Economy 4 March 2025, 10:35am

Wage tensions are escalating: Hungarian workers could get a slap in the face they are not prepared for

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There is a steady stream of surveys showing that companies are planning to raise wages this year, albeit not by much. Macroeconomic analysts and research firms, however, disagree sharply on the need for an increase. Who is right is very important: it will determine whether Hungarians' living standards rise this year.

Companies are planning to raise wages by an average of 6.6% this year, or 6.3% weighted by the number of employees, according to a recent survey by GKI Economic Research. The smallest increase is expected in the construction sector, while the largest is expected in the services sector.

A survey by Randstad came to similar findings. According to their research, the majority of employers are planning to increase salaries by 6-10%, while 45% of employees think an increase of more than 20% is realistic. Compared to last year, there has been a significant increase in the proportion of employers planning a 1-5% increase, with 27% of companies planning only that much.

The latest Hays survey is no exception. According to the company, companies will increase wages much less this year than they did last year.

Only 12% are planning wage increases of more than 10%, while a year ago 34% said they would raise by this much in 2024.
However, as was the case last year, most are still planning increases in the 6-10% range (42%).
The much more modest range of 2.5-5% hikes has increased significantly: 33% are planning salary increases in this range by 2025, compared with 13% previously.

Overall, the business surveys suggest that wages are likely to rise only moderately this year, following last year's substantial increase of more than 10%.

According to surveys, employers complain that employees' wage demands are unrealistic. However, these surveys contradict the expectations of macroeconomic analysts and research firms.

Macroeconomists expect nominal wage increases of between 8% and 10% in 2025.

It is worth looking at what might be causing the difference between the two forecasts.

The first and most important is that in every wage survey companies 'promise' a slightly smaller pay rise than they actually deliver. We do not know whether this is to manage expectations or whether they are actually planning less than they will have to raise in the end. But the experience of recent years shows that companies have consistently raised wages by more than they announced in advance.
The second is that they certainly have a different view of the labour market situation. While the majority of macroeconomists stress the tight labour market, the still significant labour shortages and low unemployment, it is also evident that more and more companies are forced to reduce their workforce due to the weak economic situation. Overall, an unemployment rate of 4.5%, 70,000 job vacancies and a very high employment rate do not suggest a very loose labour market, although we are certainly a long way from 3% unemployment and 100,000 job vacancies. But let's not forget: in 2016-17, the labour market situation was virtually the same as it is now - and we talked then about the upward impact of labour shortages on wages.
Firms would certainly raise the wages of most workers by less than the increase in the minimum wage and the wage minimum for skilled workers (9% and 7% respectively). However, a central increase in the minimum wage has a wage-pushing effect on the median and average wages. To avoid wage congestion, therefore, it is not only the lowest-paid workers who need a substantial wage increase, i.e. central wage setting up to the median wage will become a matter of course. According to the MNB's December report, the explanation is that the increase in the statutory minimum wage would also affect higher earners, as wage tensions would arise if the wage advantage of workers in jobs requiring higher skills, experience or qualifications was reduced or eliminated by the increase in the minimum wage.
Inflation is also on the rise. This will not affect companies that already implemented increases in January, as they have already gone through the wage adjustment, but many companies will increase salaries in the spring. Rising inflation could have a wage-push effect as workers become more dissatisfied. Moreover, if inflation does not ease, companies that thought they had put the wage issue behind them for the year (with the January increases) will be forced to make further adjustments.
However, the economic outlook is still not bright, which tends to reinforce companies' pessimism. With an uncertain economic outlook, firms are less able to raise wages as much, and experts have lowered their expectations for GDP growth over the past six months.

Overall, it is clear that wage growth will be slower this year than last, but there are many questions about the rate. While companies are expecting 5-6%, macro analysts are talking about 8-10%.

How much wages will eventually rise is very important, as inflation is expected to be above 5% this year. If the companies' expectations are realised, real wages (the purchasing power of earnings) will barely increase this year, but if the research firms' expectations are realised, we could even see a significant increase in purchasing power.

The last day of March will give us some clues: that's when the statistical office will publish the January wage data, which will include the central increases (minimum wage, guaranteed wage minimum) and the steps taken by some companies.