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A Public Work Solution to Hungary’s Labor Problems

With Hungary’s economy facing the challenges of a deepening labor shortage, the government is exploring a number of solutions to alleviate the crisis. Restructured employment and the reintegration of public workers might be among the tools.

With the unemployment rate reaching 40-year record lows in most of the developed countries, it is also expected to stay below 5% in Hungary in 2018. But while the figures might please voters at first sight, they indicate a challenge that is looming around the corner and needs to be taken seriously. 

The lack of manpower is already said to be holding back growth in most fields of economy, especially in the IT, automotive and construction sectors, while it also affects state-owned companies. Provincial public transport company Volánbusz, for example, is facing serious difficulties in finding drivers, and even with a 12% pay rise, it still cannot compete with the wages available in the corporate sector or abroad.

However, there might still be some untapped reserves in the system.

Downsizing?

When daily newspaper Magyar Nemzet reported in the first week of January that the Ministry for National Economy (NGM) had recently won HUF 5 billion in EU funding for the prevention and management of downsizing, rumors spread about a significant layoff in the public administration sector, to be conducted after the parliamentary elections in the spring. NGM was quick to announce that no mass public sector layoff is planned and that the money is only to prevent and, if it happens, soften the effects of layoffs in the corporate sector.

Nonetheless, given the current workforce market conditions, companies are seeking more staff than they are dismissing, and it is notable that analysts and corporate leaders have from time to time come up with the suggestion that a big proportion of the 472,000 workers in the public administration – a number that has swelled from 319,000 since 2010, when Fidesz was first returned to power – is far above what is necessary and could ease labor shortages elsewhere.

Another pool of available people could be found in the public work scheme, known as fostered workers locally.

The number of public workers had been permanently growing since the program kicked off in 2011 as a centerpiece of the government’s so-called workfare approach to the economy. According to the Ministry of Interior (BM), 2017 was the first year when their number dropped, by a not insubstantial 50,000, to reach a total of 176,000 by October, the latest available data at the time of writing.

Public Worker Cap

Meanwhile, a government decree in March 2017 ruled that the number of public workers should be beneath 150,000 by 2020. Accordingly, the budget of the program has been reduced by HUF 100 billion. The HUF 225 bln budget in 2018 is estimated to cover the employment of about 180,000 people. (It is worth noting that the annual program budgets have not been fully spent since 2015.)

In addition to cutting figures, decisions about structural changes have been made, too. From mid-2018, the length of time one can spend in the public work scheme will be maximized at 12 months in every three-year period, which limit can be exceeded only if it is officially deemed hopeless to place someone in the primary labor market. Also, people under 25 can be involved in the public work scheme only if the so-called youth guarantee scheme, an EU-funded program offering special courses to quickly connect young people with labor opportunities, has failed to help.

The latter amendment seems to resolve the opposition parties’ most frequent criticism over the public work scheme, namely that young people might get stuck in the program, as the approximately HUF 50,000 salary the scheme offers is clearly not enough to make a step forward, while the work itself leaves no time for people to enroll in training that could help them to find proper workplaces in the future.

The approximately 30,000 public workers coming out of the scheme in the upcoming two years could, indeed, make a difference to the workforce market, but as HR analysts warn, only with the support of a good training system. 

While about 10,000 public workers have a higher education degree, suggesting that they could be directed to the primary labor market relatively easily, a much larger proportion of people in the scheme are severely undereducated and are drawn from the periphery of society, frequently from the most underdeveloped rural areas, making their reintegration a long-term challenge.