have to use subsidies earmarked for covering this increase – an issue which has met the objections of local government representatives. However, the agreement stipulates that collective redundancies may not be justified on account of insufficient funding for the wage increases.

Commentary

The conclusion of the agreement was welcomed by financial market analysts. Deputy Governor of the National Bank of Hungary (Magyar Nemzeti Bank, MNB), Júlia Király, outlined in an interview that MNB was ‘very pleased’ that public sector employees had agreed to a 5% increase in gross wages. Analysts also added that the agreement did not endanger the expected results of the austerity measures announced in the autumn of 2006, as the number of employees in the public sector was reduced by 6% (45,000 people) in the previous 12 months and the size of public administration fell by an average of 5.3% between January and September 2007. As a result, the overall wage bill of the public sector is still decreasing.

Clearly, the agreement represents a bargaining success for the government. On the one hand, it was concluded before the lengthy negotiations for the private sector agreement ended, which was contrary to the customary rules of annual wage rounds. Thus, together with another major public sector agreement signed at Hungarian Post (Magyar Posta), it could put pressure on private sector negotiators of the National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT) to catch up with the public sector (HU0801049I). On the other hand, compared with the provisions of the subsequent private sector agreement – which has stipulated an average wage increase of between 5% and 7.5% – the trade unions have accepted the lowest wage increase amount offered by the government for public sector employees (HU0802019I). Moreover, in relation to further wage rises, the public sector trade unions have settled for the government’s rather uncertain promise.

László Neumann, Institute for Political Science, Hungarian Academy of Sciences