National tripartite agreement signed on 2003 wage increase recommendations and minimum wage

In late 2002, Hungary's national tripartite body reached an agreement on wage increase recommendations for sectoral and company-level bargaining in 2003, and on the level of the statutory minimum wage. The agreement recommends a 4.5% wage increase in real terms, and provides for the statutory minimum wage to be frozen at the current level. The parties, in principle, also agreed to support the reduction of working time in the long run and to begin negotiations over the issue with a view to reaching an agreement by June 2003.

During 2002, due both to the inflated budget spending in a heated election campaign (HU0206101F) and to the general economic difficulties of European economies, the Hungarian economy slowed down and showed a number of unhealthy signs. In 2002, GDP grew by only 3.3%, considerably lower than the 5% or 6% of the preceding years. Furthermore, this growth, in contrast with the export-led development of the late 1990s, has been propelled by increased consumption by households and the state budget. The deficit of the state budget is around 8.5%, which shows the unhealthy state of government spending. It is also worrying that exports and investments are stagnating, and there is a palpable increase in output only in construction and commerce. The inflation rate is 5.7%, which is higher than in Hungary’s major export markets.

Wage developments

In 2002, not independent from the fact that it was an election year, wages increased at a speed unprecedented in the modern history of Hungary. In the first three quarters of 2002, nominal wages grew by an average of 18.2%, and net wages by 11.5%. According to forecasts, the increase in nominal wages in the public sector will have been over 30% in 2002, while in the private sector of the economy it will have been 13%, and in the economy as a whole 19%. The statutory minimum wage was raised by 25% to HUF 50,000 a month, following a 57% increase in 2001 (HU0207102F). In autumn 2002, the government abolished personal income tax on earnings up to the minimum wage, which meant a further increase in the net value of the minimum wage.

Employment has decreased only slightly despite the steep rise in wages, especially the minimum wage. Nonetheless, forecasts based on the employment plans of major companies for 2003 indicate that the loss of competitiveness of the Hungarian economy might translate into further job losses during the year. Employers’ associations have sounded the alarm to the government and demanded further cuts in the tax burden, the devaluation of the Hungarian forint and a capping of further wage rises which exceed the increase in productivity.

For 2003, the government has calculated a GDP growth rate of 4% to 4.5%. The Hungarian National Bank (Magyar Nemzeti Bank, MNB) has targeted a 4.6% inflation rate. In its mid-term economic programme, the government has calculated a 4.5% budget deficit for 2003. In order to achieve these macroeconomic figures, the government plans to launch a more stringent economic policy and a new privatisation campaign covering some of the remaining major state-owned companies. Economic research institutions have forecast further wage increases. Partly as a consequence of measures taken in 2002 (HU0208102F), public sector wages will see a 15% increase in 2003, while wages in the private sector are likely to increase in line with inflation figures. Altogether, an 8% average wage increase is expected for 2003.

National-level wage negotiations

Traditionally, in Hungary each year the national-level tripartite body - currently the National Interest Reconciliation Council (Országos Érdekegyezteto Tanács, OÉT) (HU0209101N) - negotiates over two elements of wage increases for the forthcoming year: the statutory level of the national minimum wage; and a recommendation for sectoral and company-level bargaining concerning the average wage increase. In its recommendations, as a general practice the tripartite body proposes a minimum, an average and a maximum wage increase.

In preparation for the annual negotiation round for 2003, the government made it clear that it would prefer a cautious increase in the nominal wage level in order to contain inflation and public debt. It asked for the cooperation of the social partners to achieve a modest increase in net incomes through a reduction in personal income tax. In response, trade unions communicated their demands in early August 2002. The president of National Association of Hungarian Trade Unions (Magyar Szakszervezetek Országos Szövetsége, MSZOSZ), the dominant confederation in manufacturing industries and the private service sector, refused to accept the call of the government for wage restraint, and declared that it would demand a 10% real wage increase. Also, MSZOSZ targeted a 9% increase in the minimum wage to reach a monthly figure of HUF 54,000, 60% of the net average wage. Furthermore, MSZOSZ demanded the introduction of a national wage tariff system based on workers' education level, and a wage increase in the private sector of the economy equivalent to the one-off extraordinary wage rise in the public sector in 2002 (HU0207102F).

