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Since the late 1980s, the Hungarian construction sector has undergone major changes, which have been accompanied by the emergence of a fragmented and decentralised industrial relations system. However, current efforts to develop a meaningful social dialogue at the sectoral level have already resulted in a new initiative to negotiate over a multi-employer collective agreement, and might lead to sector-level representative bodies on both sides gaining strength. This article examines the development of industrial relations in construction and the situation in 2002.
The European Commission has recently financed a project on Industrial relations in the construction sector in CEE states. Here we summarise the key points of the study on Hungary, which was prepared by László Neumann and András Tóth, in cooperation with Linda Clarke.
In the early 1990s, the Hungarian construction sector underwent a major crisis. As state-financed major construction projects were stalled, practically all state-owned construction enterprises, employing about two-thirds of all employees in the sector, were privatised or closed down between 1989 and 1994. The largest companies were acquired partially or fully by foreign investors and a few, together with former cooperatives, came to be practically owned by the management. At the same time, the small and medium-sized enterprise (SME) part of the industry grew, so that by 2000 there were 29,370 active firms in the sector.
This 'transformation crisis' was followed by a rapid recovery: since 1998 output and employment in the Hungarian construction sector have been growing steadily. In 2001, the annual growth in output was 10% and the contribution to GDP 10%-11%, and this trend is forecast to continue. Public infrastructure investments and a new housing policy supported by the government and banks through subsidised loans have contributed to the recovery.
The 2001 Labour Force Survey reported 268,068 construction industry employees, including small firms' employees, self-employed and casual workers. The overwhelming majority of construction employees are men. In 2001, however, the Hungarian Statistical Office registered only 117,600 full-time construction employees in firms employing at least five people. Despite the spectacular growth in output, statistically registered employment grew by only 1% in 2001 compared with 2000. In the industry, there were 89,000 blue-collar and 28,600 white-collar employees. In construction, the share of fixed-term employment contracts was a relatively low 12%, though higher for semi- and unskilled workers, at 15% and 25% respectively. In 2001, there were only 4,000 part-time employees registered. In 2001, the monthly average wage was HUF 99,003. Nonetheless, there was a wide gap between the average pay of white-collar and blue-collar construction workers: the average monthly pay of the former group was HUF 190,083, while of the latter only HUF 68,508.
Large firms now contract out an increasingly large share of their work and maintain only white-collar staff and some highly skilled workers. One of the results of this reorganisation process is that most firms are small, with only 195 employing more than 300.
Finally, self-employed workers constitute an important category. Some 42,000 self-employed people hold licences in the construction trades. Most of the self-employed and SMEs report paying only the national minimum wage, but undeclared additional payments are widespread.
Construction is a major source of illegal employment, usually in SMEs. The labour inspectorate and trade unions are virtually unable to supervise and control the terms and conditions of employment. According to well-informed sources, there are about 200,000 informal employees at construction sites, whose daily wage rate in 2002 on the clandestine market is around HUF 3,000. Many construction workers are also known to be working in the informal labour market, especially in housing construction. Indeed, construction workers working two or three weekends per month can thereby earn as much as half of their monthly earnings in formal employment. The role of migrant workers, especially of ethnic Hungarians from Romania and the Ukraine, has been covered extensively by the media.
In the early 1950s, during the Stalinist reorganisation of trade unions, a centralised sectoral union for the construction sector was set up, alongside which no other union was allowed to exist. Centralisation went together with the creation of unified company-based union sections, which all employees, including managers, were required to join. These local unions provided social services to employees financed from the company social fund, and collected union fees, which were partly redistributed in the form of various social benefits to members. Their role was also to ensure that the company met its production plans, and until 1967 they had no right to conclude collective agreements regulating the terms and conditions of employment. Later on, company-level agreements were supposed to harmonise legal requirements to particular local conditions.
On the employer side, three sectoral business associations were created, encompassing all state-owned companies, construction cooperatives and private crafts workers respectively. Besides representing the interest of their members, these organisations also performed a number of delegated government functions. During the state-socialist regime, however, there existed no bargaining relationship between these associations and the trade union.
The National Federation of Hungarian Contractors (Építőipari Vállalkozók Országos Szövetsége, ÉVOSZ), the largest employers’ organisation, was formed in 1989 out of the organisation covering the state-owned construction companies. Its current membership is made up of about 500 companies, ranging from the most prestigious contractors to small enterprises. ÉVOSZ also has a number of subsectoral associations. The other major employers’ organisation in the industry, the construction section of the National Federation of Craftsmen Boards (Ipartestületek Országos Szövetsége, IPOSZ), is the heir of the state socialist representative body for the self-employed and SMEs, a profile that it maintains.
