Is unemployment in Hungary dramatic or something wonderful happened to it?

One camp claims that by the summer the number of employees was back at almost the same level as before the crisis, and the rate of unemployment hardly rose. The other camp argues that the numbers are reminiscent of those in the global economic crisis in 2008-2009. They can all cherry-pick the data they like and which underpin their claims, while the useful thing would be if the figures actually showed a state that is at least close to reality amidst the coronavirus crisis. 

This situation makes macroeconomic analysts upset a lot of times for the contradictory numbers make it explicitly hard for them to analyse economic processes and come up with accurate forecasts. That is why we have decided to delve into various data sources, scrutinise them and show what is really going on in Hungary on the labour market. 

Let's see some facts, shall we?

• The Central Statistical Office (KSH) conducts and publishes the results of a (sample-based) labour force survey (LFS) every month. The latest one showed that the number of employees in Hungary was down by 38,000 in June compared to the same month of 2019. This is not a dramatic decline, as the number of employees fell by less than 1.0%.
• LFS data also showed that the number of unemployed people grew by 92,000 (to 240,000) in the reporting period. 
• An administrative data collection by the KSH (at companies employing at least five persons, in the public sector and at non-profit organisations) showed that there were 192,000 fewer employees in June this year than in the same month of 2019. This, however, is already a significant decline in employment. 
• According to data by the National Employment Service (NFSZ), the number of registered job seekers grew by 128,000 in annual terms to 376,000 in June.

So we have three data sources, one of which (LFS) showed a marginal yr/yr loss in respect the number of employees, while the other two (adminstrative data, NFSZ) paint a gloomier picture. The difference between the figures may have to do with methodological factors as well, but it could have been easily caused by the unique nature and rapidness of the shock. 

Debunking a myth

The easiest myth to debunk is the one that draws the conclusion from the number of employed people that the crisis in Hungary is already over. A lot of people compare the June-July data to January-February employment, which is ill-advised. There are strong seasonal effects at play on the labour market. More people work in tourism and catering in the summer, while there are fewer housing or road building projects in the winter, and such factors have an impact on the level of employment. There were close to 4.46 million employed people in Hungary in June, the same level as in "pre-crisis" January. 

That is why the data need to be adjusted seasonally. Seasonal volatility is clearly strong and the loss of jobs is substantial compared to the same period of the previous year. On the whole, the worsening trend in employment figures that started in March did stop but the losses are undeniably there. 

The other data source (administrative figures) shows an even greater decline:

Only a few tens of thousands should be hired?

The labour force survey shows that the loss of labour force was not dramatic, while the administrative data collection shows that nearly 200,000 people would need to find employment. The LFS has no strict criteria as to who can be classified as an employee, as if you work one hour a week and make some money with it you fit the bill right away. This makes us suspect that some are classified as employees even if they are not actually employed or run a business. The LFS also includes Hungarians that have worked abroad for a short period and those employed in public works, but when we adjust the figures for these it also becomes clear that the pre-ciris employment level is not far, yet a couple of tens of thousands of jobs have indeed been lost (orange dotted line). 

LFS also covers underemployed people (who would work more but don't have the chance) and their numbers remained fairly unchanged over the last few months compared to pre-crisis times, hovering between 30,000 and 40,000. So this does not explain the questions raised in respect of the number of employees and labour structure. We should also note that while the number of underemployed people did not grow by hundreds of thousands, more than 200,000 people who had been employed in full-time jobs before ended up in the wage support scheme ('Kurzarbeit').

200,000 people more should be employed then?

Let's focus on our administrative figugures now. These show that the number of employed people declined from 3.2 million in June by 192,000. Also, let's take a look at their working hours. The nearly 200,000-strong erosion was the result of a drop in the number of full-time employees by 335,000 yr/yr, and a growth of 142,000 in the number of those working at least 60 hours a month but not in full-time jobs. This is not a surprise given the 'Kurzarbeit' programme. According to the administrative data reporting, these people make up the group of employed people. 

