Collective bargaining trends in 2002-3

According to a report on collective bargaining from the Hungarian Ministry of Employment and Labour, the proportion of employees covered by collective agreements fell by 5 percentage points from 2001 to 2002. In terms of the content of bargaining, many agreements concluded in 2002 included new provisions on flexible working hours, including the annualisation of working time. The scope of wage agreements further narrowed, especially in relation to enterprise-level minimum wages and wage rates. On the other hand, according to the MSZOSZ trade union confederation, enterprise-level wage agreements for 2003, where they were reached, were generally in line with a national tripartite recommendation on pay increases.

According to a report by the Ministry of Employment and Labour (Foglalkoztatáspolitikai és Munkaügyi Minisztérium, FMM) - which maintains the statistical database on collective agreements - in 2002 about 1 million employees were covered by sectoral and company agreements in Hungary. According to the Labour Force Survey, the number of active employees is about 3.2 million, of whom about 2.5 million work in companies and public institutions employing more than five people. Based on the latter figure, 39.6% of employees were covered by collective agreements in 2002, a 5 percentage point drop in comparison with the previous year when 44.9% of employees were covered in the same segment of the economy. However, if one includes those covered by the extension of collective agreements (TN0212102S), a further 46,000 employees were covered in 2001 and a further 38,000 in 2002, with the result that the overall coverage rate was 46.7% in 2001 and 41.1% in 2002. In absolute terms, however, while employment in Hungary grew by 70,000 during 2002, the number of employees covered by collective agreements decreased by 110,000, including those covered by extended agreements.

Private sector collective agreements are predominantly concluded at enterprise level and cover only one firm. Collective agreements are usually concluded at large enterprises, while the small and medium-sized enterprise (SME) sector is largely unregulated by collective agreements. Workplace-level agreements are less common in the public sector, where most issues concerning terms and conditions of employment are regulated by law. The coverage rates of workplace agreements in the private and public sector in 2002 were 39% and 33%, respectively. In sectoral terms, the highest overall coverage rates were reported in the energy, water supply and sewage sector (almost 100%), transportation, telecommunications, postal services (78%) and in health care and social services (70%). Less regulated by collective agreements were the public administration (9%), construction (12%) and private services (21%).

Flexible working hours

The Ministry's collective agreement database also keeps a record of the contents of agreements. Following a 2001 amendment of the Labour Code's provisions on the organisation of working hours, 2002 was the first year in which bargaining parties could contractually regulate working time flexibility by adopting various flexibility schemes. Statistics suggest that the social partners exercised this option and working time accounting systems have been widely applied with a wide range of reference periods.

The law allows employers to vary working hours while maintaining an average over reference periods of up to two months without a collective agreement. However, it is possible to extend the reference period or even to introduce annualised working hours through a collective agreement. Of the relevant company collective agreements recorded in 2002, 37% applied a reference period of between two and four months, 5% used four to six month periods and 32% introduced annualised hours. Employers also used a wide range of other means of working time flexibilisation. For example, two-thirds of firms with collective agreements applied 'cumulated rest days'. This means that employees cannot take their rest days as in the traditional working schedule, but the employer provides them with free days during an idle period in the production cycle. Nevertheless, widespread use of new means of flexibilisation does not mean that employers have given up the old practice of relying on large amounts of overtime. The majority (58%) of company 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 (TN0302101S).

2003 wage bargaining

Statistical analysis of the collective agreement database also makes possible a preliminary assessment of local-level wage bargaining covering 2003. In Hungary, sectoral and workplace-level pay bargaining are influenced by annual recommendations from the National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT), the national tripartite forum (HU0209101N). In November 2002, trade unions, employers' confederations and the government signed an unprecedented agreement recommending a 4.5% real wage increase for 2003 and freezing the level of the statutory minimum wage (HU0212105F). A unique feature of the agreement was that, combined with a substantial reduction in personal income tax, it involved a real wage increase instead of a nominal one. In order to facilitate local bargaining, 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 two largest social partner confederations in the private sector - signed a complementary document in order to translate the 4.5% real wage increase into nominal terms. In this joint communication, lower-level bargaining parties were recommended to agree a 4%-7% raise. In parallel with this, the Ministry of Finance (Pénzügyminisztérium, PM) issued a recommendation for a maximum 4% increase for annual gross wages below HUF 1.6 million in order to achieve 4.5% real wage growth, taking into account tax reductions in 2003.

