2003 Annual Review for Hungary

This record reviews 2003's main developments in industrial relations in Hungary.

Political developments

The government of the Hungarian Socialist Party (Magyar Szocialista Párt, MSZP) and the liberal Alliance of Free Democrats (Szabad Demokraták Szövetsége, SZDSZ), elected in April 2002, continued to govern during 2003.

Since 2000, the Hungarian economy has been experiencing a slowdown in comparison with the late 1990s. The pre-2002 right-wing government pursued a 'Keynesian-style' economic policy, based on budgetary expansion, and the MSZP/SZDSZ government (which made the election promise of a 'transformation to a welfare society') has by and large continued this policy. These expansionist economic policies appeared to be having negative consequences by the end of 2002. During negotiations over central wage recommendation for 2003 (see below under 'Pay'), the government argued in favour of reducing the budget deficit to 4.5% of GDP in 2003 and requested wage restraint. However, the economic slowdown continued in 2003, with GDP growth falling to 2.7% during the first six months of the year. A further concern was an increasing balance of payments deficit, as exports increased by only 1.3% while imports surged by 6.4%, triggered by booming household consumption. At the same time, Hungary became a net capital exporter. Wage expansion continued: by the end of June, nominal wages had increased by 13.2% and real wages by 18.4%, compared with the figures for a year before. The situation was, in the view of some commentators, exacerbated by the Ministry of Finance (Pénzügyminisztérium, PM) and the National Bank of Hungary (Magyar Nemzeti Bank, MNB) pursuing different policy lines (HU0301109F). From summer 2003, the Hungarian currency went through a series of crises. There was a widespread view that the government needed to redress the economy's imbalances, but that it was afraid of a political backlash in response to any restrictive policy measures it might take.

On 27 March, the government launched talks over a mid-term 'social pact' with trade unions and employers' associations. The aim was to pave the way towards cutting inflation and the budget deficit in order to ensure Hungary’s entry into the 'euro-zone' as early as possible. The government began informal negotiations with trade unions to persuade them to accept a mid-term economic policy which would practically put a cap on further wage increases. Unions, however, rejected the proposals, and insisted on continuing to increase real wages in line with economic growth. Negotiations broke down in early summer. At the same time, employers' associations increased their pressure to reduce the tax burden on companies, and the president of the National Association of Entrepreneurs and Employers (Vállalkozók és Munkáltatók Országos Szövetsége, VOSZ) argued in favour of cutting the costs of public administration through workforce reductions (HU0310101N).

The failure of these informal negotiations increased pressure on the government to act unilaterally. In July, it issued a draft proposal that suggested postponing a planned tax reduction scheme until 2004 and various other measures. However, the proposal met with heavy criticism from the opposition parties and trade unions, and increased tensions within the governing coalition, as tax reductions had been a priority on the campaign agenda of SZDSZ, the junior coalition partner. Moreover, leading politicians within MSZP also demanded a continuation of a economic policy aimed at ensuring the 'transformation to a welfare society'. As political debates heightened, surveys on voting intentions indicated a significant shift of political support towards the Alliance of Young Democrats-Hungarian Civic Party (Fiatal Demokraták Szövetsége-Magyar Polgári Párt, FIDESZ-MPP), the major opposition party. In the face of growing political pressure, in early autumn the government announced that it would implement the measures that had earlier been proposed. Nevertheless, it did not implement measures to redress economic imbalances. Instead of increasing the personal tax burden, an increase in VAT was adopted by the government. During the autumn and winter, fees for several public utility services were raised. As a consequence, the inflation rate increased by 2% and the MNB increased its inflation forecast for 2004 to 6.5%. As another austerity measure, the government ordered a 10% staff cut in public administration, affecting 7,000 people (HU0310101N). As a consequence, tensions between unions and the government increased perceptibly. All these measures, however, were insufficient to redress the macroeconomic imbalances: by the end of 2003, the budget deficit reached 5.6% of GDP, while GDP growth is likely to be less than 3%. for the year. Domestic consumption, however, further increased by 7%-8%.

