2004 Annual Review for Hungary

This record reviews the main industrial relations developments in Hungary during 2004

Political developments

The most important event of 2004 was the accession of Hungary to the EU on 1 May. However, accession did not bring about a standstill in Hungarian politics. On the contrary, the requirements attached to joining the 'euro-zone' in future pose new difficulties for the governing left-liberal coalition, made up of the Hungarian Socialist Party (Magyar Szocialista Párt, MSZP) and its junior coalition partner, the Alliance of Free Democrats (Szabad Demokraták Szövetsége, SZDSZ). The coalition was on the defensive in the first half of 2004. Forced to introduce a restrictive economic policy to combat increasing budget imbalances, the government seemed to some commentators to lose control.

The Alliance of Young Democrats-Hungarian Civic Party (Fiatal Demokraták Szövetsége - Magyar Polgári Szövetség, FIDESZ-MPSZ), which is the major party of the right-wing opposition, took the opportunity to begin a campaign for more state protection, while blaming the government for the macroeconomic imbalances. FIDESZ also called for the restoration of subsidised housing loans and lower utility and medicine prices. In order to put pressure on the government over these issues, in mid-March it began a signature collection campaign for a 'National Petition' and managed to collect 1.3 million signatures. The campaign helped the opposition party to win the elections for representatives to the European Parliament (EP) in June 2004 by capturing 47% of the vote and 12 of the 24 seats allocated to Hungary. MSZP came in second with 34.3% of the vote and with nine seats, followed by SZDSZ, with 7.7% and two seats. The Hungarian Democratic Forum (Magyar Demokrata Fórum, MDF), the minor right-wing opposition party, obtained 5.3% of the vote and one seat.

The EP elections results caused a crisis within the MSZP and also within the government, which finally lead to the resignation of the president of the MSZP. In August, Prime Minister Péter Medgyessy also resigned. The new, 43 year-old Prime Minister, Ferenc Gyurcsány, represents a generational change, and has put forward a 'Blairite' 'third way' programme of government. The reshuffling of the government included the Ministry of Employment and Labour (Foglalkoztatáspolitikai és Munkaügyi Minisztérium, FMM). Gábor Csizmár, former secretary of state, was nominated to head the ministry. The timing of these changes was beneficial for the governing coalition as it coincided with the beginning of a campaign over two referendums, held on 5 December, on whether to ban healthcare privatisation and whether to grant citizenship for ethnic Hungarians living outside the country's borders. FIDESZ called for 'yes' votes (ie to ban privatisation and grant citizenship), while MSZP called for 'no' votes on both issues. The results, however, were invalidated due to a low turn-out. (HU0501101N) In the government’s evaluation, citizens behaved very responsibly; the opposition, in contrast, stated that fear of insecurity led to the low turn-out and called for a programme restoring the security of citizens. It also announced that it would begin the collection of signatures for a new referendum to ban the privatisation of state assets.

Many commentators agree that the fierce 'populist-style' electoral competition between the left-liberal and right-wing conservative political camps is the major reason for an inability on the part of the government to introduce and carry through economic reforms. Certainly, the government has already put aside several costly and risky reforms specified in its 2002 government programme, such as healthcare reform or public administration reform, because these programmes are not supported by the opposition parties.

An important feature of macroeconomic policy-making in 2004 was the continuing disharmony between the National Bank of Hungary (Magyar Nemzeti Bank, MNB) and the government (HU0301109F). The MNB increased the base interest rate from 9.5% to 12.5% on 28 November 2003. This was widely considered a short-term punitive measure to force the government to pursue a more stringent budgetary policy. The president of MNB made it clear that the bank’s goal was to drive the inflation rate down below 4% by the end of 2004. Many commentators, however, thought that the high interest rate would damage businesses and the real economy. It was not until March 2004 that MNB started to slowly decrease the base interest rate, reaching 9.5% at the end of the year. Moreover, in January 2004 the government announced that the budget deficit in 2003 had risen as high as 5.6% of GDP, against the planned 4.5%. At the same time, inflation had risen to 7%.

