1. Employment, unemployment, labor market participation – the case of Hungary Zoltán Ádám, zoltan.adam@kopint-tarki.huzoltan.adam@kopint-tarki.hu Kopint-Tárki Institute for Economic Researh, Budapest, Hungary, www.kopint-tarki.huwww.kopint-tarki.hu Webinar on Solutions to High Unemployment January 29, 2016

2. Hungary: a mid-size country in CEE Population aged 16-64: 6,511.8 thousand Employed: 4,221.3 thousand Unemployed: 279.8 thousand Economically active: 4,501.1 thousand Economically inactive: 2,010.7 thousand Participation rate: 69.1% Unemployment rate: 6.2% Employment rate: 64.8% Source: Central Statistical Office (CSO), October-December 2015

3. Main labor market trends 1990-2015 - 1 Dramatic rise in unemployment in the early 1990s due to the transformatinal recession. Significant drop in the participation rate. Early age and disabled retirement used as a social policy tool. Structural change of the economy: dual economy created. FDI- dominated, export oriented manufacturing industries with high international competitiveness and capacity to expand on one hand. Domestically based small and medium size enterprises (SME) with limited competitiveness and capacity to expand on the other one. Weak linkages between the two.

4. Main labor market trends 1990-2015 - 2 FDI-dominated high value added manufacturing industries play an increasing role in production since the mid-1990s. Low labor intensity, high capital and technology intensity. Domestic based SMEs generate limited jobs because of low competitiveness. Large part of unskilled labor become inactive or long-term unemployed.

5. Main labor market trends 1990-2015 - 3 Minimum wage hikes from the early 2000s, pushing low productivity labor out of the formal labor market. High share of economically inactive population gives strong incentives for populist economic policies. Pensioners decide election outcomes. Raising pensions becomes a primary policy tool for buying votes. Low participation rate becomes a heavy fiscal burden and generates social tensions in the second part of 2000s. Fiscal consolidation from 2006, global financial crises from 2008. Policy response: extension of public employment programs, some restrictions on pension benefits - elimination of 13th month pension in 2009.

6. Main labor market trends 1990-2015 - 4 After 2010: Public employment programs become an even more important active labor market policy tool (at some points 200+ thousand). They push up the employment rate significantly with questionable social and economic impacts. Restrictions on social benefits, cut of public employment wage, introduction of flat 16% income tax from the 1st forint of income – a significant hike in the tax wedge of low wage incomes (up to 49% on minimum wage in 2013). Rise in social inequalities. Large wave of outward labor migration. Some employment incentives in backward regions and in case of low productivy labor such as subsidized travel and employment, and reduced social security costs. But the minimum wage rises further.

7. Hungary in regional comparison - 1: Low to medium level unemployment (source: Eurostat)

8. Hungary in regional comparison – 2: Low employment rate with a rise in 2012-14 (source: Eurostat)

9. Hungary in regional comparison – 3: Very low level of labor market participation with a rise since 2009 (source: Eurostat)

10. Hungarian labor market: very high unemployment rate of unskilled labor

11. Hungarian labor market: persistantly high share of long term unemployed

12. Hungarian labor market: rising employment, falling unemployment since about 2012

13. Hungarian labor market: growing labor market participation

14. Hungarian labor market: rising labor market participation and employment rates, falling unemployment rate since 2012 – What is behind?

15. Hungarian labor market: the growing importance of subsidised (mainly public) employment The Hungarian Labour Market - Review and Analysis 2014 Download: http://www.bpdata.eu/mpt/kiadvany Statistical data - Unemployment Last updated: 07. 11. 2014. Table 5.13: The number of registered unemployed a who became employed on subsidised and non-subsidised employment b 200820092010201120122013 PersonsPer centPersonsPer centPersonsPer centPersonsPer centPersonsPer centPersonsPer cent Subsidised employment 118 70334,0170 46440,0198 97438,5282 67348,5261 63150,0359 96260,2 Non-subsidised employment 230 55866,0255 35660,0317 62261,5299 71651,5261 58150,0237 79539,8 Total349 261100,0425 820100,0516 596100,0582 389100,0523 212100,0597 757100,0 a Since 1st of November, 2005: registered jobseekers. From the 1st of November, 2005 the Employment Act changed the definition of registered unemployed to registered jobseekers. b Annual totals, the number of jobseekers over the year who were placed. It reflects the placements at the time of their exit from the registry. Source: NMH.

16. Hungarian labor market: the role of out- migration Difficult to estimate, official data probably under-report it. According to the CSO, in 2013 21,580 persons left Hungary on a long term bases. In 2014 their number was 31,500. This is 46% rise. 44% of out-migrants are under 30 years old. 77% are under 40. 54% are male, close to 2/3 of them single. In 2013 the number of Hungarians who had left the country since 1989 was estimated 350 thousand. Today their number is probably closer to 500 thousand or even more.

17. Hungarian labor market Conclusions (policy recommendations): Low participation rates are difficult to increase without public employment. Unemployed persons are easier to (re-)integrate into the labor market than the economically inactive. High share of inactive population gives strong incentives for populist economic policies. Internationally competitive, technologically advanced manufacturing industries directly generate few new jobs. Linkages between domestic firms and multinationals are crucial. High minimum wages are dangerous for the employment of low productivity labor.

18. Hungarian labor market Thank you for your attention!