Both employers' organisations have reformed themselves into autonomous and voluntary associations. IPOSZ, representing SMEs, has, according to estimates, 17,000-18,000 members in the construction trades. It is estimated to have about 10% to 15% of the self-employed among its members. The two organisations organise only a minority of the sector's 23,000 enterprises and 42,000 self-employed. Nonetheless, ÉVOSZ, by representing the interests of the major companies, represents the bulk of industry capacity. These employers’ associations define their major role as that of lobby organisations generally representing business interests and providing services to their members. The voluntary nature of employers’ organisations and the lack of commitment to controlling wage competition between companies means that neither association has a mandate to conclude collective agreements.
In addition, Chambers of Industry and Commerce were set up in 1994, originally with compulsory membership, to which a number of public administrative functions were delegated. In 1999, however, their statutory status was revoked and they have consequently become relatively minor voluntary business associations offering their members trade services and economic interest representation.
During the 1990s, construction workers' trade unions went through a major fragmentation and membership losses. There are now two main construction sector union federations, set up in the early 1990s and existing as loose umbrella associations of subsectoral, regional and company-level unions. The subsectoral and regional associations themselves, in turn, are loose organisations of company-level unions.
Company-level unions are autonomous legal entities with their own assets and they pursue autonomous policies on behalf of their members. Company-level unions have practically retained their exclusive bargaining rights at the company level, and have statutory information and consultation rights. Company unions pay the federations only a small fraction of their membership fees. As a result, federations have very small staffs and are barely able to provide guidance, expertise and services to their members, and their financial survival practically rests on renting or selling facilities. Generally, company unions exist only in major firms, where they organise on average one-third of employees. In most large firms where a union exists, a relatively cooperative relationship has developed between local unions and the management. Unions possess, however, weak institutional anchorage in handling individual grievances or assisting in the training and specialised training of employees.
The largest sector-level union is the Federation of Building, Wood and Material Workers’ Unions (Építő, Fa- és Építőanyagipari Dolgozók Szakszervezeteinek Szövetsége, ÉFÉDOSZSZ), which has about 13,000 members, and is subdivided into nine fairly autonomous subsectoral or territorial federations. ÉFÉDOSZSZ belongs to the National Association of Hungarian Trade Unions (Magyar Szakszervezetek Országos Szövetsége, MSZOSZ) and is the successor organisation of the former state-socialist sectoral union, which had a membership of 400,000.
The other sectoral federation is the National Association of Construction Workers’ and Other Affiliated Unions (Építőipari és Társult Szakszervezetek Országos Szövetsége, ÉTVOSZ), belonging to the National Federation of Workers’ Councils (Munkástanácsok Országos Szövetsége, MOSZ). ÉTVOSZ has 5,000-6,000 members, of whom only about 2,000 are employed in the construction industry. Negotiations are presently taking place to amalgamate ÉTVOSZ with a handful of workplace unions in the construction industry that belong directly to MOSZ.
According to trade union sources, the two federations’ combined union membership is 15,000 employees, which is about 13% of all full-time construction employees in companies employing at least five people. Union density, however, continues to decline due to the ongoing decentralisation of the industry.
At the sector level, a voluntary framework multi-employer agreement was concluded for the construction sector between ÉVOSZ and ÉFÉDOSZSZ in 1992. This covered, however, only a handful of companies that joined voluntarily and was never extended to the whole sector. The sectoral framework agreement contained a detailed wage-tariff system, supplements for overtime, night and shift work, dangerous work, and payment for idle periods such as those on account of winter weather. This agreement was terminated in 1994. The employers’ side walked away from any negotiations and the union side was unable to put pressure on companies.
However, the ÉVOSZ employers' organisations has recently approached trade union federations to begin a new round of bargaining and both sides would support the extension of a new agreement to the whole sector. The planned agreement is expected to go beyond the mandatory minimum standards and to define a wage-tariff system again, with a view to curtailing the use of informal practices. One problem in achieving this is that within ÉVOSZ the major companies, which tend to pay higher wages and offer better conditions, do not have the power to impose their will on SMEs. Furthermore, major companies are afraid of signing an agreement that sets stricter conditions for them without making sure that the agreement will become compulsory for all competitors through extension. On the other hand, unions have only weak powers to enforce acceptance of the agreement by non-adhering companies.