In the meantime, the number of those working less than 60 hours a month (15 hours a week) went up by 30,000 to over 100,000, while institutional statistics does not regard them as employed, while a few months ago they almost certainly had (full-time) jobs. The LFS, however, classifies even these people as employed, as they make income by working at least one hour a week. This also shows the huge difference between the two indicators/methodologies which not only affects the number of employed people in the statistics but it also has a significant impact on how the trend of employment changes. 

A lot of those recently sacked were unable to secure new jobs at once

Now, let's take a closer look at data provided by the National Employment Service (NFSZ) that counts registered job seekers. For the sake of comparison, here's the brief 2020 history of employed people and job seekers. There were 376,000 registered job seekers at the end of June this year, 140,000 more than at the end of 2019, while the stats office's administrative data show a loss of 190,000 jobs for this period. These gap between two figures is not that wide, particularly if we take into consideration that 30,000 members of the latter group actually work, only not a lot (less than 60 hours a month). 

Although not everyone losing their job register at the NFSZ, it is clear that administrative data collection does not encompass every employed people. For instance, it does not cover the employees of companies with staffs smaller than five persons and the self-employed. And small businesses have been hit just as hard by the coronavirus pandemic as their larger peers. A lot of them had to close shop temporarily which means their employment numbers also slackened. In other words, the loss of 190,000 jobs is a best case scenario, a low-end estimate, which means that more employees than that lost their jobs. So, how many are we talking about exactly then?

Natural fluctuation and crises

As we have written above, the number of registred job seekers rose by 128,000 yr/yr to 376,000 in June. Between February and June, almost 300,000 people signed up as job seekers at the employment service, which means that more than half of them (170,000 people) found some kind of employment by the end of the period under review. 

Our comparative base is the 220,000 new job seekers that registered at the NFSZ between February and June 2019. This shows that the labour market is not steady as a rock even in the upswing stage of the economic cycle; there's always a natural fluctuation (some people quit, some are let go, new companies are established and exisitng ones go belly-up), not to mention seasonal effects. 

What is evident is that during the months tainted by coronavirus 80,000 more job seekers (300,000) registered at the employment service. And this is also just a low-end estimate, as - let us stress again - not all employees losing their job register as job seekers. The labour market was unable amidst the recession to absorb all of these 300,000 people, but those that were eventually rehired had to settle for jobs below their qualification level. 

By the NFSZ statistics you can track the progress of the coronavirus crisis quite accurately. Yet, some of the unemployed do not appear in the other jobless stats. 

Here's the most complicated statistics!

Those that try to downplay what's happening on the Hungarian labour market often quote on the results of the LFS. We must underline, however, that the greatest uncertainties surround this particular statistical report, and the interpretation of this statistics cause the biggest static, as the office classified most of those axed during the coronavirus pandemic as inactive rather than unemployed. This is why the number of unemployed people did not increase significantly in March-April. 

We need to stress that the KSH complies and acts in line with international standards. According to the International Labour Organisation (ILO), an unemployed person is a person of working age (15 or over) who meets three conditions simultaneously :

• being without employment, meaning having not worked for at least one hour during the reference week ;
• being available to take up employment within two weeks ;
• having actively looked for a job in the previous month or having found one starting within the next three months.

Well, after the coronavirus outbreak layoffs were all over the place and they went down at an awfully rapid pace, while a lot of people were prevented from looking for another job due to lockdown measures. As a result, while hundreds of thousands registered at the NFSZ (as unemployed) in the spring (and early summer), the KSH never classified them as unemployed officially. Either because of the lockdown measures or because they could not have taken up employment within two weeks (as they stayed home helping their child/children cope with the absolute noveltly and related hardships of distance learning) or because they had not been actively looking for a job for four weeks. Since then, however, more and more people that were sacked then have been slowly reclassified as unemployed, while the numbers have improved slightly as the economy started to recover in the summer and season jobs offered employment to some. 

This means that this particular statistics did not show the unemployment data of the most critical months, and we'll never see even in hindsight how serious the problem on the local labour market was, as we'll hopefully see improvement over the next few months. It is possible that those laid off during the lockdown measures but who have been re-employed or found another job since were classified as inactive in the stats, but since then they have been reclassified as employed, while they were never included among unemployed people. 

