Labour Market Research Book National Labour Office, 2008

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down yet in the East Central European region, although it is less likely for the .... associated with the election cycles, which they have to adjust to the realities ...... Helyettes Államtitkárság, November 2005, University of Glasgow, UK, 25th ...

Labour Market Research


Labour Market Research



Prepared under the ‘Service development, strategic planning, research’ component of HRDOP Measure 1.2. ‘Modernisation of the Public Employment


Component Manager: János Lengyel Sub-component Manager: Tibor Bors Borbély

Responsible editor Károly Pirisi, General Director National Employment and Social Office

Edited by Tibor Bors Borbély – Edit Fülöp Reader: Dávid Dercsényi English translation: Fruzsina Balkay Supervisors of research projects: Károly Fazekas, Ildikó Takács, János Simkó, Ferenc Munkácsy This volume can be downloaded free of charge in e-book format from




Labour market supply and demand



Labour market balance and imbalance



Applied research to promote the matching of the supply and the demand



Introduction Union as well as domestic-level employment policy development is hardly conceivable without the backing of practice-oriented labour research. Applied labour research projects, such as the ones introduced to the Reader by the present volume, are absolutely necessary to design and repeatedly fine-tune the instrument and effect mechanism system of government policy. The analyses presented below, although prepared under the project ownership of the National Employment and Social Office, will be most useful for ministry-level planning as well as for the work of the background institutions of the line ministry. The research findings of labour market forecasting confirm and, more importantly, quantify, the mismatch between labour demand and supply, noticeable in the labour market for a longer time. Although several areas of the country are characterised by low employment and high unemployment rates, we cannot say that adequate labour is available where and when the relevant demand presents itself. Employers are dissatisfied with the vocational skills of jobseekers: the qualifications of not only the elderly, but also of school-leaver career-starters fail to meet the relevant market demand both structurally and in terms of their vocational skills content. The tension between the demand of the labour market and the output of the education system is generated, primarily, by lack of information or underinformation on the part of the labour market actors, whether career-choosers, training institutions or employers. The main objective of labour market forecasting is to arrive at a better understanding of the labour market needs ever and of the external conditions of the vocations/occupations, in order to promote career guidance and the orientation of the training institutions, and hence the adjustment of the supply of labour to the relevant demand.


The forecasts provide an extensive overview not only of the numerical labour supply and demand ratios, but also of the interest relationships, contacts and conduct of labour market actors, and of potential answers to any problems that may arise. These pieces of information are of outstanding importance for employment policy, to set realistic targets and to design and implement more efficient measures. The status assessments and problem identifications studied and described here are as much in demand in economic, education and social policy as in employment policy itself. Furthermore, the studies presented in this volume and on the website will give positive impulses to the employment service, under development, to review its own labour market position and identify the specific directions of progress in what is already a new cycle of the New Hungary Development Plan. Let me take this opportunity to wish every Reader a most useful time spent in the world of analyses, whether they read this volume in the traditional form or on the Internet.

Gábor Csizmár


Introduction One of the most significant central measures of the Human




Programme implemented under the first National Development Plan was Measure 1.2. ‘Modernisation of

the Public Employment Service’, coming to an end now. The modernisation of the Hungarian PES started in 2002, with a PHARE TWINNING project implemented with Swedish and Danish assistance and financed from pre-accession funds. The New Service Model designed at that time relied on the independent orientation capability of jobseekers and employers, and the development of the PES self-service systems. The first National Development Plan saw a significant upgrading of our ICT infrastructure and nationwide service and management systems, implemented with the support of the European Union. PES has become one of the largest public service provider organisations, with a total annual client (employer and jobseeker) turnover of more than 1.3 million. In a unique manner, support was provided as part of the Measure for labour market









“foreseeing” capacity of the line ministry, the PES and other background institutions. The ten research projects investigated every aspect of two important topics. One topic was the prognosis of labour market demand and supply, its expected development until 2015 and the future of individual vocational/occupational groups. Research projects covering the other topic touched upon two points of strategic importance for the activity of the Service. One was the renewal of the comprehensive monitoring system designed in the early nineties, and the other the improvement of the main activities of PES under the title of ‘assessment of the system of competency-based job brokerage’.


It is my great pleasure to be able to introduce to the public the results of the research in this volume, and at conferences organised in the capital and regionally to discuss the topic. To Readers having a deeper interest in this issue, I propose to visit the website where they will find every detail of the research projects covered in this volume.

Károly Pirisi


I. Labour market supply and demand


Long-term economic growth forecast ‒ Global forecast of the structure, productivity and labour demand of the economy ‒ Pál Belyó, Ildikó Ékes Decision-makers show a growing need for labour market demand and supply forecasting. Employment policy is faced with an endless series of new challenges to be answered shortly, but with an eye on prospective longer-term developments. The aim of the research series launched by the National Employment Office was to work out a comprehensive projection which integrates the individual research components into a hierarchically structured whole. The Ecostat Institute for Economic Analysis and Informatics undertook to present the correlation between economic growth and employment, and to sketch the longer-term trends. This research intends to assess the longer-term changes of economic structure, productivity, and the branch structure of employment. The Ecostat Institute for Economic Analysis and Informatics had modelled the economic developments expected until 2010 already at the end of the nineties, and it studied the factors influencing the labour market separately as well. Now it summons its methods and macro-economic models developed so far to project the development of the main parameters, the key indicators of economic growth, and the branch-level growth of employment until 2015. The present paper is divided into three parts. Part 1 presents the results of econometric model calculations, starting out from the long-term economic growth forecast and sketching the development of the main macro-economic indicators (growth and demand variables) up to 2015. Part 2 gives a prognosis of the indicators of growth of various economic branches, based on the consumption data of the GDP balance, on the InputOutput Tables, and the analysis of the foreign direct investment inflow trends, and it makes inferences as to the employment data on that basis.


Part 3 describes what other parameters determine the labour market processes. In addition to the chances of the spread of atypical forms of employment, the regional employment gaps are presented as well. The annex presents the tables used for preparing the study in detail. The Corporate Tax Return data allow to examine employment by various cuts, and the summary tables drawn up along the most important dimensions are also included in the annex. Finally, we consider it important to remark that the already announced New Balance Programme and the Convergence Programme to be submitted in September 2006 may entail modifications of merit in the projections outlined here as well as in their underlying assumptions. We have made every effort to incorporate information available by 25 August 2006 into the study but, of course, there has been no opportunity yet to measure the effects of the changing economic policy environment. This will necessitate the regular review, customary in the relevant international practice also, of the long-term prognosis.

Summary The paper describes macro-economic projections according to three scenarios. Our initial assumption systems were defined on the basis of three parameters of substantial influence on the pace of the long-term growth of the Hungarian economy. These are the following: •

development of external economic conditions (economic trends, prices),

quality of fiscal policy, and

rate of success of the utilisation of EU funds

According to our model calculations, a stable pace of growth of around 4 percent is achievable following a brief temporary slowdown, and assuming external economic conditions similar to those of the previous years, through the effective utilisation of EU funds and by applying a predictable fiscal policy. According to our basic scenario – considering the calculations of the 11

Convergence Programme until 2011 –, no particular employment growth is to be expected in the decade to come. Foreign direct investments determine to a large extent not only the volume, but also the structure of economic growth and employment. The international experiences and trends suggest that the wave of investments has not died down yet in the East Central European region, although it is less likely for the major-volume investments typical of the mid- and end-nineties to recur. In accordance with the phases of operating capital movement, Hungary can still be a potential target of businesses seeking improved efficiency, due primarily to the slowing convergence of wages. Following accession to the Union, strategic investments have also appeared. Regional centres have emerged in the new Member States that will provide for the entire East Central European region. Foreign companies have invested – apart from traditional, massively import-intensive, export-oriented businesses of mainly the machine, and electronic industries – in industries that may set the direction of Hungarian economic development even on the long term. Increasing capital influx may be expected in the future in commercial/logistics, and other service branches. On the basis of the extrapolation of correlations discernible in the Input– Output Tables available for the last years, and of information implied by the macro-economic prognoses, more powerful growth is likely in the service industries and the export-oriented sectors of the manufacturing industry producing good results even presently. In the manufacturing branches, employment is likely to rise slower due to improving productivity, while expansion in the service industry may induce an increasing demand for labour.. Considering the fact that capital-strong companies with a big turnover are not the largest employers, and even international analysis expects primarily small and medium-sized enterprises (SMES) to raise employment or at least keep it 12

level, long-lasting employment growth may result from the maintenance or strengthening of this segment of the economy. Looking at the employment prospects from the point of view of corporate ownership, two categories of companies ‒ those in majority domestic ownership, and in majority foreign ownership, respectively, are most likely to hire labour – according to the trend discernible in the corporate tax returns. With other forms of ownership, however, shedding labour is more likely. Companies tend to appreciate flexibility, the easy adjustment of the number of employees to the continuously changing market demand, more than ever. Therefore, they are likely to employ less people under the traditional forms, and more under the more flexible atypical ones. Drastic changes may come, but currently we are in the stage of transition, and the bulk of the developments will probably take place in 15–25 years’ time only. In our opinion, the increase in part-time employment is attributable primarily to the substantial increase of the rate of the elderly to the population overall and to the population of the employed, respectively. Looking far ahead, the economic policy and, in particular, the employment policy that seems favourable for the country’s development is one that endeavours to improve the economic conditions of large companies in the case of high-profitability branches, and of SMEs in the case of all others. The improvement of the corporate business environment – also an indirect contributor to the increase of employment – must be treated in a differentiated manner. The dual structure of the economy is worthwhile taking into account when drafting employment policy and setting strategic objectives.

Macroeconomic prognosis Research on the long-term development of Hungary has entered a new phase. The country is past the most difficult period of the systemic change and, as a new member of the EU, it is now at the entry point of a more predictable course of development. However, the external conditions of that development keep changing fast, and there are some acute economic and social problems 13

that can only be solved in the longer run. The reference framework of our catching-up is defined by several vectors – this is the reason why we though it necessary to draw up several scenarios in our study. The decisive conditions are the following: 1. External conditions. The pace of growth of the global economy will have an influence of merit on Hungarian economic and social development, its expected course and the general price level. 2. Use of the European Union funds. In the years to come, a significant amount of foreign capital will enter the country; we shall have growing access to EU funds. The resulting extra capital inflow will dynamise the economy and transform









successfully drawing down and focusing EU grant money. 3. Fiscal policy. The stability of the internal fiscal balance is a precondition of the efficient utilisation of external funds. The state sector needs to be restructured for us to be able to grasp the opportunities. We consider it necessary to sketch three scenarios along the above dimensions, the main components of which are summed up in the table below: Table 1. External conditions Base

In line with the trend of the previous years

Utilisation of EU funds (% rate of the budget) 80%

Favourable economic Optimistic

trend and low


inflationary pressure

in the European

Steady deficit decline until 2011 Marked decrease in expenditures A loose fiscal

Decelerating growth Pessimistic

Fiscal policy



policy, which tends to boost the demand

From among our projections generated with the help of the ECO-TREND model, let us now present the prognosis for the base scenario:


The basic version of our model assumes that Hungary will join the euro-zone in 2011, and the exchange rate of the domestic currency will strengthen moderately relative to the current level. Hence accession would take place at a HUF270/EUR conversion rate. The long-term interest rates will keep converging to the GMU interest rate level, and the Maastricht interest rate criteria will be met by 2009 at the latest.

Branch characteristics of employment Our forecast for the branch growth (gross output) indicators is based on aggregate growth prognoses. Further restructuring is expected in the long run, which will determine the branch differences in productivity and hence also the development of employment. The performance of the various branches is determined to a fundamental extent by foreign capital inflow, technology development









investigated the changes in branch performance also in an international outlook. These parameters must be taken into account in order to draw up a well-founded structural forecast. The final consumption data provided by the aggregate growth models can be distributed among the branches with the help of the Input–Output Tables (Hungarian abbreviation: ÁKM). Our branch forecast was made on the basis of demand projections and the earlier ÁKM coefficients.

Competitiveness and branch restructuring On the basis of the competitiveness analysis of the ECOSTAT Institute for Economic Analysis and Informatics, it is possible to identify so-called progressive (leading) and regressive branches, that is, sectors characterised by more differentiated dynamic growth or regression than the average. Our experience, however, is that the research results are also influenced by the highly politicized and often short-sighted measures of individual governments, associated with the election cycles, which they have to adjust to the realities subsequently. Therefore, in order to make such analytical results and prognoses suitable for designing longer-term government policies and even reform moves, they need to be “filtered” also in terms of the longer-term prospects. A 15

similar attitude and approach is required for certain employment policy issues which can only be solved in the longer run, such as the employment of the youth. Accordingly, we examined the valid long-term lessons and results of our competitiveness analyses interpreted originally mainly for a shorter period as a potential basis for longer-term measures and arrangements to promote the employment of the youth. The various economic actors are in very different positions in terms of international competitiveness. Some branches are more, others less affected by this challenge. In order to highlight the prospects of the business organisations to stand their ground in international competition, we shall present their distinguishable groups in detail. We analysed the competitiveness of the sub-industries and special branches of the manufacturing industry for the first time on the basis of the parameters of the period of 1997-2000. We used the data of identical sectors of two country groups as reference base for the investigation. One group (taken into consideration as bottom limit) consisted of the Czech Republic and Bulgaria, two representatives of the countries, including Hungary, preparing for accession at that time. The other group (setting the upper limit) was represented by the three old Member States performing best in the given industry (that is, the EU Top 3 in the given branch). It was established on that basis that, in the base period, none of the manufacturing branches would have been fully competitive on the internal market of the enlarged European Union. To find such entities, we had to dig deeper in the analysis, to special industry/production branch level. Analyses at this depth identified 2–3 organisations in almost every branch of manufacture that could be regarded as competitive in the period under study. More recent analyses based on data for 2002-2003 – when, under the impact of the promises made during the last Parliamentary election campaign, wages in Hungary rose significantly compared to those of the rival countries – showed that the circle of competitive sub- and special branches narrowed considerably as compared to the base period. Owing to the relatively low wage levels of the 16

competitors in the neighbouring and especially the Far Eastern countries, to date, almost every branch of the leather and shoes and textiles and clothing industries qualify as clearly regressive. Owing to the economic trends and the forceful increase in energy prices, some of the previously competitive special branches of the manufacture of basic metals and fabricated metal products and of the construction. It has also become obvious that we have lost some of our earlier positions in engineering (due partly to the increase in wage costs and the insufficient reserve pool of skilled workers, and partly to the outdated infrastructure, in particular low innovation expenditure and moderating demand, making their effects felt primarily in one of our leading industries, on the European automotive market). Some improvement and competitiveness growth occurred in the chemical industry only. Another group of competitive branches (worth highlighting) of importance for the Hungarian economy was that of agricultural companies and of the food industrial enterprises built on their output. As is well known, Hungary has a significant competitive edge in this area (traceable mainly to quality parameters) due to its favourable natural endowments. It is also widely known that Hungary’s accession to the European Union on 1 May 2004 has brought about significant changes in these organisations. In contrast with industry, where the elimination of the customs borders and the opening of the markets to the Union Members had occurred years ago – and hence the declaration of our de jure membership caused no promptly felt changes –, in agriculture all this – and problems due to lack of experience at the time of the actual entry into force of the single market regulations and the aid systems, to make things worse –, has brought about rather noticeable and novel changes. In the earlier analyses of these changes, many analysts, including ECOSTAT, pointed out that the field-growing of plants, and horticulture represented an agricultural segment the enterprises of which could be competitive in the long run, as opposed to animal husbandry, the plants of which were bound to be the unqualified losers of accession. The situation, however, was not as blackand-white as that: companies having shifted to products enjoying the support of the EU or to production methods (bio-production) given preference by it will 17

enter the Single Market with definitely good chances. The results of the period of







concerning animal husbandry almost fully. As for the plant cultivation prognosis, some new circumstances have come into play. One of the – partly expected – problems is the stalling operation of the brand new subsidy system, causing temporary financing problems to the farms (especially the smaller ones). This is attributable to the danger, also predicted by us, that in plant cultivation and horticulture only the large plants exploiting their economies-ofscale advantages can hold their own on the single market of the EU subject to fierce competition. Another revelation in connection with the first year, expressed less frequently before, was that problems due to occasional over-production by Member States with arable land mainly in the same climate zone as Hungary might shock the EU intervention purchase system which used to function well on the previous smaller scale. The novel concerns of agriculture concurrent with Hungary's EU membership, which can only be solved over a period of several years, in combination with the negative effects of some other unregulated issues (let’s just think of the ill-famed “red pepper forgery” events or the problems of the beekeepers which they tried to highlight by their recent Brussels demonstrations) temporarily shook the positions of several of our previously competitive food industrial special branches, the restoration of which will demand much expenditure and time. It is to be expected that under the impact of EU measures the difficulties of undertakings active in the production infrastructure and in production services may intensify. Consequently, on the one hand, part of the companies concerned may be terminated, and hence the number of their employees is likely to decrease. On the other hand, in addition, competition emerging there may affect the positions of companies in other branches, those in the competitive sector included. As for the contrary processes, prices may be expected to increase initially (if only to guarantee the possibility of reproduction for the domestic or relocating 18

enterprises through the recognition of the depreciation costs), and to decrease in a perspective of several years only. As a result of the above, it is to be expected that, in the longer term, the production – and hence the employment – capacities of our competitive branches identified earlier will undergo further marked decrease. This is corroborated, by the way, by the examples of several countries in the category of medium-sized cohesion countries of the same order of magnitude as Hungary, having joined the EU earlier (Ireland, Portugal). This means that, within manufacture, we can indicate no more than 3–4 sub-branches that will be dynamic leading branches (producing growth rates of hundreds of percents even in the longer run) in the future, too, whereas the number of branches undergoing fast regression will keep increasing. As for the other manufacturing industries, most restrained growth (at 2-3 percent annually) seems likely, depending primarily on the development of the internal demand. The leading industries are no exception to the so far hardly recognised fact that, for a branch to remain successful in the long term, its large enterprises must enjoy business conditions that are better than the international average. This requires an adequate infrastructure and investment- and innovationfriendly measures and, furthermore, an economic policy implying such labour supply, further training, wage competition and tax policies as will produce a fair increase in corporate burdens, proportional with performance improvement, in the sector concerned. One of the most important conditions, if only on the basis of the experiences of the recent past, is that wages should increase in proportion to productivity. Consequently, the potential circle of manufacturing industries capable of keeping up their high performance in the long run can be defined on the basis of the rank order of the productivity and profitability indicators of large enterprises by sub-branch (on the basis of the available data), taking into consideration also the trend and pace of their development in the past years. The results can then be matched against the corresponding values of earlier international comparisons, to identify, after multiple checks, the few sub- and 19

special branches representing the potential targets of the economic policy outlined above. At first sight, the two engineering branches identified as leading industries earlier and in the international surveys, i.e. the manufacture of transport equipment, and of electrical and optical equipment, are in the vanguard also on the basis of data for 2003. Furthermore, the basic materials sectors of the chemical industry – the special branch of manufacture of coke, refined petroleum products and nuclear fuels included, despite its limits under the current circumstances – also rank topmost. The special branch of manufacture of electrical and optical equipment, one of the success branches so far, although still at the head of the productivity list, is now last among the first. However, considering the direction and pace also of productivity development, from among the two sub-branches, the manufacture of electrical and optical equipment will precede that of vehicles in the longer run. Within the profitability ranking of large manufacturing companies, the subindustries manufacturing basic chemicals are also in top positions, secured by the favourable trend and pace of their development. The first position is occupied by large enterprises active in the manufacture of other non-metallic and mineral products; their position being attributable in all likelihood to the uptrend in investment and construction demand triggered by Hungary’s accession to the Union, which will, hopefully, prevail in the long run. According to the primary profitability ranking, the manufacture of electrical and optical equipment and the activities assigned to the manufacture of paper; publishing and printing drifted to the end of the first third of the “field”. On the basis of their pace of growth in the past years (worth taking into account with a larger weight given the fact that they already reflect the effects concurrent with Union membership), both sub-branches could be up-rated, the same as the manufacture of coke, refined petroleum products and nuclear fuels, assigned to the second half of the field in the first round. On the basis of this indicator, the textiles industry would also belong to the vanguard, but its profitability development trend shows that in our days it already qualifies as a regressive branch. 20

On the basis of the aforementioned results and inferences, the following are the leading manufacturing branches, competitive in the long term: •

manufacture of electrical and optical equipment

manufacture of chemical industrial basic materials (plastic basic materials, plant protection agents, paints);

manufacture of non-metallic minerals;

paper, printing, publishing and, finally,

conditionally, subject to further investigations, the manufacture of coke, refined petroleum products and nuclear fuels.

Depending on the outcome of the integration of agriculture in the European Union, plant cultivation, and some food industrial special branches strongly depending









employment may be expected to increase in these special branches. That is to say that in the following years the same special branches may also be the engines of employment growth.

Branch prognosis Branch performances can be forecast on the basis of long-term forecast of the consumption side of the GDP balance, combined with the data of the InputOutput Tables (ÁKM). The prognoses of household consumption expenditures, public consumption, investments and exports indicates, in combination with correlations identified in the past, the growth potential of individual branches. For, according to the initial assumption, branch expansion is determined by the type of the growth course (i.e. export-driven or domestic-consumption-driven), and by the growth share of the given branch.

