Hungary: latest working life developments Q2 2018

The worsening labour shortage, an overhaul of social tax allowances in 2019, and a momentary lull in industrial action activity are the main topics of interest in this article. This country update reports on the latest developments in working life in Hungary in the second quarter of 2018.

Labour shortages pose risk to industry

Both the number of job vacancies and the job vacancy rate rose to record highs in the first quarter of 2018, according to figures from the Hungarian Central Statistical Office. The job vacancy rate reached 2.5%, which is well above the EU average.

There is no clear consensus about whether the labour shortage has impacted on economic performance on a macro level. Tamara Tóth of Monster Hungary claims that, apart from sectors such as healthcare and construction, the quantity and quality of output is rarely at risk. ¹

The situation may be changing, however, with reports of investments being delayed, firms unable to accept orders or businesses relocating production sites abroad due to lack of personnel. One high-profile case is that involving Fehrer Automotive GmBH: in May, the German-based firm called off construction of a new plant in Hungary, citing labour shortages: this resulted in the loss of around 1,000 new jobs.

Proposed changes to social tax allowances

The Hungarian government’s 2019 budget bill, submitted in June, aims to overhaul the social tax allowance system. Proposed changes include a tax allowance to help people enter (or re-enter) the labour market and the target group are jobseekers who were previously in education, are currently unemployed, worked in public service or are returning from maternity leave. It will also be cheaper for companies to employ pensioners as they will be exempt from paying the social tax.

However, the 2019 tax package may adversely affect workers above the age of 55 or below the age of 25 who are currently in employment, as their social tax allowance will come to an end under the new system. The change will impact unfavourably on older employees who have not yet reached retirement age, as the current allowance provides them with some measure of protection.

The proposed new system will also abolish the current social tax allowance/exemption of most elements of the so-called ‘cafeteria’ (fringe benefits) system. This will reduce the net disposable income of many employees as few employers bear the extra cost, so either the net value of benefits will decrease or firms will stop giving these benefits altogether. Trade union and employer representatives have argued that those elements of the cafeteria system that are related to labour mobility, family support, and supplementary pension and health insurance should be left in place. ²

Lull in industrial action

In the business sector, strike and other industrial action activity was moderate in the second quarter. A number of token strikes took place or strike committees were formed – mostly in response to below-average wage offers – but these occurrences remained localised.

Tensions lingered in the public sector, especially among health workers, social workers, and those public servants who have not benefited from earlier wage rises. Unions have adopted a wait-and-see position at present.

Meanwhile, the Trade Union of Hungarian Civil Servants and Public Employees (Magyar Köztisztviselők, Közalkalmazottak és Közszolgálati Dolgozók Szakszervezete, MKKSZ) has been working on a proposal to amend the public service wage scale, which includes adding a third-tier minimum wage for graduates to the existing two-tier system.

Commentary

Ongoing strong wage growth is helping labour conflicts to remain local and relatively mild. But it is doubtful whether the wage hike can continue for long, particularly for small and medium-sized enterprises with limited resources. With no further wage rise for health workers indicated in the budget bill (beyond the scheduled 8%) and uncertainty over teachers’ real wage growth in 2019, there may be renewed protests in these sectors. Also, in early July, trade union protests against the planned overhaul of the cafeteria system became more vociferous. Tamás Székely, Vice-president of the Hungarian Trade Union Confederation (Magyar Szakszervezeti Szövetség, MASZSZ), raised the possibility of demonstrations and strikes in the second half of July. ³

¹ Penzcentrum.hu (2018), Nyilvános bértábla? Felejtsd el: ezért titkolóznak a magyar cégek [Disclosed wage scale? Forget it: that is why firms keep it secret], 19 March. 

² Napi.hu (2018), Miért vezeti ki a cafeteriából a kormány a lakhatási és az iskolakezdési támogatást? [Why does the government pull out housing and school start support from the cafeteria?], 26 June. 

³ Infostart (2018), Tovább gyűrűzik a cafeteria témája – sztrájkolhatnak a szakszervezetek [The cafeteria issue continues to make waves – trade unions may strike], 5 July.