The current page is not translated to the selected language.
Disclaimer: This information is made available as a service to the public but has not been edited or approved by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.
2005 was a year of controversial developments, and in this sense a continuation of trends already discussed in the 2004 annual review. On the one hand the economic growth continued, with GDP growing by 4.1% in 2005. The driving forces were manufacturing which grew by 8%, construction, and export oriented services. Inflation went down to 3.6% on the year average, and parallel to the deflation process, the National Bank of Hungary (Magyar Nemzeti Bank, MNB) pushed down interest rates to 6% by September 2005.
The steep deflation also contributed to the rapid real wage increase, well over the GDP growth, continuing the trend of recent years. In the first three quarters of 2005, net wages increased by 10.5%, and the real wage level increased by 6.7%. Wages in the competitive sphere of the economy (i.e. private sector plus state owned companies) increased considerably less (8.6%) than in the state budget sector (14.6%). Despite the real wage increase, employment grew slightly, by about 8,600 new jobs in 2005; according to the Hungarian Central Statistic Office (Központi Statisztikai Hivatal, KSH) the employment rate increased by 0.2% in the competitive sphere, while dropped by 1.3% in the budgetary sector. None the less, the unemployment level increased to 7.5%, a seven years high mark, by 1.6 % in 2005, primarily due to changes in the unemployment benefit system, encouraging inactive people to register as unemployed.
None the less, in the light of the critical state of budget spending the future of the Hungarian economy appears rather gloomy. As early as in 2004, in the Euro Convergence Report the EU criticised Hungary for the high inflation rate, excessive deficit and long-term interest rate convergence problems. In 2005, however, the budget deficit swelled to 6.1 percent of GDP immediately causing the major international credit rating agencies to downgrade Hungary’s financial appraisal. Economic experts warned that the increasing budget deficit would delay the entry of Hungary into the Euro-zone. The President of MNB also declared several times that Hungary is threatened by a serious financial crisis. Taking into account the forthcoming general elections, EU’s Council of Economic and Finance Ministers (ECOFIN) asked the Hungarian government to put forward a new economic convergence program in September 2006.
Political developments did not facilitate the consolidation of state budget spending either, and hindered the introduction of major reforms to tackle overspending in 2005. The 2002 elections were won by a small margin by the Hungarian Socialist Party (Magyar Szocialista Párt, MSZP) and the Alliance of Free Democrats (Szabad Demokraták Szövetsége, SZDSZ) with a program of ambitious welfare spending promises. In 2002 the government made measures to carry out its elections program (HU0207102F), which led to a steeply increasing of budget deficit. The government made cautious steps to restore budget spending in mid-2003 (HU0401107F), but in the 2004 European Parliament elections parties of the government coalition suffered a major electoral setback. The election results caused a government crisis, which ended with the nomination of Ferenc Gyurcsány, a young and energetic politician, to Prime Minister. He adopted a Blairite Third Way political discourse, and called for the parallel enhancement of competitiveness based on individual initiative and welfare state support. Instead of launching major structural reforms which could have provoked widespread protest in sensitive areas such as health-care, education and public administration, he opted for the 100 Steps piecemeal reform program in the field of world of work, welfare services, broad areas of public services and economic regulation. The Prime Minister also announced a five-year plan of reducing taxes. (HU0507101N). The government seeking popularity and avoiding any major conflict with trade unions eventually concluded a quasi mini-social pact with social partners on wage increases and on the minimum wage increase for the period 2006-2008. (HU0512104F)
During the whole term of the current government the Alliance of Young Democrates - Hungarian Civic Party (Fiatal Demokraták Szövetsége - Magyar Polgári Szövetség, FIDESZ-MPSZ), the major opposition party, adopted a policy of demanding even more welfare measures and at the same time cutting the tax burden of companies. According to commentators the populist policy of the right-wing party made it even more difficult for the government to meet the strict fiscal criteria of joining the Euro-zone. Now in its electoral campaign FIDESZ-MPSZ is promising radical tax cuts for companies to promote job creation and at the same time the expansion of welfare state services targeting voters with left-wing sympathies. MSZP also launched an electoral program of remedies to everyday problems of citizens. The first round of general elections is due 9 April.