Structural characteristics of employment Labour market development is always governed by a significant number of factors. A lot depends on the economic policy of the country, and on the degree of priority of employment within it. In the context of accession to the European Union, the governments must (should) put more emphasis on this issue than before. On the one hand, because employment promotion is one of 21

the priority objectives of the European Union – the Union leadership sees this as the main instrument of solving the social problems. In addition, the EU has a backlog in this area relative to the United States, and President Barroso urged the members of the community to work that off. At the same time, the European Union expects its members to solve their employment problems, but not to the detriment of one another – that is, every country should be able to offer a sufficient number of jobs to keep their citizens at home, lest they should flood the labour markets of the other countries. This is the reason why most former Member States requested derogation from the rule of the free flow of labour at the time of the accession of the ten new members, hoping that in 5 years’ time, large-scale "social migration" from the new Member States, motivated by the earnings gaps, would be over. We shall present the changes to be expected along the various dimension of employment based on expert estimates. We shall dwell on –

employment differences attributable to enterprise size;

age gaps in the labour market;

changes in terms of company ownership forms;

regional differences; and

the spread of the so-called atypical forms of employment in Hungary.

The future of atypical employment The future of atypical work is a chapter on its own. From 1997 to 2004, the rate of persons employed under one of the three forms of atypical employment subject to measurement by the statistical offices (part time work, fix-term contract, self-employment) relative to the total population of the employed by and large stagnated in both Hungary and the European Union. In Hungary, their rate fluctuated at around 25% and in the European Union at around 46%. The marked difference is due to the fact that in Hungary the rate of part-time and fix-term employment is much more modest than in the Union. (The picture, however, is not complete, since Eurostat does not measure such important forms of atypical employment as distance working and labour hiring, covered by our analysis.)


In the longer term, the nature of work will change radically globally. The economic environment saw radical changes in the last decade. The markets have become increasingly unstable – for most enterprises –; the changes accelerated, and information technology experienced rocketing growth. The traditional capitalist economic system, in which the form of employment regarded as ‘traditional’ today was the rational alternative, is being driven back. Enterprises need to be able to adapt the size of their workforce flexibly given the possibility of outstanding fluctuations in the demand for their products. This is feasible through such non-standard forms of employment as fix-term employment, self-employment or labour hiring for that matter. Large-scale production equipment is still important, but to a decreasing extent. The run-up of intellectual work, the downsizing of production equipment and the progress of information technology will boost the dynamic spread of distance working. Moreover, information technology creates passages from one vocation to another, and the knowledge of the workforce becomes less company-specific: they will find it easier to move on to another employer, without risking a significant decrease in earnings. Looser attachment on the part of both the employer company and the employee, i.e. preference for the atypical forms of work, will be the rational solution. Companies tend to appreciate flexibility, the easy adjustment of the number of employees to the continuously changing market demand, more than ever. Therefore, they are likely to employ less people under the traditional forms, and more in the more flexible atypical ones. Drastic changes will come, but currently we are in a stage of transition, and the bulk of the developments concerned will only occur in 15-25 years’ time. Their slow pace is due to the fact that although the transformation of the economic environment would already make the use of atypical forms a rational alternative (e.g. volatile environments: fix-term contracts for a project period; better telecommunication: distance










managements has not adapted to the new situation yet.


The opinion of enterprises on the future of employment Finally, to confirm the assumed tendencies, we asked 200 large and 600 small and medium-sized companies about their employment plans. The returned questionnaires projected the following image: According to almost one fourth of enterprises, employment will stagnate in the next 10 years or so, that is, they forecast essentially unchanged headcounts in their respective companies. 7-8% of respondents could give no headcount forecast for such a long period ahead. As for the remaining two thirds, approximately 50–50% project staff increase and decrease, respectively. Within the 33% expecting decrease, 2.5% consider a major and 28.2 a minor staff decrease likely, and another 2.5% expect to wind up their activity. A major part of prospective staff losers indicates as main reason not the contracting of the market, but smaller staff demand due to technical developments and enhanced efficiency. As for the structure of employment, the enterprises mention the changes to be expected in the qualifications structure in the first place. Almost half of companies expect the average qualification level of the employed to increase further, and the under- or unqualified to be ousted from the labour market in even higher proportions than so far – even though the employment rate of this stratum is very low already in Hungary anyway, according to the international statistics. A major part of employers expect changes in the age composition of the workforce in the following 10 years. Surprisingly, however, although it is commonly known that enterprises take major efforts to enhance the flexibility of the labour market, relatively few, less than one quarter of respondents, are of the opinion that the forms of employment would also undergo a reshuffling over the 10 years under study. That is, some 23% of enterprises expect an increase in the share of atypical employment (distance working, part-time work etc.) within employment overall. More than half of enterprises think that the qualification of the potential workforce does not match the demand of the companies. 23% actually expect


the emergence of bottlenecks, especially in the area of skilled worker training. A minor part of companies, 17%, on the other hand, think that, in the more distant future, both the structure and quantity of the available workforce will be sufficient and adequate for the active enterprises. As for the priorities of corporate employment policy in the next 10 years, the one indicated most often is the need to raise the level of qualifications. Lower average age, increased flexibility, i.e. transferability, enhanced efficiency and the adjustment of the headcount to the demand ever are also mentioned frequently, but much less so. As for the business conditions of large enterprises in the leading industries, it is also to be taken into consideration that support to promote their growth, state reliefs included, will not, in itself, lead to employment expansion. The experience is that large enterprises can only be expected to have an employment-boosting effect in a few leading industries characterised by dynamic output growth. As for the others, due to their insistence on productivity enhancement to ensure survival, significant staff cuts seem more likely. It is commonly accepted the world over that employment promotion as a government priority makes it necessary to provide extensive support to SMEs. Our analyses covering this circle of enterprises confirm that, even in the branches deemed regressive, in a normal economic trend context, the number of small and especially of start-up micro enterprises keeps rising and through that, as an extensive process, the number of the employed increases also. In Hungary, this process is currently most intensive in certain services branches. The above conclusion is supported on the side of international experiences by the fact that to date the performance indicators of the services sector already expand faster than those of the industry. In Hungary also, the typical features of the so-called post-industrial historical era have taken the upper hand. Consequently, the assessment of the employment promotion options should pay special attention to the typical features of this sector, especially the lower risk of external competition in some segments, and the lower productivity rates and slower pace of growth in some production branches. Furthermore, one 25

should not forget that part of the activities concerned require higher-level and more specialised skills than the production sectors branches which used to be decisive for development so far (and often demanded semi-skilled labour only). Therefore, it seems that the economic and, within it, employment policy serving the development of the country best in the longer term is one that focuses on what is needed for the improvement of the development and business conditions •

of large enterprises in the leading industries; and

of the SMEs in the other branches (regressive ones included).

In addition, employment policy should rely more intensively on some services branches and on the SMEs in almost every sector.

Research methodology The long-term forecasting of macro-economic aggregates, indicators, requires a comprehensive macro model suitable for integrating the forecasts concerned into a consistent system which, in turn, is suitable for stimulating the effects of the various economic policy conceptions. ECOSTAT developed for this purpose the macro-economic model called ECO-TREND which comprises in part behavioural equations to describe the economic correlations and in part account equations to ensure macro-economic consistency. The monitoring of the course and long-term development of sustainable growth, as well as of optimum allocation along that course, are of outstanding importance for economic policy, the goal being, in Hungary as elsewhere, to attain and maintain the maximum but still sustainable level of economic growth. This pace — estimated to be 2–2.5 percentage points higher in the next 10-15 years than the EU annual average growth rate – gives a chance for the economic performance of the country to approximate the EU average in the longer term.


At the same time, such growth implies well-defined requirements for the domestic demand, its distribution between consumption and investment and the dynamic of exports. Sustainable growth must be well-balanced. It is important that there should be no need for stabilisation programmes to restore the tilting balance, since these are concurrent almost without exception with demand-curbing measures. Demand-curbing, in turn, would put the brake on recent growth, impossible to sustain in the long-term without an increase in domestic demand. Of course, at this point, it is important that the growth of the internal demand should not deviate substantially from that of the internal supply. Another important criterion is that demand-curbing measures are in most cases accompanied by forceful investment demand cuts and that, in turn, moderates the potential GDP growth rate, of key importance for sustainable growth. The time series available in Hungary are not long enough for the econometric assessment of the parameters of every equation in the model and, therefore, the inclusion of the necessary parameters into the model must rely to a significant extent on expert estimates and experiences, including clues provided by countries in a situation similar to that of Hungary. The ECO-TREND parameters are produced by a combination of estimates based on stochastic equations, past experience and expert estimates. This method could be called calibration, and the resulting system, accordingly, a

calibrated model. This method has the disadvantage of not being based on an exact procedure, as our estimation functions provide only a point of departure for the parameter values. Consequently, the forecasting capacity of such models is limited, since the distribution of the estimated parameters is unknown and hence, for example, neither can they be tested by the traditional methods. It is an advantage, on the other hand, that they show remarkable stability in terms of the development of exogenous variables. This is attributable to the fact that the model is not re-estimated upon the alteration of the exogenous variables, since the values of the function parameters are not defined on that 27

basis. The reason why this is significant is that, in the context of scenario analysis, the cases to be compared are distinguished, from the point of view of the model, exactly by the difference in exogenous variables. This is even more so if the scenarios are prepared for the medium or long term. For, in this case, there may so marked discrepancies between such estimates provided by the estimated models for the endogenous variables as would make their comparison impossible. The exogenous variables of the model partly describe the development of the global economic environment, something that can be regarded as a given for us, and they are partly explanatory variables of the economic policy itself. The model also includes several parameters characterising the conduct of economic actors. The development of the typical variables of the external economic environment must be based on expert estimates, whereas the explanatory variables of economic policy represent fiscal and monetary policy conceptions associated with the given scenario. The parameter values are defined on the basis of estimations based on statistical time series and on past experience and expert estimates. The values of the endogenous variables of the model evolve during the dynamic simulation runs, depending on the exogenous variables and actual parameter values. Its database relies on the system of national accounts. The model has the additional advantage that the user can change the calibrated parameters at will, and hence perform the necessary scenario analyses quite easily. The model distinguishes four main sectors: the household sector, the state sector, the corporate sector (including the financial sector) and the external economy sector. On the production side, the economic models assume that the GDP equals value added by the economic sectors plus product taxes. The economic models identify the new value with the mass of products and services, i.e. the total value involved in inter-sectoral trade or available for consumption or accumulation to the economic actors.


The GDP can be described in three ways: in terms of output, revenue or final consumption, and these will produce the same results in a closed economy, since the same volume is distributed according to different criteria. If, however, the model takes into consideration also the external economy, the domestic final consumption and the revenue will no longer correspond to the domestic output. For, in an open economy, there is a difference between the domestic output and final consumption, which corresponds to the external commodity and services trade and is posted in the balance of payments on current account under the line of commodity and services. Looking at it from the other side, the output is the source of all revenues of the economy for, this is the value-amount which can be shared among the business entities and which appears in the economy (e.g. through the mediation of the financial sector and the state) as final consumption. The first block of the model defines constant-price GDP from the side of the

demand. This is followed by the conversion of constant price data to current price ones. To do so, we need a price–wage block, in which indexes are defined for the consumer, producer, investment and export and import prices, respectively. The price–wage block is linked to a block describing the supply and demand conditions of the labour market. The next block defines the primary distribution of revenues among the four sectors indicated above. Income can be divided into various factors (labour wages, capital incomes, product taxes), and it is distributed among the households, the corporate sector, the state (and non-profit organisations) and the external economy. This sector classification corresponds to that of ESA95, with the simplification that it does not treat financial and non-financial companies apart. Then we calculate the disposable income corresponding to the parameters describing the redistribution of incomes. The gross savings of the sectors are provided by the calculation of allowances in kind and of consumption. Finally, the net financing demand of the sectors is calculated on the basis of the capital transfers and the accumulation of fixed assets. The categories of the


resulting income distribution balance correspond to the concepts used in the ESA system. The model blocks provide as output the annual forecasts of the macro variables under study, which are adjusted to the categories of the national system of accounts and hence provide results concerning the expected development of the real and nominal variables on the basis of a EU-conform measurement methodology.


Labour force structure until 2015

‒ Judit Ádler

1. The research assignment Under Point 1.2 of the Human Resources Development Operational Programme a research programme could be implemented to study the development trends and conditions of the volume and structure of labour force demand and supply in the longer term. Several research companies took part in the project, dividing the specific tasks among themselves in advance, and GKI Gazdaságkutató Zrt. (GKI Economic Research Co.) was responsible for the ‘1.2.13. Labour force demand forecast until 2015, by branch’ research within the whole research chain. The branch labour forecast until 2015, which relies on the previously prepared macroeconomic projections, takes into account the international and Hungarian methodology findings of structural labour force projections and the results of modelling of the branch structure of employment of the Hungarian economy, may be considered an interim component of the research chain. At the same time, it also represents basic input material for the development of a further, deeper, employment structure. This study summarises the main results of the ‘Labour force demand forecast until 2015, by branch’ research. The research programme ended in November 2006, and the events since then have not contradicted the findings of the research project, but we are still at the beginning of the analysed period. GKI Gazdaságkutató Zrt. had to make projections for the employment ratio, bearing in mind the impacts triggered primarily by technical and technology development in its branch labour force demand projections, not only in terms of the total labour force demand of the economy, but also in relation to the employment structure. Various aspects of the structural changes may be analysed; this research made assumptions for modifications by branch, staff category and region.


2. Methods applied in the research The applied methodology can be broken down into two parts. In the first part, the initial matrixes were established for the calculations and quantitative estimates. One of the two basic matrixes contained the number of employees broken down by branch and by site/headcount category of employers. The other initial matrix also contained the number of employees, in a branch and regional breakdown. The distribution of employees by region and site/headcount category was calculated from the matrixes. The initial matrixes were filled with data by processing the database prepared by CSO (Hungarian Central Statistical Office) provided to us by the client. Then we had to identify the methodology for preparing the two matrixes (2010 and 2015) required for the projection. In the second part, the method of projection of the quality factors affecting employment was defined. In this context we estimated the impact on employment of the pace of technical and technology development, changes in performance, modification in the owners, wages, geographic position of employers and qualifications of employees.

2.1. Establishment of the initial matrix The database used for data processing contained the number of employees in 2005 and was created on the basis of consultations among CSO, 3K Consens Office and GKI. In the framework of data processing, GKI Zrt. prepared the matrix, representing the starting point of the research, based on the 2005 annual survey of business organisations conducted by CSO. This survey included the data of a fully comprehensive survey of companies operating with more than 50 employees, as well as the ‘fully extrapolated’ data of a sample-based survey of smaller enterprises. The database contains data of sole traders and corporate enterprises with or without legal entity, budgetary and non-profit organisations, but it does not contain the data of the approximately 200 000 agricultural producers.


The database contains the head office and (if applicable) the sites of the active business organisations listed above, having at least 1 owner or employee working for them. Thus, the database contains the employment data of 809 603 sites altogether. The columns of the matrix prepared from the database contain 5 staff categories, the rows consist of 21 branches, and the cells reflect the number of employees, processed by site. The contents of the 21 branches are different from the classification used by CSO for the purpose of the more accurate planning of the occupational structure, to be completed in the next step. The projection was prepared with an iteration process. The quantitative projection of headcount changes was developed based on the expected macroeconomic processes, the EU objectives and support policy for employment and economic development, the joint consideration of the internal business practice and social relations, as well as the opinions of the branch experts. As the purpose of the branch employment projections is also to provide a basis for the projection of the occupational structure, which is the next step in the research chain, we shall describe our experiences collected in relation to changes estimated according to the aggregate employment structure and level of school qualifications by branch (these latter ones are described as quality features).

2.2. Projection of factors influencing the employment status of the branch While reviewing the conditions affecting employment, we relied on the results of the technical literature and other research activities, and identified the criteria which must be evaluated for preparing a projection and then the factors required for their qualification. The so-called ‘factors’ assigned to the individual criteria served consistent information collection and analysis, and in fact represented the breakdown of the criteria into details, and their interpretation. That is, to project a more consistent image of the general description, the individual criteria are analysed according to a standard set of factors. The following criteria and factors were applied in the research:



criterion: direction and nature of technical and technology development,

impact on the employment capacity of investment and development projects triggered by them, with special consideration to the EU resources made available for such purposes. Factors: − Speed of technology change in the branch − Nature of the new technology expanding or replacing work − Estimated increase in support for branch technology development (support of branch

investments expressed as an



the New


Development Plan). 2nd criterion: geographic location Factors: − Geographic location typical of a specific branch. − Impact of road and railway infrastructure development on the development of the branch. 3rd criterion: expected circle of owners Factors: −

Share of state ownership.

Potential decline of state ownership.

4th criterion: impact of wages on employment Factors: −

Personnel expenses in the branch.

Distance between the minimum wages and the average wages of the branch.

5th criterion: expected changes in performance


Factors: −

Expected change in the performance indicator having the closest correlation with the number of employees of the branch (GDP, natural performance indicators, etc.).

2.3. Quality features of employment in the branch The ultimate objective of the research chain was to come up with an employment occupational demand projection; therefore, we collected aggregate information on the estimated changes in the process also in this research. Among those, we focused on changes in the level of qualifications and of the vocational qualifications features. − There will be no change in the occupational/employment structure − The share of unskilled and skilled work will change − Certain trades/occupations will disappear − New trades/occupations will appear − The

contents of

previously existing trades/occupations will


fundamentally − The level of qualifications be higher − The level of qualifications will not change − The level of qualifications will be lower

2.3. Synthesis of the quantitative and qualitative analysis and projection The quantitative features of employment were described in the first step of the branch description. In the second step, we reviewed the estimated changes of conditions by branch, followed by a detailed evaluation of the branch by corporate size in the third step. Companies of various sizes within the branch were analysed according to the employment structure, and the expected development of the qualifications. In this part we shall highlight the criteria analysed in the second part where the expected tendency is significantly different from the general tendencies based on company size.


3. Main features of the starting position The initial matrix prepared with the methodology described above contained 3 963 000 employed persons, which was slightly higher then the CSO Labour Force Survey (LFS) figure published for 2005. The discrepancy was the result of the different estimation methods, and it is not relevant in terms of the message of the projection. The initial matrix describing the situation in 2005 by branch and site employment staff categories shows specific condensation points. These developed in relation to the technology and work organisation characteristics, as well as economic constraints. The correlations described below relate primarily to legal employment. We ignored the distorting effect of black employment in the description of the actual situation, but we assumed a small degree of whitening in our projection.

3.1. Branch and size categories Condensation points can be observed in the employment structure both according to site categories and branch classification. The most important of these points are the following: − The largest employment branch is trade, which is predominated by small enterprises; the weight of this branch is inversely proportional to the size categories. − The second largest employment branch is public administration, which is also dominated by the smallest size categories, but their dominance is not as high in this branch as in trade. In the public administration branch, the two largest categories are major employers, too. − The third largest employment branch is business services, which is strongly dominated by small organisations. − The ranking of employers with 1-9 employees follows from the above: trade, business services – but construction industry occupies the third place, before public administration.


− Employers operating with 10-19 employees have the lowest share in total employment by size category. This organisational size applies primarily to trade, followed by the construction industry and business services. − Employers









employment share in the economy. This category is typical in trade, in the construction industry and in public administration. − Employers operating with 50-249 employees are ranked in the middle according to their share in employment, and such organisations typically operate in public administration and education, as well as in the energy branch. − Large organisation are typical in the health branch, the manufacture of office equipment and computers, of precision instruments and communication technology, as well as in the transportation, warehousing, postal and communication branches. In terms of staff category, employment is highest in the segment of organisations with 1-9 employees, concentrating 35% of the total headcount figure, followed by the large business organisations with 23% and those at the upper end of the medium-sized companies with 20.6%. The employment share of the last two categories has remained significant, even if they have lost quite a lot of their importance in the past fifteen years. It is striking that, despite the declared intentions, the small and medium-sized business organisations could not break through, at least in terms of employment. It is notable that employment in organisations with 10-19 and 20-49 employees is not dominant in any branch. The employment-rate-improving impact of the organisations in the lowest category of small and medium-sized enterprises based on size is much more an illusion than reality. As the figures of the table indicate, in terms of employment capacity, the Hungarian economy was driven by services already in 2005.


Table 1. Breakdown of employees by branch and staff category, 2005 breakdown basis = 100 % 1-9

10 - 19

Food, beverages, tobacco



Clothing and leather products




Textiles 0.09 Wood 0.56 Printing, publishing 0.42 Metallurgy, metal-working 0.50 Manufacture of office machinery and computers; electrical machinery and 0.30 apparatus; telecommunications equipment Manufacture of machinery, transport 0.29 equipment Construction 3.42 Building material industry, chemical 0.29 industry Agriculture, forestry, fishing 1.09 Trade, repair, accommodation and 10.42 catering Transport, warehousing, communication, 1.91 post Electricity, gas, steam, water supply 0.09 Financial and insurance activities 1.20 Real estate 1.53 Business services 5.12 Education 0.84 Health and social care 1.29 Entertainment, culture, sports, other 1.74 services Public and general administration, 3.24 interest protection Total 35.0

0.07 0.22 0.14 0.45


20 - 49 50 - 249 persons 0.60 1.12

250 -







0.11 0.32 0.23 0.58

0.22 0.40 0.36 0.84

0.32 0.21 0.26 0.58

0.8 1.7 1.4 2.9




































0.10 0.31 0.33 0.77 0.10 0.10

0.31 0.37 0.39 0.81 0.67 0.27

0.57 0.54 0.35 1.23 2.80 1.42

0.61 0.47 0.12 0.98 1.61 3.38

1.7 2.9 2.7 8.9 6.0 6.5
















Source: CSO Special processing 2006 Highlighting by column: bold, highlighting by row: blue colour

3.2. Branch and region Concentration is strongest in a regional comparison: nearly 40% of the employed are to be found in the Central Hungarian Region, and the rest are divided relatively evenly among the other regions. The driving branches of the Central Region include trade, repair, tourism, business services and public administration. Trade is in first place in employment in all regions, followed by public administration in second place.