The measures taken by the MNB and the 2003 final figures practically forced the government to redesign the state budget in early 2004. This task was given to the newly nominated Minister of Finance, Tibor Draskovics, who immediately decided on a HUF 120 billion (EUR 480 million) budget cut. The government declared that it would target a 4.6% budget deficit for 2004 instead of the forecast 3.8% and revise the date 2008 for joining the euro-zone. Eventually, on 13 May the Finance Minister announced that the official entry date to the euro-zone had been postponed to 2010.

In the autumn of 2004, the debate between the government and the MNB over macroeconomic issues became heated once more. The government criticised the MNB for keeping the interest rate high and thereby creating a strong forint and crippling export industries. In October 2004, the government initiated an amendment of the law governing the Monetary Council, the MNB’s main rate-setting body, which would allow the Prime Minister to appoint four new members.

Collective bargaining

A total of 15 sectoral agreements concluded by employers' organisations were registered by FMM in the first half of 2004. A total of 3,293 workplace agreements were in force as at 30 June 2004, covering 886,762 employees.

Pay

The national tripartite committee, the National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT), recommended a 7% or 8% wage increase for 2004 and increased the minimum wage to HUF 53,000 per month as of 1 January 2004 (HU0401103F).

The regulatory force of collective agreements at sector level, including the major public utility enterprises, such as public transport, energy and water utilities and postal services, is particularly important. In these sectors around 50% of employees are covered by collective wage agreements. In other sectors, typically manufacturing and private services, only around 10% of employees are covered by wage agreements.

Collective agreements at company level do not always contain a regulation concerning wage increases for the given year but are limited to regulating employment conditions in general. According to the statistical database of FMM, only 390 collective agreements contained a wage agreement for 2004, covering 269,206 employees, which is 14.3% of all employees in the competitive sector of the economy (the private sector and state-owned companies).

In terms of the content of wage agreements: 9% of agreements stipulated a general gross wage increase, covering 171,000 employees; 11.7% of agreements included provisions for increasing basic wages, covering 220,000 employees; 7% of agreements provided for company minimum wage increases, covering 137,000 employees; 2.7% of agreements regulated new wage systems, covering 114,000 employees; and 12% of agreements contained provisions for various wage supplement elements, such as bonuses and fringe benefits. The latter provisions covered altogether 235,000 employees.

Taking into account all the wage elements listed above separately, company agreements in general provided for a 9.1% wage increase in 2004, which was higher than the 7% or 8% recommendation of OÉT. In manufacturing industries, however, the average wage increase was only 7.7%, which was in line with the OÉT recommendation. The collectively agreed wage increase was higher than what was recommended by OÉT mostly in sectors dominated by large public utility companies.

Multi-employer collective agreements (including those concluded by employers’ associations) cover 260,600 workers. Only 15 multi-employer wage agreements were concluded for 2004, covering only 19,719 employees. On average, these agreements stipulated on average a 5% or 6% wage increase, two or three percentage points lower than the OÉT recommendations. Two agreements stipulated a considerably higher minimum wage than the national minimum wage, but these agreements cover only two and eight companies, respectively. The most important agreement - in terms of coverage - is the metalworking industry agreement, which covers 25 companies and more than 8,000 employees, which set the minimum wage at the same level as the national minimum.

Collective bargaining statistics underline the fact that sectoral and multi-employer bargaining is relatively unimportant, covering only a relatively small number of employees, and - as far as wage bargaining concerned - its role is limited to setting minimum conditions. Workplace-level wage agreements, however, play a major role in wage determination. None the less, the statistics underline the growing gap in union power to influence wage development between sectors dominated by large public utility companies and in manufacturing and private service sectors. While unions in public utility sectors were able to press for higher wages, in the latter sectors wage agreements remained within the range recommended by the OÉT.