In 2003, fewer than half of the collective agreements reported to the Ministry included provisions on the annual wage increase, in contrast to 60% in the previous year. The vast majority (96%) of these agreements determined real gross wage increases, following the traditional approach to local-level bargaining. The wage increases, however, were actually higher than the recommendations of both the national confederations and the Ministry of Finance. On average, collective agreements stipulated an overall 8.1% nominal gross wage increase, while basic wages were raised by 5.7%. In contrast to previous years, considerably fewer company agreements set the minimum agreed wage higher than the statutory level; this was the result of the major statutory minimum wage increases in 2000 and 2001. Another consequence of the increase in the statutory minimum wage was the fact that wage differentials were suppressed and so in the 2003 bargaining round very few companies set wage tariff rates at all.

According to MSZOSZ, local bargainers found it difficult to translate the national-level real wage increase recommendation into nominal figures due to the segmented nature of companies' internal labour markets. Local trade unions therefore urged national negotiators to revert to negotiating gross wage increases. Moreover, many trade unions, especially in low-wage sectors, were practically unable to obtain wage rises because of a freeze in the national minimum wage. In other sectors, many local negotiators were still faced with compressed wage scales due to the huge increase in the statutory minimum wage in previous years; as a consequence, low-paid workers received no raise or only a small one as managements preferred to increase the wages of skilled workers in order to re-establish traditional wage differentials among employees based on skill and/or seniority. Because of the 2003 tax reductions, bargaining on raising fringe benefits was successful, by and large, only when the tax-free value of benefits increased.

Social partner comments

In reaction to the shrinking bargaining coverage figures published by the Ministry of Employment and Labour, an expert from the employers’ side of the National Interest Reconciliation Council called for more flexible legal regulations. In his opinion, employers would be more willing to accept collective agreements if legal regulations gave broader opportunities for agreements to deviate from the standards laid down in the Labour Code in order to flexibilise terms and conditions of employment according to production needs. A trade union expert pointed out that there were a number of issues on which collective agreements could flexibly deviate from the default regulations of the Labour Code, particularly on working time issues. Nonetheless, he also called for more goodwill on the part of employers to create fair and socially regulated labour conditions.

Commentary

Hungary, like many other accession countries, has a decentralised bargaining structure (TN0207104F). The statistical report from the Ministry of Employment and Labour shows a decreasing overall bargaining coverage rate. The shrinking coverage of wage agreements and the lack of tariff agreements shows that many employers are withdrawing from wage negotiations, and the individualisation of wage determination seems to be an irreversible trend in the Hungarian private sector. On the other hand, in 2003 local bargaining parties agreed higher wage increases for employees than the raise recommended by the national-level tripartite council. Nonetheless, the evidence shows that employees of publicly owned utility companies in particular, and skilled employees in general, benefited more in 2003, while employees working for companies in low-wage sectors, such as clothing and shoes, and unskilled employees in general, did not see any palpable wage increase.

As for the outcome of the 2002 bargaining round on working time regulations, it came as no surprise that the 2001 Labour Code amendment in this area resulted in new provisions in collective agreements to flexibilise working time. This was exactly the intention of the legislators when they provided local actors with greater room for manoeuvre in reaching the appropriate solution for a particular sector or workplace. Nevertheless, it has taken some time for local parties to comprehend the fairly complicated legal regulations, to discover the best way of implementing the law, and perhaps to bargain on compensation for employees facing a loss in earnings due to the new time accounting systems which are replacing traditional overtime, a common source of extra earnings for many Hungarian workers.

The data also show that bargaining is much more prevalent in the private sector than in the public sector. The managers of state budget-funded public institutions are not in a position to pursue meaningful local wage bargaining with trade unions. Nonetheless, a more realistic picture of collectively regulated employment conditions is obtained when we note that the terms and conditions of employment of about 1 million employees in the public administration and public services, of whom approximately 300,000 are covered by local agreements, are strictly regulated by legal regulations, usually based on extensive consultations and long-term pacts with public sector unions. Thus, their employment conditions are also regulated through collective regulation in a broader sense. Taking into account this very important group, the number of employees working under collectively regulated terms and conditions amounts to about 1,700,000, which is about 68% of employees at workplaces employing more than five people. However, given the lack of widespread sectoral bargaining and the very low coverage of collective agreement extensions, employees in private sector SMEs are not covered by any form of collective regulation. (András Tóth and László Neumann, Institute of Political Sciences, Hungarian Academy of Sciences)

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