The president of the Trade Unions’ Cooperation Forum (Szakszervezetek Együttmûködési Fóruma, SZEF), the major union organising public administration and public service employees, declared that its main demand is to adjust the bottom of the public sector wage scale (known as 'A1') to the new minimum wage to be adopted for 2003. He also demanded that salaries should be pegged to the inflation rate, and the introduction of a monthly minimum wage of HUF 100,000 for employees with a university degree across the whole public sector. The president of the Alliance of Autonomous Trade Unions (Autonóm Szakszervezetek Szövetsége, ASZSZ), which predominantly represents employees in the public utility sector, demanded a wage increase 1 or 2 percentage points higher than the average demand.

At the plenary session of the OÉT held on 9 September 2002, the Finance Minister proposed a 3% wage increase in order to maintain the competitiveness of the economy and to reduce inflation and the budget deficit. He also proposed not to raise the national minimum wage, given the very steep increase over the last two years. The Minister, however, signalled that he was open to negotiating about net wage increases through further tax cuts. The employers’ side of OÉT accepted the government's proposal. Trade unions, however, unanimously rejected it. MSZOSZ, beyond its demands outlined above, suggested the reduction of income tax on certain fringe benefits. While the government indicated that it was ready to accept this tax reduction proposal, no agreement was reached on the main issues at stake.

After the plenary meeting of OÉT, the government published its proposal for a new 'tax-income scheme'. According to MNB calculations, in 2003 the average net wage will increase by 3.5% due to the planned reduction of personal income tax, but the net gain will be spread unevenly among the population. Trade unions argued that the new tax-income scheme would result in a lower than expected net income increase. ASZSZ demanded a nominal 8.5% to 11% wage increase for 2003, and said that it would stick to its demand of an 11.5% increase for the public utility sector. SZEF too claimed that it would stick to its demand for a nominal minimum wage increase.

In preparation for the next plenary session of OÉT, the government partially revised its proposal and suggested that the real wage increase should be between 3% and 4.5%. Furthermore, the government officially announced that it accepted the earlier demand of unions to increase the income tax-free value of some fringe benefits. The government argued that the cancellation of income tax on earnings up to the minimum wage in autumn 2002 would have a spillover effect for 2003, causing a 10% net income gain if the nominal value of the minimum wage remains unchanged. It also stated that, taking earlier commitments into account, wages in the public sector would increase by about 26% in 2003.

The plenary session of OÉT held on 31 October once again failed to come anywhere near a compromise. MSZOSZ demanded a 6%-10% nominal wage increase and stuck to its demand for a nominal increase in the minimum wage. ASZSZ maintained its proposed 8.5%-11% increase. The National Federation of Workers’ Councils (Munkástanácsok Országos Szövetsége, MOSZ) proposed that the wage increase should ensure that within four years the Hungarian wage level would be comparable with the Portuguese one. Employers criticised unions, stating that they were demanding unrealistic wage increases, and warned that it would be impossible to demand immediate compensation for all the crises and hardships of the last decade. They warned unions that wage increases at the level demanded would further harm the competitiveness of the Hungarian economy and would translate into massive job losses. Having failed to reach an agreement at the tripartite plenary meeting, the unions and the employers’ side of OÉT held bipartite negotiations in order to try to bridge differences. This bipartite meeting, however, did not help either. Employers insisted on recommending a wage increase of only 3% for 2003 and on not increasing the nominal value of the minimum wage.

Two days before the plenary session of OÉT due to be held on 13 November, a further bipartite meeting was held. According to information which leaked out, the positions of the social partners had become closer. In the next round of negotiations at the OÉT plenary meeting on 15 November, unions confirmed that they were ready to accept a lower minimum wage increase in order to reach an agreement. Employers, however, insisted that they would not accept any increase in the nominal value of the minimum wage, though they indicated that they might change their position concerning the average wage increase recommendation. The unions, in response, proposed that working time reduction should be put on the negotiating agenda. In exchange for wage restraint, they demanded a reduction of statutory working time from 40 to 38 hours per week by 2006, starting with a half hour reduction in July 2003 (HU0212102N). Unions also demanded the introduction of a national wage tariff scheme, which would specify different minimum wage levels according to the education level of employees. Further, unions demanded a strengthening of labour inspectorates and a role for unions in governing these inspectorates and in supervising health and pension funds.