In November 2004, the central social partners on the OÉT agreed to recommend a 6% wage increase in the competitive sector in 2005, and in December a similar deal was reached for public employees (HU0501102N).

Working time

In 2004, a discussion over working time reduction was resumed, following rejection of the trade union claim for working time reduction in 2003 (HU0307101N). Trade unions demanded a cut in the statutory weekly working time from 40 to 38 hours. Additionally, unions also sought to include the 20-minute daily break for meal-times, guaranteed by the Labour Code, in the paid eight hours of working time and to make 24 December a paid rest day.

Employers’ organisations are against any reduction of statutory working time. They state that the reduction of weekly working hours from 40 to 38 would increase labour costs by 5% and result in a fall in the competitiveness of the Hungarian economy.

In late September, the new Prime Minister reviewed with National Association of Hungarian Trade Unions (Magyar Szakszervezetek Országos Szövetsége, MSZOSZ) the state of the implementation of a cooperation agreement, signed in 2002 by MSZP and 35 unions, which included the goal of a statutory 38-hour working week. The parties agreed that most of the elements of the cooperation agreement had been implemented. None the less, the Prime Minister said that he did not see any chance of reducing weekly working time to 38 hours in the competitive area of the economy, although he did not rule out the possibility of working time reduction in the public sector. A month later, in mid-October, the Prime Minister, together with the minister of labour and the minister of industry, visited MSZOSZ. The Prime Minister expressed interest in supporting the demands of MSZOSZ in relation to meal-time breaks and a holiday on 24 December. MSZOSZ also suggested making 30 April a paid holiday in commemoration of Hungary’s accession to the EU. However, the employers rejected the proposal.

Job security

Hungary was not immune from enterprise restructuring and threats of significant job losses during the course of 2004. Notable agreements at company level regulating restructuring included an innovative agreement reached by management and employee representative at Hungarian Telecom (Magyar Távközlési Rt, MATÁV) in September 2004 (HU0412101N). This agreement details the measures that will accompany a major workforce reduction. Under the deal, redundant employees may chose from several options, which will receive relatively generous funding by the company.

Other issues

There were no significant collective bargaining developments in the areas of equal opportunities, and training and skills development during 2004.

Legislative developments

Act XXVIII of 2004 amending the Labour Code and other employment related acts introduced detailed regulations on telework (HU0410101F). The new rules came into force on 1 May 2004 and mainly follow the provisions of the July 2002 framework agreement on telework signed by the EU-level social partners (EU0207204F).

In late 2004, Act XXXIII of 1992 on Public Service Employment was amended by Act CXXIV of 2004. This amended legislation introduces a new method for measuring union representativeness in the public sector (HU0502104F). The earlier legislation stipulated a measurement similar to the regulation in the private sector, and was based on the results of elections to public sector employee councils. The new regulation takes unions' membership into account: unions having more than 25% of the employees as members qualify as representative for the purposes of collective bargaining.

New legislation on the working time of healthcare employees came into force on 1 May 2004 (the date it joined the EU). Among other issues, the law regulates maximum working time and the complicated issue of on-call service in the healthcare sector (HU0401104F).

The new Hungarian Unified Labour Database (Egységes Magyar Munkaügyi Adatbázis, EMMA), which is expected to help make the labour market more transparent, started operations on 1 May 2004 (HU0406101N).

In 2003, the government and social partners agreed that there was a need for a wide-ranging revision of current labour law. In response, in mid-2004, a group of leading labour law professionals presented a 'conceptual paper' on the creation of the new Labour Code, which proposes fundamental changes to the framework of labour law (HU0411102F). It is unclear at present whether the current government will start legislative work on a new Labour Code during the remainder of its term of office, which expires in 2006.

