Weekly Briefing, Vol. 30, No. 3 (HU), June 2020
Labor Market Prospects in Hungary – An Outlook
The impact evaluation of an economic crisis very much depends on the scale of effects it has on the labor market. To show the importance of which indicators we utilize during our analysis, it is worth paying attention to the burst of the dot-com bubble, when GDP could increase again after eight months, however, unemployment figures will keep worsening for around 24 months. In other words, the economy can grow without creating jobs, this phenomenon is often called ‘jobless growth’. In the present situation, we can ask ourselves whether the scale of the plunge in economic activities is proportional compared to the losses in the labor market. Obviously, the answer relies very much on the policy responses and measures of the given country. Until now, we could see that the effects of the coronavirus on the labor market in the European Union and Hungary have been much more moderate than in the US. Bearing the importance of labor market policy choices in mind, this briefing looks at the Hungarian labor market trends and prospects in the aftermath of Covid-19. Still, unless a second wave of the pandemic cannot be excluded from the analysis, the forecasts remain extremely uncertain.
There are significant differences in the forecasts of the European Commission and the Hungarian Government, the MNB reveal dissimilar approaches for economic development. A good example of this uncertainty is the unemployment forecast of the OECD that provides us with two scenarios; the one that excludes the possibility of a second wave, and the other one includes it. And as long the range of unemployment rate forecasts is from around 4percent to 9 percent for the year 2020, the only thing which remains certain is uncertainty.
- Hungarian labor market data in EU comparison
The recent EU labor market data were published by Eurostat on the 3rd of June 2020, the communication contains the April data. The seasonally adjusted unemployment rate of the region was 7.3 percent, which shows a slight rise compared to the March figure. (2020 March: 7.1 percent). At the same time, the US unemployment rate was 14.7 percent which rose from 4.4 percent in the previous month! This comparison shows the huge impact of labor market policies that modify market players’ behavior and reactions in a given situation. To explain the very different trends – though the scale and nature of the Covid-19’s impact on the economy were de facto the same in the US and the EU – we have to recall that the costs of laying off co-workers are very close to zero or zero in the United States while in Europe the dismissal of employees can lead to significant costs of the employers. This difference along with stronger legal protection of employees can easily explain the significant differences in the data. Moreover, we can add that in some crisis-stricken countries the unemployment could drop (see Italy and Poland!). Whether this difference will be temporary only hinges on the nature of the economic crisis. Given a V-shape crisis, the European unemployment rates will not repeat the curve of the American one, however, if we have an L-shaped recovery, in other words, a protracted crisis, European employers will have to reduce and intensify cost-saving measures including mass dismissals. What we can also see from the European and American comparison is that the very flexibility of the labor market can lead to fast improvement of the data too.[1]
| Table 1. Unemployment rates in selected EU countries (%) | |||
| February 2020 | April 2020 | Difference | |
| EU | 6.4 | 6.6 | 0.2 |
| Germany | 3.4 | 3.5 | 0.1 |
| France | 7.6 | 8.7 | 1.1 |
| Austria | 4.4 | 4.8 | 0.4 |
| Italy | 9.1 | 6.3 | -2.8 |
| Spain | 13.6 | 14.8 | 1.2 |
| Hungary | 3.4 | 4.1 | 0.7 |
| Poland | 3.0 | 2.9 | -0.1 |
| Chechia | 2.0 | 2.1 | 0.1 |
| Slovakia | 5.5 | 6.8 | 1.3 |
| Source: own compilation based on Eurostat database | |||
The question of why this comparison is relevant to the future of the Hungarian labor market might arise. Hungarian labor market policies are closer to the American one, however, the difference is that the state is willing to more actively intervene in the market processes, this approach borrows from both models. Looking at the same period as above the Hungarian unemployment rate change from 3.4 percent in February to 4.1 percent in April 2020. In April 2020, the number of employees was 4.368,000 in Hungary, this number reflects a drop of 73 thousand people compared to March 2020. And it is by 136,000 lower than in the corresponding period of 2019.
