Never-before-seen unemployment data revealed in Hungary

What happened during the crisis?

Nearly 400,000 people declared themselves unemployed at the peak of the first wave of the coronavirus pandemic, and 365,000 in the third, based on three-monthly data (orange line). This was revealed in the self-classified unemployment data sent to Portfolio by the KSH. The time series showed that for a single month in the first wave as many as 425,000 people had been looking for work, but the number of unemployed people was still close to 400,000 in the third wave.

But official unemployment figures (green line) have so far not shown that so many people have lost their jobs. According to the official data of the KSH (International Labour Organisation / ILO methodology), the unemployment rate has picked up only slightly, as for methodological reasons a large proportion of job losses are not included in the official data. The criteria for unemployment are not only whether a person has been made redundant, but also whether he or she has been actively looking for a job for at least a month and could start work almost immediately (see box below). The latter condition was very difficult to meet during the period of pandemic-related restrictions.

However, self-classified unemployment data from the KSH confirm the assumption that unemployment rose immediately after the outbreak, and then started to decline as restrictions were lifted. The second and third waves caused a further shock to the labour market, which again led to a fall in the number of jobs. Since last spring, however, unemployment has fallen steadily and is now close to pre-crisis levels. There are methodological reasons why the shock was not reflected in the official unemployment data.

What causes the differences between the data?
Every month, the KSH publishes the unemployment rate calculated according to the methodology of the International Labour Organisation (ILO). It does this on the basis of the Labour Force Survey (LFS). "In accordance with the methodology of the international statistical offices, the KSH uses the ILO definition to define the number of unemployed. According to the ILO definition, an unemployed person is one who 1. has no job, 2. has actively looked for work in the last four weeks, and 3. if he/she found a job, would be able to start working within two weeks," the KSH told Portfolio.

All three requirements must be met for someone to be considered unemployed. So you can see that there are a lot of criteria that have to be fulfilled, and four weeks of active job search also implies that someone has been out of work for long time. Thus, the immediate changes (effects of redundancies and closures) during the pandemic were not immediately visible in the unemployment rate.

In contrast, self-reported unemployment - just published by the KSH for the past two years at Portfolio's request - does not have such strict criteria: it is simply enough that someone claims to be unemployed when asked by those conducting the survey. This indicator can immediately reflect economic changes. According to the KSH, "the number of unemployed according to the ILO definition is based on strict objective facts, whereas the number of unemployed according to the self-classification is based on the subjective perception of the respondent's life situation".

Let's supplement those data

The graph below also shows how Portfolio counted the unemployed (blue line) during the pandemic. Based on the official data release, we have reclassified people who became inactive from spring 2020 into the unemployed camp (assuming they did lose their jbos only did not meet the unemployment criteria), thus showing a higher unemployment rate than the ILO unemployed. This was done in order to paint a picture of the labour market that is close to reality, i.e. the deteriorating economic situation. You can see how the blue line has moved in tandem with the self-assessed unemployment data, i.e. the unemployment rate calculated by Portfolio shows the same trend as what people told us about themselves during the Covid waves.

until now we have only suspected that our methodology was chosen well to show real economic changes, but the data revealed now have unambigously underpin our assumption.

Add another data series to the graph. Using the National Employment Service (NFSz) register (purple line), we can see that in the first wave of the pandmei, the number of jobseekers jumped almost as high as the number of unemployed people in self-classified unemployment. Later, however, the NFSz register did not jump any further, while both self-classified unemployment and inactivity rose. In other words, there was certainly a temporary increase in the number of unemployed and forcibly unemployed (e.g. people on mandatated leave), as there were still lockdown measures in place in the second and third waves. Many were then forced to suspend their activities because of the restrictions.

What do the reserves show?

Let's look at the evolution of unemployment in the broad sense, i.e. the labour reserve. The total number of unemployed people, the hopelessly unemployed, the inactive who want to work and the underemployed was 465,000 in spring 2020 and 10,000 more at the beginning of 2021. In other words, the labour market has been hit by "two crises", while the GDP downturn was concentrated in the second quarter of 2020 and we were already in a period of recovery in 2021. The second period of labour market crisis was not really visible because official unemployment data masked it, but the trend in the reserves would have highlighted the second peak.

It is also worth looking at the evolution of the "total" labour reserve. As you can see in the top graph, the labour reserve has fallen to pre-crisis levels, and the situation does not change even if we include those employed in public works. This suggests that labour market tightness is now back to pre-crisis levels, with labour shortages once again dominating the labour market. It is true that the total stock of the labour reserve also highlights that the unemployment rate of below 4% captures only part of the unemployment rate, with the broader unemployment rate still around 6%, or 8% if those in public works are included.

The problem is that the number of employees in the public work scheme has already fallen significantly in the last four to five years, and the number of unemployed people who have lost hope has also fallen slightly, meaning that those who do not have a job in Hungary now find it very difficult to integrate into the primary labour market. They have either been unemployed for so long that their skills are worn out, or they have low skills to find a job. In addition, most of them live in disadvantaged regions, which is another reason for being excluded from the labour market. While in the west of the country and in the capital, employment is almost full, unemployment remains high in the eastern counties.

Moreover, the gap between the eastern and western counties has not only been maintained, but has widened. Indeed, the eastern half of the country's labour market has been hit harder by the crisis.

What will the future bring?

The number of vacancies shows that at a national level, the labour shortage in Hungary is now almost as high as it was before the coronavirus crisis. The number of unemployed could fall further in the coming months as demand for workers continues to rise during the recovery. If firms cannot find suitably skilled workers, they may further reduce their already lower hiring criteria, as labour shortages are a growing constraint on the growth of firms, and there may be some who manage to return to the primary labour market.

Meanwhile, a rapid increase in the minimum wage could have the opposite effect: it could in principle price out some low-skilled workers. However, this is unlikely to happen en masse in the current economic climate, as companies are happy to have enough workers to produce. If, on the other hand, there are companies that go out of business because of higher cost levels, competition will quickly absorb the workers. Unemployment rates are likely to rise in the low-probability scenario where the pandemic again leads to drastic and prolonged restrictions in Europe or Hungary (e.g. the emergence of a fully vaccine-avoiding mutation, a collapsing health system).

Overall, we can say that unemployment has fallen to low levels, so there is not much room for employment growth in the coming months. The higher unemployment in the eastern part of the country suggests that the situation could improve slightly, but this would require a shift away from public subsidies to boost employment towards training and mobility. Overall, the current situation is characterised by a pre-crisis labour shortage which is already limiting the future growth of companies.

Cover photo: Getty Images