Controversy over government plan to tackle economic crisis

The Hungarian government has prepared a package of measures to address the effects of the deepening global economic crisis on the labour market, focusing particularly on help for export-oriented manufacturing plants and small and medium-sized enterprises in order to preserve jobs. The package was debated by labour market experts and social partners in the National Interest Reconciliation Council and received a mixed reaction.

Wide discussions take place

So far, in Hungary, two national summits have been held in the shadow of the global credit crunch and economic recession, which focused mainly on national monetary, fiscal and economic policy (HU0901019I). In addition, the Ministry of National Development and Economy (Nemzeti Fejlesztési és Gazdasági Minisztérium, NFGM) and the Ministry of Social Affairs and Labour (Szociális és Munkaügyi Minisztérium, SZMM) have jointly presented a package of measures aiming to tackle the labour market impact of the global economic crisis. The proposals were put forward at a meeting of the National Interest Reconciliation Council (Országos Érdekegyeztető Tanács, OÉT) on 13 November 2008. Prior to that, officers at SZMM also consulted with labour market experts in the Labour Studies Committee (Munkatudományi Bizottság) of the Hungarian Academy of Sciences (Magyar Tudományos Akadémia, MTA).

Economy boosting measures

NFGM announced the launching of a ‘crisis management and economy boosting package’, which is to be funded mainly from the New Hungary Development Plan – the current framework for the utilisation of the European Social Fund – and partly through reallocating monies from ongoing programmes or by accelerating the commencement of other planned projects. NFGM envisages providing subsidies totalling HUF 2 billion (almost €7 million as at 10 February 2009) for 2,300 exporting small and medium-sized enterprises (SMEs), particularly in the manufacturing sector. In addition, the ministry has earmarked another HUF 1.4 billion (almost €5 million) to support companies, including those operating in financial services, on a tendering basis.

Of the latter budget, direct micro-loans, loan guarantees, support for diminishing interest rates, and especially the refinancing of bank loans are of paramount importance, as many companies face increasing difficulties accessing regular credit lines due to the credit crunch affecting the commercial banks. It is worth noting that most Hungarian commercial banks are foreign owned, and allegedly their headquarters reduced the resources of the Hungarian subsidiaries’ lending policy.

Employment policy

The employment policy package announced by SZMM primarily aims to preserve jobs through maintaining the operability of business organisations – although not at all costs. SZMM is planning to develop a fast forecasting or early warning system in cooperation with the Public Employment Service (Állami Foglalkoztatási Szolgálat, ÁFSZ), the state-owned Hungarian Investment and Trade Development Agency (Magyar Befektetési és Kereskedelemfejlesztési Ügynökség, ITD Hungary) and the private-owned GKI Economic Research Company (GKI Gazdaságkutató Zrt, GKI). Based on this system, SZMM would regularly provide the social partners with up-to-date labour market information.

The government employment policy package would include setting up regional crisis-management funds to help in cases of company restructuring and to support vulnerable enterprises by providing waivers from wage levies to enable them to maintain their personnel. Similarly, employers hiring workers laid-off by other companies due to the economic crisis may expect wage subsidies. SZMM also proposed shortened working hours by compensating employees’ lost income from the Labour Market Fund (Munkaerőpiaci Alap); this initiative would require amending the laws accordingly.

Further measures include accelerating public infrastructure investments in order to create jobs, and relaxing regulations and sanctions under the provisions of the law on ‘orderly labour relations’; normally, such sanctions may exclude employers from public procurement tenders (HU0801079I).

At the OÉT plenary meeting, the appointment of a government commissioner in charge of crisis management in the regions was also announced.

Position of social partners

Employers essentially supported the government measures and underlined the need to provide non-refundable subsidies to companies facing collapsing markets. However, representatives of SMEs criticised monitoring methods that are based on reporting collective redundancies and the system of waivers from wage levies applicable for companies employing more than five people. They pointed out that such methods were of no benefit to their smallest members.

In addition, employers emphasised that it would be important to involve the recently established Regional Development Councils (Regionális Fejlesztési Tanácsok) in the initiative; however, this seems unfeasible, given that the employers assessed the state of these councils as rudimentary and still lacking the necessary experience.

Trade unions agreed on the need to improve the situation of companies facing credit problems. Nevertheless, they rejected the idea of non-refundable subsidies, claiming that the state authorities’ judgement of companies’ difficulties could be biased, being based on uncertain criteria, and demanded more careful investigation.

Furthermore, the trade unions strongly opposed any softening of the rules on ‘orderly labour relations’ and expressed their concern about shortened working hours: instead of using the latter tactic as a temporary measure, employers tend to resort to it in trying to convert regular jobs into atypical work.

Views of experts

Labour economists evaluated the effectiveness of the planned measures as rather doubtful. In particular, the usefulness of wage subsidies and cuts in wage levies in order to preserve jobs was questioned, as such programmes usually have enormous ‘dead weight’. In other words, many companies that would maintain jobs anyway without government support are able to avail of the subsidies. Moreover, in a crisis period, the entitlement for such subsidies cannot be justified. Furthermore, academics doubted the capability of public employment services to tackle the issues. As an alternative proposal, the temporary extension of the duration of unemployment benefit emerged in expert debates, although this idea was not endorsed by the government.

László Neumann, Institute for Political Science, Hungarian Academy of Sciences

Useful? Interesting? Tell us what you think. Hide comments

Eurofound welcomes feedback and updates on this regulation

Add new comment