The fairly decentralised nature of the social partners is the main, but not the sole, cause of the decentralised collective bargaining system in the industry. One of the obstacles to reaching sectoral collective agreements is that there is a mismatch in the organising fields of the sectoral and subsectoral structures of the social partners. For instance, the Wood and Furniture Manufacturing Workers’ Union and three territorial union federations, all member organisations of ÉFÉDOSZSZ, have no matching partners on the employers’ side, while some of the subsectoral associations of ÉVOSZ, like the Section for Enterprises Manufacturing Aluminium Doors and Windows do not have matching union partners.
A further hindrance to sectoral bargaining is that only a minority of companies – although possibly the largest ones – which belong to employers' organisations are unionised. Thus, unionised companies face considerable resistance within their own employers` organisations from non-unionised companies when they mount pressure to conclude a collective agreement to regulate wage competition between companies. Moreover, the widely different positions of companies has led to great variations in agreed wage scales across companies, rendering agreement on any industry-level basic wage very difficult. The differentiation in wages across companies also reflects restructuring and the scope of outsourcing, especially of low skill intensive activities.
The major form of bargaining, therefore, continues to be the company-level one. The number of companies with agreements has decreased to about 50. These companies, however, are the major actors in the industry, employing about 16,000 people. Most of these agreements do not stipulate considerably more favourable conditions than set by legal regulation. Stipulations on wages are to be found in 34 agreements only, and detailed wage tariff rates in 15 cases. In general, company-level agreements regulate only minimum rates for major categories of workers, such as unskilled, semi-skilled, skilled and various white-collar grades. For example, at one company the collective agreement sets a HUF 300 per hour (HUF 51,600 per month) minimum wage for unskilled manual workers, which is only slightly higher than the national minimum, and HUF 380 per hour (HUF 65,360 per month) for supervisors/'masters'. Real wages, however, are much higher than the stipulated minimum. At this particular company, the actual average hourly wage, including bonuses, was about HUF 666 per hour (HUF 114,552 per month) in 2001.
Company collective agreements deal excessively with various wage supplements, typically rewarding extra work efforts and hardships in working conditions. Some also contain regulations concerning the system of payment by results and lump-sum payments for exceptional cases. A special daily supplement also applies in the construction industry for periods when workers are separated from their families, when the site is no longer within commuting distance. Most notably, there are supplements for bad weather. The wage for idle periods is the same as in other industries and is generally 65% to 80% of the basic wage, but at least the minimum wage. Some agreements stipulate that such an idle period can be applied in wintertime (15 December to 15 March) or that employees have to take their annual paid holiday whenever work is slack. Generally, only permanent employees are eligible for wages during idle periods. Various fringe benefits can form a significant part - about one-third - of the monthly wage packet.
No strike has taken place in the construction sector since 1989, a factor attributable to the crisis in the industry and the pressure on trade unions because of illegal employment. The relatively cooperative nature of workplace-level industrial relations has also contributed to the lack of industrial action in the industry.
In 1990, the Ministry of Construction ceased to exist and its portfolio was divided up between various ministries. There is, therefore, no single government partner to facilitate the development of a sectoral policy, though the social partners consider the Ministry of Economy and Transport (Gazdasági és Közlekedési Minisztérium, GKM) to be mostly in charge.
Currently, a major programme is taking place to develop an autonomous social dialogue in 21 different sectors, hosted by the Ministry of Employment and Labour (Foglalkoztatáspolitikai és Munkaügyi Minisztérium, FMM) and sponsored by an EU Phare project. The construction industry is likely to be among the first sectors where joint sectoral committees will be set up. The social partners have high hopes that this forum will provide new opportunities to develop a meaningful social dialogue as well as to represent the business interest of the industry. Trade unions in particular expect that this social dialogue might lead to the renewal of collective bargaining at the sectoral level.
Trade unions and employers’ organisations in construction are largely based on the 'path-dependent' structures which used to exist under the state-socialist system. These organisations have gone through a democratisation process, and now they are independent, autonomous and voluntary bodies.
The main problem, however, is the weakness of the sectoral-level institutions. Both unions and employers’ organisations have a relatively weak presence in the industry. The fragmented and decentralised nature of trade unions and employers' organisations, the weakness of the union side in terms of putting pressure on employers across the sector, and the internal conflict of interest between large and small companies have inhibited joint initiatives beyond company level.
The current efforts to develop a meaningful social dialogue at the sectoral level might lead to the re-evaluation of sector-level representation on both sides and to the signing of a renewed sectoral agreement. Also, it might result in the development of joint lobby actions and perhaps provision of social services at multi-employer level. Nonetheless, both trade unions and employers’ associations should find a solution to reinforce their presence in the sector and develop a more coherent organisation in order to be able to provide more services and more efficient representation. (László Neumann and András Tóth, Institute of Political Science, Hungarian Academy of Science)