Transition  LABOR   

Report on

Employment and The Labor Market in Hungary

by Erzsebet Viszt and Judit Vanyai

in East European economics, July-Aug. 1994, pp.34-53

Wyman Wong

As the years 1990-1991 approached in Hungary both the communist political system and the socialist economic system were coming to their ends. External trade was redirected from East to West,  the process of privatization started, inflation was kept under control,  prices and imports were liberalized.  This all had an impact on the Hungarian labor market and caused rapid increase in unemployment.

The unemployment emerged as early as 1987.  The unemployment rate rose from 1.7% in 1990 to 8.5% in 1991 and 12.3% in 1992. It continued to rise and in January 1993 reached the level of 12.9%. This rapid growth of unemployment was caused by three developments: 1) increase in labor supply due to demographic factors 2) decrease in demand for labor because of the fall of aggregate demand 3) decrease in demand for labor because of the transitional and structural changes

 Part of he increase in labor supply can be explained by the increased share of the population in the age bracket 15 - 29 from 19.9% in 1990 to 20.5% in 1991.  Furthermore, the immigration from nearby countries also caused the increase in labor supply.  National Labor Center reported that the number of work permits issued was 41 thousands in 1991 and 15 thousands in the first half of 1992.

The decrease in aggregate demand which caused a fall in demand for labor, could be explain by the dramatic fall in both exports and domestic demand.

           The rapid growth of unemployment have become the key problem for the economic policy in Hungary. as a result Hungarian Government adopted in 1991 the Law on Employment, which was to promote employment and provide unemployment benefits. The Law stated that the local governments and the representatives of employers and employees should cooperate in order to promote the employment and to prevent unemployment. The state should not be 'responsible' for full employment but should 'assist' those who wish to find work.  The Law established organizations for the promotion of employment and training, as for example two subcommittees of NCRI namely the Labor-Market Committee (LMC) and the National Training Board (NTB).  The LMC is to do preparatory work for all the decisions of the NCRI that are related to employment and the labor market and to make technical arrangements for the operation of the unemployment benefit system.       

 The LMC works closely with the NTB.  NTB can decide on how to use  funds available for training in the training network and  how to operate this network. The capacity of  training centers was 5000-6000 workers per year at first. They "provide intensive, flexible training courses, adjusted to the capabilities and existing qualifications of the participants." The North Hungarian Regional Labor Development and Retraining Center started in October 1991. Currently it operates in Miskolc, Ozd and Nyiregyhaza.  These towns have a much higher unemployment rate than average.

The Law on Employment covered the entire country. It is responsible for the employment policy and for the management of the mass unemployment.

Currently, the employment centers are the most important organizations of the state administration because they control the unemployed and their benefits, and look for jobs and make labor market forecasts. The activities of the employment centers are supervised by the National Labor Center. They also act as a national information centers for the collection and processing of the labor market data.

Furthermore, in order to protect the domestic labor market, the Law on Employment restricts the employment of foreign labor. Foreign citizens have to have work permits in order to be employed in Hungary.  The employment center could refuse to issue a work permit to the foreign laborer if a Hungarian laborer is available for the given job. The employment center had issued 15000 work permits in the beginning of 1992 and their number rose to 18000 at the end of 1992.

  In addition to that, a program to support the unemployed in setting themselves up in the business was created. According to the Law on Employment, the following subsidies are available: 1) subsidies equal to 6 months of unemployment benefits; 2) repayment of 50% of the costs of the needed consulting services, training, and credit guarantees up to 1 year.1000 persons in 1991 and to 6100 in 1992. received these subsidies.

  It is now for the government to from restrictive demand management to more expansionary policies. In order to solve the unemployment problem, the economy has to grow.


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