A key element of the Hungarian industrial relations system is that the tripartite National Interest Reconciliation Council (Országos Érdekegyezteto Tanács, OÉT) sets annually the national minimum wage and issues a recommendation for wage increases to lower-level bargaining parties. The annual round of negotiations is also an opportunity for the social partners to influence macroeconomic and labour market processes. In late November 2005, the Hungarian social partners and government agreed on the new minimum wage rates, the gradual introduction of a three-tier minimum wage system, and recommendations to lower-level negotiators on annual wage increases. The agreement also includes a medium-term plan for minimum wage increases and pay policy guidelines over 2006-8. The agreement was of paramount importance for the government. On the one hand it demonstrates that social dialogue is working well and on the other hand it serves to develop long-term programmes. (HU0512104F)
As far as sectoral level bargaining is concerned, the major development was the conclusion of a collective agreement in the construction industry with a view to extending the agreement to the whole sector. The government and the social partners expect that the extended sectoral collective agreement will be an important step in reducing undeclared work. (HU0506105F)
None the less, in 2005 the coverage of collective bargaining was roughly the same as a year before. According to the figures from the collective agreement registry of the Ministry of Employment and Labour (Foglalkoztatáspolitikai és Munkaügyi Minisztérium, FMM), the number of valid single employer agreement was 3327 and the 890 thousand employees were covered by such agreements at the end of 2005. The overall coverage of single and multiple employer agreements was 1,125 thousand. Collective bargaining increasingly seems to be about setting rules for work and working time rather than about wage bargaining. This trend reflects the vested interest of employers to conclude collective agreements in order to flexibilise the working conditions minimum, e.g. to deviate from the rules set by the Labour Code as far as work organisation is concerned. Furthermore, employers tend to maintain their prerogative to set individual wages and fringe benefits. Rules on equal opportunities and diversity issues are rarely stipulated by collective agreements. Training and skills development is generally considered to be a management prerogative too, and collective agreements only regulate traditional allowances for certain types of trainings - mostly not workplace related ones.
The most important legislative developments were the series of new laws trying to reduce the extent of illegal labour in Hungary as part of the 100 Steps government initiative. (HU0506101N). In 2005 the government submitted a bill to increase the powers of labour inspectors and to raise the fines on employers that breach the employment law. The aim of the proposed changes is to crack down on undeclared work. (HU0510102F) Another piece of legislation sought to amend the regulation on temporary agency work. (HU0511102F)
During 2005, political environment was very favourable for social partners and social dialogue as such. The governing MSZP committed itself to have a meaningful social dialogue over major issues concerning the economy, labour market and welfare system. As part of this policy, various competitive grant programs were launched for social partners to help finance their activities. This policy equally consolidated the institutions of social dialogue at national and sectoral level and strengthened the organizational solidity of social partners.
On the union side, there was only one major organisational change. The Democratic League of Independent Trade Unions (Független Szakszervezetek Demokratikus Ligája, LIGA) has amalgamated with the Independent Trade Union Association of Military and Police Employees (Fegyveres és Rendvédelmi Dolgozók Érdekvédelmi Szövetsége, FRDÉSZ). Following the merger, LIGA reportedly became the third largest of the six confederations, whereby it made sure that any change in representativity rules will not likely affect its status as nationally representative union. (HU0511101N)
As to unions’ political affiliation, the most important event was that in an official declaration of alliance, the National Association of Hungarian Trade Unions (Magyar Szakszervezetek Országos Szövetsége, MSZOSZ) signed an electoral agreement with MSZP. Both MSZP and MSZOSZ were born as reformed and democratised heir organisations of the former ruling party and the monopoly union organisation, respectively. While MSZOSZ had declared to be a politically independent union confederation, the mid-nineties saw the resurgence of the relationship between the two organisations; by this agreement MSZOSZ gave up political neutrality.