Based on the absolute dominance of Central Hungary, this region is the largest employer in the majority of branches. Only the agriculture and food industry are exceptions from this rule, where employment is highest in the Southern Great Plain Region. Apart from that, the textiles, clothing and leather industries are dominant in Northern Hungary.


Table 2. Breakdown of the number of employees by branch and region, 2005 breakdown basis=100 %


Food, beverages, tobacco

South Central Western ern Northern Souther Central Northern Transdan Transdanu Trans Great n Great Hungary Hungary ubia bia danub Plain Plain ia 0.7 0.3 0.5 0.3 0.4 0.6 0.8



Clothing and leather products









Textiles Wood Printing, publishing Metallurgy, metal-working Manufacture of office machinery and computers; electrical machinery and apparatus; telecommunications equipment Manufacture of machinery, transport equipment Construction Building material industry, chemical industry Agriculture, forestry, fishing Trade, repair, accommodation and catering Transport, warehousing, communication, post Electricity, gas, steam, water supply Financial and insurance activities Real estate Business services Education Health and social care Entertainment, culture, sports, other services Public and general administration, interest protection Total

0.2 0.4 0.7 0.7

0.0 0.2 0.1 0.7

0.2 0.3 0.1 0.3

0.1 0.2 0.1 0.2

0.1 0.1 0.1 0.5

0.1 0.2 0.1 0.3

0.1 0.2 0.1 0.3

0.8 1.7 1.4 2.9

































































1.5 1.4 4.9 2.1 2.2

0.2 0.2 0.8 0.6 0.6

0.2 0.2 0.7 0.5 0.6

0.2 0.2 0.5 0.7 0.6

0.2 0.2 0.5 0.6 0.8

0.3 0.3 0.7 0.8 0.8

0.3 0.2 0.7 0.7 0.8

2.9 2.7 8.9 6.0 6.5

























Source: CSO Special processing 2006 Highlighting by column: bold, highlighting by row: blue colour

Apart from the items stated above, the various regions have significant employment capacity in the following branches: − Central Transdanubia (C TD): manufacture of office equipment and computers; electrical machines, apparatuses, and communication equipment, construction industry and business services.


− Western Transdanubia (W TD): similarly to the above region, it has a major role in the manufacture of machines and instruments, transportation and communications and business services. − Southern Transdanubia (S TD): education, construction industry and the health branch, − Northern Hungary (NH) : health branch, − Northern Great Plain (N GP): construction industry, education and the health branch, − Southern Great Plain (S GP): food industry, agriculture and the health branch. The role in employment of the branches operating according to the budgetary regulations has remained significant in the less developed parts of the country.

3.3. Size category and region Table 3. Breakdown of the number of the employed by staff category and region, 2005 breakdown basis=100 % 1-9 persons 10 – 19 persons 20 – 49 persons 50 - 249 persons 250 – persons Total

CH 13.6

C TD 3.6

W TD 3.5

S TD 3.1

NH 3.2

N GP 4.0

S GP 4.0

Total 35.0

























9.5 36.8

2.8 10.9

2.6 10.4

1.7 8.7

2.2 10.0

2.4 11.9

1.9 11.3

23.0 100.0

Source: CSO Special processing 2006 Highlighting by column: bold, highlighting by row: blue colour

Central Hungary is the biggest employer in every staff category, and organisations with 1–9 staff predominate in every region The unhealthy dominance of the Central Hungarian region in employment is even more marked based on sites than based on registered seats. This dramatic concentration could even be considered a barrier of economic development, because it puts an impossible infrastructural burden on the Central Region, absorbing the development resource from the other regions of the country.


The differences in the regional distribution of employment have intensified under the impact of foreign direct investments to Hungary in the last 10-15 years [Antalóczy – Sass 2005]1, while the majority of the levelling resources operated in a dysfunctional way. Based on this, we have to answer the following questions in the future: −

Is there any chance of having a slightly more even employment distribution in the next 10 years?

Will the changing conditions enforce any reduction in the dominance of the Central Region?

Will the size structure of the business organisations shift in favour of the medium-sized and larger organisations?

Will the modification tendencies of the branch structure observed for years continue?

4. Situation projected in the level and structure of employment for 2015 In our research we analysed the period between 2005 and 2015 aggregately, in two periods (2005–2010, 2011–2015). The study contains only those conclusions which apply to the whole period. We projected slower employment increase and restructuring in the first period than in the second one. Between 2005 and 2015, the total number of the employed will increase by 5%, or by 0.5% on annual average, involving employment expansion by approximately 200 000. There will be no change in the correlation between GDP growth and employment increase compared to the previous situation: a relatively significant GDP growth will involve moderate employment increase, and development remains intensive. In the middle of the 2005-2010 period, some of the restrictive measures and reforms


at the







1 Katalin Antalóczy – Magdolna Sass: A külföldi működőtőke-befektetések regionális elhelyezkedése és gazdasági hatásai Magyarországon (Regional breakdown and economic impact of foreign direct investments in Hungary), Közgazdasági Szemle, 2005 May


employment, but after that employment will increase for many reasons (development resources invested from abroad, repeated increase in internal demand). The employment rate is expected to grow by 1.8% between 2005 and 2010, representing 0.4% growth on annual average. This figure involves approximately 70 000 new employees. Between 2011 and 2015, employment is expected to increase by 3.2%, representing a 0.6% growth rate p.a. The number of employees may increase by 125-130 000. The balance of the economy will hopefully be restored by 2010, and economic growth may be slightly over 4% p.a. between 2011 and 2015. The EU resources will be available and used according to their objectives and the development interests of the country. Most resources will be used between 2013 and 2015, in view of the fact that the account settlement period finishes in 2015.

4.1. Branch and size category Among the branches of the national economy, the light industry and the food industry will lose their employees with the highest dynamism over the reviewed period. Light industrial workers will lose their jobs in relation the strong Far Eastern competition, while food industrial employees will be the victims of continuous automation satisfying the high quality requirements of food processing. On the other side, business services, the construction industry and services related to recreation activities are expected to produce the most dynamic employment capacity increase. The different growth rates observed in the different branches will completely restructure their respective employment shares. The largest employment branches are trade, repair, catering and the accommodation service branches both at the beginning and at the end of the period, increasing their share by 1.8%. Public administration, social security and interest protection, initially in second place, will drop to third place, and lose 1.3% of their share. The business services, which initially lay in third position will come up to second place, with the highest, 2.9%, overall increase in their share in employment.


In terms of proportions, most employees will be released in public administration, as indicated above, followed by the food industry and agriculture between 2005 and 2015. The business service providers, the trade branch and the construction industry will witness the largest increase in employment ratio. Table 4. Increase of the number of the employed by branch and staff category, between 2005 and 2015, total, % 1-9

10 - 19

Food, beverages, tobacco


Clothing and leather products Textiles Wood Printing, publishing Metallurgy, metal-working Manufacture of office machinery and computers; electrical machinery and apparatus; telecommunications equipment Manufacture of machinery, transport equipment Construction Building material industry, chemical industry Agriculture, forestry, fishing Trade, repair, accommodation and catering Transport, warehousing, communication, post Electricity, gas, steam, water supply Financial and insurance activities Real estate Business services Education Health and social care Entertainment, culture, sports, other services Public and general administration, interest protection Total


50 - 249

250 –


20 - 49 persons 76.0










63.0 72.4 82.8 63.8

59.5 68.5 82.5 74.2

62.2 75.7 83.9 78.9

72.5 76.7 86.2 85.1

76.0 74.0 84.3 81.0

70.3 73.7 84.1 77.8













109.2 63.8 78.2 110.5 83.3 93.1 108.5 102.5 127.7 96.0 109.2 112.4

142.5 64.0 76.0 114.6 88.0 93.1 107.1 103.7 133.2 89.3 84.0 115.6

161.8 77.5 83.3 120.2 90.2 93.5 106.0 107.4 154.1 92.0 99.3 132.3

157.3 92.1 97.7 134.4 104.0 102.0 109.9 105.3 156.0 101.5 114.7 144.0

147.5 96.0 92.7 129.8 104.0 103.5 108.2 108.1 168.8 99.5 114.9 135.7

129.7 86.1 86.7 115.5 95.9 100.0 108.2 104.0 139.0 98.9 112.6 121.8














Source: GKI Zrt. calculation

The manufacturing branches – with the exception of the manufacture of office equipment



telecommunication industry







– will lose some of their staff partly in relation to

competition, and partly as a result of the crowding-out effect of technical and technology development and increasing performance requirements. In terms of staff expansion, the construction industry and business services will take the lead. The first will have important tasks in the implementation of the New Hungary


Development Plan. Staff expansion in the business services branch will be fostered by the relative cheapness of highly qualified intellectual work in Hungary compared to the developed countries, and the further EU enlargement on the Balkan peninsula will also push the demand for business services towards the East. The regulatory and control factors also play an important role in the development of the extent of legal employment. These are expected to contribute to whitening the employment. Among the branches of public services, the headcount figure of public administration and interest protection will reduce relatively dynamically, while the number of employees in the educational branch will decline in relation to the public administration reform and the restructuring of the regional management system, a decrease of the number of children and the restructuring of higher education, which is currently in progress. New employees will be needed in the health and social branches for several reasons (in relation to the reduction of excessive overtime; the increase of the now insufficient specialised nursing capacities, and an increase in the tasks of care for senior citizens). As the problems triggering financing problems in the health branch are repressed (unreasonably high medical expenses, inadequately controlled use of services), Hungary will hopefully develop a new structure in its health branch, which has a higher capacity to employ people. The various branches operate with various sizes partly because of the specificities of their activities, and partly because of economic constraints. We prepared our projection assuming that the employment capacity of the typical branch-specific staff size category will increase. In a few branches, for which the best example is the construction industry, the employment capacity of the non-specific staff size category will also increase, primarily if some of the currently undeclared employees will be registered. Looking at the staff size categories, growth is expected in all segments. Among the micro enterprises, this will mean stagnation, mostly. The largest increase is expected among the companies employing 50-249 staff, belonging to the upper part of the medium-sized category. As the companies of this category can still


apply for support available for small and medium-sized enterprises, numerous larger enterprises will be split into parts in order to fit into this category. The differences reflected in the growth rates will cause major proportional changes at two points: while the employment capacity of micro organisations will drop by 1.5 percentage points, that of the companies employing 50-249 staff will increase by 1.1 percentage points. The half-percentage-point gain in the organisations operating with more than 50 employees is important in terms of the employment concentration increase.

According to staff categories, the employees of organisations with 1-9 staff will continue to form the largest group, but their total number and overall share will decrease slightly. Most probably this will remain the Number 1 escape route for employees made redundant in larger organisations, and there will also be ‘deadend’ enterprises on the market, which are not capable of developing at all and will most probably disappear after their owner gets too old to maintain the business. The share of the trade and certain business service provider branches, as well as of the construction industry, will continue to increase in this staff size category. The headcount figure and importance of the two small and mediumsized categories with 10-49 employees will rise slightly, but they will continue to remain less important in terms of employment. Organisations operating with 50249 employees or more than 250 employees have a better chance to obtain orders than those in the previous two categories. They can make a better use of the advantages of technical development and advanced work organisation procedures, and they also have a better chance to successfully participate in large public procurement tenders, as a result of which their share in employment will increase.

4.2. Branch and region We project some restructuring in the regional breakdown of employment increase in the whole national economy. The growth rate will be the highest in the two Great Plain regions, but that of the central region will also be higher than average. On the other hand, the growth rate and Central and Western


Transdanubia will be below average. The regional allocation of resources will remain similar to the current situation, but the differences in size will reduce. However, the advantages arising from the development of the transport infrastructure will be felt better to the east from the River Danube. On the other hand, we should not expect the start of any major regional equalisation, as the individual regions will develop in themselves, but the differences between them will prevail. Table 5. Pace of growth of the number of employees by branch and region, between 2005 and 2015, total, % Industry









Food, beverages, tobacco









Clothing and leather products









Textiles Wood Printing, publishing Metallurgy, metal-working Manufacture of office machinery and computers; electrical machinery and apparatus; telecommunications equipment Manufacture of machinery, transport equipment Construction Building material industry, chemical industry Agriculture, forestry, fishing Trade, repair, accommodation and catering Transport, warehousing, communication, post Electricity, gas, steam, water supply Financial and insurance activities Real estate Business services Education Health and social care Entertainment, culture, sports, other services Public and general administration, interest protection Total

68.5 70.7 83.2 76.5

68.4 73.0 85.7 77.6

72.3 75.3 86.2 76.2

71.6 75.3 84.5 80.1

69.7 76.8 83.0 78.6

69.4 74.3 86.0 79.2

71.1 74.2 84.9 78.8

70.3 73.7 84.1 77.8









































































103.4 135.3 96.9 114.0

104.8 140.9 98.1 111.4

105.1 146.2 95.5 110.4

102.0 144.4 97.8 113.6

105.2 144.1 98.3 111.1

104.6 142.4 104.3 109.9

105.5 143.7 103.5 114.8

104.0 139.0 98.9 112.6

























Source: GKI Zrt. calculation


Our calculations are consistent with the findings of other research projects, according to which the European support practices hardly reduce the regional differences within countries if the same economic conditions prevail, while countries converge with each other very little. [Nemes Nagy – Németh 2005]2 The advantages arising from the development of the transport infrastructure represent only a potential opportunity, as the actual improvement also requires concurrent favourable changes in other factors to the east from the Danube. [Németh 2005]3 Given the factors indicated above, the employment weight of individual regions will change only very slightly between 2005 and 2015. The employment share of the Central Hungarian Region will increase slightly, a 0.1 percentage point increase may be projected in the eastern regions, while decline will occur in the western regions, which practically reflects stagnation.

4.3. Size category and region The structure of employment by staff category and region is changing very slowly. The dominance of larger organisations is continuously increasing in the Central Region. The Southern Transdanubian and the two Great Plain regions are also gaining employment share in the upper medium categories (50-249). The number of employees in micro-enterprises in falling in all regions, and the similar tendency is expected in the central region in the next higher size category.

2 József Nemes Nagy – Nándor Németh: : Az átmeneti és az új térszerkezet tagoló tényezői (Breakdown factors of the temporary and new geographic structure), In: A hely és a fej Munkapiac és regionalitás Magyarországon (The place and the head: Labour market and regionality in Hungary), ed.: Károly Fazekas, MTA KTI Budapest, 2005. 3 Nándor Németh: Az autópálya-hálózat térszerkezet alakító hatásai – Magyarország esete (Impacts of the motorway network on the geographic structure – Hungary’s case), in: The place and the head: Labour market and regionality in Hungary, ed.: Károly Fazekas, MTA KTI, Budapest, 2005.


Table 6. Rate of increase of the number of employees by staff category and region between 2005 and 2015, total, % 1-9 persons 10 - 19 persons 20 - 49 persons 50 - 249 persons 250 - persons Total









100.9 103.1 107.3 110.9 108.7 105.5

100.0 96.2 103.2 111.8 106.6 104.1

100.1 97.3 104.0 107.4 106.8 103.5

102.3 103.9 107.0 108.3 106.0 105.1

96.6 106.1 104.4 111.3 105.1 103.8

100.7 106.2 106.4 111.2 107.8 105.9

101.1 104.9 106.0 112.0 106.0 105.6

100.4 102.7 105.9 110.6 107.4 105.0

Source: GKI Zrt. calculation

All in all, we have come to the conclusion that, under the combined effect of the influencing factors, modest structural changes will occur in the next ten years. Most changes will affect the branch structure, but the staff and regional distributions will also transform slightly. The New Hungary Development Plan does not indicate any fundamental changes in the fund allocation practice followed by the state. The behaviour of the business sector varies more, although the main tendency is adjustment to the established practice, yet new favourable opportunities are frequently taken there. Here are our answers to the questions asked at the end of point 3.3: −

There is very little restructuring in employment observed according to various dimensions.

The employment share of the Central Region will increase slightly between 2005 and 2015.

The size distribution of business organisations will shift slightly towards larger organisations.

The branch restructuring tendencies of the previous years will continue, i.e., the employment capacity of agriculture and industry will deteriorate, and that of the construction industry and the service branch will improve. Within the latter branches, the number of business sector employers will increase and the number of employers in the public sector will decline.


5. Employment and wages The employment effect of wages manifests itself in several ways. Since wages represent a cost factor and as such they influence the competitiveness of business organisations, employers try to treat them as economically as possible. As for the employees, wages represent the counter-value of their work, and may encourage or impede their employment. Beside rational economic considerations, other factors are also involved in individual decisions.

5.1. Wages as an expense The monthly payroll expenses of the business sector underwent a six-fold increase in nominal terms between 1992 and 2004 at companies employing at least 204 people, while consumer prices multiplied by 4.8 times. [CSO 2004]5 The wage increase was differentiated among branches, and it was more moderate in the branches of manufacture, construction, accommodation and catering, real estate and renting, and other services supporting business activities. The monthly payroll expenses increased in excess of the average in trade, in the energy sector, in the financial branch, and in the category of the transportation, warehousing, postal and telecommunications services. With the exception of the industrial branches, there is usually more link with black employment in the branches with a lower-than-average increase in expenses; one must not ignore this factor behind the moderate increase in the legal expenses. Rank order based on labour costs has changed slightly in the reviewed more than ten years. The first position of the financial activities seems to be absolutely solid, as the cost of employment is outstandingly high in this branch, in line with the international pattern. The energy branch has come up to second position, reflecting the European tendency and its good interest validation capability. The position of the manufacturing industry has improved slightly (from the 8th to the 6-7th position), but it is still significantly behind as compared to the EU rank order 4 Employers operating with fewer than 20 employees generally pay minimum wages. We shall come back to the issue of minimum wages later. 5 Source of conclusions about payroll expenses: A munkaerőköltség alakulása, 2004 (Development of labour costs, 2004), CSO, Budapest, 2006


(in the EU, in usually occupies 3rd position). Obviously, this was another factor motivating the increase in the foreign direct investments. Higher-than-average labour cost increase has brought up the transportation, warehousing, post and telecommunications branch to 3rd position. The changes were mainly due to the good interest validating position of certain parts of the transport branch as well as development in telecommunications. Regardless of their dynamism, the other branches were unable to substantially improve their respective positions. The impact of the labour costs on employment is not at all clear. In the branches enjoying a favourable economic trend context and growing without any fierce competition (construction, business support services) the increase in the cost of employment in real terms gets along well with staff increase. However, in industry and agriculture, the real-term growth of employment costs combined with technical development has a very strong staff crowding effect.

Some of the wage policy measures implemented in the public sector earlier will fall victim of measures to improve the macro-economic balance in the next few years but, after that, some recovery may be expected. The increase in minimum wages can slightly deteriorate the chances of people with low qualifications to enter the labour market.

In real terms, the costs of labour increased significantly in the manufacturing industry (based on producer prices), and the same tendency prevailed in the energy branch, at consumer prices.

The relatively significant real-term increase in employment costs between 2000 and 2004 was the overall result of the dynamic increase of wages and the low dynamism of social expenses. The wage increases were also the result of the two major minimum wage increases and attempts to eliminate the subsequent


disproportions in wages, as well as of the costs of the, at least partial, restructuring of the labour relations in some branches. In line with other factors, such as economic trends and technical development, labour costs had an impact on the development of employment itself. In industry, labour costs increased significantly in real terms, and the number of employees dropped significantly, although within the total expenditures, the share of personnel expenses has remained low (at approximately 14%), with major internal discrepancies. [CSO 2004]6 Despite an increase in the real cost of employment, the number of employees increased significantly in the construction industry. However, the branch of real estate, renting and business support, producing the largest increase in employment, increased its real labour costs very slightly, so the tendency is rather mixed Table 7. Monthly labour costs, in 4-year periods Code C D E C-E F C-F G H I J K G-K C-K

Branch Mining Manufacture Electricity, gas, steam and water supply Industry Construction Industry sector Trade, repair Accommodation, catering Transportation, warehousing, post, telecommunications Financial intermediation Real estate, business services Business services Business sector, total

Average growth rate in the period, % 1992-1996 1996-2000 2000-2004 fact real* fact real* fact real* 21.4 -1.5 14.0 0.9 8.0 1.4 22.0 -1.0 15.3 2.0 10.3 3.6 25.0






22.4 18.1 21.8 18.7 20.4

-0.7 -4.2 -1.2 -3.7 -2.3

15.0 15.0 15.1 14.7 14.7

1.8 1.7 1.8 1.5 1.5

10.4 10.7 10.5 16.9 8.2

3.6 3.9 3.8 9.7 1.6







20.7 17.6 19.5 21.7

-2.0 -4.5 -3.0 -1.3

18.0 18.0 16.0 15.6

4.3 4.4 2.6 2.2

12.0 8.9 12.9 11.4

5.2 2.2 6.0 4.6

Source: Cost of employment, 2004 CSO Budapest, 2006. Note: Companies employing at least 20 people. * Corrected with the consumer price index.

