Renewed tensions between public sector unions and government

Although public sector trade unions in Hungary reluctantly agreed to a government offer of a 6% wage increase for 2004, implementation of the agreement in the various subsectors has given rise to disputes during the year. Tensions were further fuelled in August by the announcement of the draft 2005 state budget, which envisages major public administration job cuts.

In recent years, wages have risen steeply in the public sector. In 2001 and 2002 successive governments decided - with the agreement of the Trade Unions’ Cooperation Forum (Szakszervezetek Együttműködési Fóruma, SZEF) and the Confederation of Unions of Professionals (Értelmiségi Szakszervezeti Tömörülés, ÉSZT) - drastically to increase wages in public administration in several stages between 2001 and 2003, and to increase wages in the public service sector by 50% in autumn 2002 (HU0207102F and HU0208102F). Public sector unions grudgingly accepted no wage increase for 2003, except an increase for employees in public administration agreed in 2001.

Public sector wage bargaining in 2004

For 2004, public sector unions, headed by SZEF, demanded a 10% wage increase through modification of the wage rate scheme laid down in the laws governing the wages of various employee categories in public administration and public services. The government offered only a 6% wage increase. The trade union demand was equal to the projected inflation rate plus GDP growth for 2004, while the government offer matched only projected inflation, with the result that there would be no real wage increase for 2004. At the same time, in October 2003 the government announced public administration job cuts of 10% in response to growing budget imbalances. This measure was welcomed by employers’ associations, which demanded even more radical cuts in the state budget in order to redress macroeconomic imbalances and to make possible major tax cuts for business. Public sector unions reluctantly accepted the job losses and in a separate agreement with the government agreed on rules governing redundancy procedures. Nonetheless, the unions complained that the government had acted without proper prior consultation. Against this backdrop, 25 of the major public sector unions, belonging to five confederations, set up a public sector-wide strike committee, headed by the SZEF president, and threatened the government with sector-wide industrial action in pursuit of their wage demand (HU0310101N).

Eventually, negotiations started between government and the strike committee on wage increases for 2004. With tensions at their height, the unions planned a national warning strike in the public sector for 18 December 2003. At the last moment, however, they changed their mind and organised only a smaller protest meeting on 12 December. This retreat from open conflict signalled that the unions had accepted the government proposal of a 6% wage increase for 2004. Nonetheless, they insisted that the wage increase should be implemented on a legal basis (that is, as increases in the wage scale stipulated by laws governing the employment of various types of public employee). This was seen as necessary because of the experiences of the 1990s, when local governments did not honour the top-level wage agreement, arguing that they lacked the necessary resources.

Prior to the agreement for the whole public sector, on 14 January 2004, the Trade Union of Hungarian Civil Servants and Public Service Employees (Magyar Köztisztviselők és Közalkalmazottak Szakszervezete, MKKSZ) assented to the government's 6% wage offer for 2004 without modification of the wage rate scheme for public administration employees. The union also accepted that a 6% increase would be a 'spill-over' effect of the across-the-board wage increase implemented on 1 July 2003. MKKSZ is one of the most radical public sector unions and the agreement served as a signal for other unions.

A final agreement was reached in February 2004 between the strike committee and the government, thanks to compromises made on the union side. The unions accepted a gross 6% wage increase for the whole public sector, not to be implemented through increases in wage rate schemes. This agreement in effect did no more than ensure that sectoral real wages would not lose their value in 2004, provided that inflation did not exceed the projected 6%. The unions accepted the government’s argument that wage rate modification would inhibit individual differentiation based on performance and force redundancies at some institutions. The agreement also stipulated that the parties should evaluate implementation of the wage increases in May 2004: should the 6% wage increase not have been paid, concerted action would be taken.

Following the agreement, the strike committee suspended its activities. The unions justified making the compromise on three grounds: (i) the major wage increases between 2001 and 2003; (ii) the difficult macroeconomic situation following high spending over 2001-3; and (iii) the fact - admitted by the SZEF president in a speech - that the strike committee was not really committed to major industrial action.