In 2005 major steps were taken towards re-making the legislative framework concerning representativity. A new regulation on the public sector came into force on 1 January 2005, according to which trade union representativity has to be based on membership at workplace, municipal, sectoral and national level. (HU0502104F) Parallel with this, OÉT discussed the bill on its own representativity rules as well as in the sectoral social dialogue committees. The bill will be discussed by the Parliament only after the elections in 2006, so governmental support for the compromises achieved in 2005 depends on the outcome of the elections. (HU0602101F)
The results of the 2004 Labour Force Survey, published in 2005, suggested that trade unions’ membership and workplace presence, along with collective bargaining coverage, shrank in the period between 2001 and 2004. In 2004 union density stood at 16.9%, down from 19.7% in 2001, while 33% of respondents reported a trade union presence at their workplace, compared with 37% in 2001. However, the reported presence of works councils was up from 32% in 2001 to 36% in 2004. The KSH survey also clearly shows the trend of membership ageing. (HU0501103F)
On the employer side, there was one important organisational change. The nine Hungarian employers’ confederations agreed to disband Confederation of Hungarian Employers' Organisation for International Co-operation (Magyar Munkaadói Szervezetek Nemzetközi Együttmuködési Szövetsége, CEHIC). CEHIC was an umbrella organisation established by the nine confederations in order to provide a single interface for international, and particularly, European level representation, especially as far as cooperation with UNICE was concerned. The Confederation of Hungarian Employers and Industrialists (Munkaadók és Gyáriparosok Országos Szövetsége, MGYOSZ), one of the major employers’ association, became member of UNICE. The other eight employers’ associations continue to work with their respective European level partners, representing sectoral and other particular interests at European level. (HU0506102N)
2005 was a year without any major strike. In February 2005, however, a national strike action was averted with a last-minute pay agreement at rural bus transport companies (HU0502102N), and later at the Budapest Transport Company (Budapesti Közlekedési Vállalat, BKV). (HU0502103N) After the strike-prone public transport companies made their agreements, there were only a few workplace level open conflicts during 2005, mostly provoked by privatisation deals (HU0509101F) or plant closures.
Hungary transposed both Regulation 2157/2001/EC and Directive 2001/86/EC by means of Act XLV of 2004 by unanimous vote in the Parliament on 24 May 2004. The Act was promulgated on 28 May 2004 and came into effect on 8 October 2004. (See: http://www.seeurope-network.org/homepages/seeurope/countries/hungary.html). So far, the transformation of multinational companies into SE affected Hungarian subsidiaries only at one company, Elcoteq SE, a Finnish headquartered electronic manufacturing company having its main plant in the country town of Pécs. Another case was a Hungarian owned medium-sized software company, Graphysoft, which relocated its headquarters from the Netherlands to Hungary. Neither case stirred a public debate.
Act VIII of 2005 transposed 2002 EU Directive (2002/14/EC) on the general framework for informing and consulting employees. It came into force in March 2005. While in Hungary the system of employee information and consultation existed before the implementation of the Directive, certain changes were needed to assure full harmonisation. Since 1992, works councils can be elected by employees at establishments employing at least 51, and a single works representative at employers/establishments employing at least 15; the single representative has the same rights and obligations as a works council. The new Act slightly modified the information and consultation rights of works councils and at the same time extended the rights of company trade unions. (HU0505102F)
Act LXXII of 2005 stipulates the participation of social partners in social security bodies. (HU0512101N)
Labour migration in Hungary is a dual phenomenon. On the one hand, as a new Member State, Hungary is facing transitional restrictions on the labour markets of most of the old Member States, particularly in the main destination countries of Hungarians, Germany and Austria. The government of Hungary is against restrictions arguing that the free movement of labour to the EU countries would not harm their labour market. On the other hand, there is some labour migration into Hungary, the overwhelming majority come from the neighbouring countries, mainly from Romania and increasingly from the Ukraine and Slovakia.
