Situation of the Hungarian labour market

1. Situation of the Hungarian labour market Mariann Rigó Ministry of Finance, Hungary Economic Research Division Department of Economic Policy

2. Main problems of the Hungarian labour market • Low level of employment • Low activity rate • Deep regional divide within Hungary • Low mobility of labor • Underdeveloped adult education system Ministry of Finance, Hungary, Economic Research Division

3. Employment, activity, unemployment • The employment and activity rates are low compared to the average of EU-25. • In 2004, 60.6% of the working age population (15-64 years of age) was active, out of which the employment rate was 56,8%. • Activity rate is especially low among the 55-64 year age group (25%) which is below the EU average (41%) and the Lisbon criterion (50% by 2010) as well. Participation rate of the age 15-64 population, 1992-2004 employment, % activity, % unemployment rate, % Ministry of Finance, Hungary, Economic Research Division

4. Male activity rate by age group Increase of the activity btw 1998-2003 Fall in the activity btw 1992-1998 Ministry of Finance, Hungary, Economic Research Division

5. Changes in employment, unemployment and non-participation by age group, 2000-2003 (Kézdi, Horvath, Hudomiet, 2005, Labor Market Trends 2000-2003, TÁRKI Social Report Reprint Series, No.11) • Most affected: the youngest and the older age groups • Activity rate of the youngest age group decreased from 1999 to 2003 (rise in education, which is motivated by high wage returns, problem of overeducation – Berde, 2005 and Kézdi, 2005) • In the older age group a slight increase was experienced, which is primarily due to the statutory increase of the retirement age Ministry of Finance, Hungary, Economic Research Division

6. Activity of population aged 55-59 has increased with rise in retirement age Ministry of Finance, Hungary, Economic Research Division

7. The activity rate of the 55-64 year old group – international comparison Ministry of Finance, Hungary, Economic Research Division

8. Reasons behind low activity rates in old age • Structural reasons: mismatch of demanded and supplied level of qualification (scope for retraining), low participation rate in retraining programs (Berde, 2003) • Low qualifications • Low demand for older workers • High unemployment • Pension receipt (old age and disability) • Poor health Ministry of Finance, Hungary, Economic Research Division

9. Regional disparities in employment: between the two groups of regions no sign of convergence can be detected (Kézdi, Horvath, Hudomiet, 2005, Labor Market Trends 2000-2003, TÁRKI Social Report Reprint Series, No.11) Ministry of Finance, Hungary, Economic Research Division

10. Regional disparities in the unemployment rate – slight decrease Central-H. Central-Transd. Western Trans. Southern Transd. Northern H. Northern G.P. Southern G.P. Ministry of Finance, Hungary, Economic Research Division

11. Regional disparities of income – slight decrease after 2000 sdfg Central H. Central Transd. Western Transd. Southern Transd. Northern H. Northern G.P. Southern G.P. Ministry of Finance, Hungary, Economic Research Division

12. Low mobility of labour force • Hungarians are among the least mobile of the workforce of 21 advanced or transition economics (Blanchflower, 2000) • Migration out of poor regions may be low because of the high fixed costs of migration and the different mix of demand and supply. • Demand for unskilled labor has been declining. Ministry of Finance, Hungary, Economic Research Division

13. Number of employed persons by qualification category, 1993-2003 Secondary final exam Skilled worker Grade 1-8 Higher education Ministry of Finance, Hungary, Economic Research Division

14. Number of students in adult education by level of training (thousand persons) and their proportion within the 20-54-year-old population (%) (Scharle, Á., 2003, Competitiveness and the Labour Market, Ministry of Finance, WP 4) • The ratio of students participating in adult education increased from 2 to 5% in ten years. • The ratio of companies organising professional further training is low compared to the EU and CEE countries as well (EBRD survey: 12% - Hungary, 42% - Czech Rep., 16% - Poland, EU: 15-61%) Ministry of Finance, Hungary, Economic Research Division

15. Difference of annual productivity and real wage changes in the countries of the region • Hungarian labor productivity is half of the Austrian level, but its growth has been continuously high since 1995. • Within CE it is preceded only by Slovenia. • Poland and Slovakia have also produced a dynamic productivity growth, but its rate has been decelerating in recent years. Hungary Slovakia Poland Slovenia Cyech Rep. Ministry of Finance, Hungary, Economic Research Division

16. Possible solutions • EU-15 experience suggests that only a combination of supply and demand side measures is likely to be effective • Hungarian data suggests that policies should target the prevention of early exit • Tightening of eligibility rules for pensions • Incentives for employers to hire old age and low skilled workers and spend on training and retraining Ministry of Finance, Hungary, Economic Research Division

17. Thank you for your attention!