Collective bargaining

Collective bargaining coverage has declined in recent years, falling to about 40% in 2002 (HU0401103F). Private sector collective agreements are predominantly concluded at enterprise level and mainly in larger firms, while workplace-level agreements are less common in the public sector, where terms and conditions of employment are regulated by law.


In preparation for the 2003 wage bargaining round, the government called on the social partners not to increase the national minimum wage any further and to raise the level of nominal wages only modestly. In exchange, it offered a tax reduction scheme to ensure the growth of real wages to match the projected GDP growth of 4.4%. The tripartite National Interest Reconciliation Council ( Országos Érdekegyeztető Tanács , OÉT) agreed not to raise the national minimum wage and issued a recommendation for a 4.5% real wage increase. To a certain extent, the recommendation left open the question of what the nominal wage raise should be. The National Association of Hungarian Trade Unions ( Magyar Szakszervezetek Országos Szövetsége , MSZOSZ ) and the Confederation of Hungarian Employers and Industrialists ( Munkaadók és Gyáriparosok Országos Szövetsége , MGYOSZ ), the largest social partner organisations in the private sector, agreed on a separate recommendation suggesting a 4%-7% increase for 2003 ( HU0401103F ). Parallel to this, the Prime Minister issued a recommendation for a maximum 4% increase in annual gross wages below HUF 1.6 million, in order to keep real wage growth down to 4.5%, taking into account tax reductions for 2003. As for the public sector, according to estimates from the government, the 'spill-over' effect of the mid-2002 wage increase in itself would cause a 26% wage increase in 2003.

In 2003, fewer than half of the sectoral and workplace collective agreements reported to Ministry of Employment and Labour ( Foglalkoztatáspolitikai és Munkaügyi Minisztérium , FMM ) included stipulations on the annual wage increase ( HU0401103F ). As expected, the vast majority (96%) of these agreements determined real gross wage increases, following the traditional approach for local-level bargaining. The wage increases, however, were actually higher than the recommendations of both the national confederations and the Prime Minister. On average, collective agreements stipulated an overall 8.1% nominal gross wage increase while basic wages were increased by 5.7%. In contrast to previous years, considerably fewer companies set a minimum wage higher than the statutory amount. An effect of major statutory minimum wage hikes in 2000 and 2001 was that wage differentials have been narrowed and thus in the 2003 bargaining round very few companies determined wage increases at all. According to analyses by MSZOSZ, local bargainers found it difficult to translate the national-level real wage increase recommendation into nominal figures due to the very segmented nature of internal company labour markets. Moreover, many trade unions, especially in the low-wage sectors, suffered from the 2003 freeze in the national minimum wage and were practically unable to achieve wage rises at all. In other sectors, many local negotiations were still faced with compressed wage scales due to the huge increase in the statutory minimum wage in previous years; as a consequence low-wage workers received no increase or only a small raise as management preferred to re-establish traditional wage differentials among employees based on skill and/or seniority.

Working time

As far as working time flexibility is concerned, in 2002-3, the local bargaining parties widely used flexibility measures, as made possible by an amendment of Labour Code in 2001. For instance, 32% of employers signing collective agreements introduced annualised hours. Nevertheless, the widespread use of new means of flexibilisation does not mean that employers have given up the practice of relying on excessive overtime. The majority (58%) of the firms concluding collective agreements still used the flexibilisation measures allowed by the Labour Code which make it possible to increase the maximum annual amount of compulsory overtime to 300 hours by collective agreement, instead of the 200 hours specified by the Labour Code. ( HU0401103F )

Unions so far have failed to achieve an agreement on a reduction in working time. In Hungary, regular working time is regulated by the Labour Code and reduction is rarely an issue addressed in sectoral or company-level collective agreements. The issue of working time reduction emerged in tripartite negotiations in the OÉT in 2002 ( HU0209101N ). In exchange for making concessions on wage increases, unions demanded the reduction of statutory normal weekly working time from 40 hours to 39.5 hours in 2003 and to 38 hours by 2006. An agreement was reached committing the national tripartite body to start negotiations on the reduction of working time with a view to reaching an agreement by June 2003. However, at the 25 June 2003 meeting of OÉT, the employers’ side rejected the proposal on the grounds of the general state of the national economy and the weakening competitiveness of Hungarian companies ( HU0307101N ). Following these negotiations, the government postponed the issue of working time reduction.

