Hungary: Latest working life developments – Q4 2016

A significant hike in the statutory minimum wage, declining union membership and industrial action in support of wage demands, including the first ever warning strike at Mercedes-Benz, are the main topics of interest in this article. This country update reports on the latest developments in working life in Hungary in the fourth quarter of 2016.

Agreement on minimum wages

Minimum wages for 2017 have again been based on a tripartite agreement. What makes the agreement really remarkable is the unprecedentedly high level of increases agreed for 2018 alongside a reduction in the financial burdens on employers.

As of 1 January 2017, the statutory minimum wage increases by 15% and then by an additional 8% in 2018 (PDF). The guaranteed wage minimum, paid for jobs that require attainment of at least secondary education, increases by 25% in 2017 and 12% in 2018. Employers will be partially compensated with a 5% reduction in employer contributions in 2017 and an additional 2% in 2018. Corporate taxes will also be adjusted, ending the current two-tier level of 19% and 10% and setting a flat rate of 9% for companies of all sizes.

The long-standing demand of trade unions is that no worker should be paid less than the minimum for subsistence (around HUF 88,000 a month, or about €290, according to experts). While this demand is likely to be met in the foreseeable future, the sharp increase for the lowest paid created by the rise in minimum wages raises several issues. Employers, while acknowledging that wage increases are inevitable and would improve competitiveness in the long run, are concerned about the financial implications for micro and small enterprises. They argue that high minimum wages run the risk of redundancies, company closures and undeclared work.

Furthermore, if the increase in wages for the lowest-paid is not followed by overall wage adjustment, pay differentiation could also easily disappear and cause severe tension among workers. This would create further challenges for employers. This risk is especially high in the public sector where the statutory salary scale does not allow for automatic adjustment when mandatory minimum wages increase.

Declining trade union membership

According to a report on the labour market situation in 2015 by the Central Statistical Office (KSH), trade union membership has been steadily declining in Hungary. Although leaders of union confederations have disagreed and pointed to growing trade union activity and support in recent years, the figures indicate clear trends. In the past four years, the rate of membership fell from 12% in 2009 to 9% in 2015 (PDF) in 2015.

The distribution of membership by economic sectors has not changed in recent years. Education and health sectors are strongly organised with rates of 19% and 17.7%, respectively. In the manufacturing industry, which is traditionally strongly organised and employs the largest proportion of workers, the membership rate is 7.8%. In the retail sector, which also employs a great number of workers, trade union presence is only 3.3%.

Wage demands and strikes

Mercedes-Benz

The fourth quarter of 2016 was characterised by trade unions’ wage-related industrial action and strike threats. The most important of these was the work stoppage at Mercedes-Benz Manufacturing Hungary in Kecskemét, the first ever in the automotive industry in Hungary. The factory has two trade unions, both of which are representative and have a right to be part of collective bargaining. One, the Free Trade Union of Engineers and Technicians (MTSZSZ), agreed on a wage increase to be phased in over two years. The other, the Hungarian Metalworkers’ Federation (VASAS), has a larger membership and refused to sign the agreement. It continued to demand a 15% increase for 2017 and called a two-hour warning strike. Eventually the company management met the VASAS demands.

Demands for public sector pay rises

The Hungarian Public Officials, Public Employees and Public Service Workers’ Union (MKKSZ) announced a nationwide strike by workers in the social sector for 5 December. The union was demanding an annual paid public holiday (Social Work Day, 12 November) and a 30% wage increase from 1 January 2017. MKKSZ argued that the high (around 10%) labour shortage in the sector made a significant wage increase necessary, particularly given the sector’s poor working conditions. Eventually, the strike announcement was withdrawn since the trade union was able to agree on a compromise solution with the government.

The union that represents rubbish collectors and street cleaners, the Local Industry and Municipal Workers' Union 2000 (HVDSZ 2000) also started preparations for a possible strike in Budapest. The union demanded higher wages, arguing that in some areas members’ wages had increased by only 5% in the last five years. It called for a 5% wage increase for 2017. Negotiations broke down and a strike is still threatened. Workers who provide public services are allowed to strike if an agreed minimum ‘sufficient’ service is maintained and this is still under discussion. In December, the union, the government and the National Association of Strategic and Public Utility Companies (STRATOSZ) held general discussions about wage-setting in the public service sector (PDF) which were due to continue in January 2017.

Commentary

Trade union membership has been declining in Hungary since the regime change in 1989. Nevertheless, trade union activity has been more intense in recent times, not only in the final quarter but throughout 2016. The examples documented in this article reflect this.

The most significant event in the last quarter of 2016 – if not in the whole year – was the considerable increase in the statutory minimum wage. As a minimum increase has also been set for 2018, the annual wage discussion round in the fourth quarter of 2017 will not be necessary. This places the government in a strong position in the run-up to the 2018 election. However, wages will continue to be high on the agenda, especially wage demands triggered by the strong bottom-up pressure from the increased minimum wages by groups of workers hoping to re-establish meaningful wage differentiation. 

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