Demographic trends pose challenges for growth and the labor market

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By 2060, the old-age dependency ratio may double in Hungary compared to what it is at present, and the burdens on economically active age groups may increase significantly in the coming decades as a result of the population aging, the National Bank of Hungary (MNB) said today.

The MNBʼs Growth Report notes that the old-age dependency ratio could increase from 26% in 2015 to 52% by 2060, in conjunction with a decline in the population from just under ten million to 7.9 million.

With a declining population and an acceleration in the aging population, a significant fall in the working-age population is expected in the labor market. The working-age population may fall from 6.6 million in 2015 to 4.3 million by 2060. The ratio of working-age individuals within the population may decrease from 68% in 2015 to 54%.

Looking ahead, demographic processes may become an increasingly relevant labor supply challenge especially in the 2020s and in the 2040s, according to the report.

The demographic changes on the supply side affect economic performance via the labor market, the capital accumulation and the productivity channels, while on the demand side, their impact appears via the consumption, savings and budget channels. The aging population may have a negative impact on the fiscal balance in the long term, primarily through higher pension and health expenditures, the MNB said.

The quality of the labor force could also pose difficulties as the ratio of college and university degree holders lags behind the EU average and the ratio observed in more developed countries.

The lag is present despite the ratio of more highly educated graduates growing from 14% to 23% since the millennium in the 25-64 age group due to the higher education level on average of new employees entering the labor market.

There is also a significant lag in the number of participants in vocational training programs in secondary schools compared to other EU countries.

The majority of the lesser educated Hungarians do not meet the requirements of their relevant industry and there is also a geographical mismatch between vacancies and labor supply. The overall tax burden of the labor force is still high in Hungary in an international comparison.

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