Job security

2003 saw a number of reorganisations and restructuring events that threatened employment. In the public sector, following repeated demands by various employers’ organisations, in September the Prime Minister ordered staff cuts of 10% in central government offices. Further, it was rumoured that the government planned to reduce the number of public service employees by 6%. Trade unions protested fiercely against this and demanded the resumption of negotiations ( HU0310101N ).

On 14 December 2003, a two-hour warning strike was held at Budapest Ferihegy Airport, organised by trade unions at Budapest Airport Corporation in protest against proposed job losses and restructuring. However, a successful meeting between unions and management led to a proposed one-day strike being called off and agreement to continue negotiations with the help of a mediator ( HU0401101N ).

Equal opportunities and diversity issues

Collective bargaining does not deal with equality issues to a significant degree. The current government has put greater emphasis on equal opportunity and gender mainstreaming issues than its predecessors. There is now a new institutional framework for equality and a 2003-6 National Action Plan on ensuring equal opportunities between men and women ( HU0305101F ).

Training and skills development

There were no notable developments in the area of bargaining on training and skills developments during 2003. In July, however, the Ministry of Education presented a draft plan for a reform of higher education. Trade unions representing higher education employees rejected the proposals, which they see as opening the way to privatisation and thus threatening the public employee status of staff ( HU0309101N ).

Legislative developments

As of 1 July, the Labour Code was amended by Act XX of 2003 (HU0308101F) . The modifications included the transposition of five EU Directives on: working time (2000/34/EC); fixed-term work (1999/70/EC); part-time work (1997/81/EC); transfers of undertakings (2001/23/EC); and the working time of seafarers (1999/63/EC). Among other issues, the new Labour Code provisions prohibit discrimination against part-time or fixed-term workers in monetary or non-monetary remuneration. To avoid misuses, the amended Labour Code includes the provision that any fixed-term contract shall be deemed indefinite if the contract is repeatedly established or extended without the employer having a legitimate reason to do so and this violates the employee’s legitimate interests. Under Hungarian law, the maximum duration of a fixed-term contract is five years. This rule is also to be applied to extended fixed-term contracts.

The new Section 75/A of the Labour Code - very slightly modified by a joint proposal from trade unions and employers, which was accepted by the government - states that 'the type of employment contract may not be chosen with a view to restricting or violating provisions for the protection of the employee’s rightful interests. The type of contract, irrespective of its title, shall be chosen in order to best accommodate all applicable circumstances.' While the government initially aimed to curtail the widespread practices of 'sham' civil law contracts - ie contracts not governed by labour law - instead of employment contracts governed by the Labour Code through this wording (HU0310102F), the enforcement of the legislation was postponed in practice. In the summer, the government announced that labour inspectors may not impose fines for sham contracts before 2004. A similar position was adopted by the Hungarian Tax and Financial Control Administration (Adó- és Pénzügyi Ellenőrzési Hivatal, APEH).

