The Role of Labor in Post-Socialist Hungary

By Bandzak, Ruth A. | Journal of Economic Issues, June 1994 | Go to article overview

The Role of Labor in Post-Socialist Hungary


Bandzak, Ruth A., Journal of Economic Issues


An examination of Hungary's 1992 macroeconomic indicators is startling, yet there are signs that the situation is moderating. Gross domestic product declined 4-6 percent, compared to a 12 percent drop in 1991. Household consumption declined 2-3 percent, only half of the decrease of the previous year. Investment fell 7-8 percent, which is less than the large 11 percent reduction in 1991. Industrial output decreased nearly 10 percent, although the drop was only half of that in 1991. Inflation moderated at 23 percent, down from 35 percent in 1991. Hungary's trade deficit fell by 60 percent. Free market countries (as opposed to "countries in transition") purchased 80 percent of Hungary's exports, with the EC accounting for 50 percent. Germany is Hungary's most important trading partner [KSH: Kozponti Statisztikai Hivatal: Hungarian Central Statistical Office 1993a; 1993b]. The goal of Eastern European policymakers is integration with the European Economic Community. As a first step, Hungary, Poland, the Czech Republic, and Slovakia signed a treaty in December 1992 to establish a free trade zone by the end of the decade.

On the negative side, unemployment is high and continues to rise; real income per capita fell 4-5 percent in 1992, twice the decline of 1991; nominal wages grew 26 percent, but real wages fell 2 percent. Gross agricultural output declined 23 percent, due partly to unfavorable weather. The 1992 budget deficit grew by 73 percent, due mostly to domestic debt service and interest charges. Although enterprise and consumer price subsidies were reduced, expenditures for the social budget increased [KSH 1993a; 1993b].

Hungary has attracted the largest portion of direct foreign investment going to Eastern Europe. The inflow of foreign capital continued in 1992: 4,101 companies involving foreign partnership were added to the 9,117 already existing. The number and share of organizations in full or majority foreign ownership is still low. At the beginning of 1992, approximately 3.5 percent (1,500) of all incorporated businesses had exclusive foreign ownership, 3.7 percent (1,600) had majority foreign ownership, and 20 percent (8,200) had foreign interests but majority Hungarian ownership [Hungarian Ministry of Labor 1993].

The privatization process in Hungary is alive but exceedingly gradual. Some credit this gradual transition with moderating the rise of unemployment relative to other transitional economies [Sziraczki and Windell 1992, 472]. The number of economic organizations showed dynamic growth in 1992; private enterprises, new joint ventures, joint stock companies, limited liability companies, cooperatives, and firms with foreign investment all increased. The majority of firms (89 percent) were created by new founding, while about one-tenth were created from existing organizations by transformation or separation. Since the start of privatization, 602 state-owned firms have been transformed. Until the end of 1991, the State Property Agency had permitted only 218 transformations; this number was increased to allow 384 in 1992 [KSH 1993a]. In 1989, the private sector employed 347,000 people, or about 6 percent of the work force; by early 1992, this number had nearly doubled to 645,000 [HML 1993]. Production output and exports of the large enterprises declined, while that of small firms doubled in 1992. In spite of that, 86 percent of total industrial output and 93 percent of industrial exports are still produced by the largo (mostly state-owned) enterprises [KSH 1993a].

Table 1. Unemployment Rates

Year             Czechoslovakia    Hungary    Poland

1990                  1.0%           1.7%      6.3%
1991                  6.6            8.5      11.8
1992                  5.1           12.3      13.6
1993 (April)                        13.2

Source: Kozponti Statisztikai Hivatal, May 1993.
Table 2. Jobs Vacant per 100 Job Seekers

Year             Czechoslovakia    Hungary    Poland

1990                   94            21         5
1991                   24             9         3
1992                   24             4         1
1993 (April)                          6

Source: Kozponti Statisztikai Hivatal, May 1993. … 

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