Economy 12 October 2020, 1:00pm

Hungary labour market may be cracked again, as epidemic slowly reaches working places too

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How many people are employed in Hungary today? And how many are unemployed? Simple questions, aren't they? The answers, however, depend on which statistics we look at and who is regarded as employed and unemployed. What seems certain at this point is that the local labour market is a lot weaker, combats more challenges and employees in general are in a worse position than before the coronavirus crisis. But what will the future bring?

Employment at pre-crisis level

Nothing to see here, folks! There are 4.5 million employees in "Hungary", almost as many as a year earlier. Well, that's what you would think when looking at the Central Statistical Office's (KSH) key labour statistics, the data of its labour force survey (LFS).

While it is true that employment in public works did rise sharply in August, the figures adjusted for these employees and Hungarians working across the borders also look favourably in light of the fact that Hungary's GDP contracted like never before in the second quarter.

Employment not back at pre-crisis level

Based on another key employment data, the administrative total of employees at corporations employing at least five persons, at budgetary institutions and significant non-profit organisations, shows an over 100,000-strong year-on-year decline in the number of employees at the end of July 2020. The layoffs were carried out almost exclusively in the business sector, while the public sector maintained its employment level.

A lot of people think that this statistics adds up only those employees who work in full-time jobs (as they are taken into consideration at the calculation of average wages too), hence the loss of so many jobs. But this is not true. Data collection regards every part-time employee as employee providing they work at least 60 hours a month. And corporations did not have to cut working hours so drastically that left a lot of people with less than 60 hours of work a month.

You can read more about the controversy between the two statistical releases and about the latter being closer to reality by clicking on the link below.

Employment not even close to pre-crisis level

The Central Statistical Office (KSH) has recently released a more detailed overview of Hungary’s labour market, according to which nearly 500,000 Hungarians have had difficulties resulting from the coronavirus crisis. Some have lost their jobs and employment, some wound up their enterprises, others were furloughed (with social security suspended), while hundreds of thousands of people were forced into part-time work.

Cleaning the data from part-time employees, we still have about 200,000 people left who had had a job earlier this year but not at the end of August. Also, the fact that 150,000 people can only work part-time indicates a severely ailing job market.

What is behind the contradiction?

In itself, the difference in employment figures is not surprising as the KSH’s labour survey counts everyone who gains income, even illegally, to be employed, while the administrative statistics reflect the number of registered employees. The surprising part is the difference in the dynamics of employment during and after the first wave of the pandemic.

The real question is why the labour survey says employment is nearly back to pre-crisis levels while the other data source indicates hundreds of thousands of jobs lost.

On the one hand, those who can only work 1 or 2 hours a day are counted as employed in the survey but not in the administrative statistics. However, the number of working hours was barely lower than usual by this summer, undermining this explanation.
On the other hand, there are those who can only work illegally, and anyone who reported at least one hour of income-generating activity in the preceding seven days to the surveyor was then classified as employed. (Although probably not too many black-market workers admitted to working.) When seasonal work in catering and agriculture began in the summer, businesses in a poor financial situation presumably turned to grey and black employment or have not registered the workers they only intended to employ for a few months.
Finally, there is sampling error, which amounts to 44,000 people, give or take, for the 4.5 million people in the survey. Of course, those compiling the statistics for businesses may have erred as well.

However, neither of the above convincingly explains the entire difference, so all we can say for sure is:

the number of unemployed and job-seekers was hundreds of thousands higher in the summer than before the crisis,
many of those who had lost their jobs but subsequently found employment are now working outside their original field,
and more than 150,000 people are still working part-time.

The sectors hit hardest

The biggest number of people were laid off in tourism, manufacturing, retail, and administrative and support services. Tourism was the first industry to hit the floor during the first wave of the outbreak as all countries restricted travel one way or another, and it remains in a weakened state and might be among the most vulnerable to the second wave.

There were also major layoffs in retail early in the outbreak, but the situation has since improved significantly.

Manufacturing businesses also made substantial layoffs as they had to halt production temporarily in the spring due to the lockdown and external demand has still not recovered. There has been a declining trend in employment in manufacturing even before the pandemic, probably partly due to investments to replace human workers in reaction to the labour shortage, but the crisis has visibly sped up this process.

Little has been said about administrative and support services during the pandemic. This includes all jobs that support the service industry, such as facility management or janitorial services. As seen in the graph, the number of employees in this sector has also dropped significantly as many businesses switched to home office during the pandemic.

As shown by the graphs above, employment in the sectors hit hardest by the pandemic has not recovered by July. Aside from IT, there is no industry where the number of employees is higher than before the crisis. This is no surprise as changing processes and operations required support from IT professionals, while the development and use of various software also increased.

What lies ahead?

Experts are divided over expected labour market trends in the fourth quarter and beyond. Some believe that Hungary’s gradually improving economic performance could have a favourable effect on the labour market, although this picture is increasingly shadowed by the second wave of the pandemic and the reactions it has prompted. Hungary’ government introduced several restrictive measures from September, and although these were less severe than the ones in the spring, their impact on tourism and catering have been immediate. There were instant layoffs in spas or Budapest’s airport, but restaurants, bars and clubs are also in trouble and can therefore employ less people.

In the coming months, we will probably not only see layoffs in tourism and catering but will also face unfavourable trends in most sectors of the economy. Just a few months ago, there was hope that Hungary’s economy may recover with a few hiccups given a more muted second wave, whereas now it appears that the relatively strong Q3 economic performance will again be followed by a weaker fourth quarter.

By now, Europe has become hotspot No.1 in the coronavirus pandemic which will make households and corporates cautious again, and more and more countries are implementing lockdown measures, albeit moderate ones for the time being, that could dampen demand. Businesses postpone investment measures and cut costs, while households hold back spending and eventually companies will start laying off staff. In the first wave they still had financial reserves to fall back on and the government launched various programmes to help save jobs. By now, there reserves have been depleted and the public schemes ended. The central bank also expects layoffs to continue in the business sector in the first half of 2021.

The degree of layoffs could depend on the severity of the second coronavirus outbreak (not that it was ever gone). If external and internal demand declined significantly - considering that the rapid spread of the virus could lead to stricter lockdown measures - a lot of employees could be let go. Another serious risk is if the epidemic spirals out of control either in Hungary or elsewhere in Europe and infections become so rampant that it will jeopardise production in itself (and factories have to be shut down temporarily).

In view of the aforementioned the epidemic should be kept under control via certain restrictive measures while the economy needs to be kept functioning. This appears to be an increasingly unfeasible task, though. Governments spent so much during the first wave that not every state budget could finance general fiscal stimulus measures that could prop up wobbly economies and prevent a sharp rise in unemployment. Consequently, targeted measures aimed at saving jobs will be more important than ever.

Cover photo: Getty Images