The Hungarian minimum wage has been rising sharply but still lags behind Europe

If the economic situation gets better, another increase in the minimum wage could arrive this year. But in order for Hungary’s minimum wage to make up the difference evident in the region, it would have to grow drastically.

According to 24.hu, the minimum wage will only increase from February, more modestly than was usual in previous years. Based on the wage agreement signed on Monday, the minimum wage and the wage floor will increase by 4 per cent, so the former will be gross HUF 167,400 (€470) from February instead of the current gross HUF 161 thousand (€451). That is half of last year’s 8% increase and just over the officially planned 3% inflation. No matter how bad this looks, there have been more bizarre times in the three-decade-long history of the minimum wage in Hungary.

The minimum wage in Hungary has been in place since 1988, but the introduction of a nationally uniform minimum wage, which is mandatory for everyone, is set for the year immediately preceding the change of regime, 1989. The amount set was preceded from the outset by a tripartite consultation and agreement, but it also happened at times that the government decided alone, for example, between 1998 and 2002, during the first Orbán government, and in 2018.

There have been several years in the past when, like now, the minimum wage was not increased in January but from February or March. In the first two years, it was increased several times, twice in 1989 and three times in 1990, according to the summary of artortenet.hu. The Central Statistical Office (KSH)’s statistics have been recording the minimum wage since 1992, and between 1993 and 1996, they indicate that the increased minimum wage did not take effect from January. If we look at the start and end points,

in 33 years, the change is very spectacular, as the minimum wage has increased to more than 45 times its original amount, from HUF 3,700 (€10) in March 1989 to the current HUF 167,400 (€470).

There have been several sharp increases regarding the minimum wage, the largest being the 56.9 per cent increase in 2001 and the 25 per cent increase in 2002, both under the first Orbán government. Overall, the gross minimum wage has almost doubled in these two years. Economist Zoltán Pogátsa wrote in an opinion piece that the wages of about half a million people increased at the time and that the measure did not have a significant effect on reducing employment. The expert mentioned raising the minimum wage as a tool for economic development.

The other significant increase took place during the second Orbán government, with the gross minimum wage rising by almost 20 per cent in 2012. However, in parallel, the previous tax credit was removed in the lower wage categories, so the increase was almost not perceptible on the net amount at all. From 2016 to 2017, in the first year of the six-year wage agreement, the rate of the gross minimum wage increase was also in double digits, when it was put at 15 per cent. Meanwhile,

prices have also risen, of course, and are now more than twenty times as high as in 1988.

The gross minimum wage ultimately grew more than the rate of monetary erosion, but there were plenty of dark years. In the period of high inflation of 18-35 per cent after the change of regime, between 1991 and 1997, the gross minimum wage increases were consistently below the level of inflation, at which time the minimum wage could obviously not maintain its value in real terms. Then, in 2004, 2007-2008, and 2010, inflation also exceeded the gross wage growth.

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The development of the minimum wage affects a big percentage of Hungarians. Referring to the estimates of the Ministry of Finance, Portfolio.hu stated that in 2018, 42.4 per cent of the employees of companies were affected by the increase of the minimum wage or the guaranteed wage floor. A total of 879 thousand workers had their wages increase in the corporate sector because of the rise of the minimum wage.

It is interesting how the minimum wage relates to average earnings. In the worst year, 1998, the gross minimum wage was only 28.8 per cent of the average gross earnings, and in the best year, 1990, it increased three times, reaching 43.1 per cent. 

In the end, it seems that the lowest wages never reached half of the average wage.

Another important aspect is where the Hungarian minimum wage is in a European comparison. In 2020, 21 of the EU Member States (with the exception of Denmark, Italy, Cyprus, Austria, Finland, and Sweden), the exiting UK, and all the candidate countries (Montenegro, North Macedonia, Albania, Serbia, and Turkey) used a national minimum wage. Eurostat publishes the data twice a year. According to the latest data, from 1 July 2020, monthly minimum wages varied widely across the Member States, from €312 in Bulgaria to €2,142 in Luxembourg.

Despite the steady increase in recent years, Hungary is still at the bottom of the list,

with only six countries having lower minimum wages. In addition, the minimum wage was higher in most countries in the region than in Hungary. In order for the Hungarian minimum wage to cut its backlog, it would have to show an outstanding increase. This has not happened in the last ten years. According to Eurostat, between January 2010 and 2020, the average annual growth rates of the minimum wage were highest in Romania (12.5 per cent) and Lithuania (10.1 per cent). In addition, significant annual average growth was also reported in Bulgaria (9.8 per cent), Estonia (7.7 per cent), the Czech Republic (6.7 per cent), Poland (6.6 per cent), and Slovakia (6.5 per cent). Hungary is not included in this list.

Source: 24.hu