Unemployment quietly rises in Hungary

While the economy is struggling, there is nothing to see here in terms of Hungarian unemployment. At least, that's basically what the labour market data of the past year and a half have suggested.

The official unemployment rate has been hovering between 4-4.5% since the beginning of 2024, while GDP has been close to stagnation. Although employment has declined slightly in recent months, the situation does not appear to be dire at all.

Portfolio has tried to find several explanations for why unemployment is not rising when the economy is close to recession. The most plausible seems to be the phenomenon of labour hoarding, i.e. companies trying to avoid lay-offs. But in fact, it seems that more and more people have been declaring themselves unemployed recently.

But what is it all about? The Hungarian Central Statistical Office (KSH) uses an international methodology to examine unemployment trends (see the explanation box at the end of this article). For someone to be considered unemployed by the statistics, they must meet a number of criteria, which means that it is 'not enough' for them to be unemployed. (This is reported to the public every month.) By contrast, the self-classified unemployment figure indicates whether or not the respondent considers herself or himself unemployed. However, KSH has now sent this data for the last year and a half to Portfolio.)

Thus, while the official statistics (green line) show that there were around 210,000 unemployed at the beginning of this year, the self-classified unemployment (orange line) shows 390,000.

And the nearly 400,000 unemployed is more consistent with an unemployment rate of 8% - sticking of course to the self-classification logic - while the official figure is 4-4.5%.

The number of self-classified unemployed at the beginning of 2025 has soared to levels seen during the period of Covid closures.

The graph above also shows that the official unemployment statistics at the beginning of this year did not track the sudden surge in self-classified unemployment. From around 330,000 last autumn, self-classified unemployment jumped to close to 400,000 by the beginning of this year, but since then - this spring - we have seen a fall again.

At first we suspected that the same thing had happened as in the Covid crisis. At that time, the dismissed workers were not officially registered as unemployed because they did not meet the criteria. They were placed on the inactive list because they were not looking for work (due to closures) or could not start working. As you can see in the chart below, there was also a spike in the blue area in 2020-21, the inactive camp. However, we do not see such signs now. The size of the labour reserve has remained virtually unchanged over the last six months. That is, it is not what happened under Covid.

But what happened instead? It could easily be that during the period of low demand in the mid-recession economy, companies have cut hours substantially or decided to cut back, as reflected in the sharp rise in self-classified unemployment. However, this is not reflected in the official statistics, as to be included one has to meet the following criteria:

1. she or he has no job,
2. has been actively searching for a job for 4 weeks at least,
3. and could re-enter working in 2 weeks if she or he were to find a job.

So if someone has been made redundant, but is still on notice or has not looked for a job for 4 weeks (before the survey), they will not even appear in the official unemployment statistics. However, as the labour market remains relatively tight - although not as tight as before - it is easy for those who are made redundant to find a job in a short period of time. As a result, they may consider themselves unemployed for a while - and claim to be unemployed - but by the time the official statistics have 'registered' them, they are already back in work.

This year's surge in the number of self-classified unemployed also partly explains why the economy's performance has been significantly below expectations. On the one hand, those who consider themselves unemployed (e.g. on notice) are cutting back their consumption to an extreme extent. On the other hand, the public may well fear unemployment, as suggested by the confidence indices, and so continue to refrain from spending. And spending restraint in itself leads to a persistent demand deficit.

The good news is that, for the time being, it looks like we may have passed the "unemployment peak". In the spring months, the number of self-classified unemployed has been on a downward curve, while the economy may have started its slow recovery. But the outlook remains uncertain as performance is very uneven, with the latest data showing that the industrial sector is still in a tailspin, and household spending is not very robust, while construction is already growing. So in the coming months we may yet hear of both layoffs and hiring, depending on which industry one works in.

The Workforce Survey is the largest continuous population data collection of the KSH, which aims to provide comparable data on the labour market situation, employment and unemployment in the country. Every quarter, around 36,000 households are asked to answer questions. The responding households are selected by random sampling in different municipalities across the country.
Unemployed persons are officially defined as those who have not worked in the current week, have no job from which they have been absent only temporarily or, in the case of childcare, permanently, have been actively seeking work during the four weeks preceding the interview and could be employed within two weeks if they could find a suitable job.
In contrast, self-classified unemployment is a subjective category. It is not part of the monthly unemployment data release, but the MEF also includes the 'self-classified unemployed' (whether the respondent considers herself or himself unemployed or not), which are now known to Portfolio readers thanks to the KSH. To get a full picture of unemployment, it is worth looking at a number of different indicators.

Cover photo (for illustration purposes only): Getty Images