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Less red tape might not mean more jobs

Through reducing the “irritation” that is red tape, the government is looking to boost employment and enhance competitiveness among smaller businesses. Labor unions believe the set of measures will do the exact opposite.

The semi-legal, or “grey” economy, which typically involves registering employees at the minimum wage and giving out the rest of the pay off the books, is estimated by the Corvinus University to cause HUF 240–470 billion in uncollected revenues annually. Through reducing bureaucracy-related losses by a total of HUF 500 billion, the government believes this section of the plan will remedy the situation.

The most controversial part of the chapter is the set of envisioned changes to regulating employment. Through measures such as making workers’ councils optional, creating flexible work hour rules and easing the prerequisites of termination, the government calculates on saving HUF 45.7 billion.


Back to reality


“We believe that the plans are in many ways aiming to adapt regulation to the way things are handled in practice,” Gabriella Ormai, managing partner of law firm CMS Cameron McKenna (CMS) law firm told the Budapest Business Journal. For instance, in regard to the debate on workers’ councils, something the plan would abolish, she noted that “even before, this was a right, not a requirement, so the new regulations only reflect the actual circumstances.”

Aspects of the plan were applauded by human resources experts, especially the drive to roll back the range of abuses that are widespread. “I strongly approve of any provisions in the Széll Kálmán Plan that push back fraud and the abuse of the welfare system,” said Tamás Fehér, country manager of Grafton Recruitment. In his view, the orientation of unemployed Hungarians back to the job market as opposed to living off benefits is not only an economic boost, but could also change attitudes towards working.

He also approves of plans to review the disability benefits received by those who have taken early retirement citing an injury or a physical condition that makes them incapable of work.

It is not unknown for people to make “arrangements” with their doctors who certify disabilities, even though there is nothing physically wrong with the patient. Of course, identifying people who have taken unfair advantage of the system will not be easy. “The problem is that those who register themselves as disabled usually do have a genuine reason, as opposed to those the provision is trying to filter out,” Fehér said.

But not all are happy with the planned changes, especially the representatives of employees. VDSz, the labor union of chemical industry workers, finds that the review of disability benefits will cast many people into abject poverty by taking away their social subsidies and forcing them back to a job market where they have no realistic chance to compete. “It is deceptive hypocrisy to state that the country needs people who are sick or physically and emotionally drained from hazardous jobs while even healthy career-starters cannot find employment, because there are no jobs,” VDSz chairman Tamás Székely said.


New jobs?


One of the declared targets of the scheme to reduce bureaucracy is job-creation, something facilitated by revised work hours and abolishing qualification prerequisites for certain professions. Changing work hour regulations is projected to bring a 0.5% improvement in employment figures, which translates to 50,000 additional jobs.

Ormai noted that introducing the element of flexibility into the regulation of work hours is also a step towards regulation adapting to reality. “We have had clients who wanted to follow the law, but due to their lines of business, which called for odd hours, we simply couldn’t devise a solution that was fully legal,” she said.

The plan is to introduce a system where the only requirement is an employment contract stipulating a workweek of no more than between 48 and 60 hours and 12 hours of work a day. This is to be allocated based on an annual limit of work hours that the two parties are free to agree on among themselves, which is meant to favor businesses working in industries where irregular shifts are typical, and thereby allow them to hire more people.

But employee interest advocates think the changed environment will take away even more of employees’ already limited rights. “It is the most primitive rationale that an employer will not hire new people, but given the chance, make the ones it already has work more,” Péter Pataky, head of national labor union association MSzOSz told the BBJ. In his interpretation of the plan, this is exactly the option presented to employers.

His views are supported by the fact that the labor code in effect stipulates that “the limit to full work time is eight hours a day, 40 hours a week”. If the 48-60 hours in the plan are to be interpreted as the new brackets to workload periods – something even lawyers decline to speculate on having not yet seen the actual bills derived from the plan – it entails that the lower threshold is raised by eight hours a week.

The BBJ sought a response from the government on the matter, which was declined as “detailed information will only be available once the government has finalized its official position on the matter.”


A step towards legality


Even if the plan’s potential to create new jobs is uncertain, the revamp of administrative requirements could at least lead to a number of unregistered workers appearing on the records.  And while Hungarian SMEs are not widely known for their law-abiding practices, the revisions give a chance to change that, a chance for smaller businesses to prove themselves, said Gábor Göndös, senior associate at CMS.

In contrast, Pataky was pessimistic, stating that the passages of the plan were drafted in response to the lobbying efforts of a clearly identifiable group. “Small businesses live with tax fraud as it is, this is just meant to make their lives easier at the expense of the employees who are already vulnerable,” he said.