6 Financial data of companies, 1992-2002; CSO 2004 CD


Table 8. Changes in the composition of labour costs in the business sector, 1996-2000 Category


Labour income Social expenses Training and other cost elements Labour costs, total

64.2 32.6 3.2 100.0

Labour cost distribution 2000 % 67.1 30.3 2.6 100.0

2004 69.2 27.9 2.9 100.0

Note: Based on the data of companies operating in the business sector with at least 10 employees. Source: CSO

The weight of the labour income components has increased and that of the social expenses components, as well as the share of training and other expenses, has decreased within the total labour cost structure. However, compared to the EU average, the share of the labour income component is still very low. Some restructuring has started, within the framework of which the social component (social security contribution) will be transferred more intensively to the employees. If, in the future, the social expenses charged on the employers can be reduced, that may also restructure the entire labour cost structure. There is no realistic chance for that on the short term, but in 10 years it may happen. Of the total expenses of companies, payroll expenses and other personnel expenses, as well as wage-related taxes, represented nearly 20% at the level of the national economy in 2004 (wages: 14.7%; contributions 4.7%). In the manufacturing industry, the corresponding rate totalled 12.8% [CSO 2005]. The rate of labour costs to total expenditure was lowest, at only 6-7%, in the special braches of manufacture of communication products and other appliances, of road vehicles and of office equipment and computers. As mentioned already, these segments are also the most export-worthy sub-branches within the Hungarian economy. The research activities of GKI Zrt. conducted in other subjects drew attention to the fact that companies manage their payroll expenses properly, without dedicating higher importance to them than what is warranted by their actual share within their total production costs. Anyhow, the conclusion whereby


companies try to be as economical as possible with payroll expenses, as with any other expenditures, remains true. Table 9. Share of companies considering various types of expenses factors severely deteriorating competitiveness, 2004 (percentage) Industry Food industry Textiles, clothing Wood, paper, printing Chemical industry Building materials Metallurgy Metal-working Engineering Machines, appliances Electrical equipment Vehicles Manufacture, total

Material 42 26 39 19 21 36 54 34 38 25 50 37

Energy 50 54 32 35 46 64 49 34 32 32 44 42

Wages 23 49 20 14 21 21 20 21 20 22 17 23

Duties 6 5 6 4 8 0 10 6 9 3 9 6

Taxes 31 55 36 19 31 39 33 31 30 32 29 34

Source: GKI Zrt., corporate survey, 2004

5.2. Differences in earnings There are significant differences in the gross wages of employees along several dimensions. The branch differences reflect the same rank order as described for the payroll expenses. The regional wage gaps remain stable. The Central Hungarian Region stands out in terms of earnings; in 2005, it exceeded the national average by 22%. This is the only region above the national average, due to outstandingly high wages paid in Budapest. The weakest gross average earnings figures relate to the Northern and Southern Great Plain regions, where wages are more than 17% below average. This means that even at regional level there is 150% difference in average wages, and at the level of smaller regional units, the gaps are even wider. These differences reflect the combined impact of all factors, including the differences arising from branch disparities.7 [PES 2005]

7 Source:, individual earnings data


The last administrative wage policy measure was introduced around 2001-2002 with respect partly to the minimum wages and partly to public sector wages. The minimum wage increase affected the business sector, too (this will be described separately later). The processes of 2000-2002 restructured the wage positions as follows: −

Some branches produced high growth rates and could improve their wage levels significantly: education, public administration, defence, mandatory social insurance.

Most branches increased their nominal wages, in line with the dynamism of the national economy having produced wage growth by almost 40% in two years, but even so, they could not significantly change their position in the rank order of wages.

Three of the branches with the lowest wage increase dynamism belong to mining and metallurgy (the entire mining branch, including the sub-branches of mining and quarrying, mining of energy producing materials, and the manufacture of basic metals and fabricated metal products), where the previously much-higher-than-average wages decreased relatively in relation to the forced increase of the lower part of the scale of wages. The wages of the paper, printing and publishing industry deteriorated under the combined effect of rather marked differences in the dynamic of the specific branches. It seems that wages increased more markedly in fields more closely connected to current issues (publication of periodicals and printing of daily papers), while the same cannot be said for the standard areas.

The branches having achieved considerable wage dynamism between 2000 and 2002, but unable to improve their ranking represent a special group: agriculture, and the branches of health and social care. The problems of these two areas cannot be handled together. In agriculture, employees are generally registered with minimum wages, high amounts are paid into the pocket, and there is significant illegal work, too. Therefore, we have little information about


the actual earning possibilities. As for the health branch, despite a more than 50% average wage increase in two years, the majority of which was absorbed in the minimum age increase, it could not improve its position either, mainly because of the extremely unfavourable base position. The more-than-25-point wage increase increment of the public sector in the early 2000s reduced significantly the slowly but steadily growing lag which developed mainly after the systemic change. There is high probability that part of the corrective measures adopted with considerable sacrifices will fall victim to the macro-economic equilibrium restoring programme, which is currently in progress. The corporate survey and other research activities of GKI Zrt. have also pointed out that the pressure to increase wages will not reduce in the future either. This is supported by several factors: even the companies consider that we have an enormous backlog as compared to the EU average; the working-age inactive stay away from the labour market; employment abroad has become a real opportunity for part of the qualified labour force. There is rather strong correlation between the development of wage levels and the size of companies. Size concentration, taking place on a long-term with high probability, will also push the wages (and productivity) upwards. While, mainly in developed countries, the companies try to ease the unfavourable impacts of the wage pressure on competitiveness by relocating their work sites abroad, in Hungary and the other countries of the Central and Eastern European region the transfer of workplaces abroad has not become a general trend yet, but the relevant processes may accelerate in this field, too. There is a clear increase in interest in investments abroad, and naturally not only due to the labour costs.

5.3. Role of minimum wages According to the assumptions, or at least the official records, companies operating with less than 20 employees generally employ people on minimum wages.


The regular increase of minimum wages will remain one of the fundamental techniques of state-driven wage increases in the future, too. At the beginning of 2005, Hungary had the 8th lowest minimum wages among the 21 European countries where minimum wages were registered, and was in line with the neighbouring countries. For the time being, Hungarian minimum wages are below the subsistence minimum and below 60% of net average wages. Therefore it would be important to approximate and even catch up with these in the medium term. The minimum wages impose a pressure on wage increase from underneath, because in order to provide incentives, employers try to avoid any concentration in wage proportions. The negative effects of the minimum wage increase are concentrated in some branches of the national economy, primarily in the textile and leather industries where, coupled with the real appreciation of the HUF and the unfavourable consequences of intensive international recession, a very intensive deterioration process has started. Other branches of the national economy, heavily affected by the increase of minimum wages, such as the trade and the construction industry, have managed to overcome the difficulties caused by the increase of the wage bills owing to favourable changes in internal demand. However, all affected branches applied instruments to hold back real earnings, which were contrary to the original objectives (e.g., unreasonable unit wage arrangements, restructuring of earnings; forcing employees into unlawful, fictitious, contracts, etc.). As a result of the applied techniques, the actual wage increase dynamism of branches employing many on minimum wages was generally lower than the average of the national economy or the business sector, which did not justify the positive expectations associated with the minimum wage increase. The companies operating in branches with low profitability and low wages did not have enough resources to implement an actual wage increase.


Despite the high wage increase dynamism and the minimum wage increase required by law, the relative position of the branches with the lowest wages did not change in the rank order of wages. The wage dynamism of the public sector represented a point of orientation for companies which were less affected by the minimum wage increase, especially in the category of managers. The wage policy measures introduced in 2002 triggered dynamic changes in the headcount structure. While the total number of employees remained the same in the national economy, the headcount figures dropped by 10% in the manufacture of textiles, textile goods, leather products and shoes, and a considerable, more than 5% headcount drop occurred in agriculture, the manufacture of basic metals and fabricated metal products, and in the supply of electricity, gas, steam and water. On the other hand, economic organisations operating according to the budgetary regulations increased their staff significantly. The minimum wage increases have been more or less regular since 2002, but in total, the dynamism has been lower than the increase in average earnings. Further restructuring may result from the new system introduced in 2007, whereby employers must pay taxes on twice the amount of the minimum wages (unless the employer issues a separate declaration confirming employment on minimum wages or wages lower than twice the minimum wages, which may attract the attention of APEH, the tax authority). According to the preliminary statements of entrepreneurs, the response reactions include significantly higher legal wages, and some employees have been forced to accept black employment, but most companies have not changed their previous remuneration practices (in other words, they accept the consequences of the declaration).

6. Experiences of the in-depth interviews conducted at companies The in-depth interviews with the representatives of business organisations outline a rather vague future vision, similarly to our experiences in previous research, which can only be taken into account to estimate the future structure of labour force demand as additional information.


In our previous research activities we have made several attempts to consult with HR managers of business organisations about the estimated composition of the labour force demand, but these attempts brought little results. In this research we focus specifically on the technical and production managers of the organisations. Unfortunately, the future visions of the technical experts are also rather vague and general. There is a strong correlation between the speed of technical and technology development and the growth strategies followed by the business organisations. More than 75% of business organisations reporting fast technical progress set a target of increasing their market shares, and none of the companies of this group aims at survival only. Among the companies reporting slow technical progress and no changes in the level of their technologies, only every third company is considering expansion and every fifth aims at survival. According to 70% of respondents, technical and technology development is neutral in terms of employment, in other words, technical development does not have any positive or negative impacts on the employment capacity of companies. According to the majority of those sharing this view, technical development primarily involves an improvement in the quality, use and aesthetic layout of the products and services. Only representatives of large industrial companies reported any major staff reduction impacts. It also turned out that a lot of companies in the small and medium-sized enterprise branch intends to make investments into labour force rationalisation, but they do not have the funds required for the projects.


Table 10. Corporate strategies followed in the future years (breakdown, percentage)

Survival is the goal Preservation of the current activity level Minor market share expansion Major market share expansion Service development Total

Industry, construction 21

Trade, business services 0





16 50 0 100

11 47 5 100

18 13 55 100

15 40 15 100

Public services, public Sample, total administration 5 12

Source: 3K - GKI survey2006

In total we can conclude that the technical and technology development in Hungary will continue to reduce employment in the next ten years, with significant differences between the individual business organisations. The most important message of the next table is that the biggest staff reduction impact is to be expected in fields developing at an average pace or very slowly, instead of the branches upgrading their technology at the fastest pace. Most probably this tendency can be explained with the fact that in fast-developing branches the majority of the staff reduction impact took place in the past, in other words, rationalisation is more or less complete in these areas, contrary to the branches developing more slowly. Table 11. Speed of technical and technology development and its estimated nature (breakdown, percentage) Expected impact of technical/technology development on employment Crowding effect Neutral Staff expansion Total

Speed of technical and technology development None or hardly Fast Average Slow perceptible 15 36 29 0 85 58 71 100 0 6 0 0 100 100 100 100

Source: 3K - GKI survey2006


It is a major impediment to staff increase that the regular recruitment intentions of many of the interviewed companies do not meet with success. The great majority of applicants is not suitable for the advertised vacancies (they do not have the required relevant qualifications, or they have obsolete qualifications), or they do not even want to work (they only wish to document their co-operation with the Public Employment Service). Such attempts of companies dedicated to recruitment are hindered by the shortage of labour force reserves with the right composition and qualifications. Mainly the companies producing fast technical development are in need of increasing the vocational qualification level of their employees. According to one third of interviewees, the level of qualifications will increase in their companies within the next ten years, while two thirds of respondents projected no changes. (In most cases, the latter statement does not mean that no training will be required for the employees in the future, it only suggests that, for the time being, there will be no major increase in the level of qualifications.) Mostly, the small and medium-sized enterprises expect an increase in the level of qualifications, while micro and large enterprises expect it less, obviously for different reasons. Among the companies operating in branches with fast technical development, 75%/ expect an increase in the level of qualifications, while among slowly developing companies the corresponding ratio is just 10% It is a notable position expressed by companies that they consider the right attitude, dedication, ambition, human qualities and openness more important than precise professional knowledge. For, the former can be substituted hardly or not at all, whereas professional skills can be mastered, with due diligence.

Very few companies expect that certain occupations will disappear (4%). Such radical changes have been suggested only in industry and in the field of the widely interpreted business services.


13% of

respondents expect new occupations to appear, primarily

small and

medium-sized enterprises, and in fields subject to rapid technical and technology development. According to the respondents the most important tendency in occupational restructuring is the

significant modification



contents of


occupations. − The share of individuals projecting this increases in direct proportion with company size. − Similarly, there is direct correlation between the expected speed of technical development and the number of those suggesting changes in the contents of occupations. Faster development involves bigger changes in the contents of occupations. − There is a relatively high ratio of people sharing these thoughts in all branches, but it is highest in the public sector and in public administration. Three interesting aspects should be highlighted specifically. − Many respondents think that primarily the contents of managerial work will change in the future: the complexity of the requirements for the management will increase. − The borderlines between certain occupations have already faded, primarily in micro and small enterprises, and the same tendency will only increase in the future. − Apart from the general professional knowledge and expertise, the importance of company-specific knowledge is continuously increasing.


Literature Judit Adler: A lisszaboni stratégia és a tudásalapú gazdaság magyarországi perspektívái. Tanulmányok Magyarország versenyképességéről. Stratégiai kutatások – Magyarország 2015 (Hungarian aspects of the Lisbon strategy and the knowledge-based economy. Studies about Hungary’s competitiveness. Strategic research – Hungary 2015), pp. 155-177. Eds: András Vértes – Erzsébet Viszt, ÚMK Budapest, 2006 Judit Adler –Raymund Petz: A nyugdíjas munkavállalás sajátosságai az ezredfordulón (Specificities of employment of pensioners on the turn of the Millennium), Munkaügyi Szemle, February 2003 Judit Adler –Raymund Petz: A nyugdíjas foglalkoztatás jellemzői (Characteristic features of employment of pensioners), Munkaügyi Szemle, July-August 2003 Katalin Antalóczy – Magdolna Sass: A külföldi működőtőke-befektetések regionális elhelyezkedése és gazdasági hatásai Magyarországon (Regional breakdown and economic impact of foreign direct investments in Hungary), Közgazdasági Szemle, May 2005 A foglalkoztatás közép- és hosszú távú feltételrendszerének, a várható munkaerő-kínálati és keresleti folyamatok változásának prognosztizálása (Projections for the medium and long-term conditions of employment, and estimated labour force supply and demand processes), GKI, October 2005 A gazdasági fejlődés regionális különbségei Magyarországon 2005-ben (Regional differences in economic development In Hungary in 2005), CSO, Debrecen Directorate, Debrecen, July 2006 A gazdasági növekedés hosszú távú előrejelzése. A gazdasági szerkezet termelékenység, munkaerő-kereslet, globális előrejelzés (Long-term economic growth forecast. Global forecast for the productivity of the structure of the economy and labour force demand,) ECOSTAT KSH Gazdaságelemző és Informatikai Intézet Budapest, August 2006 A magyar foglalkoztatási stratégia főbb elemei 2004-re és középtávra (Main components of the Hungarian employment strategy for 2004 and for the medium-term), GKI Rt., August 2003 A magyar gazdaság ágazati létszámstruktúrájának előrejelzése 2013-ig OECD országok ágazati létszámadatainak idősorai alapján (Forecast for the branch employment headcount structure of the Hungarian economy until 2013 based on the branch employment figure time series of the OECD countries), MTA KTI, 2006


A munkaerő-kereslet és az azt befolyásoló tényezők alakulásának vizsgálata 2006-ig, kitekintés 2013-ig (Review of the labour force demand and factors affecting it until 2006, overview until 2013), GKI, November 2004 A munkaerőköltség alakulása, 2004 (Cost of employment, 2004), CSO Budapest, 2006 A vállalatok pénzügyi adatai 1992-2002 (Financial data of companies 1992-2002), CSO 2004, CD Károly Fazekas: A hazai és a külföldi tulajdonú vállalkozások területi koncentrációjának hatása a foglalkoztatás és munkanélküliség területi különbségeire In: A hely és a fej Munkapiac és regionalitás









concentration of Hungarian and foreign-owned enterprises on the regional differences in employment and unemployment In: The place and the head. Labour market and regionality in Hungary), Ed.: Károly Fazekas, MTA KTI, Budapest, 2005. Judit Hamar: Válságtól válságig? A magyar textil- és ruházati ipar helyzete és kilátásai (From crises to crises? Position and outlook of the Hungarian textile and clothing industry), Külgazdaság, 2006/6. Csaba Makó – Péter Csizmadia –Miklós Illyési: A kis- és középvállalkozások néhány foglalkoztatási, munkaügyi








perspektívájában). Kutatási beszámoló I-II. rész. (Some employment, labour and knowledge utilisation features of small and medium-sized enterprises (In the perspective of a macro, mid and micro approach), Research report, Parts I-II), Társadalom - Kutatás 2005, Volumes 3, 4 József Nemes Nagy – Nándor Németh: Az átmeneti és az új térszerkezet tagoló tényezői (Breakdown factors of the temporary and new geographic structure) In: The place and the head. Labour market and regionality in Hungary. Ed.: Károly Fazekas), MTA KTI, Budapest, 2005. Nándor Németh: Az autópálya-hálózat térszerkezet alakító hatásai – Magyarország esete (Impacts of the motorway network in the geographic structure – Hungary’s case In: The place and the head Labour market and regionality in Hungary. Edited by. Károly Fazekas, MTA KTI Budapest, 2005. Andrea Szalavetz: A piaci szolgáltatások és a gazdasági fejlődés (Market services and economic development), Külgazdaság, 2006/1.


Forecast for the branch employment headcount structure of the Hungarian economy until 2013 based on the branch employment figure time series of the OECD countries ‒ Zsombor Cseres-Gergely* – Gábor Kézdi** – Gábor Koltay***

Introduction MTA Közgazdaságtudományi Intézet (Institute of Economics, Hungarian Academy of Sciences, MTA KTI) prepared a forecast for the branch employment structure of the Hungarian economy until 2013 based on the branch time series of the OECD countries within the framework of Project 1.2.11 under Research Subcomponent 2 of HRDOP Measure 1.2. The research report describing the results of the assignment consists of three parts: Part 1 describes the methodology used for the forecast in the light of the lessons of the international forecast practices; Part 2 describes the database used for the econometric estimate, and Part 3 describes and analyses in detail the results of the forecast. An electronic file is also attached to the document. The calculation table in an Excel format allows users to update the results of the forecast with new data, relying on the results of the econometric model. This document is a summary of the research report and, as such, it does not go into the details of branch-specific results and summarises the international experiences very briefly. Before making our forecast, we reviewed the available international technical literature, and realised that, given the non-existence or shortness in Hungary of the time series generally used for such purposes, the country’s future situation should be analysed by extrapolating the experiences of other countries. We applied the dynamic panel regression estimate method using a panel database of 55 branches of the OECD countries which included data on added value and employment by branch, on the GDP, the active and the total population. The result of the forecast projects a familiar picture of the structure of employment by broad sectors in Hungary: the share of employees working in the services branch is expected to increase, while the number of employees in industry and *


** ***



agriculture is expected to fall. The employment structure of the main industries and branches of the economy is much more complicated; they will be discussed in detail in the research report. Considering the specificities of the applied method, our forecast may be used in decision-making only with some supplementary data and expert knowledge. The examples taken from international practice indicate that the uncertainty of research prepared with such and similar methods may only be reduced by deepening the survey. If there is a request for a similar forecast, a major project will have to be implemented, in which the entire economy is modelled and a lot of stress is put on data collection.

International experiences Regular forecasts are prepared for the entire labour market or parts of it in many countries. This document describes two of the best international examples, focusing on the practice of the United States and the Netherlands (the practices of other countries are illustrated in the final research report). We present the modelling tools used for various labour market forecasts, and compare the advantages









concentrates mainly on branch employment and the employment structure, but it also touches upon the issues of aggregate labour demand and supply forecasts, which are closely related to this field. The summary heavily relies on the work prepared by Boswell and his partners (2004).

Forecast components A labour market forecast may be aimed at numerous employment variables. The most frequent forecast objectives which, as explained later, often closely correlate with each other, are the following: 1. Aggregate employment forecast. 2. Branch employment forecast. 3. Employment forecast for specific occupations. 4. Forecast of employment requirements by qualification levels. 5. Fragmental forecast: men-women, age, regional, education.


The aggregate employment forecast is often the first step in a forecasting process, and it is the least interesting target variable for economic policy or for the general public. Branch employment is generally forecast with a macroeconometric or applied general equilibrium model, broken down by branch. This model contains a lot of information and it is the starting point of employment forecasts for specific occupations and qualification levels. As the various groups of society show rather different conduct on the labour market, the detailed forecasts publish the results broken down to further segments where in fact the various groups are taken into account as early as during the forecast process. So far we have only mentioned employment, although the more detailed models reflecting market mechanisms treat labour demand and supply separately. In an ideal situation, the forecast is made taking into account the interaction of these two factors, but in practice this is rather an exception. Most models that we describe use very advanced models indeed, but they concentrate only on labour demand forecasting. This insufficiency has reasons related to both methodology and lack of data. If a labour supply forecast is also prepared, then it is usually estimated independently of demand, using primarily demographic and labour market participation forecasts. The methodology applied in the US and the Netherlands provides good examples for correlating demand and supply.

Two typical methods United States The Bureau of Labor Statistics (BLS) prepares 10-year employment forecasts. Until 1999, BLS prepared forecasts for three scenarios, but since then it has only prepared one, because most of its users applied the moderate forecast anyway and in some cases the other two versions were misinterpreted. The BLS forecast procedure is composed of the following elements (BLS, 2004): labour supply, aggregate economy, ultimate demand, industrial activity, employment structure forecast. The labour supply forecast is based on assumptions about the size and composition of the future population and the presence of the various groups of


the total population in the labour market. The data relating to the variation of the population are taken from the regular forecasts of the Bureau of Census, while the participation rate is estimated by BLS using the Current Population Survey figures. In the applied model, the demographic forecasts have an impact not only on the size of the labour force, but also on the composition of the GDP and the future employment figures in some occupations. At present, BLS divides the various ethnic and racial demographic groups into five age categories. The participation rate of these groups is smoothed using an econometric procedure, a filter, then a logistic transformation is applied on the resulting data. The regression of this transformed result is run for a time variable, then the forecast is prepared for the adjusted regression. The future participation rate estimated this way follows a non-linear curve. The results received for the forecast period are controlled in several ways: •

Credibility of the timeline.

