Zoltan Adam: The fight against unemployment: The case of Hungary

The paper discusses labor market developments and related policies in Hungary since the early 1990s, and was prepared in context of the project “Hidden Triggers of Economic Growth in V4 plus Ukraine” supported by the International Visegrad Fund.
Hungary has been a special case of post-socialist transition in Central and Eastern Europe with respect to labor market developments. First, Hungary inherited a relatively lax public finance system from state socialism in which episodes of fiscal populism were rather the rule than exceptions. In this tradition, fiscal concessions are made on a recurring basis so that pacifying social conflicts. Applying this approach, the number of working age pensioners rose by about 200 thousand, whereas the number of working age inactive persons did by about 800 thousand in the 1990s. As a result, Hungary became characterized by comparatively low levels of both employment and activity, whereas unemployment also remained comparatively low. This placed a large burden on public finances that became unsustainable by the mid- 2000s. The subsequent fiscal stabilization created severe social strain and political tensions. In reaction, both left and right wing governments in the following years implemented a wide range of public employment schemes that became the major anti-unemployment policy tool of the 2010s. Hence, unemployment gradually decreased, but close to half of the newly created jobs in the early 2010s were created through public employment. This, again, entails large fiscal expenditures and result in a rather questionable policy outcome as those involved in public employment do not experience an improvement of their labor market relevant skills and often find themselves locked in public work.

The paper is available here.