The organisation and role of the social partners

Undoubtedly, the most important development of 2003 in the area of the organisation and role of the social partners was the progress of an EU PHARE programme on 'strengthening autonomous social dialogue', aimed at setting up bipartite sectoral social dialogue committees (HU0212106F). On 2 July, the social partners represented on the OÉT and the government signed an agreement 'on the principles of the creation and operation of sectoral dialogue committees [SDCs]', which specifies the criteria that employers’ organisations and trade unions need to fulfil to become members of SDCs. By the end of 2003, the project had resulted in the creation of 23 SDCs at sectoral and subsectoral levels. Agreements have been signed in 23 sectors, as follows: agriculture; mining; foodstuffs, beverages and tobacco manufacturing; bakeries; light industry (textiles, footwear and clothing industries); pharmaceutical industry; metallurgy (metal basic material manufacturing); electricity industry; construction industry; commerce; catering, tourism and public nutrition; communal catering; travel agencies; hotels; catering; air transport; railway transport; road transport; telecommunications and informatics; water supply and municipal operation; other communal services; rehabilitation workers; and chemicals industry. Furthermore, the social partners have signed a joint memorandum of understanding in postal services, the machine industry and the gas industry. In the healthcare, culture and arts, and education subsectors, bipartite committees cannot be established before the role of the employer is defined. The trade union side has issued memoranda of understanding regarding the need for SDCs.

Industrial action

As far as strikes and protest actions are concerned, the prevailing trend continued in 2003, in that hardly any strike action took place in manufacturing and private services, while trade unions in public utility companies and in the public sector were more likely to use the weapon of industrial action. The most combative sectors were health and education, where union protests against the closure of certain institutions coincided with various campaigns against the planned reforms of these sectors. The unions representing personnel in the military and police forces also staged various protest actions to demand better working conditions.

Employee participation

In 2003, Hungary transposed the 1994 EU Directive (94/45/EC) on European Works Councils (EWCs) by means of legislation (Act XXI of 2003), rather than choosing the option of an agreement between trade unions and employers’ organisations, allowed by the Directive. The Act will enter into force on the day that the Law on the Accession of Hungary to the European Union is promulgated (due in May 2004). The draft bill, before being submitted to the parliament, was discussed by the tripartite OÉT in December 2002. Representatives of employers and trade unions fully supported the government’s proposal and did not propose any changes to it. Act XXI of 2003, similar to the transposition measures in the existing Member States, follows the structure of the EWCs Directive and repeats its provisions in many areas. Nonetheless, in a few areas customised rules have been adopted. The most important provision is probably that Hungarian employee representatives in the special negotiating bodies (SNBs) that negotiate EWC agreements are to be appointed by the works council (Üzemi Tanács, ÜT) of the establishment concerned. The provisions of the Act in this area are modelled on the German transposition legislation. However, workplace-level employee representation in Hungary is based on a parallel structure involving both statutory workplace-level works councils (HU0401106F) and workplace-level trade union organisations. Despite this dual 'horizontal' structure, the Hungarian EWCs legislation does not recognise any role for trade union representatives in appointing SNB members.

Stress at work

There is no specific legislation on stress at work, though the laws on health and safety are general in scope. In theory, the social partners are due to debate this issue in the OÉT's Health and Safety Committee (Munkavédelmi Bizottság), but so far it has not been put on the agenda. No information is available about collective agreements' stipulations in this field. In practice, in Hungary stress at work is only an issue in human resource management textbooks, and some consultancy firms have offered employers services in this field.

Undeclared work

The problem of undeclared work has been an issue for long time in Hungary. The current government, however, has focused on a special form of illegal employment - bogus employment contracts. While these sham civil law contracts, used instead of employment relationships governed by labour law, are not undeclared work in the literal sense, employers pay far smaller levies on wages, and therefore the government and trade unions are against this kind of contracts (HU0310102F). The controversial implementation of new regulations in this area (see above under 'Legislative developments') shows that employers have successfully fended off the government’s attempt to introduce employment contracts with higher taxation instead of civil law contracts, and legislation on detailed regulation of typical areas where sham contracts are used has been postponed.

In theory, all participants in the debate on undeclared work agree that the very high level of wage levies is the major cause of the phenomenon; in practice, however, no government has been able substantially to decrease taxation and social security contributions. There is no reliable estimate regarding the extent of undeclared work. However, it is widely assumed that a substantial portion of the huge inactive population in Hungary is engaged in various forms of undeclared work.