Reality of the composition by demographic groups.

Credibility of the breakdown between age categories.

Correlation between the total labour supply calculated this way and the result of another econometric model indicating civil employment.

The total labour supply is calculated by multiplying the participation rates forecast in this manner with the forecast size of the demographic groups, and by adding up the results of the individual groups. Aggregate economic growth is forecast with a commercially available econometric model8. The exogenous assumptions of the model relate to financial and budgetary policy, government expenditures, energy prices and supply, as well as demographic processes. The model is estimated and the economic processes are forecast based on these exogenous assumptions. Once the forecast is ready, its features are evaluated with the help of selected target variables. These target variables include the real GDP growth rate and its demand structure, the growth rate of work productivity, the inflation rate, the unemployment rate and indicators


The model: Macroeconomic Advisers, LLC WUMMSIM Model of the U.S. Economy (BLS, 2004).


of international trade. Often several assumption–estimate–forecast circles must be run before the model produces credible and tenable results. Aggregate personal consumption is also forecast with the above model. In addition, consumption expenditures are forecast in 88 categories, using a trend variable and the disposable income. The thus received forecasts are added up to form an indicator, comparable to the consumption demand under the aggregate model, which may be adjusted to the aggregate forecast if required, in order to make the broken down forecast consistent with the macroeconomic forecast. Finally, these 88 consumption categories are divided among the 184 production industries. The gross domestic private investments forecast in 4 categories by the model are divided into 13 categories and then forecast using a supplementary model. Foreign trade demand and government expenditures are also divided with the same method as indicated above, ensuring that the results are consistent with the results of the macro model. With the help of these segmentations, detailed industry demand may be calculated. BLS industrial employment forecast BLS uses the following method to forecast employment in each industry: 1.

Estimate of the hourly wages (measuring unit: million hours) of people

living on wages and salaries with a regression derived from the primary conditions of a CES production function extended with a time variable. The time variable intends to capture any shift in the production function triggered by external technology changes and long-term efficiency improvement in input consumption. 2.

The annual average weekly number of working hours of people living

on wages and salaries is estimated as a function of time and the unemployment rate. The same method is used for estimating the annual average weekly working hours of the self-employed and of unpaid family workers. 3.

The number of people living on wages and salaries (thousand) is calculated from the figures of the previous two steps with the following method:


Number of employees (thousand)=((Estimated average weekly working hours demand)/(Estimated average weekly number of working hours))×52×(1/(1000)) 4.

The number of the self-employed and of unpaid family workers is

estimated by first forecasting the logistic ratio of the self-employed and unpaid family workers based on the total number of employees in the industry, as a function of time and the unemployment rate. This forecast ratio is used for calculating the number of self-employed and unpaid family workers based on the number of people living on wages and salaries by calculating first the total number of jobs and then deducting the number of employees living on wages and salaries from it:

y = x/(1-r)-x = x(1-(1-r))/(1-r)=x(r/(1-r)) where y = the number of self-employed and unpaid family workers, x = employees living on wages and salaries, r = y/(total employees). 5.

Then the number of working hours of self-employed and unpaid family

workers is calculated based on the estimated weekly average working hours and the estimated headcount:

hours y= y× weekly average number of hoursy×52. 6.

The final results are compared to the industrial output and labour

productivity in order to ensure consistency of the historic trends. Parallel with that, those industries are also identified which may be different from the historic trends based on changes in the technology, demand or other factors. Wherever it is necessary, the labour demand functions or the results of the previous steps of the estimation process are modified. The industrial output is calculated using the forecast input-output tables and the detailed demand figures indicated above. The data of the 1997 and 2002 input-output tables are used for preparing the factors used in the current 2012 input-output table. BLS converts the thus calculated industrial output into industrial employment using both labour demand and labour supply factors. The detailed forecasting process is described in the textbox above.


Industrial employment is broken down to occupations in the category of people living on wages and salaries using an industrial employment matrix. The industrial employment matrix is broken down to 284 industries and 725 occupations. The breakdown is estimated based on the BLS Occupational Employment Statistics survey data, which are collected every three years. The components of the industrial employment matrix are not constant during the forecasting period; therefore, any change in them should also be projected. The BLS forecast takes into account the impact of estimated industrial output development as well as other impacts affecting the demand for occupations. The data of the self-employed and of people working in agriculture or in households in second employment are taken from the Current Population Survey. Employment within the entire economy is estimated separately in this category of workers by occupation. The thus calculated employment figures are added to the number of employees living on wages and salaries, which results in the total number of employees in each occupation. The BLS forecasting system is one of the most advanced systems, but it cannot provide appropriate skills forecasts and, therefore, it is unable to provide appropriate forecasts for training and educational issues. Although BLS prepares surveys on the typical qualification requirements for taking a particular employment position, but its methodology is not very reliable. The Netherlands Researchcentrum voor Onderwijs en Arbeidsmarkt (ROA) of Maastricht forecasts employment broken down by various school qualifications. The institute prepares its mid-term forecast (for 5 years) every other years. In 1997–2002, projections were prepared for 13 branches of the economy, 123 occupational groups and 98 educational categories. The ROA forecast indicates expansion triggered by economic growth, as well as replacement labour demand caused by employees leaving the labour market. The total of the previous two categories is compared to the forecast labour supply in each individual educational group, and thus the impact of the imbalance on the labour market is explicitly integrated into the


model. In the forecasting process, both the ex ante, and ex post replacement effects are taken into account (Heijke, 2004).9 The Dutch model generates its forecasts broken down to expansion of the labour demand and occupational and educational categories based on the industrial labour demand forecasts of CPB Netherlands Bureau for Economic Policy Analysis. The CPB Athena model, which is a macro-econometric model broken down by industries, supplies the branch employment figures (Broer et al., 1998).10 The replacement demand, which is determined by the number of people withdrawing from the labour market, is forecast by variation rates calculated by sex and age categories. The elements of the employment and educational matrix are not fixed; their changes are modelled explicitly. The labour supply is forecast as the sum of the number of people leaving the educational system plus the number of active jobseeker unemployed. The number of people leaving the educational system is forecast with a separate model in order to take into account any supply originating from non-standard educational forms. ROA illustrates the difference between the forecast demand and supply on a 5degree qualitative scale in order to make it easier to estimate the future outlook of the individual occupation/educational form correlations. ROA regularly evaluates its own projections. The model provides a forecast for occupation– qualifications pairs, instead of forecasting the total number of employees in the future. Boswell et al. (2004) argue that this projection type provides useful information for the actors of the economy preparing themselves to invest in


The ex ante replacement effect indicates replacement among various types of education, taking

place in relation to adjustment to an increase in skills levels in the various employment categories. The ex post replacement effect indicates changes in the educational structure of a particular occupation that arise from the difference between the demand and supply of the forecast types of education. 10

Vromans gives a detailed description of the ATHENA model (1998).


education, as a result of which the labour market balance of the qualification structure may be restored. This is useful mainly in small countries like The Netherlands, where regional disparities are small and the interregional labour force flow is high.

Summary The following may be stated as general conclusions about the described forecasting methods (as well as those which are not presented here but are included in the final research report). 1. In general, the aggregate labour demand and supply forecast models are much more advanced than the forecasting methodology broken down to occupations. This may be explained by the dissemination of the technical models, operating with a top-down approach. The situation is unfortunate, because these latter forecasts are the most relevant for economic policy and the most useful for the general public. 2. Most methods do not prepare a labour demand and supply forecast in one framework, despite the fact that the mutual correlations between the two have a major impact on employment. This insufficiency results partly from methodology difficulties, and partly from the intensive data requirements of integrated modelling. The BLS forecast, which connects demand and supply, is also based on the most detailed labour market databases. 3. The modelling of the labour market participation rate is most often not integrated into the economic model or the forecast on the variation of the population, but is calculated independently from them. This results in a situation that the wages or variation of birth rates with regard to women employees do not have an impact on the participation rates in the models. 4. As we saw in the case of most models, a properly detailed forecast requires a large database containing a lot of information. Since the availability of data is directly related to the modelling options, the supply of required data is an organic part of the forecasting process. 5. The listed models prepare forecasts for a maximum term of 15 years, and the forecasting horizon largely depends on the objectives of the


forecast. Long-term forecasts are useful primarily for economic policy planning, but the level of their uncertainty is also significant. Mid-term forecasts may be useful for many actors of the economy when they make decisions on training and education. These forecasts may be significantly more accurate. 6. The purpose of the quantitative models is not to forecast the level or structure of employment with a high degree of precision for many decades in advance. Their main purpose is to provide information about the expected trends, in a framework that makes the absolutely necessary assumptions and creates consistency among the successive forecasts.

Methodology applied for the Hungarian forecast Below we shall describe the procedure we used for preparing the present forecast. In Hungary, we cannot apply any procedure similar to the ones described above, as the availability of data is limited and supplementary models potentially supporting the forecasting work are not sophisticated enough. Consequently, we used an approach which relies on a relatively limited source of data, but tries to make the most complex use of them with up-to-date econometric procedures.

Background We used the methodology of András Révész (1996) of the branch labour demand forecast based on international comparison as reference in the international comparison of the labour force structure. The main idea of his methodology is that, with economic development, the employment structure, i.e., the employment ratio in the individual branches or industries, varies in similar ways in the different countries. If this correlation between the level of economic development and employment can be quantified, then employment may be forecast from the historic behaviour of these countries. Révész uses the per capita


gross domestic product (GDP/capita) for measuring the level of economic development.11 An estimate based on international data involves numerous difficulties. The selection of the industrial breakdown and the matching of the international and the Hungarian breakdown generated some additional complications for the analysis. The employment ratios (number of employees of the industry divided by the total employees) were the dependent variables, in the regressions, while the GDP/capita ‘trend value’, i.e., the average GDP/capita increase was the explanatory variable. With a formal description, the following model estimate was used: f ijt = α 0i + α 1i ln gdppc jt + ε ijt , gdppc jt = β 0 j + β 1 j t + u jt ,

(1) where i = industry, j = country, t = time. f is the rate of the employees of the industry to the all employed, the gdppc is the GDP/capita, while the gdppc with an overstrike is the GDP/capita value adjusted based on the second regression: practically the GDP/capita calculated with the average GDP/capita growth of the country in a particular period. The t is the time variable; ε and u are the accidental error factors, and α0, α1, β0, β1 are the parameters to be estimated. The estimate was prepared with the smallest squares method. The forecast applied this method first to the branches of the economy, then to the specific sub-branches, in order to have a more robust estimate. It caused a problem during the forecast that the last observation took place in 1994; therefore, the potential impact of the economic transition was often corrected by shifting the initial point in time of the forecast. The forecasts were prepared by using the GDP/capita figure estimated for 2010 in the estimated equations.


In the estimation process, Révész used a t=8,10 (1950-1993) and n=26 (20 European countries,

United States, Japan, Canada) panel database for each individual industry to estimate the historic trends.


Methodology used in the research The major problem in the analysis of the Hungarian processes is that the time series of the key variables are too short. As the industrial structure and economic behaviour have changed significantly(structural break), the non-market-economy data cannot be used in the current environment. Because of the intensive transformation, the data of the first half of the 1990s are not really relevant for any future developments of the economy. This means that ,even in the most fortunate situation, the time series available for the forecasts consists of only 1012 components, which is too small for forecasting employment for the next ten years using statistical methods. Another problem is that the forecasting practice is patchy not only in employment, but a lot of other forecast inputs are also missing with which the industrial employment methodology of the Bureau of Labour Statistics could, e.g., be applied (BLS, 2004 and Berman, 2004). An example for such a forecast insufficiency is a reliable unemployment rate forecast, without which the forecast connecting the demand and the supply cannot be prepared. Thus our econometric model is not based on a sophisticated theoretical economic model; it does not generate the model structure and variables from an industrial production function, but uses a so-called ‘reduced form’. However, this reduced form still tries to capture all the factors the impact of which may be considered relevant according to the applicable economy theory. This is why, similarly to Révész (1996), the methodology relies on the international employment processes for making the forecast, but uses a more advanced methodology, trying to offset the weaknesses of the previous analysis. Even in this estimate, the basic assumption is that economically advanced countries covered similar employment courses as is expected in Hungary in the future and, therefore, their historic data can be used for estimating industrial employment in Hungary.


The difference between the methodology used in the research and the estimate made by Révész (1996) is that the previously applied heuristic procedure was replaced with the econometric tools of the panel data. This is important because a model based on international similarities must manage this real problem whereby the individual countries are significantly different from each other despite their similarities. Heterogeneous features may be observed or not observed between countries, and they may be variable or constant in time. One of the solutions for managing heterogeneous features between countries, constant in time, is to use country-specific panel models containing so-called ‘fixed effects’. This can be described with the following general formulae: y ct = α c + β ' X ct + u ct (2) where c = the countries, t is the time index, y is the dependent variable for cth country, at t time, α is the individual impact typical of the of cth country, and β′X is the impact of the other explanatory variables, which may change both in time and among countries, while u is the error factor condensing the unexplained factors. This econometric model type manages those differences between the countries which do not depend on the time factor, and this allows to estimate the impact of the other explanatory variables from the common sample. The estimation process used by Révész (1996) cannot take into account countryspecific differences, because it uses the simple smallest squares estimates. As a result of the estimation of fixed impacts, we can project the individual impact typical for Hungary on each industry, and integrate it into the forecast. Although the fixed country-specific impacts solve the problem of the impact of those heterogeneous factors of the various countries which do not change in time, but not that of heterogeneous factors changing in time. As such differences between the countries can be captured with the typical indicators of the country, varying in time, apart from the GDP, we also included other explanatory variables in the regressions. However, the number of available economic and demographic indicators is rather limited, because we need projections for all the used variables in order to forecast industrial employment, not only historic time series.


Taking into account these limitations, we included in the model one trend for each branch and the added value of the branch. The model uses an exponential trend variable for managing the time dimension of the panel database. Consequently, we assume that the individual branch processes take place along an exponential trend in each country, which provides a higher degree of flexibility in the estimate than a straight-line trend. The branch added value variable captures the correlation between output and employment in the individual industries. In order to eliminate the impact of the economy and the size of population, for the GDP we used per capita figures, and for the branch added value we used GDP-proportionate figures. In education, we also took account the size of the age group below 15 years, and for health we also included the group aged more than 64 in our forecast. The GDP variable is included in the model as a general variable measuring economic processes and development, as an attempt










employment. Both the GDP and the branch added value were delayed three times in the model to account for any delayed economic impacts. We assumed a logarithmic function form on both sides. This type of econometric model may be estimated both in terms of levels and of differences. In our forecast we estimated the model in differences. The final estimated equation is as follows: 4


k =0

k =0

∆ ln f ict = ∑ α k ∆ ln gdppcict − k + ∑ β k ∆ ln output ict − k + δ i + u ict ,

(3) where the signs have the following meanings: 1. f: is the ratio of branch employees and active population expressed in percentage. 2. gdppc: GDP per capita expressed at 1995 prices and USD purchasing power parity. 3. output: branch added value/GDP expressed at 1995 prices and USD purchasing power parity. 4. indexes: i: branch, c: country, t: time. 5. αk,βk, and δ are the coefficients to be estimated.


The total of the employment coefficients projected based on equation (3) will generally not be 100%; therefore, in each individual year of the forecast period, the projected ratios were re-normalised with the calculated coefficients. The chapter on branch forecasts contains both the normalised and the nonnormalised indicators, but the figures show the non-normalised indicators, as normalisation distorts the development in time of the process.

Database The database used for the forecast contains the following variables: branch added value, branch employment, GDP, active population and total population. The branch breakdown divides the data into 55 branches, corresponding more or less to the 2-digit classification of the ISIC3 category system, focusing on smaller groups of the system in some cases. The branch distribution and the applicable ISIC3 codes are illustrated in Table 1. The use of the internationally comparable branch classification system is absolutely necessary for the feasibility of a forecast method based on international time series. The distribution into 55 branches providers sufficient details for the users of the forecast. The branch added value and the GDP figures are in USD at 1995 prices, while national currencies were converted into USD at purchasing power parity. Table 1: Branch classification




Agriculture, game management




Fishing, fish farming




Manufacture of food products, beverages, tobacco


Textiles Manufacture of wearing apparel; dressing and dying of fur


Tanning of leather, leather products and footwear Manufacture of wood and straw products Manufacture of paper, paper products Printing, publishing, other reproduction

18 19 20 21 22

Manufacture of coke, refined petroleum products, nuclear fuel


Manufacture of chemicals, chemical products


Manufacture of rubber, plastic products


Manufacture of other non-metallic mineral products


Manufacture of basic metals


Manufacture of fabricated metal products


Manufacture of machinery, equipment


Manufacture of office machinery, computers


Manufacture of insulated wire and cable Manufacture of electrical machinery, apparatus, n.e.c. (except 313)

313 31(except 313)

Manufacture of electronic parts


Manufacture of industrial telecommunications products


Manufacture of telecommunications consumer articles Manufacture of precision instruments (except 331)

323 33 (except 331)

Manufacture of scientific instruments


Manufacture of motor vehicles


Ship-building and repair


Manufacture of aircraft and space instruments


Manufacture of other vehicle (except 351 and 353) Manufacture of furniture; recycling of other manufacturing product and waste Electricity, gas, steam, hot water supply, collection and distribution of water

352+359 36-37




Trade of motor vehicles, automotive fuels


Wholesale trade


Retail trade


Hotels and restaurants


Land transport, transport via pipelines


Water transport


Air transport Supporting and auxiliary transport activities, travel organisation


Post and telecommunication


Financial activity (except: insurance) Insurance (except: social security)




Financial supplementary activity


Real estate




IT activity


Research, development Legal, economic, engineering activity, consultancy, technical testing, analysis Other business support services


Public administration, defence; compulsory social security

741-3 749 75



Health and social work


Other community, personal service


Activities of households as employers of domestic staff



The branch and GDP data were taken from the Groningen Growth and Development Centre, 60-Industry Database, February 2005,, while the annual population data were taken from the OECD Labour Force Statistics database12, and any data about the former FRG were taken from the ILO Laborsta database13. For Taiwan, the data were supplemented from the Statistical Yearbook of the Republic of China. The sample consists of data of 26 OECD countries14 and of Taiwan between 1979 and 2002. The data of each individual OECD country are available only from their year of accession to the organisation, i.e., for Hungary, Slovakia, the Czech Republic and Poland, data are only available from 1993. Between 1979 and 1990, the sample contains the data of the former Federal Republic of Germany, while between 1991 and 2002, the German data relate to the united Germany. The number of employees calculated for all branches in the Groningen Growth and






2005, database is significantly different from the total employees contained in the OECD database. In order to correct this difference, the factor (f) of the branch employment and active population, used in the regressions resulted from the following calculations: sec toral employees total employees based on OECD f = × . total employees based on GGDC active population based on OECD In order to forecast the employment structure, not only historic data are necessary: the future value of all explanatory variables is also required. ECOSTAT supplied projections about the average GDP growth rate and the average added value variation of the economic branches (NACE ’03, 1-digit classification) for the period of 2003-2013. The analysis uses the data of the National Demographic 12



Australia, Austria, Belgium, Czech Republic, Denmark, United Kingdom, United States, Finland, France, Greece, the Netherlands, Ireland, Japan, Canada, Korea, Poland, Luxemburg, Hungary, Germany, Norway, Italy, Portugal, Spain, Sweden and Slovakia


Forecast Database ( for projecting demographic indicators. As it can be seen, the branch added values were not available in the right breakdown at the time of the forecast; therefore, the analysis uses the assumption that all sub-branches will grow at the same place within the specific branches of the economy. This limitation of the used forecasts, as well as the fact that no up-todate GDP and value added data are available, may also significantly influence the results of the employment forecast. However, as the assumptions themselves are based on detailed data, with the help of the attached electronic calculation table, the forecasts can be re-calculated using fresh data.

The forecast Before describing the forecast results it is important to clarify the meaning of the following numbers, their amount, prefix or changes, for the readers. The results of econometric forecast should always be handled as approximate figures and never as exact values. The forecast can only capture general tendencies rather than exact processes. The more detailed branch breakdown the forecast relates to, the more uncertain the size of the forecast will be, and even the direction of any change involves increasing uncertainty. The forecast period also increases uncertainty. In 11 years, a lot of changes may occur that do not result from the current processes at all. The source of a further uncertainty is the use of an international sample and the uncertainty of the forecast for the economic indicators used in the forecast itself. When the forecast results are evaluated, it is not enough to monitor the future employment ratios: they must be interpreted in relation to the processes of the past. The validity of the forecast is determined by the assumptions prepared during its preparation. One of the groups of the assumptions comprises the forecast model structure, the used estimation process, described in the ‘Methodology’ part. The other group of assumptions related to the forecast is connected with other forecasts used for the employment forecasts. The demographic, GDP and branch added value forecasts described in the ‘Database’ part also assume a certain future achievement of these indicators. For the population this means, for


example, that the historic demographic processes will continue in the future, in accordance with the used time series. The third group of assumptions related to the forecast consists of implicit assumptions about the institutional and economic policy environment. In our forecast we assume that the institutional environment will not change significantly and no radical reforms will be implemented in the economy. The forecast also assumes that there will be no crisis in the world economy causing a major economic shock.