He highlighted the scrapping of qualification prerequisites, which is estimated to bring a 1% boost in employment, or 100,000 new jobs altogether. One of the most elaborate examples of how the whole package is meant to placate the smaller business sector is how the provisions would affect retail, Pataky said.

Currently, the regulations require commerce companies to employ people with a certificate in the field. The law stipulates that any opening in such a field must be announced with a requirement of certification and this also entails that the minimum wage to be paid for a qualified job is higher (HUF 94,000 gross, as opposed to HUF 78,000 gross for jobs that do not require qualification). Pataky believes that ending this practice will only result in employers hiring the same people with the necessary expertise, but they will be able to do so while paying them less, even though they have completed the necessary courses and have the experience.


Hopes for fairness


“There are certain remainders of excessive benefits from before the change of regime that are seen as being cast in stone and any attempt at changing them is met with outrage,” CMS’s Göndös said. As he finds it, the ideas in the plans reflect a drive towards making conditions better for employers and putting an end to current practices that are unfair, for instance, when a dispute turns into a legal affair.

Now, if a firing is challenged in court, the employer still has to pay salaries as long as the case lasts, which could easily take up to several years. This is added to any compensation that the former employer is liable to pay if ruled against. “Similar disputes do not frequently get to court, but when they do, because of the substantial compensation provisions in the labor law, the total financial exposure could lead to a company folding,” Göndös said.

This is especially so, since he finds that Hungarian courts tend to adopt a rather pro-employee approach. “Judges presiding over a case often have little to no information regarding the sector at hand and getting such information through is especially difficult in a heated court dispute,” Ormai agreed. “It sometimes needs profound explanation how specific mechanisms of certain business sectors work and such efforts are usually thwarted by the false impression that the employer tries to use subterfuge,” said Göndös.


Educate and improve


However, at the heart of things are the lasting deficiencies of Hungary’s e

Same old...

There is nothing new under the sun: in an effort to improve Hungary’s labor market, previous governments had plans very similar to the ones the current administration is trying to reduce unemployment and boost economy at the same time. Just a few examples: in order to fold up black and grey economy, the Medgyessy government promised to come up with stricter and more effective labor inspections in 2002. But the changes stopped with the creation of the unified labor database in 2004, which brought some money to the budget. The idea of public work programs is not new either. The Horn government founded a public work council in 1996, which was later eliminated by the first Orbán cabinet, but re-introduced again by Medgyessy in 2003. Later, the Gyurcsány cabinet promised to create about 10,000 jobs per year within the framework of the program. Restructuring the unemployment benefit system has been on the table for a long time too. The first Orbán government had reduced the timeframe for receiving aid, but then the Gyurcsány cabinet increased the upper limit for unemployment benefits. The conditions for irregular labor were aimed to improve this by the Gyurcsány government, when they changed the law to allow 200 days of occasional employment, up from the previous 120. The current Fidesz government further simplified the conditions of such jobs by eliminating the so-called “blue booklet” and getting rid of some administrative burdens. (PF)

ducation system. Apparently, no matter how much flexibility is added to how workers can be employed, that is not going to change anything if they still lack the skills. “Employers want qualified employees, not employees who are easy to fire,” Pataky said.


Fehér was positive regarding the drive to overhaul the education system, given that quality has deteriorated greatly in the past years and anyone who applied was basically accepted. “I strongly support improving the education of real sciences, since these are the professions that investors are looking for,” he said.

While acknowledging government ambitions to orient young Hungarians to acquire degrees that are in high demand among employers, Fehér noted that in order for this to succeed, the state must also shore up secondary education, since a large number of Hungarians completing high school are lacking fundamental skills and have yet to learn a foreign language to a level that they can actually use it.

In his view, there are many jobs that could be filled with a high school degree and additional post-secondary, so-called OKJ qualifications. Asked why it is so common then that job openings for positions that could be filled with simple high school qualifications make a college degree a prerequisite, Fehér said it is a means of filtering. “Employers are aware of the situation in education, so they are looking for people with motivation and language proficiency, things that they assume only people that have the drive to complete college possess.”

The revision of the education system could also be useful, since it is common for graduates who have no practical experience whatsoever to approach a job opening with unrealistic expectations. “The government should give far more support to majors that involve internships and practical training, since this is something that the private sector would willingly support, and any time spent doing actual work in a given sector is already considered professional experience in a job interview,” Fehér concluded. (GR-ASz-WD)