The chart below shows how many unemployed people the statistical office's labour force survey estimated, how the number of job seekers turned out in the NFSZ register, and we have also estimated the number of unemployed people if the KSH had not classified some of those freshly out of employment as inactive in its LFS. The unemployment data series adjusted by Portfolio (dashed blue line) correlates with NFSZ data more, but you can also see that the number of registered job seekers is even higher. Consequently, NFSZ data gauged the most accurately for history what had taken place on Hungary's labour market during the epidemic. 

As the chart above tells you there's another set of unemployment data, which is "self-classified", showing a subjective state, i.e. if a person deems himself/herself unemployed or not. No statistics in this category are available for the last few months therefore we requested them from the KSH for May, June and July. Although the stats office does have thse figures it recommended us to take into consideration data from before the crisis. Hence, there's no way of knowing how many people considered themselves unemployed in the spring and summer. 

In order to make it clear where some of the unemployed people ended up in the statistics, we show you how labour reserve changed. The chart below shows that after the coronavirus outbreak in March, there was a surge in the number of inactive people who wanted to work but, for some reason, were unable to. This is the group where most people sacked ended up. The chart shows that the labour reserve jumped to over 460,000 by end-June from around 300,000 before the crisis. In other words, the number of people that were unemployed in a wider sence grew by more than 160,000. In this set of data we find people that lost their job yet were not classified as unemployed. 

Conclusion

Even though anyone could find the set of employment and unemployment data that is to their liking, we should also be aware which of these shows what exactly and what are the limitations of certain surveys and data reportings. Changes to employment and unemployment do not tell us how many people lost their jobs in relation to the coronavirus pandemic, given that a lot of those people have found employment again since, even if it took them a few weeks or a few months. We should also highlight that a lot of people were unable to find a new job in the same area where they had worked before. 

In light of the above, we can state that the picture drawn by the LFS is in harmony with the one created by the statistical methodology, only its correlation with reality has greatly diminished in the coronavirus crisis. 

The conclusion we can draw from the institutional statistics and the number of registered job seekers is that - based on our analysis of the period up to the end of June - corporations should hire 200,000 workers and another hundreds of thousands of those currently in part-time jobs should be back in full-time jobs for Hungary to reach the pre-crisis employment level. 

Overall it seems that:

• the questionnaire-based labour force survey shows a smaller loss of jobs and a lower number of newly unemployed in the period up to end-June than how many were actually left without a job;
• the institutional labour (administrative) data show a massive loss of 200,000 jobs that could be extremely close to reality;
• the number of registered job seekers also rose by well over 100,000.

In light of the historic downturn of the Hungarian economy and our calculates presented above, we believe that institutional data and the number of registered job seekers are the most credible and the closest to reality.

Outlook

In the above we put the spotlight on data available until the end of June, for the sake of comparability, but there LFS and NFSZ data for July are already in the open, while we need to wait for institutional figures for that month. When adjusted seasonally, these numbers show that the deterioration of the labour market situation has stopped. The rise in the number of registered job seekers also came to a halt at best, it did not start to fall in a trend. The decline shown by raw data is in line with the usual the seasonal impact, while the adjusted figures show stagnation. 

According to the July LFS, the number of people employed on the primary labour market showed a year-on-year decline of 34,000, while the institutional statistical release - unavailable at this point - is likely to show an employment loss to the hundreds of thousands. In view of the government's official announcements, there could have  been a further significant drop in the number of registered job seekers in August, i.e. the summer revival of the economy already exerted its impact on the labour market. Official data that would underpin this assumption are not yet available, though. 

The recovery of Hungary's labour market depends on how the government will support corporations after ending the 'Kurzarbeit' scheme, and how the resurgence of the coronavirus pandemic will affect (i) corporate and household behaviour (cranking up their cautiousness), and (ii) what kind of restrictive measures it will entail in Hunary and Europe which could have an adverse impact on the entire economy and could easily put the crimp in processes that have just started to improve. But as we showcased above, not every statistical release will reflect a potential new turnaround. 

Cover photo: Getty Images