How much can the minimum wage rise in Hungary next year?

English2020. dec. 7.Növekedé

According to employer representatives, companies are not in a position to pay a higher minimum wage from January 1, while employee representatives are interested in an increase of over 3.5 percent, i.e. an increase in real earnings; it was revealed at the national minimum wage negotiations. Növekedé asked representatives of both employers and employees about the possibilities of pay rises.

National negotiations on the 2021 minimum wage and guaranteed wage minimum had begun at the Permanent Consultation Forum of the Competitive Sector and the Government on 28 October, but the social partners had not yet brought exact figures to the table at that time. On 24 November, however, both sides brought forward their proposals. In view of the importance of the topic, the session was also attended by László Palkovics, Minister of Innovation and Technology,

This year the gross monthly minimum wage is 161,000 forints (447 euro), while the guaranteed gross wage minimum (minimum wage for skilled workers) stands at 210,600 forints (585 euro).

After the negotiations Melinda Mészáros, president of the Trade Unions Liga told növekedé that employee representatives are interested in raising the minimum wage in excess of the real wage growth, considering the changes in average wages and the purchasing power of incomes. It was emphasized at the meeting that wages in Hungary should be competitive and comparable to those in neighbouring countries, because after the pandemic is over we may have to face a situation again where workers find employment abroad because of the significant gap in wages.

Is wage growth a reality now?

However, according to Ferenc Rolek, vice-president of the National Association of Employers and Industrialists (MGYOSZ), in the current situation we must keep our feet on the ground. In 2020, the growth of the minimum wage was completely disconnected from economic processes, because companies were not able to produce the resources for this wage growth. The 8 percent wage increase was, of course, implemented due to the legal obligations, but "this should be taken into account when we talk about next year," Mr Rolek pointed out.

He explained that employers suggested considering the possibility that

due to the uncertainty of the current situation the wage increase should not start from January, but they should come back to it later in the year, when a clearer picture emerges of the potential protection the coronavirus vaccine may provide.

Considering the current conditions and forecasts, we do not see a realistic basis for a minimum wage rise from January 1

he said, and added that this could change, however, if the government takes steps to reduce contributions, although no such plans have been revealed.

Compensating for inflation

Melinda Mészáros also indicated that they had asked the government for additional information on further potential tax and contribution cuts affecting businesses. When asked about the expected inflation rate they based their background calculations on about the preservation of real earnings, the Liga president explained that the forecasts of economic researchers and the Hungarian National Bank (MNB) differ. The latest forecast by MNB predicted 3.4-3.6 percent inflation for 2020. She also said that, according to forecasts, after this year's decline, GDP and labour productivity growth can be expected next year, which can offer businesses some hope.

We cannot accept a decline in real earnings either in terms of the minimum wage or the guaranteed wage minimum

the president of Liga stressed. Ms Mészáros added that quite a few companies had already succeeded in reaching wage agreements for 2021, and in some cases even a double-digit increase was possible.

Wages are also rising in sectors which have been hit hard by the coronavirus, such as the car industry, automotive suppliers, the processing industry, construction material manufacturers, and the electricity industry.

In addition, there is typically a significant amount of overtime in these industries at the end of the year; this tends to be the case now as well, which shows that production has returned to pre-Covid levels or higher in many supplier companies. There are huge differences in the situation enterprises are facing now, but it was similar in previous years. Obviously, the current economic turmoil has not improved this, but during the minimum wage negotiations we can take into account the average, Melinda Mészáros emphasized.

At the same time, Ferenc Rolek said in connection with this that there are few companies that can offer a raise, and in companies where an agreement can be reached now, they have a better insight into their business opportunities. He added that, for example, it appears that after a few months of decline after March, the car industry has bounced back by now.

We must not forget that this crisis is affecting each industry and each company to varying degrees, so it is hard to speak about an average

while the minimum wage equally applies to all companies.

Small and medium-sized enterprises in Hungary are affected more negatively than, for example, a multinational company in the automotive industry, Ferenc Rolek added. The vice-president of MGYOSZ did not rule out a retroactive pay rise if the agreement about the increase was only reached at a later date during 2021. The next round of talks is due on 8 December.

