A double-digit pay cut could come in Hungary, says the head of Randstad

Randstad is the largest HR provider in the world and in Hungary. Based on your experience, to what extent has the number of jobseekers in Hungary increased in the last month?

Under the European GDPR Data Management Act, we need the approval of our jobseekers every 2-3 years in order to be able to conduct searches for them. The number of these approvals, including new applications, has increased by 50 percent in recent weeks.

The negative effects of the coronavirus pancemic first occurred in tourism, hospitality, and airlines. Over time, however, the adverse effects are spreading more and more onto the economy as a whole. Today, we can see that larger telecommunications companies have also implemented a hiring freeze.

Employers are starting to become too cautious. Such a large-scale shutdown of the labour market and the expected decline in consumption will make a rapid recovery very difficult.

Moreover, the decline in economic performance is now much faster than it was during the 2008 global financial crisis, and it affects several sectors at the same time.

In this very uncertain environment, we can see that workers who previously wanted to change jobs have become much more passive.

In which areas is there a greater wave of redundancies, and in which professions is there a greater interest in the domestic labour market?

In sectors where sales have virtually disappeared, such as restaurants, hotel chains, and tourism-related businesses, redundancies are virtually inevitable. The question in their case is more about how many employees they can keep.

In Germany, the restart of car factories was again postponed for a week, which is not good news for the domestic automotive sector and the related supplier network, where life has also stopped. In addition, companies in the automotive industry, in many cases, use temporary workers, who are laid off fairly quickly in times of crisis. Therefore, the average wage and the number of working hours may also decrease significantly in this segment. In my view, appropriate occupational safety and security measures could contribute significantly to an effective restart later.

There are also setbacks in other sectors: surprisingly, even pasta factories are in trouble. Flour has become extremely expensive, and the price of eggs has risen in the pre-Easter period, while chain stores take over products at a fixed annual price. Therefore, the drastic increase in procurement costs leads to strict cost control. Domestic cake makers have also come under a lot of pressure after demand for cakes has fallen dramatically due to lockdown restrictions.

However, the good news is that production in factories has not stopped completely: the Bosch hand tool factory is still in operation and there is a particularly high demand for Phillips air handling units.

SSC service centres previously outsourced abroad, e.g. to India, have removed some functions back to Budapest. This is because India has introduced strict restrictions that make it virtually impossible to work there effectively. This has some potential for the domestic market. In addition, there is a significant demand for new workers in logistics centres.

For the time being, we do not see a major wave of redundancies in multinational companies. Over the years, profitable and forward-looking companies have built up reserves, making it relatively easier for them to get through the current difficulties for a certain period of time.

On the other hand, the disappearance of coronavirus will not remove long-term demographic constraints. With the restart of the economy, labour shortages may come to the fore again, meaning that companies that can retain their trained, skilled employees will be the winners.

For example, Wizzair does not lay off pilots because the airline previously set up sufficient provisions for unforeseen losses. Small businesses, however, find it harder to finance wages because they usually have more limited financial reserves.

It should also be mentioned that in recent years there have been large companies which have kept their liquidity and cash level low in order to maximize shareholder value. They chose to pay dividends, instead. As a result, some of these large companies may find themselves in a difficult position if the pandemic drags on for long.

To what extent do you think working from home can become widespread due to the pandemic?

One of the benefits of the coronavirus pandemic may be that companies recognize the benefits of working from home.

Working from home may become more common, and, as a result, companies are expected to rent less office space, especially in Budapest. This phenomenon might contribute to the closing of the wage gap between Budapest and the countryside and to the reduction of labour shortages.

The Romanian subsidiary of Amazon.com, for example, has been hiring people for two years so that they can work from home, independently from where they live in Romania. This model is more efficient for the company, but it is also favourable for the employees.

To what extent can salaries change now, and what trend can be expected?

The double-digit wage rise seen in recent years will certainly come to an end. The longer the crisis lasts, the more the workers' bargaining power will diminish.

In the most severely affected sectors, even a double-digit salary decline is conceivable in the next 2-3 quarters. In addition, part-time work may become more and more common. The number of working hours per day can fall from 8 to 6 hours.

However, wage drops may materialize differently in the hardest-hit sectors. For the lowest paid stratum, the temporary decline in salaries can be around 10 percent, while at management level it can be around 20-30 percent. Companies may also suspend the payment of yearly bonuses.

What can we see in regional labour markets? How is labour migration changing?

The return of Hungarian workers from England was previously intensified by the uncertainty surrounding Brexit, and the coronavirus pandemic further accelerated this process. This is because foreign workers are typically the first to be laid off in England.

Many Hungarians are also working in Austria. Many of them can also return home, although Austrian employers are more likely to try and retain Hungarian employees working in hospitality and agriculture so that there would be no shortage in these sectors later.

A large number of guest workers travelled back to Ukraine as the borders were closed. This can lead to labour shortages in several sectors, such as construction, for example. In the longer term, however, after the pandemic subsides, Ukrainian workers may return to Central and Western European countries. It is rather difficult to find a job in Ukraine, as the economy is in a particularly bad state, and the wage gap is huge compared to western countries.

Tourism plays a significant role in Prague. With the freezing of the sector, Slovakian and Ukrainian workers will also return home from the Czech Republic.

How much do you think the economic protection measures announced so far can help? Do you have any suggestions?

Randstad Hungary has forwarded its proposals to the ministry, so they are available to the government. In my opinion, jobs must be protected at all costs, that is, we must ensure that employers retain their employees. Further steps will be needed in this area.

New job protection measures will probably have to be introduced, and it would be important for the details of the current economic protection package to be made public as soon as possible.

It must be understood that it is extremely hard to create as many jobs as have been lost. In many cases, it is difficult to train employees and the willingness to learn is also low. In recent weeks, about 20,000 construction workers have left the country, and there has also been a shortage of seasonal workers. Vacancies in the construction industry can hardly be filled with waiters.

By comparison, in England, the Netherlands and Italy, the state takes over part of the salaries of workers in difficulty. In Romania, parents raising a child under the age of 12 receive 70 percent of their salary if they stay at home, as it is not advisable for grandparents in the vulnerable age group to look after their grandchildren.

On the other hand, I consider it a positive and important measure that in Hungary, those who are on unpaid leave will also keep their social security status.

It is extremely important to point out that due to the increased uncertainty many businesses are withholding payments to partners. As a result, circular debts can develop and the supply chain may start to falter over time.

A solution to this problem needs to be found relatively quickly. The state loan scheme can help, though the question is whether these loans will be accessible by SMEs.

Can you see how many businesses are opting for the reduction of working hours or wage cuts?

With the exception of the food industry, more and more companies are introducing reduced working hours. In fast food chains, hotels, event management and marketing companies, advertising or sales agencies, working hours are typically reduced from 8 hours a day to 4-6 hours.

In addition, the most severely affected companies decide on double-digit pay cuts or sending employees on leave for accounting reasons in order to be able to avoid making employees redundant.