Summary In terms of the branches of the economy, the forecast projects the processes illustrated in Table 2. The employment rate is expected to continue to decrease in agriculture and forestry, similarly to the period between 1993 and 2002. By 2013, an employment ratio of around 3.45% is projected, representing an average 0.2 percentage point decrease each year. Our model projects a slight decrease in fishery, but this is such an insignificant part of employment that our forecast is especially unreliable in this field. The decrease is expected to continue in the mining branch, but it will be much smaller than between 1993 and 2002. By 2013, a 0.2 % employment ratio is expected in this branch of the economy, representing an average 0.01 percentage point decrease each year. Contrary to growth between 1993 and 2002, the model projects a decline of employment in industry: its rate is expected to be around 21.4% in 2013. The average annual decline projected for the forecast period (-0.18 percentage point) is more or less equivalent with the annual average growth rate between 1993 and 2002. This originates, on the one hand, from processes projected for branches in which the employment rate is expected to stagnate after the growth in 19932002. Such branches are the publishing and printing industry, the production of rubber and plastic products, the manufacture of fabricated metal products, the manufacture of insulated wires and cables; the manufacture of road vehicles, of furniture, of other manufacturing industry products and the recycling of waste. The other impact which may lead to a decline in the industrial employment rate is the expected employment rate in the branches in which the employment ratio increased or stagnated between 1993 and 2002, but a decline is projected in the


forecast period. Such industries include the clothing industry, fur finishing and ready-made clothes, the manufacture of office and computer machinery, of electronic components and of communication equipment. As it was illustrated above, the model based on the OECD sample projects a declining employment rate in the manufacture of electronic articles. This clearly illustrate the experiences of the advances countries in the last twenty years, but it may be misleading, if Hungary does not develop with, and significantly stands out from, the international trends in the future. A further decline is projected in the energy industry with an estimated 1.42% by 2013. On average, this means a 0.04 percentage point decline each year, which is approximately fifty percent of the average annual decline between 1993 and 2002. The employment rate is expected to grow in the construction industry. According to our projection, the employment rate will be around 8.3% in this branch of the economy by 2013. This means a 0.15 percentage point average growth each year, which is slightly below the growth rate observed in 1993-2002. In trade, the employment rate is expected at around 14.1% in 2013, which involves only a slight increase compared to 2002. The employment rate in the hotels and catering industry will increase slightly, as it was also observed between 1993 and 2002. The forecast projects an employment rate of around 4% by 2013. In the transportation, post and telecommunication branch, stagnation is expected in the forecast period compared to the slight decline of the employment rate in the period from 1993 to 2002. The model projects a 7.5% employment rate in this branch by 2013. In financial services, the employment rate is expected to grow further according to the forecast. By 2013, the employment rate can increase to 2.1% in this branch of the economy, representing 0.03 percentage point increase on average each year in the forecast period. The most robust growth is expected in business services according to the forecast. By 2013, the employment rate is expected to be 9.5% in this branch of the economy, involving on average 0.35 percentage point annual increase between 2003 and 2013. We must also note that the business services belonged to the branches characterised by the most dynamically increasing employment rate also between 1993 and 2002.












administration, defence and mandatory social insurance, although this growth will not be as fast as between 1993 and 2002. By 2013, an employment rate of around 7.3% is projected for this branch of the economy, representing on average 0.04 percentage point increase each year. Contrary to the decline in 1993-2002, the model projects slight growth in education. By 2013, the employment rate is projected at 8.2% in this branch of the economy, involving approximately 0.05 percentage point average growth each year. In the health and social care branch, the employment rate is expected to grow, similarly to the trend observed between 1993 and 2002, but the model projects a much more dynamic growth rate. By 2013, an employment rate of around 7.2% is projected for this branch, involving 0.12 percentage point annual average growth. Contrary to the decline in the other public and personal services between 1993 and 2002, growth is expected in these branches according to the forecast. By 2013 the employment rate is expected to be around 4.8%, involving 0.08 percentage point annual average growth in the forecast period. In relation to the forecast of public services, special care is required, because in Hungary the majority of this branch is owned by the state and, therefore, political decisions and unpredictable processes related to the position of the budget may have a major influence on the economic processes taking place therein. The employment rate figures of the economic branches reflect the general tendency observed in the advanced countries for decades: the employment rate is expected to increase in the service branch, while it will most probably decrease in agriculture and industry (with the exception of the construction industry) between 2003 and 2013.


Table 2. Employment and forecast by branch

Employment % rate to all employed

Economic sector A B C






01 02

Agriculture, game management Forestry ‘A’ total Fishing, fish farming Mining Manufacture of food produicts, beverages, tobacco

7.69 0.43 8.12 0.02 0.99 4.45

5.51 0.31 5.82 0.05 0.36 3.92

3.45 0.20 3.66 0.03 0.20 3.37

-0.242 -0.013 -0.255 0.002 -0.070 -0.059

-0.187 -0.010 -0.197 -0.001 -0.014 -0.051

17 18

Manufacture of textiles Manufacture of wearing apparel; dressing and dying of fur

1.61 1.91

0.93 1.92

0.77 1.68

-0.075 0.001

-0.015 -0.022


Tanning of leather, leather products and footwear






20 21 22

Manufacture of wood and straw products 0.67 0.30 Manufacture of paper, paper products Printing, publishing, other reproduction 0.68

0.92 0.34 0.81

0.85 0.30 0.84

0.028 0.005 0.014

-0.007 -0.004 0.003


Manufacture of coke, refined petroleum 0.23 products, nuclear fuel Manufacture of chemicals, chemical 1.79 products 0.57 Manufacture of rubber, plastic products Manufacture of other non-metallic 0.86









1.08 0.82

1.03 0.71

0.057 -0.005

-0.005 -0.010

0.83 1.34 2.18 0.09

0.71 1.87 1.54 0.32

0.53 1.87 1.64 0.14

-0.013 0.059 -0.071 0.026

-0.017 0.000 0.009 -0.016






0.77 0.29 Manufacture of electronic parts Manufacture of industrial 0.12 telecommunications products Manufacture of telecommunications 0.20

1.87 0.59 0.12

1.85 0.48 0.11

0.122 0.034 0.000

-0.002 -0.010 -0.001










0.08 0.83 0.01 space 0.11

0.07 1.21 0.01 0.05

0.06 1.25 0.01 0.06

-0.001 0.041 0.000 -0.007

0.000 0.004 0.000 0.001













05 10-14 15-16

24 25 26


Annual average change (% point) 1993-2002 20022013*

27 28 29 30 31(exc.313) 313 321 322 323 33 33 (exc.331) 34 351 353 352+359 36-37

mineral products Manufacture of basic metals Manufacture of fabricated metal products Manufacture of machinery, equipment Manufacture of office machinery, computers Manufacture of electrical machinery and apparatus, n.e.c. (except 313) Manufacture of insulated wire, cable

consumer articles Manufacture of precision instruments (except 331) Manufacture of scientific instruments Manufacture of motor vehicles Ship-building and repair Manufacture instruments




Manufacture of other vehicle (except 351 0.16 and 353) Manufacture of furniture; recycling of other manufacturing product and waste 0.22 ‘D’ total 21.93

* Standardised forecast


Employment Table 2. (cont): Employment and forecast by branch Economic sector







51 52


55 60


61 62 63 64

65 J




1.81 6.60

1.42 8.27

-0.071 0.196

-0.035 0.152

Trade of motor vehicles, automotive fuels 2.35 Wholesale trade 7.90 Retail trade ‘G’, total 10.99 2.57

1.88 1.80 9.76 13.45

2.11 1.87 10.12 14.10

0.128 -0.061 0.206 0.273

0.020 0.006 0.033 0.059

Hotels and restaurants





5.01 0.08 0.16

4.92 0.07 0.17

-0.044 -0.002 -0.002

-0.008 -0.001 0.002

0.47 1.82 7.54

0.52 1.82 7.50

0.013 0.000 -0.034

0.004 0.000 -0.004





0.42 0.09 1.83 0.94 0.11 0.63 0.15

0.50 0.14 2.14 1.52 0.16 1.05 0.19

-0.002 0.001 0.015 0.055 0.000 0.033 0.003

0.007 0.005 0.028 0.053 0.005 0.038 0.004





2.32 5.67

4.17 9.50

0.149 0.274

0.168 0.349

Electricity, gas, steam, hot water supply, collection and distribution of water Construction

Land transport, transport via pipelines Water transport Air transport Supporting and auxiliary transport activities, travel organisation Post and telecommunication ‘I’, total Financial activity (except: insurance) Insurance (except: social security)

Real estate Renting IT activity Research, development Legal, economic, engineering activity, consultancy, technical testing, analysis

75 80


85 90-93


4.84 0.73


70 71 72 73



20021993-2002 2013*

Financial supplementary activity ‘J’, total


1993 2013*



% rate to all employed




% rate to all employed

0.10 0.17 0.35 1.83 7.85 1.18 0.44 0.08 1.69 0.44 0.11 0.33 0.13 1.23

Other business support services


‘K’, total Public administration, defence; compulsory social security

3.20 5.77











Health and social work










3.98 Other community, personal service

* Standardised forecast


Literature Archambault, R. (1999). ‘New COPS Occupational Projection Methodology.’ Human Resources Development Canada, SP-308-02-01E, T-99-3E. Belyó Pál (2005), ‘Magyarországi makroökonómiai trendek 2020-ig’ (Macroeconomic trends in Hungary until 2020), Ecostat Műhely, 24 November 2005 Berman, Jay M. (2004), “Industry Output and Employment Projections to 2012’, Monthly Labor Review (US Bureau of Labor Statistics, February), pp. 58-79. Boswell, Christina, Silvia Stiller and Thomas Straubhaar (2004), ‘Forecasting Labour and Skills Shortages: How Can Projections Better Inform Labour Migration Policies’, Hamburg Institute of International Economics Working Paper prepared for the European Commission, DG Employment and Social Affairs BLS, 2004. Projections Methodology,, 2005.október 3. Cörvers, Frank and Hans Heijke (2004), ‘Forecasting the labour market by occupation and education: Some key issues’ ROA-W-2004/4 Broer, Peter, Ruud de Mooij and Ruud Okker. 1998. CPB models and their uses CPB Report 1998/3, SPECIAL: FOCUS ON CPB MODELS, de Grip, Andries and Hans Heijke (1998), ‘Beyond Manpower Planning: ROA's Labour Market Model and its Forecasts to 2002’, ROA-W-1998/6E Horrigan, Michael W. (2004), “Employment Projections to 2012: Concepts and Context’, Monthly Labor Review (US Bureau of Labor Statistics), pp. 3-22. Zoltán M. Jakab – András Mihály Kovács (2002), ‘Magyarország a NIGEM modellben’ (Hungary in the NIGEM model’), MNB füzetek, 2002/3 Meagher, G. A.; Adams, P. D. and Horridge, J.M. (2000), “Applied General Equilibrium Modelling and Labour Market Forecasting’, Centre of Policy Studies, Monash University, Preliminary Working Paper No. IP-76.


Neugart, Michael és Klaus Schömann (2002), ‘Employment Outlooks: Why forecast the labour market and for whom?’, Discussion Paper FS I 02 -206, Wissenschaftszentrum Berlin für Sozialforschung 2002 András Révész (1996), ‘Munkaerő-kereslet és -kínálat 1995-2010’ (Labour demand and supply 1995-2010) Richardson, Sue, Yan Tan (2005), ‘Forecasting Future Demands: What We Can and Cannot Know’, National Institute of Labour Studies, Flinders University, 19/8/05 János Tímár (1996a), ‘A munkaerő-kínálat alakulása 2010-ig’, (Labour supply until 2010), Közgazdasági Szemle, Vol. XLIII., July – August 1996 (pp. 682-698.) János Tímár (1996b), ‘Munkaerő-kereslet 2010-ben – ágazatok, foglalkozások és képzettség szerint’, (Labour demand in 2010 – by branch, occupation and qualifications), Közgazdasági Szemle, Vol. XLIII., November 1996 (pp. 995-1009.) János Tímár (1997), ‘A munkapiac egyensúlyi problémái 2010-ben – Foglalkoztatáspolitikai és oktatáspolitikai következtetések’ (Balance problems of the labour market in 2010- Employment policy and educational policy conclusions), Közgazdasági Szemle, Vol. XLIV., January 1997 (pp. 4255) Vromans, Martin (1998), ‘ATHENA: The multi-branch model’, CPB Report 1998/3 Wilson, Robert, Ingrid Woolard and Deborah Lee (2004a), ‘Developing a National Skills Forecasting Tool for South Africa’ Institute for Employment Research, Human Sciences Research Council, ng.pdf Wilson, R., K. Homenidou and A. Dickerson (2004b), ‘Working Futures: New Projections of Occupational Employment by Branch and Region, 2002-2012 Volume 1 NATIONAL REPORT’, Institute for Employment Research, University of Warwick, Coventry Wilson, R.A. (ed.) (2001). ‘Projections of Occupations and Qualifications: 2000/2001’, Department for Education and Employment/Institute for Employment Research: Coventry.


How to build an information system that enables more well-founded employment policy decisions. Proposal

‒ Judit Juhász, János Kutas, György Rák

Introduction There are several, simultaneously emerging phenomena that call for the upgrading of the information system of Hungarian employment policy. They include some hard-to-explain processes of the labour market, discrepant statistics as well as the fact that new requirements and possibilities have emerged in the institutions that affect employment. Some employment experts have picked up several contradictions in international comparisons whose origin – even if often unstated – is the unreliability of the information system. Of these we would like to highlight the following: • Hungary has a low employment rate concurrent with a relatively low

unemployment rate. Yet, the international experience is that the usual combination is low employment with high unemployment, or high employment with low (sometimes high) unemployment. • In the period 1994-2006, mainly after the turn of the millennium,

employment growth tended to be low despite the relatively intensive economic expansion15. One factor to account for employment expansion in the EU-15 was the increasing share of atypical, mainly part-time, employment, but the preservation of low levels of employment is altogether hard to explain. Beside the above strange phenomena it happens with some frequency that individual information sources indicate identical or near-identical phenomena to different extents or in different trends.


The pace of annual economic growth in the last 12 years has been double that of the EU-15 average, whereas the average employment growth rate only reached half (0.5%) of the corresponding rate of the EU-15, having had an average employment rate much higher than ours (especially until 2002).


Examples include: • The labour force survey (LFS) and the population census reflected

different proportions in employment and in unemployment besides a roughly identical number of the economically active. The LFS indicated a considerably higher number of employed persons than the census: in 2000, the respective figures were 3,831 thousand and 3,669 thousand. Meanwhile, the unemployment count was 263 thousand under the LFS, and 413 thousand under the census. At the same time, the number of the economically active only differed by 12 thousand. There were some methodological differences between the two surveys, but they still do not justify such massive discrepancies, all the more so as unemployment was measured in both surveys according to the ILO standards. • Only some of the facts associated with the main indicators of the labour

market had changed by the time of the 2005 micro-census. There is, however, one important gap to be highlighted: the number of the employed increased from 2001 to 2005 by 20-30 thousand according to the LFS and by 170 thousand according to the micro-census. • There were non-negligible differences in the schooling levels of the

population indicated by the census and the LFS: the latter reflected a more favourable schooling structure than the former16. • Finally, we emphasize that official statistics reflect significant differences

– in the case of certain social groups – in the employment counts based on the LFS and the census. The LFS reported 120 thousand working pensioners, whereas according to data supplied by the Tax and Financial Control Authority (APEH – the Tax Office) on the basis personal income tax returns, some 330 thousand pensioners paid tax on employmenttype/employee work. We converted that into an average staff level of 280 thousand. These are not recently recognized contradictions; there has been a pressing need for modernising the system for years. Apart from that, the upgrading of the


information system is justified by the appearance of newer needs and newer possibilities, of which we only highlight the following: • In line with the international requirements, the CSO has recognized the

need for designing a census that builds on administrative data. That move had to be preceded by a review of the present official information system, to serve as an input to the decision concerning the implementation of the plan, and the specific tasks relating to the upgrading of the information system. • A radical turn was instituted in the funding of health service by the

change-over from the quasi-insurance system in effect so far to “actual” insurance. A condition to this turn was the availability of a standardized and accurate




not only the


relationships, but also of other legal relationships/earnings resulting in eligibility for health insurance, broken down by headcount and earnings. The change created an unprecedented opportunity for employment policy analysts to have a new database that would serve as a reliable source of information concerning persons subject to a declared employment relationship. • Researchers of the Institute of Economics of the Hungarian Academy of

Sciences (MTA KTI) have brought to light numerous contradictions also in the tariff survey, which they managed to eliminate. • Last but not least we would like to stress that as EU aid options widen,

databases better serving the domestic support system should be designed17. There may also be a need for obtaining information concerning the situation of the applicant enterprise, institution or individual with the help of official data, providing a more secure base to risk analysis, decision preparation, and then control.


The process of commencing a career is more reasonably controlled e.g. by checking the entry in employment in the official database, than by relying on interview-based surveys.


The research was justified by the roughly simultaneous emergence of several problems, needs, and possibilities18. The study, now complete, presents the results of the research along the following topics: • We summarise the requirements applicable to employment policy

information, distinguishing between the needs of conceptual and operative tasks. • We list the ways in which more reliable information may be retrieved

from the present database – in the light of its inconsistencies – for the purpose of theoretical work. • We make suggestions concerning the use of official (administrative) data

in academic and operative work, and concerning the creation of the research database required for working out the concepts. • We make recommendations concerning comparative international

investigations that provide points of reference in domestic disputes and decisions, taking into account the specific needs of different countries.

The theoretical needs of employment policy with regard to the information system The requirements set for the information system are best derived from the objectives of employment policy, and the tasks required to accomplish these objectives. The general aim of economic policy, and more specifically of employment policy, is (practically phrased and simplified) to bring about efficient employment at minimum levels of unemployment and inactivity19. Employment policy must be in line with the economic policy of the given country, and serve its implementation. To put it in more shaded terms: taking into account the possibilities and givens of the present social and economic landscape in Hungary both the objectives and the instruments of employment policy must contribute to the following:


In the attachment we list the papers written in the framework of the research project, and the list of databases investigated in detail. 19 In line with the Lisbon standards each national economy of the European Union endeavors to achieve an employment rate of approximately 70% in the 15-64 age brackets by 2010.


• availability of the workforce required for economic development; • continuous employment expansion, which of course presumes social and

economic development relying on the absorption of the workforce; • moderation of unemployment and economic inactivity. Accordingly, the

government should promote the labour market reintegration of unemployed persons and inactive persons wishing to work. That objective includes also the aim that school leavers should be able to enter the labour market as smoothly as possible, thus enduring minimum tension/contradiction between education and employment; • government provision for the social groups dropping out (if only

temporarily) from the labour market (wage-earning inactives or dependents) focusing on preserving their motivation to return to the world of labour and, meanwhile, strict state control of the relevant public expenditure. Expanding employment works toward the long-term improvement of the conditions of living of the population, and the collection of public revenues (PIT, social security) necessary to maintain public services20. That list suggests that employment policy objectives are only partially quantitative in nature, and qualitative parameters are likewise important. The qualitative approach to employment – greatly simplified – includes the safety, the income, and the legality of the employed. In the case of unemployed persons, the quality criteria correlate with the fact and chance of placement, measured by the length of the period spent out of work, and the existence of personalised `procedures´ matching the individual’s specifics (qualification, age, motivation, etc.). The specific tasks of employment policy fall into two major groups. The first relates to theoretical, and the second to operative activities.


That’s because just below 42% of central budgetary revenues derive from social security contributions and personal income tax payments, most of which is associated with employment.


Theoretical work takes place in three areas: 1. groundwork for statutory regulation; 2. decision preparation required to increase the effectiveness of so-called active measures representing an independent area within employment policy;

3. analysis concerning the major `related fields´ of employment policy – economy, education, social care – which is useful when it comes to preparing and co-ordinating decisions under the competence of these areas. All three areas involve three hierarchically structured tasks. The first is detailed familiarization with the status quo, along with the identification of the compulsions and the limitations of change. The second is the combined specification of prognoses, expected outcome and cost estimates built on a comprehensive knowledge of the situation. The third is the determination of the efficiency of earlier measures with an aim of working out the required corrections. The operative work consists chiefly of specific decisions made by the competent authorities and incorporated in administrative resolutions, but also of the provision of job-search-related information provided in the form of service free of charge. Generally, two major areas may be distinguished in administrative decision making, one of which concerns the individual, and the other the employer. • The following decisions may be made concerning the individual:

1. Registration of the most frequent job-seekers, and subsequent decision-making on the conditions they have to comply with to be eligible for assistance under the applicable legislation21. It is a general condition that they must cooperate with the public employment service with the aim of finding employment22. The job-seeker is entitled to take 21

The following shall not be entered in the register: full-time students, persons eligible for pension, beneficiaries of rehabilitation benefits and persons in employment apart from casual employment. 22 Registered jobseekers are provided benefits, mobility and training support on the basis of a so-called administrative decision. In the first case, state aid is disbursed to the individual, and in the other two to the educational institution.


advantage of services supported by the employment service, including in particular training. 2. Job seekers who are young school leavers, unemployed persons above 50 years of age, or those who plan to work again following a period spent raising a child or nursing a family member enjoy practically general eligibility for the START PLUSZ card that provides numerous benefits in case of placement23. 3. Registered unemployed persons may receive financial assistance if they intend to launch their own business. 4. Registered unemployed persons may participate in public work programmes financed by the employment service for the benefit of employers. 5. Individuals having recourse to services must sign an agreement that establishes their obligations. 6. Operative work related to individuals includes job-search briefings24. •

Administrative resolutions play a particularly important role also in conjunction with employers. These extend over the following areas25: 1. Employers suffering from temporary financial difficulties may receive financial support (to cover wages, public burdens on wages, or part of these) in the event that there is a “guarantee” that the temporary problem will be solved, and so they commit themselves to maintaining a given level of workforce.