Employer surveys - There is little room for wage increases

At the end of October, employers' associations sent out questionnaires to member companies to survey the impact of the coronavirus on their activities and business in general; to what extent they had to cut back on their activities, how much their revenues fell, whether they had to reduce headcount and what concept they have regarding pay rise. Növekedé asked the leaders of MGYOSZ and the ÁFEOSZ-COOP Federation (Hungarian National Federation of Consumer Co-operative Societies and Trade Associations) about the details of the survey results.

The decline is perceptible, recovery is slow, the situation is stagnant in many businesses, and there is a lot of uncertainty about 2021

 this is how Ferenc Rolek summed up the responses of 500 companies.

He explained that 60 percent of companies reported that they were significantly affected by the economic downturn caused by the pandemic and their sales had decreased or had significantly decreased compared to 2019. Roughly half of the companies indicated that their sales had still not returned to pre-epidemic levels.

What’s even sadder is that there is a great deal of uncertainty: about a quarter of the companies envision further decline in their own business in 2021

Ferenc Rolek said, adding that one-third of the companies couldn’t foresee what would happen to them next year.

A significant number of companies have been forced to lay off this year; at the same time companies undoubtedly tried to do everything they could to keep their staff: 60 percent of them did not downsize, the vice-president emphasized.

On the outlook for 2021 Ferenc Rolek said: 10 percent of businesses are confident that they can increase headcount, nearly 40 percent can’t respond, and almost half of the companies already know they won’t be able to take on new staff.
As for wage increase plans, he explained that one third of the companies are not planning any, and almost a quarter will decide later but say they would certainly not raise from the beginning of the year. So although approximately half of the companies are not willing to raise wages, they will comply with the increase in the minimum wage, if needed. The proportion of companies that are definitely planning to raise wages is very low.

We will certainly be very careful and restrained

Ferenc Rolek said when asked about what proposal the employer representatives will bring to the table at the negotiations on November 24.

He stressed that before we talk about what wage rise is possible for 2021, the two-year wage agreement for 2019-2020 should be reviewed first,

as the economic conditions at the time it had been negotiated - inflation, productivity taxes, contributions, economic growth on the basis of which the agreement on the 8 percent increase for both years had been made turned out to be much more unfavourable in 2020 due to the coronavirus. This means that “the economy did not produce the financial resources needed to raise the minimum wage”, while companies had to adhere to the legal obligation to pay the increased minimum wages, Ferenc Rolek said.

Businesses do not rule out wage review later in the year

President of the ÁFEOSZ-COOP Federation, Zoltán Zs. Szőke emphasized: through their member companies they mainly see the situation of medium and large food trade enterprises; which altogether employ more than 30,000 people. More than half of respondents said that if the year ends successfully, their annual retail sales will increase by about 5 percent.

The companies indicated that although there was a slow improvement in turnover, they have not yet reached the pre-Covid level, Zoltán Zs. Szőke explained; adding that companies see a great deal of uncertainty regarding their market position, and in 2021 everything will still depend on how the epidemic progresses.

When asked if they had made people redundant in 2020, most companies claimed that there was a very low headcount reduction of about 5 percent during the epidemic, and most companies continued to work with the 2019 headcount. As far as next year’s headcount is concerned, most companies do not yet see how the future develops.

Regarding the outlook for wage increases in 2021, the majority of companies said they are not planning to raise wages, and those who are, can only raise up to the inflation rate, but of course all companies will adhere to the agreement of the national minimum wage negotiations. 

50-80 percent of workers in companies surveyed by the ÁFEOSZ-COOP Federation earn a guaranteed wage minimum; while about 10 percent of all employees earn a minimum wage, but the proportion of these workers is shrinking, the president said.

Zoltán Zs. Szőke also emphasized that employer representatives must first thoroughly analyze this year's situation, because for 2020 they made a “commitment that, as it turned out later, had no economic basis, as a pandemic broke out and many companies and sectors got into a difficult situation”. According to the responses, companies do not rule out reviewing the issue of wage increases later during the year depending on the economic situation, he added.