The organisation and role of the social partners

Since joining the EU, Hungary can delegate members to the European Economic and Social Committee (ESC). As of 1 May, employers’ and workers’ representatives were delegated by consensus of the relevant organisations within OÉT, and the Hungarian government appointed representatives to the 'third interest group' within ESC.

On 24 August 2004, the Economic and Social Council (Gazdasági Szociális Tanács, GSZT) was set up. This is a consultative forum to discuss major national-level strategic plans and programmes designed to shape national development paths for the medium and long term. GSZT functions with the participation of the social partners - all employers’ associations and trade unions that are represented in OÉT - and as well as various business interest organisations (such as chambers of commerce and industries, major associations of foreign-owned firms and commercial banks), academic researchers, the Monetary Council of the MNB and non-governmental organisations.

Trade union membership and workplace presence have diminished continuously in Hungary in recent years. The 2004 Labour Force Survey indicates that union density stood at 16.9%, down from 19.7% in 2001, while 33% of respondents reported a trade union presence at their workplace, compared with 37% in 2001 (HU0501103F).

Industrial action

The usual pattern of strike activity in Hungary continued during 2004: practically no strikes occurred in the competitive sector of the economy while some subsectors of the public sector were rife with tensions. The most important action of the year was organised by the Democratic Union of Health Care Employees (Egészségügyi és Szociális Ágazatban Dolgozók Demokratikus Szakszervezete, EDDSZ). EDDSZ claims that it represents between 220,000 and 240,000 public service employees in the health and social care sectors. Following a 50% general wage increase in 2002, the union was demanding an additional 50% wage increase in the short term and a HUF 1,500 billion (EUR 6 billion) public investment in the sector as well as measures to ensure European-level wages in Hungary within five years.

To underpin its demand for negotiations with the government, EDDSZ first held a warning strike in July 2004, then launched strike action on 7 October, announcing that every week certain segments of the sector would go on strike as long as negotiations did not begin. Several thousand healthcare employees stopped work in a different hospital each week. Participation figures reportedly varied between 4,000 (7 October) and 500 (3 November) (HU0409101F). Finally the national council of EDDSZ suspended the action when that the Minister of Heath invited the union to negotiate over the strike demands. The first meeting took place on 26 November and the parties agreed to set up a bipartite committee with several subcommittees. By the end of the year, the negotiations had not resulted in an agreement.

Employee participation

After the accession of Hungary to the EU, Act XXI of 2003 on European Works Councils (EWCs), which transposes EU Directive 94/45/EC, came into force (HU0409104F). According to an ongoing research project coordinated by the European Trade Union Institute (ETUI) on EWC developments in the Czech Republic, Poland and Hungary, the situation in Hungarian operations of multinationals headquartered abroad is varied. In most cases, employee delegates from Hungary, who earlier had observer status on EWCs, have recently gained member status. Other EWCs that did not include observer members from Hungary have recently begun the process of selecting Hungarian delegates, though in most cases this selection procedure has not been completed yet. There is one known case of a conflict between Hungarian trade unions and management over the distribution of EWC seats among national representatives. (HU0409104F)

Hungary transposed both the European Company Statute Regulation (2157/2001) and the accompanying Directive on employee involvement (2001/86/EC) through Act XLV of 2004 by unanimous vote in parliament on 24 May 2004. The Act came into effect on 8 October 2004. Hungary chose to implement the employee involvement Directive by means of legislation rather than through an agreement between the social partners.

Absence from work

Absence from work is a major issue in the competitive area of the Hungarian economy. Some companies have introduced various schemes of 'being-at-work bonuses', which penalise employees who are absent from work for any reason. Other companies have built into their wage scheme the evaluation of presence at work as a way of combating absence. Case study findings suggest that local trade unions tend to accept such practices and national-level union centres have not objected either.