The relief is granted to the employer, and it means that he can deduct the reduced rate of public burdens from his monthly (or less frequent) payment obligations. 24 Anyone is eligible regardless of whether they are actually unemployed on a given date. Moreover, training counsel is also available. 25 Administrative decisions related to employers and aimed at employment promotion are not limited to the work of the labour administration. Application systems designed by the Ministry of Economic Affairs, and the Ministry of Local Governments and Regional Developments play an important part as well.


2. Employers planning a job-creating investment are eligible for financial assistance on certain conditions. Support may be linked to the employment of a “fix” number of persons or registered unemployed persons. 3. The employment services may set up their advisory office on the premises of an enterprise which is planning (compelled to institute) collective redundancies; moreover, the employees to be dismissed may be given re-training. Public measures affecting employment directly or indirectly should be instituted on the basis of information retrievable form databases with the following content: 1. Demographic information including sex, age, citizenship, address, schooling, vocational qualification, membership of a disadvantaged group (Roma, disabled): • Schooling/vocational qualification has a major effect on economic

activity and even on the demographic processes as it affects average life expectancy and productivity, too. • Similarly important from the point of view of employment is the

topographical distribution of the population, as indicated by the differences in employment rates by size of community, county, or small region. • An important part of the subject is the rate of territorial mobility,

characterized by – in addition to commuting statistics – the use of temporary







permanent place of residence. • Citizenship of employees plays an increasingly important role due

partly to migration processes in previous years, and partly to the disappearance of intra-EU borders.


• Finally, we highlight the significance of disadvantaged groups (Roma

and disabled) whose employment/activity is much lower than the national average26. 2. ‘Pure’ employment information. This set of information relates chiefly to the definition of economic activity, but earnings are an important factor among those in employment. There are four basic types to be distinguished in accordance with economic activity: 1. employed 2. unemployed, job-seekers (collectively the economically active), 3. inactive wage-earners, and 4. other inactive persons (“dependants”). • Employment rates may be measured by interview-based surveys in line

with the ILO criteria, but the extent of declared employment as measured by the administrative data is likewise important. • Unemployment may be measured in interview-based surveys in accordance











administrative datum, is likewise important. • The majority of inactive wage earners27 belongs to either of two groups:

pensioners and beneficiaries of child-care support. There is a small group, difficult to quantify, of unemployed persons who receive unemployment allowance in cash, but do not comply with the relevant ILO criteria and may therefore be regarded as inactive earners (as a matter of fact, the existence of this social group is made likely, with considerably uncertainty, by the interview-based surveys))


Although the CSO assigns to this category

those living on own assets or those receiving relative’s support, we have classified these persons among other inactive. We have no doubts that a significant part of inactive wage-earners is at the same time employed, i.e. apparent, legal, inactivity is not automatically concurrent with exiting the 26

This has to be supplemented by the fact that the information available about them fails to satisfy the needs of social and employment policy. 27 Definition of inactive wage-earners: recipients of public aid who are provided that aid – normally, and in accordance with its purpose – to help them move out of the labour market. 28 The definition claims that this group is constituted by old age and disability pensioners on own right, and regular social benefit claimants, and we disregard those receiving relative’s pension (survivor’s, orphan’s benefit). This is explained by the fact that close-relation pensioners receive this state support because their deceased relations can no longer receive pension, whereas they had paid significant sums while alive, plus the funds paid can help alleviate the burdens of a difficult life situation. In other words, that benefit does not aim at triggering a specific labour market behaviour.


labour market29. Therefore, we include those among the wage-earner inactive as indicated by the administrative data who pursue a gainful activity to the population of the employed, and assign them “double status”30. There is an official (administrative) database and a database based on personal interviews for each type of inactive wage-earners. This holds for those living on own assets. In their case, one source is the population census, and the other the PIT returns (using rounds of background computations). • The category of ‘other inactive dependents’ includes those who study on

a full-time basis, or live off their savings, or subsist on support received from their families or some public agency. Undeclared employment enables only estimates based on approximations concerning the size of this group, regardless of the source of information. • Finally,







Investigating earnings deserves special attention for a number of reasons. Partly, an agreement on the change of average earnings, and on the minimum wages is a priority issue of the collective bargaining process. On the other hand, one of the most important motivation for both employees and entrepreneurs is the amount of earnings and income they can achieve/generate. Thirdly, an agreement concerning the development of earnings has a double effect for the state, as high rates of increase in the earnings of the business sector results in significant extra revenues in contributions and PIT, which at the same time brings extra expenditures through the higher wage bill of public sector employees. Fourth, a detailed analysis of earnings helps estimate the dimensions of the black economy. Fifth, income agreements based on employment, schooling and vocational qualification could open a new page in the current system of collective bargaining. 3. Data required to present the relationship of the economy and employment partly serve theoretical work, and partly they are important to lay the bases of 29

There is a single exception from under this, namely those claiming child-care aid, who are de jure not allowed to perform declared work. 30 We are aware of the fact that this double status is mostly a situation created under pressure, as the low level of pensions and various types of parental support constitute a strong motivation to look for additional revenue.


specific tasks aimed at employment promotion and stabilisation31. Without giving a long but certainly not exhaustive list of the multitude of possible analyses, and calculations, we can state that the most important source of information here is the balance sheet database of the Tax and Financial Control Authority32. The main objective would be to enable the authoritative investigation of changes in employers’ staffing levels as related to financial stability, profitability, market orientation, developments, etc. derived from the balance sheets. Note that the general opinion is that staff size figures available from the balance sheets are not accurate enough for this purpose. 4. The relationship of education and employment is truly multi-layered, and thus requires a large variety of data. These data fall into three main groups. • The first is the number of full-time students at least 15 years of age

(theoretically, they limit the labour supply). • The second is a classification based on the labour market chances of

dropouts from the school system, i.e. the highest schooling or vocational qualification of those leaving the system. • The third is the short- and medium-term success of graduates in the labour

market33. One part of the educational information itself comes from administrative surveys (KIR STAT) completed by the public education institutions, and the other part refers to higher education (FIR STAT). Without engaging in too much detail we can state that statistics concerning pupil/student numbers no longer pose a problem, and the same holds for the number and structure of those leaving school with a qualification. What does pose a problem is the number of pupils leaving school prior to finishing/graduation, but various calculations help establish a reasonably accurate estimate. The labour market success rate of students with various qualifications could– so far – only be followed by means of sporadic surveys based on questionnaires. 31

E.g. preparing decisions related to the extension of support and controlling if commitments are fulfilled following grant disbursement, and continuous monitoring of the actual (pre- and post-decision) financial status of enterprises. 32 Numerous questionnaire-based surveys about employers’ intentions and motivations have been conducted apart from this, but these are of secondary importance. 33 It could be justified to create a fourth category that would not qualify as essential information: forecasting future demand for persons with different qualifications.


5. The aim of analyzing the correlation of employment and social provisions is to enable the simultaneous assessment of the effect that the increase/decrease of labour-market-related social tension exerts on the social provision system and the number of potential benefit claimants. From that point of view, the current and future number of job-seekers, inactive wage-earners and dependants is equally important to know, together with the way in which social policy can handle their problems. Moreover, given the domestic earning conditions, neither can the employed be totally excluded from this group34. Administrative decisions concerning the establishment and disbursement of social allowances provide reliable information. That fact is corroborated by the circumstance that – since health services were placed on a genuine insurance footing – those eligible to free services must be reported regularly. All that is meant to convey that the investigation of the relationship between the social care system and employment is related not only to the information system: a number of other factors need to be investigated also to project a realistic picture. The following may be stated from the point of view of information supply: • There is a reliable, comprehensive database of those claiming assistance

from the social provision system, from in-kind grants to financial support (the latter including all kinds of support, from pensions to benefits). • The presently available database may be matched – in theory – to the

list of those in registered employment. It must be mentioned at the same time that there are very important determining factors impossible to analyse: there is no family database; those living under the same address do not always admit to belonging to the same family, therefore their eligibility for support granted cannot be investigated without reservations in the context of the family’s labour market position. ***


A characteristic example for this latter statement is that – based on census information – 400 thousand among those indicating support as their standard source of subsistence were in employment.


Summing up, partly repeating the above, the following problems occur in the present information system of employment policy: • The official (administrative) data do not include (apart from the temporary

employment booklet holders and job-seekers) educational attainment data of the population and of certain social groups. • There is no reliable information, consistent in the various data sources,

concerning the disadvantaged groups. In this regard, the situation of the disabled is much better than that of the Roma. • There is a difference between schooling/qualification information based on

the LFS and the population census, respectively, concerning the population, and thus certain economic activity types35. • As for the population headcount, the register and the census-based fact,

and the results of the projection derived from it, are discrepant. • The number of the employed and its changes are measured differently by

various data sources. It is particularly problematic that the size of welldefinable









administrative data. • There is a similar situation with job-seekers. The Labour Force Survey offers

radically different data from the population census, and sometimes there is a systematic difference between interview-based and official–administrative data. • There are occasionally major differences between the official–administrative

and the interview-based data concerning the number of inactive earners and full-time students, respectively. • As regards earnings, the tariff-analysis and the average earnings calculation

by the CSO produce somewhat different results. To complete the list we must refer to basic research that forms part of the information required for employment policy decisions, as well as international comparative studies qualifying as research, which are required in the course of analysing any labour market correlation. It is not our intention at this point to


It is widely known that self-reporting reflects always a higher level of schooling than the administrative data.


present the results of investigations related to these two subjects36. However, we find two remarks important to make: • We are firmly convinced that a more widespread application of research

results would greatly help basic decision-making in employment policy. The – mostly empirical – research efforts we have identified, however, failed to cover all the important issues from a thematic point of view. That may be ascribable to deficiencies in collection efforts, and also to the fact that research management did not have sufficient foresight (e.g. the order for some research was placed in a haste, under time pressure, not giving enough time for in-depth work). We believe that through our work in the course of the present research we have offered some help to research management as well. • We widely use international comparisons for elaborating each conception.

At the same time, these are excessively data-centred, which of course favours objectivity, but we miss some of the evaluation and presentation of cause/effect relations. Presenting simply raw data may easily encourage the treatment of some randomly picked facts as a sample. Although we do not think that the error of arbitrary data management could be eliminated through even the most conscientious analysis, still, individual strategies could be better founded if the international implications of a given subject were revealed in a more complex way than today. *** Having reviewed the information needs of employment policy, and described the available databases, their internal and external inconsistencies, in what follows we will seek an answer to how such inconsistencies may be mitigated. We recommend two methods. • One involves the measurement of the discrepancies/inconsistencies of the

available statistics, and of these statistics and the official (administrative) data, and the drawing of the conclusions they offer. (We supplement this with options for the correction of some current statistics.) 36

On the one hand, it would extend far beyond the scope of the present paper, and, on the other, our findings in conjunction with international comparisons are not mature as yet, not having been part of our research at the outset. Therefore, we can only report on preparations.


• The other method is the presentation of official (administrative) data as

statistics. We attribute three functions to that. One is the control of interview-based statistics in general and by sex and age groups. The other is the comparison of global and declared employment – measured by a method to be discussed later – to measure the minimum of illegal employment. Thirdly, this may result in the full-scale calculation of average staff levels and average earnings (there will be no need to sample enterprises employing 5-19, and businesses employing 0-4 can also be included in its scope). Before anyone should misunderstand our intentions we wish to pin down that domestic statistics, and especially the labour market situation, is not yet mature enough to leave behind interview-based surveys. Thus we do not think that current censuses could be converted – despite all justified efforts – to authoritybased census in the foreseeable future. That would eliminate all possibility of measuring undeclared employment, and reduce the “accuracy” of estimating actual

employment rates.








(administrative) data available for statistical analysis would constitute a significant step forward.

Suggestions concerning the upgrading of present databases and their use Most of our suggestions concern data management relating to calculations used as input to theoretical work; for operative issues, the official (administrative) data are available already, although it would be justified to use them more extensively. When drafting our suggestions and recommendations, we always take into account that decision preparation can only be good if an unambiguous, factsupported picture is available. Before moving into a presentation of the directions and methods of the upgrading effort, we briefly summarise the special areas of interview-based statistics where we find that upgrading is necessary, and the areas where we do not recommend changes.


• In population statistics, the statistical population should be retained as

the basis of the theoretical concepts. • We recommend comprehensive upgrading regarding the number of

employed. • As regards job-seekers and unemployed persons, the registered stock

may remain in place in the balances with some modifications, but as for unemployment, short of a better solution, we prefer to keep the Labour Force Survey (LFS), disregarding the major discrepancies between the LFS and the census. • For inactive wage earners, it is justified to modify the present system • When determining the number of dependents, we suggest leaving the

remainder principle in place unchanged. Before presenting our suggestions there remains one more remark to be made. We believe that those preparing employment policy decisions can only provide credible data if it can account for the entire population as if preparing a balance sheet for a business. The most neuralgic point in preparing the balance sheet is employment, and as there is essential interest in presenting the changes communicated each month (and referring to the average of the previous three months), our point of departure is the LFS. It seems to contradict the balancesheet principle that international comparisons contain ILO-compatible data that do not include those in institutions [??]. Unwilling to engage in lengthy explanations, we find this discrepancy to be a manageable problem. Upgrading the inventory of the elements of the information system is possible by means of five instruments whose application could move forward even simultaneously in the case of certain types of economic activity. 1. We break down the information from the LFS to details that can be controlled by better/more reliable information. We have applied that method with László Hablicsek to specify employment and to prepare the county labour accounts, but now we find this ‘upgradable’. We provide two examples. The point of reference of the age-group breakdown is the part of the OEP


(National Health Insurance Fund) database concerning people in employment. In cases where the OEP data exceed the relevant LFS information, the latter is replaced by the OEP datum. We follow the same procedure with double status employees. The APEH-OEP survey applies a distinction among those who are insured through employment: employment in retirement, while raising a child or and during studies. That shows the number of persons in declared employment, which may be regarded as the lower limit (threshold). Note that in the course of balance works, we computed the ratio of employment in retirement from PIT data from APEH. The advantage of information available from OEP data is that the latter are available in a breakdown by age groups, thus there is no need to make separate estimates in these areas before the results obtained may be integrated into the demographic structure of the population. 2. Involvement of external, supplementary information. We did this with those working extra in agriculture when we added to the number of employees a given part of persons out of work (not employed even in agriculture), but performing agricultural work for at least 90 days a year. The estimate was based on population census data. That may be converted to a trend with reference to the period 2006-2010 (the future date of the census) when e.g. we extrapolate the pro rata temporis part of the changes in 2001-2005 to the date of the upcoming census. The same procedure may be followed when calculating the number of working students when – based on a specifically ordered part-research – we determine what proportion of higher education graduates we consider to be employed. 3. The schooling structure of the population could be calculated by accepting the schooling structure of the population (the employed, etc.) and the projected demographic changes as reflected by the population census, and by using the number of graduates calculated on the basis of the model of education to extrapolate that. Until the next census, we rely on this annually calculated structure. We recommend that method for two reasons.


• Firstly, our experience suggests that the two interview-based

investigations produced different results. • Secondly, in the micro-census, the number of higher education

graduates in the 15-64 age brackets exceeded by at least 30 thousand the value that would have been expected on the basis of the demography and the envisaged output of graduates from the institutions of higher education. 4. We simply substitute the number of inactive earners with the corresponding administrative









schooling/qualification structure of these social groups (as the administrative data do not include that) with their (projected) school qualifications as they appears in the census. 5. In the case of the LFS we offer for consideration the method whereby it would be reasonable to use the official (administrative) data as a fixed point (pensioners, persons on parental support); and to adjust the sample to this headcount figure in the extrapolation process. 37 That move could help several elements fall into place, and the rate of mistakes outside of this circle could be limited. We illustrate the combined use of the above methods by the process of determining the number of the employed, which process took place in the course of the specification of the baseline state of the county labour accounts. We applied the following procedure to complete the task: • The LFS provided the number of employed pensioners, in a breakdown of

employees and entrepreneurs. We matched the number of employees as indicated by the LFS with the PIT return database of APEH38. The APEH 37

We would just like to indicate that in 2001 the total figure of students/pupils and inactive wage-earners equaled 2305.6 thousand within the 15-64 age brackets (6957.1 thousand), which stands for one third of our population. 38 This was possible only on the basis of the data of the 2001 tax year, because the pension did not count as part of the income base from 2002 onward (the pension, naturally, had been and was afterwards untaxed income) and, therefore, that item was taken out of the returns.


data extended the number indicated by the LFS by far. We investigated the PIT returns with the aim of calculating the average stock of tax payers, and thus we have obtained also the number of employed pensioner taxpayers39. We adjusted the number of pensioner entrepreneurs as reflected by the LFS by substituting it with the number of active businesses operated by pensioners. We must admit that that number could be somewhat higher than the number of those actually and continuously acquiring revenue. At the same time, we knew that this distortion was compensated by the fact that we regarded the number of employees only 10% higher compared to the number of tax payers. To be more accurate, we assumed only 10% undeclared employment in this circle, even though there was no interest in legal employment for purposes of acquiring the service period required for eligibility for pension. The schooling of employed pensioners matched the schooling of pensioners in the given age brackets40. We would like to indicate at this point that we only added surplus headcounts to the employment count as per the LFS. • From among those performing extra agricultural work, we have regarded as

employed those who had spent at least 90 days working, and were not employed, but produced at least partly for the market in accordance with the General Agricultural Survey (ÁMÖ). As we have performed that calculation on the basis of the population census data, which was 30 thousand persons less than those indicated by the LFS as agricultural employees, we reduced the result obtained by 30 thousand. In the course of our calculations we could take as our point of departure the censusbased schooling data of this group. At the same time census data also made it obvious that 70% of those performing extra work in agriculture are pensioners, thus this number raised the number of employed pensioners. • As regards the number of those working besides raising a child, we have

taken over the data from the census, which somewhat exceeded the


We did this calculation by ensuring that the income content of the PIT returns should correspond to the content of our average earnings calculation (and of the associated average staff size) thus, apart from some inevitable problems, we eventually obtained realistic numbers. 40 Even though we were certain that the schooling of employees is better than the average, we could not find a point of departure that could have supported any differential.


number reflected by the LFS. The schooling/qualification composition of this group was also given. • The number of those employed while in full-time education corresponded

to 50% of higher education students. We added the differential to the number of the employed. In the case of schooling, it was obvious that all had the equivalent of a GCSE. More specifically, relying on admission data, one third had the equivalent of a GNVQ, and two thirds a GCSE issued by a grammar school. Taking account of the fact that only a small group studies for a second degree on a full-time basis, in their case we found it unimportant to apply this minimum ratio. • As regards the employment of foreign citizens, the census reflected a

higher number than the LFS. We have increased employment by the differential. The composition by schooling of the group was a given from the census. • Finally, we increased the employment count by the number of employed

persons living in institutions according to the population census. We could determine the schooling structure of this group on the basis of the census. • After ‘re-counting’ the number and schooling structure of the employed, a

separate procedure was needed to insert that information into the part of the








pensioners, and child raisers, respectively. We went about that problem by ‘smoothing’ software applications, because it happened – even if rarely – that in some counties and in some age groups or schooling categories the full population count remained below the aggregate figure for the economically active and the inactive wage earners.

Proposals concerning the possibilities of applying official/administrative data under the present conditions An appropriate processing of the presently known and available official (administrative) data could improve decision-making in several areas. The following could be the main areas of application of information thus obtained:


1. Preparation of administrative decisions; control of commitments made by enterprises and individuals following the decision The registration of job-seekers and the checking of their previous earnings necessary to determine their financial benefits may be done from the register maintained concerning the reporting obligation newly introduced by the Tax Office and the National Health Insurance Fund (APEH–OEP). Entitlement may be stated after a period of 4 years starting from 1 January 2008, and average earnings can be stated sooner, namely within one year41. That refers to the registration of individuals as job-seekers, to the granting of benefits (including social benefits), and to support to be provided to businesses42. The analysis of the balance sheet and the certification of no tax arrears are standard parts of the assessment procedure of support to be awarded to employers. At the same time, it is a fundamental problem that balance sheet information of businesses and institutions is available to decision makers upon specific request only. A problem even greater than that from the point of view of controlling the effectiveness of the present assistance system is that the balance sheet does not have separate figures for the rate of public support, and there is no automatically accessible part in these returns concerning the size of the commitment and its performance. Public support appears in the other revenue box, which may be a number of things, and other revenues cannot be isolated from public support. That logically implies that various types of public support cannot be distinguished by objective. It would be useful to integrate reports on performance into the system of the tax returns.


The declared employment count

Decision-making requires the measurement of the size of declared employment, and its matching against the LFS data. The advantage of monthly returns toward 41

The law stipulates no pre-condition concerning the employers of START card holders, which could limit compliance with the obligation of continued employment, thus there is no need to perform a preliminary check of the financial stability of employers. We are of the opinion that this could be necessary, therefore it would be justified if the Tax Office could maintain an updated list of companies from annual balance sheets for 1 business year, and a list updated monthly on the basis of arrears on public burdens, thus determining which companies should be excluded from the relevant reliefs. The list could be extended by employers found to be in breach by labour inspectors. 42 It would be justified to extend investigations based on official data to development-oriented support granted to businesses.


