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Shortage of Workforce Endangers Competitiveness

There are nearly 4.5 million people working in Hungary, the unemployment level has sunk to a historical low of 4.1%, and wages keep rising. The record-breaking figures give the government reason to proudly spotlight the success of its unorthodox economic measures; however, even the government admits that in terms of competitiveness, Hungary has room for improvement.

The average number of employed people was 4,451,000, some 60,000, or 1.4%, more in July-September than the corresponding period a year earlier, the Central Statistics Office (KSH) has reported.  

The employment rate increased in all groups: it went up by 1.6 percentage points to 68.7% for the 15-64 age group. The number of employed men increased by 2.2%, and their employment rate rose by 2.3 percentage points to 75.9%. The number of employed women increased only slightly, while their employment rate grew by 0.9 of a percentage point to 61.7%.

The employment rate among young people aged 15–24 years increased by 0.2 of a percentage point to 29.3%. The number of employed people in the “best working age”, i.e. the 25–54 age group, and in the older, 55–64 age group both increased, with the employment rate rising to 84.2% in the former and 52.4% in the latter.

The level of employment of the population aged 15–64 increased in all of Hungary’s regions, the most significant growth being seen in Central Transdanubia.

The employment rate was highest in Central Hungary (72.5%), and lowest in Southern Transdanubia (63.6%).

At the same time, Hungary’s rolling average three-month jobless rate dropped to 4.1% in July-September 2017, from 4.2% in the previous three-month period, and 4.9% in the equivalent period of 2016.

The average number of unemployed was 189,000, some 38,000 fewer than a year earlier, according to a first release of data by KSH.

Favorable Trends

Since the government came to office in 2010, 741,000 more people have landed a job, of which 560,000 are in the private sector, Minister for National Economy Mihály Varga said, commenting on the KSH data, and attributing the success to the favorable economic trends and supportive government measures.

As a result of the six-year wage deal nailed last November, real wages have increased by more than 10% in 2017, and the number of people in employment has been rising robustly, at a pace unseen since the change in regime in 1989, Varga said.  

This clearly proves that the wage deal has been successful, it has had a positive effect on the labor market due to the fact that it has substantially raised smaller wages and it has reduced taxes payable by employers, Varga said.

The unemployment rate has fallen to a level unseen in the past 25 years, and this has also been the result of measures such as the Job Protection Action, the Youth Guarantee Program and other government-initiated employment and economic activity incentives, the minister added.  

While the government has good reasons to be proud of its achievements, as the figures seem to be prove the success of its unorthodox economic policy, there is still room for improvement, especially when it comes to competitiveness.  

Hungary keeps underscoring in every regional comparison in terms of sporting a competitive business and economic environment.

Addressing the issue, the government set up its National Competitiveness Council last fall, and the National Bank of Hungary (MNB) has for the first time published a “Competitiveness Report”, an exercise that it will repeat on an annual basis in the future.  

Consolidated Fundamentals

The MNB used more than 100 indicators to assess competitiveness, and more than 90% of them are said to be objective.

“In recent years, the macroeconomic fundamentals necessary for a turnaround in competitiveness consolidated in Hungary, but our report confirms the finding of international surveys that further steps are needed in order to improve competitiveness,” the report reads.  

Further Steps

While noting that a turnaround in employment has taken place, the bank identifies several further steps in order to improve Hungary’s competitiveness. This includes improvements in productivity (especially among SMEs), wage convergence and the freeing of labor reserves. It also mentions that possible contributions from the expansion of non-typical forms of employment and the enhancement of government efficiency are also necessary.  

Of the role of the state in the process, the MNB report says that the government can primarily contribute to productivity growth by creating a supportive business and regulatory environment, by further easing the burdens on enterprises and labor, as well as by the reduction in state bureaucracy.

The report also mentions the responsibility of the financial sector, noting that while companies’ financing possibilities have improved considerably in recent years, progress is needed in the fields of banking sector efficiency, operating costs and digitalization as well.

But one the greatest challenges the Hungarian economy faces, according to the MNB, is to ensure the adequate quantity and quality of available human capital. 

Numbers to watch in the coming weeks


On November 3, KSH will publish the number of construction permits in the first three quarters of the year. This will be followed by the September retail trade data on November 7. A potentially exciting piece of macro data will be released a day later, when we’ll find out whether the good performance of industry in August continued into September. October consumer prices will come
out on November 9. A day later, Fitch Ratings Inc. is scheduled to review Hungary’s sovereign rating.