Industrial action due to uneven implementation of agreement

According to trade union surveys, after the agreed implementation period, wage increases at public sector institutions - mostly run by local government - fell short of the 6% required by the national agreement. Tensions were also fuelled by a warning from the Finance Minister, issued at the end of April 2004 at a meeting of the SZEF federal council, that while the number of public administration employees had increased by 50% since the democratic transition of 1989-90, the 'quality' of public sector services remained low, despite the recent wage increases. The Minister said that the government was committed to 'rationalisation' of public administration, in parallel with public service reforms, especially in healthcare. The Minister called for trade union cooperation in the creation of a more efficient public service sector, so making it possible to cut the public budget deficit and to introduce the tax reductions promised in the government programme. Tensions were further increased as inflation reached 7.5% in the first half of 2004, 1.5 percentage points higher than forecast.

In response to the uneven implementation of the agreement, at the end of May 2004 the Union of Public Archives and Public Education Workers (Közgyűjteményi és Közmüvelődési Dolgozók Szakszervezete, KKDSZ) demanded that the strike committee be reconvened. At the same time, the Democratic Union of Teachers (Pedagógusok Demokratikus Szakszervezete, PDSZ), a smaller organisation, organised a public demonstration in front of the parliament building, demanding wage increases. Although only a few hundred people participated, PDSZ demanded across-the-board wage increases for the public sector. A sign of increasing tensions in the public sector was a warning strike in 12 healthcare institutions attached to the University of Szeged, a major city in the south of Hungary.

Renewal of national negotiations

As a result of the May 2004 review of wage rise implementation, promised in the agreement, at a 28 May meeting of the National Public Service Interest Reconciliation Council (Országos Közszolgálati Érdekegyeztető Tanács, OKÉT) the government pledged to present a proposal for compensation on 9 June. In the event, the government postponed the decision by a week, giving rise to an official trade union protest.

Negotiations between unions and government were renewed on 20 July. The government then pledged to ensure the 6% wage increase for members of the armed forces and the police. It also emphasised that the annual budget increase for local government-run public institutions included only a 4% wage increase. The government promised to give local governments an additional HUF 6 billion to ensure a further 1% increase. Nonetheless, it underlined that it was the local governments’ responsibility to provide the other 1% from their own budgets to make up the total increase of 6%. Local government representatives, however, responded that their budgets did not allow an additional 1% pay increase for employees of local government institutions. Some representatives even questioned whether the government would pay its own 4%. The unions rejected the government offer and warned that the strike committee would reconvene in September.

In late August, the government presented the draft of the 2005 state budget, which envisages major cuts in public administration. It includes plans for a 6.5% funding increase in the public sector as a whole, but no increase in the budget lines of public institutions. Moreover, the public administration budget will be cut by another 5%, equivalent to civil servants' mandatory '13th month's pay' annual bonus. In practice this means that all public institutions will be forced to cut expenditure in order to be able to afford the payment guaranteed by the mandatory wage scale, not to mention 2005’s increase to be imposed by a forthcoming wage agreement. Undoubtedly, this proposal will lead to major disputes between public sector unions and the government in autumn 2004.

Commentary

Tensions have increased in 2004 between the major public sector unions and the government. On the one hand, in recent years Hungarian workers have experienced significant wage rises, which has inculcated high expectations of further increases - and not only in the public sector. The unions heavily criticised the government for slowing down the rate of wage rises in 2003, maintaining that real convergence between Hungarian wages and EU average wages should be achieved as quickly as possible. On the other hand, macroeconomic imbalances mean that the Hungarian government must cut the budget deficit, which has direct implications for the public sector. Moreover, the planned adoption of the euro single currency in 2010 requires strict measures in the foreseeable future to cut the budget deficit, which will limit the government's ability to compromise with public sector unions. The government’s mid-term situation is further complicated by the fact that the unions and various lobby groups have successfully blocked public sector reforms, particularly healthcare privatisation. Adding to the tensions is the government's apparent unwillingness to consult with the unions on measures to reduce the public deficit, despite the social dialogue renewed by the government when it took office in 2002 (HU0206101F). While short-term sacrifices might be acceptable for unions, as the readiness for compromise over the 2004 wage increases clearly shows, the long-term prospect of wage restraint might sour industrial relations in the public sector. (András Tóth and László Neumann, Institute of Political Science, Hungarian Academy of Sciences)

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