More and more people unemployed in Hungary, while foreign workers flood in

The news on the Hungarian labour market has recently become increasingly unpleasant. First, the number of vacancies fell as the economic situation worsened, then the number of collective redundancies increased, and then the unemployment rate rose to levels last seen in the Covid crisis. With the economic recession, companies need fewer workers and it looks like they can't wait any longer for recovery. Therefore, the rationalisation measures that companies are being forced to take are already affecting the workforce.

In January, the Central Statistical Office (KSH) had already estimated an unemployment rate of 4.5%, which came as a negative surprise to economists. This rate, while still reflecting subdued unemployment, is already far from the levels close to 3% seen in spring-summer 2022. In other words, the impact of the inflation crisis on the labour market is deepening, but if we assume that employment and unemployment are lagging behind the cyclical fluctuations of the economy, it is not so surprising that the situation is now worsening.

Moreover, if we look not at the unemployment rate estimated by the office, but at the raw data of the Labour Force Survey (monthly unemployment calculated from a 3-month average), we have already seen higher unemployment rates, which has now risen to 5%. The last time the rate was this high, apart from the Covid crisis, was in 2016. (True, unemployment during the pandemic may actually have been much higher, only the agency did not count some of those who lost their jobs as unemployed but as inactive, because the closures prevented them from looking for work and so they were not officially counted as unemployed.)

This negative trend is also reflected in the evolution of the labour reserve. In January, the number of unemployed, public workers and inactive people who want to work (jobless with no hope of finding a job) reached 400,000 again.

Unemployment has therefore been slowly rising for some time, although there is no doubt that it has accelerated in recent months. The raw figures show that the number of unemployed has risen from a record low of 150-160,000 to 250,000 in a year and a half. And the 3-month average count was 225,000 unemployed.

Against this background, it is particularly interesting that the number of guest workers has not fallen. In fact, the number of foreign workers in Hungary has been rising steadily even in the midst of last year's recession. According to the latest figures, their number is now only narrowly below 100,000.

Overall, the number of unemployed people in Hungary has increased by 60-90,000 since the spring of 2022, while the number of foreign workers has increased by 20,000, so economic operators have not fully replaced the Hungarian workers they have laid off with guest workers, meaning that in reality, the economy needs fewer workers. What is undeniable, however, is that the number of foreign workers has increased in parallel with a noticeable reduction in the number of nationals.

The most obvious explanation is that companies are laying off Hungarians while recruiting foreigners. Although the Ministry of National Economy's investigation into one of these alleged cases did not find that foreign workers were indeed being brought in to replace Hungarians, several factors suggest that many companies are trying to recruit workers with a higher workload than domestic workers, who are always willing to work overtime and who require lower wages.

Of course, there are several possible explanations for this situation, beyond the fact that some companies are replacing Hungarians with guest workers. For example, companies that do not typically employ guest workers are now largely downsizing, while companies that have not been able to find enough skilled domestic workers due to labour shortages are expanding and bringing in guest workers.

This points to increasing regional problems in terms of unemployment. Some counties are heavily affected by the wave of redundancies, reaching unemployment rates of 8-10%. In Szabolcs-Szatmár-Bereg, Borsod-Abaúj-Zemplén and Somogy counties unemployment is again above 9%. In addition, several counties have seen unemployment rates rise by more than 2% in a year.

However, labour mobility is subdued. In regions where full employment, i.e. unemployment rates of 2-3%, and additional recruitment are still prevalent (e.g. Győr-Moson-Sopron, Komárom-Esztergom), it may be easier to import workers from abroad than to recruit from a few counties away.

Overall, the economic difficulties are likely to keep the unemployment rate above 4% in Hungary in the coming months, while the number of foreign workers seems very unlikely to fall even in the face of the recession that last year as a whole. It is certainly more difficult to lay off foreign workers, and employers are presumably not that keen to do so. For the time being, the slow recovery of the economy means that only a modest fall in unemployment can be expected, while it is increasingly questionable whether the cabinet will take measures to curb the import of foreigners in the face of increased Hungarian unemployment.

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