The scale of change is larger than the EU average and much smaller than the US, data suggest. In our opinion, the proportioned and systematic differences from the European average show the deviations in the labor market policies, thus we can conclude that the effect of Covid-19 will be more direct in the Hungarian labor market, however, the recovery will create jobs easily. (See the economic briefing of June more on this approach!) The Hungarian Prime Minister highlighted a few weeks ago again that the core of the Hungarian labor market policy is that social allowances do not help people, however, creating jobs does promote people and can boost the economy. Accordingly, the Hungarian government raised the ceiling for the number of public work schemes from 100,000 to 200,000 to give employment to those who have recently lost their jobs. The creation of jobs in the public sphere is complemented by public funds to increase the investments of private firms. Until now 100 billion HUF has been spent on this purpose, public funds have to be added to private funds, thus the scale of the created investment is to reach 200 billion HUF.
It is very difficult to interpret the data now since there are significant differences in the results of the Hungarian Statistical Central Office, the National Employment Services and the surveys carried out by pollsters. The reasons for the differences are many-fold; sometimes people don’t register after losing or they do it later; and in other occasions, people are not laid-off officially yet, however they consider themselves unemployed, etc. According to pollsters, the unemployment rate in Hungary must have reached 9 or 10 percent. The data of the Ipsos’ survey reveal 9 percent unemployment. Based on these results, the most hit social layer is that of those who do not have secondary or tertiary education. One-fourth of these people became unemployed during these last months. The Publicus Research Institute also carried out a survey including 1,004 people in the last two weeks of April. According to its results, around 10 percent of the pollees lost their jobs.
- A Labor Market Outlook: 2020 and 2021
As we pointed out above, the main policy approach in the labor market has been unchanged, namely, the creation of jobs is given preference as policy choice over handing out unemployment allowances, however, it doesn’t mean that the government would not adjust to the new conditions. Despite the unaltered philosophy, the public budget reveals that the Hungarian government intends to spend more on unemployment allowances. In the previous year, these funds made out 0.2 percent of the central budget, whereas the ratio increased to 0.5 percent in the budget for 2020. Another point in the adjustment process is how to respond to the decreasing number of vacant jobs. Over recent years, we pointed out several times that one of the largest impediments is the growing scarcity of (skilled) labor force. That led to more capital-intensive production and rapidly increasing wages and salaries. The problem seems to be the past since the number of vacant jobs significantly dropped in the Hungarian labor market. (This number was slightly below 90,000 mid-2018 and it is slightly below 60,000 now. The plummet is significant both in the public sector and the private sector.)
| Table 2. Unemployment rate forecasts (%) | |||
| 2019 | 2020 | 2021 | |
| European Commission | 3.4 | 7.0 | 6.1 |
| Hungarian Government | 3.4 | 5.6 | 4.3 |
| The Central Bank of Hungary (MNB) | 3.4 | 3.9-4.2 | 3.8-3.9 |
| OECD | 3.4 | 6.7*-9.2** | – |
| The Global Economy | 3.4 | 5.4 | 3.98 |
| Source: European Commission: Economic Forecast for Hungary; Hungarian Government: Convergence Program; MNB: Inflációs Jelentés, March 2020. Notes: */ in case of single hit; **/ in case of a double hit. | |||
The forecasts regarding the unemployment rates widely differ due to the growing uncertainties in the world market and the question of an eventual second wave of the coronavirus pandemic. In our opinion, the more optimistic forecasts seem to be more likely to happen. The recent drop in the employment levels can not be explained by internal factors, only by the external shock of the pandemic. As long as the recurrence of a second wave cannot be excluded, forecasts will remain uncertain. At the same time, we must add that the Hungarian government seems to be very determined to create jobs and stick to active labor market policies.[2]
[1] In May 2020, US unemployment rate rapidly declined to 13.3 percent as the economy was opened up.
[2] In a sharp contrast to passive policies, labor market policies focus on increasing the employability of unemployed workers and not on sustaining incomes of the jobless people.