Unable to reach a compromise at the plenary session, the social partners again held bipartite talks in order to work out a compromise. Reportedly, at the bipartite meeting the employers’ side proposed a 4% to 6% wage increase, but no increase in the minimum wage level. Eventually no compromise was reached. The parties, however, agreed that they would conclude the negotiations at the forthcoming OÉT plenary meeting. The next weekend, at the fifth congress of MSZOSZ, Prime Minister Péter Medgyessy announced that the government would support the reduction of working time to 38 hours, and the involvement of unions in a number of consultation and decision-making bodies (HU0212106F). This announcement further facilitated the working out of a compromise package at the next OÉT plenary.

The final agreement and its interpretations

Following a series of informal meetings between the parties, including the government, an agreement was finally reached at the plenary session of the OÉT on 29 November 2002 . The parties agreed:

  • a recommendation for a 4.5% wage increase in real terms in 2003;
  • to maintain the current level of the statutory minimum wage, taking into account the impact of cancelling income tax on earnings up to the minimum wage;
  • in principle, to support the reduction of working time in the long run, and to begin negotiations over the issue with a view to reaching an agreement by June 2003; and
  • to begin negotiations over the reinforcement of labour inspectorates, with the aim of reaching an agreement by 30 June 2003.

Following the OÉT meeting, the Ministry of Finance published a communication stating that a 5.2% nominal wage increase would result in the proposed 4.5% real wage increase for 2003, taking into account the impact of tax reductions. At a separate bipartite meeting, the Confederation of Hungarian Employers and Industrialists (Munkaadók és Gyáriparosok Országos Szövetsége, MGYOSZ) and MSZOSZ further clarified the agreement reached at the OÉT. They agreed that they would recommend a 4% to 7% nominal wage increase in the manufacturing industries and private service sectors, where the two organisations are major actors.

Commentary

The annual wage negotiations in the tripartite OÉT were held at a controversial time. The past two years have seen a steep rise in wages, unprecedented in the post-transition period. Moreover, heightened expectations of the positive impact of the imminent accession to the European Union drove wage demands up further. On the other hand, the expansionary budget spending, the economic stagnation of Hungary's major export markets and increasing competition for foreign direct investments in the region require a more stringent economic policy from the government. Furthermore, the inflation rate and the state budget deficit should be considerably lower to allow Hungary to join the single currency 'euro-zone', which forces the government to put a lid on budget-inspired income growth.

In this complicated environment of high expectations and economic constraints, a typical 'neo-corporatist' style agreement was worked out. Trade unions gave up some of their major demands in order to obtain a more influential role in certain public institutions. Moreover, they scored a historical achievement by forcing employers to accept in principle a reduction of the statutory weekly working time and by bringing them to the negotiating table on this issue. Seemingly, the political coalition forged between the Hungarian Socialist Party (Magyar Szocialista Párt, MSZP) - the senior partner in the current coalition government - and some of the major unions during the election campaign of 2002, brought benefits for both parties. MSZP enjoys union restraint in wage demands in exchange for sharing influence and power with the social partners, including unions. What the employers’ side obtained was that the minimum wage will stay at the current level, without a statutory increase which might hurt the competitiveness of export-oriented companies. The moderate wage recommendations for 2003 also make it easier to adjust wage increases to the financial capabilities of companies. The government not only managed to achieve an agreement which is in line with its long-term economic goals, but also harvested the political benefits of reaching a compromise through complicated negotiations in a democratic machinery. Thus, it could once more underline the difference between itself and the previous administration, which had been heavily criticised for a unilateral style of decision-making.

On the whole, it is to be considered to be a positive development that after four years of tensions, non-cooperation and difficulties, the tripartite machinery has proved to be a viable forum to reach compromises over major issues, provided that all the partners have the right amount of goodwill and responsibility. As for the government, it showed a readiness to offer compromises in order to facilitate an agreement, and it helped that all of the parties could feel that they scored a 'win-win' compromise. (András Tóth and László Neumann, Institute of Political Science, Hungarian Academy of Science)

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