According to survey data, the migration potential is stable, though grew right before and has increased since the accession. Students, persons with higher education and men are more likely to plan to work abroad for a period of some weeks or months. Furthermore, a substantial share of the unemployed and the Roma reported to have considered the possibility of short-term migration. (The share of potential migrants was around 8% of the total migration age population in 2003, and 13% in 2005.) Students, better educated and university-graduated persons are potential labour migrants for a longer period of some months or years, but the Roma and the unemployed do not even hope to work abroad. (The share of would-be long-term migrants was around 6% in 2003 and 9% by 2005). (See: http://www.tarki.hu/kozvelemeny/kitekint/) The data correspond to Labour Force Survey findings.
Hungary has been sending relatively high numbers of posted workers into Germany. In 2004 a scandal broke out when a policing action (under the cover-name SoKo Bunda) against Hungarian firms resulted in criminal charges for breaking German labour market regulations. Although this kind of action to protect the German labour market was not unprecedented, it got the Hungarian authorities unprepared. As a matter of fact, the Germans could not prove any criminal act yet, but some of the Hungarian companies concerned have gone bankrupt.
As for immigration, the government policy has not changed much over the years. Recently, however, growing Slovak labour migration has worried local labour authorities and inspired labour law legislation. (HU0511102F) (The number of work permits given to Slovak citizens was around 2,800 in late 2002, 5,700 in late 2003, and increased to 11,500 by 31 December 2004.) Should an unexpected increase of migration occur, a clause of an international treaty makes it possible for the Hungarian government to introduce quota.
So far no considerable discussion has taken place in relation with the so-called Bolkenstein Directive. The Hungarian government’s position on the EU Service Directive was not put on the agenda at OÉT. None the less in February 2006 Hungarian trade unions marched along with their western counterparts in Strasbourg against adopting the country of origin principle, and consider the obstruction of the liberal Bolkenstein Directive a success.
Corporate social responsibility is mostly discussed in the media and in forums organized by the government and human resources practitioners. In an unprecedented move, in February the minister of employment and labour invited economic chambers, employers’ associations and prominent business leaders to consult on issues related to corporate social responsibility. Otherwise sectoral social dialogue and company level consultations mainly focus on traditional areas of work regulation, and do not directly address the issue.
The various forms of part-time and temporary work have noticeably increased. Many observers note, however, that such atypical work spreads mostly because of the repeated steep increase of the minimum wage.
Act XI of 2005 on the modification of Act I of 1988 on Road Traffic transposed EU Directive 2002/15/EC on the organisation of the working time of persons performing mobile road transport activities and sets further sectoral rules on road transport. (HU0506104F)
All economic forecasts predict a continuing export-based growth of the Hungarian economy and a low, around 2%, inflation rate for 2006. Still, based on the government's current plans, the budget deficit will swell to 6.7 percent next year and 6.9 percent in 2007. None the less, the deadline set by the EU to submit a new conversion program with realistic measures to reduce the budget deficit suggests that following the general elections, due in April 2006, the new government will have to embark on a major economic restructuring program, which will likely affect vital areas of public services. The current political discourse, however, is dominated by election campaigns and the political parties tend to avoid discussing the steps necessary for budget consolidation. This will represent a serious trouble for the incoming government, whose task will be to ensure the meeting of the Maastricht criteria. With hard measures to be made to reduce both the deficit and the debt of state budget, the Hungarian political system will probably face the disappointment of people in the second half of 2006. The obvious question is how the new situation will impact the national industrial relations system. Presumably, the major restructuring measures in the public sector would meet with the resistance of public sector unions. At the same time, the political processes ensuring social dialogue, to a certain extent, also depend on the outcome of the forthcoming elections. The historical experience is that an MSZP led coalition will be able to compromise with unions, while a FIDESZ-MPSZ come-back to government position may stop institution building. In this case, given the highly bipartisan Hungarian political context, the electoral alliance between MSZOSZ and MSZP may negatively affect the stability of the institutional environment. Should the government policy change and no longer treat unions as respectable social partners, the shift in measuring trade union representativity towards membership based calculation may facilitate this process as continuous decline in union membership makes unions vulnerable in higher-level consultative bodies, too. (András Tóth, László Neumann and Ágnes Hárs, Institute of Political Science, Hungarian Academy of Sciences)