Higher wages could support technology changeover, MNB says

Banking

A pickup in wage growth in Hungary will create demand, but also accelerate adaptation to new technology and move the economy onto a faster growth track, the National Bank of Hungary (MNB) said in its annual Growth Report published Friday, according to Hungarian news agency MTI.

Responding to a question about higher wage growth, MNB Executive Director Barnabás Virág noted that part of Hungaryʼs labor force is working abroad, and it is an efficient part. 

Hungaryʼs government recently agreed with unions and employers on big minimum wage increases paired with payroll tax cuts. The government has also submitted legislation that would establish a flat-rate 9% corporate tax.

At present, companies whose tax base does not exceed HUF 500 million pay 10% corporate tax, while those with a higher tax base pay 16%.

András Balatoni, the MNBʼs director of analysis, acknowledged that Hungaryʼs current labor market situation, paired with demand, would force businesses to hire less productive workers, but they can still benefit by getting new hires to learn and by better utilizing capacity.

Virág noted that Hungarian wages are low when compared to neighboring countries, while Balatoni added that companies do not necessarily have to be "champions in terms of costs." A costlier labor force could boost investments, such as those in new technologies as well as capital-intensive ones, Balatoni added.

The MNB suggested in the report that a "high-pressure economy," in which additional demand pressure is created by fiscal policy, could raise actual and potential GDP growth.

"In an economy steadily and predictably under demand pressure, companies that expect their markets to steadily expand increase their demand for means of production, machinery and equipment, and workers. Consumer demand for goods can also rise steadily, since employment and income are more predictable," the MNB said in the report.

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