New forms of work

The legal regulation of temporary work agencies is relatively new. Act XVI of 2001 (amending the Labour Code) regulates both the employment relationship and the contractual relation between the agency and the user company. Collective agreements rarely deal with the terms and conditions of employment of temporary agency workers. Local trade unions sometimes try to fight company practices of relying on excessive numbers of agency workers, although without any success. At national level, the issue of temporary agency workers is not a focal point in the discussions between the social partners.

In 2001, new legislation introduced the compulsory registration of agencies and data collection on their activity. In 2002, there were 282 businesses registered as agencies and they together employed 30,265 workers, which is less than 1% of all employees.

New legislation on part-time and fixed-term employment was introduced in 2003 (see above under 'Legislative developments'). According to the Labour Force Survey, the share of part-time employment is relatively low: 4.5% of employed people work regularly less than 30 hours a week, of whom 62% are women. Fixed-term contracts are not widespread either, 8% of employees have such contracts, of whom 42% are female. No reliable data is available on other 'atypical' forms of working.


After intensive negotiations, on 27 October 2003 the tripartite OÉT concluded a recommendation for wage increases in 2004. According to the agreement, wage increases should be between 7% and 8% in manufacturing, private services and public utility companies (the so-called 'competitive sphere' of the economy). The statutory minimum wage will be increased by 6% from HUF 50,000 (EUR 189) to HUF 53,000 (EUR 200) a month. The agreement reflects a compromise between the initial proposal from the employers’ side of no increase of the statutory minimum wage and a 5%-6% increase in wages, and the demands of the trade union side to increase the statutory minimum wage and wages in general by 10%. According to the agreement, low-paid employees whose annual income does not exceed HUF 756,000 (EUR 2,853) should not pay personal income tax. The agreement also stipulated that several fringe benefits will be granted a tax-free status below a certain value. OÉT delegated the National Public Service Interest Reconciliation Council (Országos Közszolgálati Érdekegyeztető Tanács, OKÉT) to consult on the implementation of the recommendation in the public sector.

Various public sector unions have formulated their wage demands for 2004, which on average centre around a 10% wage increase. The government, however, has offered only 6% for the public sector, taking into account the wage developments of recent years. In response to failure to reach an agreement, on 21 November 2003, a total of 25 unions belonging to four confederations in the public sector set up a strike committee, with Endre Szabó, the president of the Trade Unions’ Cooperation Forum (Szakszervezetek Együttműködési Fóruma, SZEF) as spokesperson. By late January 2004, negotiations between the government and the strike committee had not finished. It seems that an agreement is likely to include a 6% wage increase; unions, however, are still seeking a government guarantee to ensure that every public institution would be able finance the wage increase.

In early January 2004, the Prime Minister dismissed the Finance Minister. The Prime Minister said that the responsibilities of the new Finance Minister will include the development of a sustainable economic policy and, in the context of this new economic policy, a decision should be made concerning the appropriate time to join to the euro-zone - Hungary joins the EU in May 2004. It is as yet unclear to what extent the government will be able to convince the MSZP party to accept a more restrictive economic policy in order to keep to the planned 3.8% budget deficit target for 2004. Nonetheless, it is foreseeable that 2004 will see further austerity measures, which are likely to lead to further tensions in the relationship between unions and the government.

As far as the industrial relations system is concerned, the consolidation of sectoral dialogue committees (SDCs) might have a major impact on both the regulatory regime and social partner organisations. Unions are expecting a revision of the Labour Code to facilitate the conclusion of sectoral level collective agreements by SDCs. Also, sectoral social dialogue lends new importance to sectoral-level social partner organisations, which might seek a strengthening of their positions vis-à-vis national confederations and local-level members; this process will have a major impact on the internal cohesion of social partners in the future. (András Tóth and László Neumann, Institute of Political Science, Hungarian Academy of Science)

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