The probable end of wage explosion in Hungary

After years of hardship, it is clear that people want higher wages. The current economic crisis only further exacerbates this situation. The problem is that higher wages only add fuel to the problems. The time has come in many European countries to make a decision about minimum wages. If there is no agreement between employers and employees, the government will most likely help.

The decision about minimum wages affects about 600,000 people currently. There is no information about the salary expectations yet from either side. In uncertain times like this, everybody waits for more information and predictions about the following year’s economic outlook. The present data suggest that Hungary might slip into a recession by the end of the year. In the following year, only a slight economical growth is possible, reports Portfolio.hu.

Employees want a 14-15 percent raise, due to the long unseen inflation rates. Experts say that in 2023, the case will not be any better. If employers want to avoid the decrease in real wages, they need to convince employers about a minimum 15 percent raise. However, for a two-digit raise to happen, employers need the help of the government by reducing contributions.

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Breaking the norm

During the Covid pandemic, an unorthodox method was used to find a solution to the exact same problem. It is hard to make predictions one year in advance, so the agreement should only be about the next half year, said László Parragh, chairman of the Hungarian Chamber of Commerce and Industry. This way, a more acceptable agreement can be made and renegotiations can take place when more data is available for the next half of the following year. In 2021, wages only grew by 4 percent and the second round of negotiations did not take place at all. Instead of a second round, negotiations were about wage raises in 2022 which happened to be at 20 percent.

This means that the burden on employers will be lower in the first half of the year. In case the GDP grows or if inflation rises above the wage raises, then a renegotiation can take place. Ultimately, this would result in a more modest minimum wage raise. This will help the already struggling employers and it would help the price-wage spiral. If the current trends continue then the higher wages will further increase inflation. This is a spiral that needs broken, otherwise this will be a neverending cycle. Essentially, the growing wages contribute to the worsening of the crisis. By moderating the wage raises, it is possible that the economic crisis will be alleviated a bit. However, there is no easy way out of the price-wage spiral.

Read alsoOfficial: Hungarian inflationary pressure already the highest in Europe

Source: Portfolio.hu