About the ILO in Hungary

High growth rates might resume, but key labour market and social policy challenges remain

Hungary began the transition to a market economy with some advantages over other Central European economies, with higher living standards and a more pragmatic economic policy initiated already before the fall of the Iron Curtain. After the regime change, the country took on the transformation of its economic system. An important milestone was the EU accession in 2004, which further accelerated economic convergence.

However, the catching-up process is slower than in other Visegrad Group (V4) countries. While Hungary’s per capita income was at 43% in 1991, in 2020 it was at 74% of the EU average, lower than in other V4 members. Its GDP growth rates (5% in 2018 and 2019) were among the highest in the EU before the Covid-10 pandemic, mainly driven by private consumption, investments (particularly in manufacturing), and EU funds. Hungary’s high integration in global manufacturing value chains led to a deep recession in the first year of the pandemic (-5%, 2020), but supports the recovery in 2021 because of the fast growth in global trade.

The strong pre-pandemic growth coupled with ongoing labour emigration and a quickly aging society lead to full employment in Hungary. Employment rates are slightly higher than the EU average at 75%. The unemployment rate of 3% in 2019 was far lower than EU average and increased to 4% in 2020 due to the pandemic. Apart from the introduction of a short-time work scheme with limited coverage and some other measures, Hungary spent less than other high-income countries to protect jobs during the pandemic. According to ILO estimates, 5% of all working hours in 2020 were lost due to Covid-19 restrictions (EU: 8%), which is the equivalent of 224 thousand full-time jobs. However, the loss in working hours does not automatically lead to the same reduction of employment as working-hour losses can include shorter hours, being employed but not working, unemployment, and inactivity. The employment losses in 2020 were marginal in comparison to the previous year and it seems that most employers tried to keep their workforce.

The most burning labour market challenge remains the shortage of labour, especially as the economy and the labour market seem to recover relatively quickly from the recession. Policy responses to the labour shortage focus on prolonging working lives and working hours. Recently, Hungary has also began granting more and more short time working visas to foreign workers, while restrictions on the employment of foreign citizens were relaxed.

Other key labour market challenges are the considerable gender employment gap (83% male employment rate vs 67% for women), the regional and ethnic dimension of unemployment (higher unemployment rates in the North of the country and among the Roma) and the relatively high rate of young people not in education, employment, or training (NEET) at 12%.

The tight labour market is fuelling real wage growth. After years of moderation, wage growth has been accelerating sharply since 2017 with increases of 15 to 20% depending on the sector. Even 2020 saw some real wage growth at 1.9%. Nonetheless, average hourly wages in euro terms stood at just one-third of the EU average in 2018, and at 60% after adjusting for differences in price levels. Hungarian wages remain among the lowest in the EU. 

A key challenge of social policies before and during the pandemic has been the missing adequacy and low coverage of social assistance and unemployment benefits. The duration of unemployment benefits is the shortest in EU at max. three months. Active labour market policies mostly focus on public works programs that do not have a strong track record in reintegrating unemployed in the labour market. Income inequality still remains below EU average but has been rapidly increasing during the last decade.

The ILO in Hungary

Hungary is a member state of the ILO since 1955.

The ILO has assisted Hungary in its economic and labour market transformation and in its accession to the EU in 2004. Main areas of work included establishing and strengthening social dialogue and tripartism and examining the effects of privatization and transition, supporting the development of new active labour market programmes including vulnerable target groups, modernizing labour legislation, adopting international labour standards, and supporting pension reform and a sustainable social security system.

Currently, there is no cooperation with ILO constituents in Hungary. However, Hungary has been hosting the ILO Office for Central and Eastern Europe for more than 25 years. The office opened in Budapest in 1993.

Text last updated 8/21.