Psychological harassment

In recent years, awareness of the issue of psychological harassment and bullying has increased considerably. Human resource management literature and handbooks deal extensively with company policies preventing harassment. Apart from some relevant, though quite general, stipulations of the Labour Code, Act CXXV of 2003 on Equal Treatment and Promotion of Equal Opportunity includes a legal definition of the term and defined procedures for remedy. As a latest development, some harassment cases have reached the courts. None the less, collective agreements have not yet addressed this issue in depth in Hungary.

New forms of work

Employers are in general keen to introduce new forms of work. The key issue is extending flexibility in working time practices, team-work, rotation, multi-tasking and multi-skilling. The Labour Code allows working time to be organised on a comparatively flexible basis and collective agreements tend to increase the reference periods for calculating average working time over a set period. Case study evidence suggests that workplace-level unions prefer monetary compensation for flexibility rather than trade-offs with other forms of security.

New legislation regulating telework came into force in 2004 (see above under 'Legislative developments'). Temporary agency work, which currently involves under 1% of the labour force, was first regulated in Hungarian labour law in 2001 (HU0412102F).

Other relevant developments

An EU Phare programme on setting up sectoral bipartite social dialogue committees ended with success on 27 January 2004 (HU0212106F). So far, 29 committees have been set up. On 31 August, OÉT reviewed the results of the programme and agreed to set up Sectoral Social Dialogue Centre (Ágazati Párbeszéd Központ, ÁPK), financed from the state budget, to support and coordinate the work of sectoral committees. OÉT also endorsed an agreement on the establishment and rules of operation to govern the functioning of the committees until legislative regulation is in place. This agreement, signed by the representatives of the already established sectoral committees and the government in September 2004, contains an agreed regulation on eligibility criteria for membership, representativeness at sectoral level as well as the setting up and functioning of sectoral committees.

There is an ongoing discussion taking place on the future role of these sectoral committees. Employers’ organisations typically see these bodies as consultation and information bodies, with some lobbying role for sector specific issues. Trade unions hope that these forums will become the bodies in which sector-level collective agreements are concluded, effectively setting minimum conditions for local-level agreements. Government representatives also expressed their hope that sectoral committees would conclude collective agreements, possibly substituting the national wage recommendations of OÉT.

Outlook

The conversion programme to meet the requirements of joining the euro-zone puts the current government under severe constraints. It envisages joining the ERM-II system in 2008 and the euro-zone in 2010. This, however, requires a drastic cut of HUF 2,000 billion (EUR 8 billion) in the state budget, by which the share of the state budget in the redistribution of GDP would decrease from the current 48% to 44%. Further, the tax burden will drop by HUF 1,000 billion.

On the other hand, the conversion programme envisages continuing real convergence between the EU and the Hungarian economy. To close the gap between EU and Hungarian GDP levels from 46% to a minimum of 42% requires an annual 8% to 10% increase in export capacity and an increase in the labour market activity rate from the current 57% to 59% or 60%, which means the creation of at least 200,000 jobs.

All commentators agree that what is needed is to reform public finances, especially in public administration and the healthcare system. The scale of this task was recently pointed out by the president of the MNB in an interview, stating that the current 800,000 public employees could be cut back to 600,000.

The long-term requirements for meeting euro-zone criteria would severely limit the room for manoeuvre both for the social partners and the government in 2005. It is expected that the most difficult issue will be the reform of public services, and it is likely that 2005 will see new conflicts between the government and the unions in this sector, which are persistently pushing for higher wages as well as demanding the maintenance of jobs and established practices.

On a more general level, a major concern for 2005 is the issue of employment and security. 2004 saw a slight increase in unemployment, while the activity rate increased by 1% only. Growth in manufacturing industries did not create enough new jobs, while cuts in public services resulted in a 1% reduction in employment in that sector. It seems that maintaining an export-oriented growth model is a necessity if a major employment crisis is to be avoided in the future. It seems that a wider national-level bargaining agenda is necessary, not only concentrating on wages but also addressing training and other supply-side issues of the economy. (András Tóth and László Neumann, Institute of Political Science, Hungarian Academy of Sciences)

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