Hungarian government plans significant minimum wage increase – Could EUR 1,000 become the new standard?

By 2027, the Orbán government intends to raise Hungary’s minimum wage to 50% of the average wage. According to analysis, this ambition would require a significant rise in the minimum wage over the next three years.

Portfolio  has analysed the government’s plans regarding the future of the minimum wage and outlined the steps necessary to achieve this goal. It argues that meeting the 2027 target would demand a sharp increase in the minimum wage over the coming years, while average wage growth would need to be considerably more moderate.

Ambitious government plans for 2027

Over the past decade, Hungary’s minimum wage has remained relatively stable at around 40% of the average wage. Despite periodic economic fluctuations, there has been no consistent, rapid increase in the minimum wage relative to the average. However, the Orbán government now appears committed to a more sustained upward trajectory, according to Portfolio, citing statements from Gergely Gulyás, the Head of the Prime Minister’s Office, and Márton Nagy, the Minister for National Economy.

Gulyás posited on Thursday that a swift and significant rise in the minimum wage would benefit the country. He noted that such a change would involve dialogue between employers and employees, with the government acting as a mediator. Ideally, Gulyás envisions a three-year agreement between the parties, which could lead to a convergence of wages for both degree and non-degree holders, while also bringing the median wage closer to the average.

In a separate statement the day before, Nagy remarked that “it is essential to raise the minimum wage to 50% of the average wage, albeit gradually, but by 2027 at the latest.”

The need for a rapid wage increase

The government’s proposal implies a significant annual rise in the minimum wage. Assuming stable annual wage growth in the coming years, the average salary is expected to reach around HUF 860,000 (EUR 2,183) gross by 2027. This would necessitate a minimum wage of HUF 430,000 (EUR 1,091) to fulfil the government’s 50% target.

For context, the current minimum wage in Hungary is HUF 266,800 (EUR 677). Achieving the HUF 430,000 target would require annual increases of around 17-18%, while average wage growth would need to be limited to no more than 10% per annum. Overall, the minimum wage would need to rise by roughly 60% over the next three years.

However, even this rate of growth is not without its challenges, Portfolio warns. A substantial increase in the minimum wage could lead to upward pressure on other wage categories to prevent wage displacement. Additionally, with the country facing increasing labour shortages, wage demands across various sectors are likely to rise, potentially resulting in further wage inflation.

Bold plans, but rapid growth brings risks

While such a rapid rise in the minimum wage is feasible, sustaining it over time is crucial to ensure the convergence is not temporary. Even after 2027, the minimum wage would need to continue growing at least as quickly as the national average wage to maintain parity.

Moreover, such a sharp rise in minimum wages carries risks for the Hungarian economy. Smaller businesses, in particular, could struggle to afford the sudden increase in wage bills. Some economists argue that labour shortages could help alleviate this issue; if less efficient firms fail, workers may more easily find employment elsewhere, potentially boosting overall economic efficiency.

However, rapid wage increases can drive up consumer prices, leading to inflation. To cover the rising wage costs, businesses raise their prices, which in turn prompts workers to demand higher wages. This issue can become particularly problematic if increases in the minimum wage remain substantial, as planned, over several years. Such a scenario could trigger a price-wage spiral, causing both the minimum and average wages to rise rapidly. Consequently, those earning within either wage bracket may see little real benefit from the changes in practice.

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Source: Portfolio