APEH–OEP is that – unlike with the LFS – the various forms of work may appear in well-definable form, moreover, over a significantly broader spectrum43. As a result – at least in the case of those declared – one can rely on solid information (disregarding the cases when – on various motivations – not the actual worker, but someone else is reported). When using the APEH–OEP database for this purpose, one needs to overcome essentially two problems of methodology. One is the classification of temporary absences from work so that it should comply with the LFS standards. The other is the conversion of (gainful) activity performed under other than the customary ‘standard’


relationships into employment, which must be specified separately. • The LFS defines unambiguously the cases of sick pay under the title of

maternity leave, sick leave, and/or nursing a family member (in the category of temporary absences). The employee counts as employed up to an absence of three months. Accordingly, in the course of data processing, the work history must be collected on a per person basis, capitalizing on the fact that the OEP brings up these cases referring to temporary absence in the `changes´ window, thus it is possible to extract employment in accordance with the LFS. • The situation is more complex in the case of gainful activity under other

than normal employment relationships (in employee or entrepreneur status). This category includes – from among persons with tax-exempt revenues – foster parents, and those claiming nursing, and social carer’s fees, as well as those who receive students’ working fees, or perform work on the basis of a service contract (i.e. a civil law contract), or with the temporary employment booklet. In these cases – even though in the case of the service contract, health insurance regards as ensured those who pay social security contribution on 30% of the minimum wage projected on one month, and the LFS does not associate employment to livelihood – persons receiving at least the minimum wage should be regarded as fully employed. That should be understood to mean that those whose wages reach at least the monthly 43

There would be several special activities (work) to be considered under this issue outside the framework of the employment relationship.


minimum wage will count as 1 employed person, and those earning less will count as employed based on the ratio of his/her earnings to the minimum wages in the average number of the employed


We recommend that

solution in order to avoid diluting employment, and to regard it as an important source of living45. In summary, we recommend to determine the employment count disregarding what health insurance offers, and assuming the existence of a compulsion to earn a living. That solution will somewhat reduce the number of persons qualifying, potentially, as employed, but at least no one can claim that we tried to inflate employment artificially, for purely political purposes. Technical issues associated to determining the employment count – beyond just methodological suggestions – will be supplemented by measurements of the rate of double status employment. As the data provision of employers contains information on whether the employee receives pension, child-care aid, etc., we can easily obtain a figure for double status employees. There is one bit of finetuning to be made here: relative’s pensions and other must be handled separately to ensure the creation of categories in line with the methodology of the balance.

3. The utility of school and vocational qualification in earning a living One of the neuralgic points in the relationship of education and employment is how to convert educational attainment into earning a living. That question is made even more critical by the fact that while – at least in our best belief – there is an oversupply of higher education graduates, on the other hand, there is no doubt a shortage, even if it is sometimes overstated, in several manual occupations requiring vocational qualification. The Act on Higher Education has long been requiring the monitoring of the first 1–2 years of the labour market


We followed the same solution also upon determining the average staff size of PIT payers (Sándor Ádám, János Kutas: Trends in the number of the employed on the basis of PIT returns. Munkaügyi Szemle, 2004, No. 4.) 45 It is commonly known that the one-hour criterion is not enough for a living in any country, and also that part-time employment in Hungary is not really widespread. That holds true even if one knows that the income requirement for employment besides pension is significantly lower. (We would like to make the tentative remark that this is true mostly for the institutional sector, even though even there the 30-hour and shorter working week is quite frequent. Part-time employment is much more widespread in the case of the assignment legal relation, employment with the temporary employment booklet, and illegal work, while this statement may be with reference not to daily but weekly time tables.)


career of school leavers to provide feedback for the specification of the size and occasionally the content of training/education. Legislators found this provision important to ensure that the youth command adequate information on the prospective circumstances of their career-starter period before making a career choice. Prior to drafting that requirement, we had the experience of the FIDÉV research (life career investigation of young degree-holders) which was based on questionnaire-based surveys of samples of fresh graduates from specific courses querying the situation of career starters. The same method may be used to gain information on the situation of any age group (e.g. those having graduated 10-20 years ago). Such research has serious traditions looking back on a past of 40 years. The advantage of such research is that questionnaires allow to approach the subject from several aspects, while the drawback is that they are costly, and their processing is a lengthy effort. We wish to make reference to our earlier statement whereby the utility of school/vocational qualifications cannot be investigated for the entire population aged 15–64 on the basis of the official (administrative) data, as the latter do not to contain information on schooling. At the same time, there is no problem with research on school leavers provided that their social security number or tax ID (perhaps both) appear in the reports of higher education institutions46. One more important element is still missing before substantial conclusions may be arrived at, namely the interpretation of the term congruence under today’s circumstances. A recently launched research project expected to establish the rules of this qualification on the basis of the 2001 census will hopefully offer a reassuring answer that will allay present uncertainties. However reassuring the answer to the issue of researching school leavers, we have serious doubts concerning the possibilities of further progress due to lack of official information on the structure of schooling of the population.


At that time the group of graduates becomes subject to unlimited research as their schooling achievement is known (not the changes), and as the APEH-OEP data contain the FEOR (national code for occupations) and the earning of the individual, the main correlations become subject to analysis, at reasonable costs.


4. Preparing interest reconciliation One of the topical issues in connection with interest reconciliation is the extension of the circle of organisations to be taken into account for the calculation of the average wages (to eliminate the sampling procedure and to include businesses employing 1-4), and the complex measurement of earnings opportunities in various branches or occupations (double and multiple earnings included). A single-window system for preparing issues for collective bargaining could be established by cancelling special data collections on this subject by CSO and assigning it to the competence of the Tax Office. A particularly important issue of collective bargaining concerns the minimum wages and the average earnings. The APEH–OEP data collection contains also the information from which average earnings and average staff size conforming to the ILO categories and hence satisfying the requirements of collective bargaining could be established. However, conversion would require a rather sophisticated application or a modified datasheet. For example, an employee on sick leave is on payroll for one month, and is thus part of the average staff level (an available number), but his earnings include his sick pay, which is not part of average earnings. Thus in this case the data sheet used up to this point should also be modified. At the same time advantage should be taken of the fact that the APEH– OEP reports apply to all employers, and the results cannot be distorted by sampling problems or the quality of data supply, as non-compliant data supply has serious consequences. Taking into account all of the above, we recommend that the APEH–OEP should collect the CSO questionnaire, and then a second thought should be given to the system of the APEH–OEP data collection compliant with the CSO (ILO)-compatible datasheet. The subject matters of interest reconciliation so far – to our best knowledge, at least publicly – failed to contain the question of double


income and income received by identical occupational groups from different employers. Now that the health insurance system is being transformed, the issue of gratuity as supplementary income, rarely included in the tax

returns, has come up frequently. At the same time double

incomes mostly represent real work, which may in some cases compensate for low earnings. This only occurs in some trades/occupations, and this fact may further shade the position of these groups of employees with regard to the other groups47. We believe that limiting these activities would be unjustified as job opportunities satisfy mostly the real demand, but the actual staff size and earnings situations in this category can be displayed in a more detailed manner when matched against other occupation groups.

5. Assertion of the labour account approach through the statistical identification of inactive wage-earners, job-seekers receiving no financial support and the “real” inactive, respectively The APEH–OEP data sheet contains the data of those who are employed (under various forms) or self-employed, that is, who may be regarded as employed or wage recipients. We have full information concerning the social background and revenue status of this group. From a revenue point of view, we also have items such as dividend, property leasing, etc., i.e. revenues that are typical and legal items of the earnings of those living on their own income. These items become evident once a year also for those who do not receive wages as PIT returns are submitted on an annual basis. In addition, the OEP also has the data of those who are ab ovo insured as a result of their social situation (pensioners, and destitute people such as the homeless). That is why it would be useful to indicate the data of dependents, wage-earner inactive persons, job-seekers receiving no financial support in the monthly labour accounts. One item of this, namely that of persons with own income as reported 47

The doctors may have their private practice, they may receive an assignment contract for a consultation, salesmanship, etc. Teachers may teach on a private basis (that is similarly not a frequently seen item in tax returns), but there are numerous other possibilities available inside and outside the school.


in the PIT returns, is available once a year. Its monthly display may take place in a way whereby, for example, persons who had such revenue in 2008 would appear on a monthly basis in 2009, and the full set could be adjusted by 2010 on the basis of the 2009 returns. Some self-adjustments in this area are expected anyway as those who meanwhile became active/retired in 2009 can enter new statuses e.g. employed, wage-earner inactive, etc.

Suggestions to upgrade the international comparative investigations The space of manoeuvre of Hungarian economic policy has been extended following our EU accession, and as the free flow of labour gradually gains ground, it will soon have its influence on the labour market. International comparative analysis is an important tool, and pool of background information, of designing employment policy. There is a growing need for looking behind the ‘raw, primary’ statistics by the ILO, and EUROSTAT and presenting their social and economic background. We find this series of investigations important because presently in public debates and professional disputes the parties often corroborate their true or assumed positions by randomly picked international examples. It is useful to create a basic fact sheet aiming at summarizing at least the international data, the key labour market indicators and the most important issues of collective bargaining in a way allowing to identify their correlations. In what follows we summarise the essential methodological elements of the international comparison of eight selected sets of indicators simultaneously to presenting the relevant social and economic backgrounds. A few of these eight issues – as it will soon become evident – are closely linked to each other.

The LFS and the size of declared employment in international comparison It would be reasonable to measure the extent of declared employment on the basis of institutional, and, if available, administrative data. The objective is to


present the assumed proportions of tax payers and social security contributors in the various countries. That is because we assume that in the advanced European countries also, the majority of taxable incomes is generated in the institutional sector. It is particularly interesting to know in this regard the per capita GDP differential of large and smaller companies. That picture must be presented on a per-branch basis, because the ratio of the organised economy is very different – at least in Hungary – by branch, e.g. it is extremely










accommodation/catering. It would be useful to apply the so-called background variables in the investigation: • Per capita GDP, • The proportion of the “black” economy, • Ratio of private entrepreneurs (self-employed persons), and of part-

timers, • Productivity gaps by branch and by company size category.

Analysis of the gap between the number of the unemployed based on the ILO methodology and the unemployment register, on the basis of international experiences The number of the unemployed is measured in two ways in Hungary, and the results differ significantly: the number of the registered unemployed has always been significantly higher than the corresponding number measured by the ILO standards. Trends are mostly identical, but opposite trends have also been measured occasionally. A further complication is that unemployment measured by the population census and the micro census (although both are measured according to the ILO standards) exceeds the number of the registered unemployed. Thus it would be useful to look behind these phenomena to see if they are a Hungarian speciality or whether the trend exists also elsewhere in Europe. A subject deserving special attention is the identification of the geographical scope of eligibility of entrepreneurs for unemployment benefits (and


whether on the basis of general eligibility or insurance), and its effects on the ratio of the registered unemployed. It deserves further investigation if the structure of unemployed as measured by the register and by ILO standards, respectively, is identical or different (rate of the long-term unemployed, of school leavers, etc.). However, the background variables of the investigation are only partly identical with those listed for the previous subject, as they are supplemented with the following: •









improvement of the labour market situation (based on ILO statistics), and the ratio of funds spent on passive measures as part of it, •

The ‘liberalism’ of unemployment benefits.48

GDP-proportional rate of funds allocated to labour market development The ILO statistics indicate that individual countries spend greatly different perGDP sums on ‘regulating’ their labour market. Denmark, and the Nordic countries in general, spend 3-5% on passive and active measures, and France also spends a significant sum for the same purpose. The UK represents the other extreme, where that sum remains below 1%. The question is not only which countries are successful









unemployment rates, but also to what extent these measures affect the general mood of job-seekers, and the political situation. A further question is the relative proportion of active and passive measures in the successful and less successful countries. We likewise need to obtain an answer to how the spending ratios correlate with the traditionally low or high rate of state interference.

International comparison of the rates of social security contribution and personal income taxes payable on earnings and wages


The latter requires more explanation. The number of the registered unemployed has always been dependent on politics, too, beyond the labour market situation. Within that, the size of support and aids/benefits, the proportion of aid/benefit recipients, and the spread of retraining and public works has particular significance. That is why it is justified to compare the current regulation of unemployment assistance and provisions with the Hungarian system in the framework of this research.


A key subject of the domestic technical literature and of public discussions is the high rate of public burdens payable on earnings. That also appears at EU level, as it was formulated under one of the employment guidelines. An important factor is that the introduction of low public burdens is linked to references to creating the chances of a rising employment rate, which also brings in the illusion that low burdens will increase the investment propensity of income-owners. Contrarily to that – as suggested by both our opinion and mostly by domestic facts –, the situation is that the mere reduction of the rate of the social security contribution will not increase employment, and neither is the low rate of the corporate profit tax automatically conducive to a higher propensity for investment and job creation. The direct employment-expanding effect of the reduction of the social security contribution – despite all statements to the contrary – is unambiguously denied by processes between 1998-2000. True, the LFS suggested an increase in the employment count by more than 100 thousand in 1999. However, the increase of the so-called institutional staff level responsible for the majority of tax and contribution payments lagged far behind that figure: in 1999, it only rose by 15 thousand49. At the same time, while social security contribution rates payable by companies dropped radically, payments by employees grew to a small extent, and the health contribution (EHO) paid by employers grew more considerably. The subject of the research in its narrow sense is a complex international comparison of public burdens payable on earnings. The task will involve a synthesis of two earlier research projects conducted by the CSO, both based on the EUROSTAT database. The first research project concentrates on the rate of labour costs, and the other on the extent of social security, and PIT (both separately from the other). The synthesis consists of four steps: • Step 1: determination of the size of labour costs forming the initial point

of reference.


One must also admit that the increase by 15 thousand was concurrent with the decrease of the number of public sector employees, i.e. the increase in the competitive sector equaled 30 thousand.


• Step 2: deduction from this the costs that – while payable by employers –

do not affect directly the financial status of employees


• Step 3: investigation of the cost items that form part of labour costs, and

do influence the financial standing of individual employees.


• Step 4: identification of gross earnings paid to employees, which include

social security, and other contributions (e.g. health contribution) payable by the employer: . The task here is to compare the net revenue of the employee (i.e. deducting the PIT and contributions deducted from employee’s earnings) to the total earnings, social security contributions included,

paid by the

employers. The special background variables of the investigation, not belonging to any other topic, are as follows: • The ratio of earnings (plus contributions) within the GDP generated by the

corporate sector and by public finances. • Institutional staff size, and/or the ratio of declared employees within the

employment count. • Public finance revenues expressed as a ratio of the GDP, i.e. the rate of

centralization, which needs to be extended taking into account the calculated (imputed) element of the GDP and the ratio of the “black” economy.

Investigating the rate of earnings and wages to the GDP Collective bargaining has two central issues: agreement on the minimum wage, and on the increase of the average wage. At the same time there is no attention given to the wage/capital income ratio of the revenue generated, which determines the level of earnings. The phases of this research correspond roughly to what was described under Point 4 above.

Assessing the international (OECD) statistics of GDP-proportional health, educational and pension expenditure and funding systems and their content 50

E.g. training expenses, use of sports facilities maintained by employers and available for almost free use by staff, corporate health services are important for the individual, but do not influence his/her personal financial status on a short-term. 51 An example could be car use, and other flat-rate costs (it is a different question how the public burdens of these appear in domestic and international statistics).


The investigation has a double purpose. On the one hand, it seems a sensible task in itself to state the per-GDP size of the three largest branches of state provisions: the health system, the education services (broken down to public and higher education), and pension payment. It forms a separate question within that approach what ratio of these services is paid by public finances, and what by the individual. On the other hand it is also important to know what correlation there is between the rate of centralization, and the rate of public burdens payable on earnings. When it comes to implementing the task, the point of departure is the OECD databank. That databank contains two types of information. One is the expenses on the three above forms of services expressed as a percentage of the GDP, and the other the distribution of expenses among public finance and the households. We have assumed that the nature of the services concerned requires no special explanation, and it corresponds to the ‘customary’ classification of activities. That is why the chief task is to interpret the meaning of public finance and household expenditure, respectively.

The ratio of the “black” economy and the employment rate One of the points of departure of the research is that we need to know the ratio of the undeclared economy, including other GDP generation not involving financial movement (so-called imputed GDP generation), so that we should know the real extent of the centralization rate of the budget. That is because it is no use having a low centralization rate in a country if a significant part of it comes from the undeclared economy, items not involving financial movement (unpaid rent, agricultural production for own purposes, property development on own funds) in the GDP calculations, because that would result in significant community burdens on the taxpaying part of the economy. There is a similar situation with black and grey employment52.


This research moves beyond the investigation of the role of declared employment within the entire employment count by concentrating also on grey employment.


It is in vain having a reasonable rate of employment, if a significant part of the employees concerned (20-30%) pay no taxes or not on their actual income, and thus those employed legally or half-legally must share an unreasonably high burden. On top of it, the possibly high rate of the undeclared economy greatly deteriorates the positions of the law-abiding actors of the market, and will thus constitute a barrier to free competition there. The point of departure of the research is a comparative analysis of the ratio of the undeclared economy to the GDP, and of undeclared employment to the full employment count based on ‘self-reporting’, elaborated for the whole of the EU. Apart from that, the rate of the undeclared economy to the GDP must be reconstructed from the national accounts statistics of the individual countries – thus we need to know what estimates the national statistical offices incorporate in the GDP concerning the rate of the black economy, because that will represent the bottom limit of the black economy. The









internationally. That must be supplemented by the rate of GDP generation assumed by statistics under the individual national accounts, in the individual sectors, and branches, and that must be matched against the rate of the tax returns (e.g. in Hungary the performance measured in GDP of private entrepreneurs is triple of what is suggested by the tax returns submitted to the Tax Office). This is the kind of calculation that could result in a realistic assessment of the extent of the undeclared and untaxed economy, which could be regarded as the minimum level of the undeclared economy.

International comparison of social provision systems That investigation is the extension of an assessment related to the health, the educational, and the pension payment system to a group of issues that are in close correlation with social care in its broad sense, but that are not subject to any binding international conventions (see education), and are independent from the compulsory payments of individuals (social security contributions). The basis


of that research is the statistical system created to investigate the European system of integrated social protection, the ESSPROS. It must be taken into account that while the ESSPROS covers in part the issues of education, health, and pension, the former would be practical to investigate separately exactly to enable an explanation of the public burdens on earnings53. ESSPROS covers the following areas: • Old age (which includes mainly the backbone of the pension system, the

old age pension, but it is supplemented by various extra benefits, and in-kind grants as well) • Treatment of diseases, and maintaining health (most of the expenditure










pharmaceutical purchases), and financial benefits to a smaller extent, i.e. sickpay, and various benefits in the event of deterioration of health) • Disability (mostly disability pension, and various benefits supplemented by










unobstructed access, the day-care of disabled persons in specialized homes) • Survivors (widow’s and orphan’s benefits) • Family and child support (its main instruments include: family allowance,

child-care aid/fee, child-care support, confinement support, care provided in crêches and pre-school institutions) • Unemployment (it includes, apart from various passive measures, also two

elements of active measures: retraining, and launching a business) • Apartment (That support concentrates on two target groups. One are those

not having residential property, who will thus receive assistance in paying their rent, or receive a social residence. The other are flat owners temporarily indebted, who may receive assistance in paying their public utility arrears, and may also have their mortgage interest lowered). • Other social exclusion (This assistance is aimed at persons in extreme

situations, i.e. homeless, and drug and alcohol addicts. Such assistance may


The EU-15 average expenditure on social protection equals 27% of the GDP, and the EU-25 spend a little less at 26%. The highest rate is seen in Sweden (32%), while the one Anglo-Saxon country, the UK, spends just below the EU-15 average (25%), and Ireland only 15%. Hungary spends below the average at about 20% of its GDP.


be financial (social aid), and in-kind (homeless shelter, addiction treatment therapies)). This concept of social protection is only partly associated to the labour market situation of individuals. Most forms are available either on a normative (unit) basis or have no means testing criteria. It is characteristic that in Hungary the ratio of benefits linked to income limits constitutes 5% of all support; the EU average is in excess of 10%. That ratio is the highest in Ireland (26%), but this country only spends 15% of its GDP on social protection. The research must be targeted essentially at the relationship between social protection and the labour market situation on the one hand, and the

rate of

destitute groups subject to exclusion – not independent of the former – on the other. The main question is the nature of the relationship of the rate of employment, the rate of poverty, and the types of social protection and expenditures on these items with one another and with the GDP, a synthetic development indicator of the given country. The investigation must also discuss the degree of standardisation, and the extent of the differences, of the contents of individual kinds of social protection (e.g. different pension age limits), and the funding ratios underlying the similarities and differences of content, i.e. the relatives shares of public finance, the households, and the business sector. *** Research has clearly proven that despite the large number of data available, we still do not command sufficient and well-structured information to be able to learn and understand the actual and possible requirements of employment policy and, what is most important, to find solutions. We hope that our research contributes to that end by revealing some prospective tasks, and presenting some directions toward possible solutions.


II. Labour market balance and imbalance


Forecast of the occupational structure of the labour demand; correspondence between labour demand and supply ‒ János Dávid, Edit Fülöp 54

Economy, employment, labour demand forecast The labour demand forecast is a bridge between economy and employment. The active economy generates a labour demand of a constantly changing quantity and content, “fulfilling” thereby its employment function. Politics in general and employment policy in particular perceive the employment capacity ever of the economy expressed in numerical terms and in terms of occupational structure. Employment, however, only reaches the stimulus threshold of politics where and when it is a real problem, that is, if the employment capacity of the economy is perceptibly lower/smaller than the labour supply, or if either the economic actors or the jobseekers emphatically signal a significant mismatch between the occupational structure of the demand and the supply. Hungary is subject to major tensions in regard of the employment capacity of the economy and the correspondence between labour demand and supply. The gap in terms of occupational structure between the demand and the supply has been widening year on year, but it has reached the stimulus threshold of politics just now. There are two approaches that treat low employment capacity as a problem, albeit in extremely oversimplified ways, in our opinion.

According to one, the low employment capacity of the economy is due to the wage burdens imposed on labour – the trimming of which would automatically lead to an increase in employment capacity. According to our research, this is not









employment capacity and labour-related costs, such as the market position of enterprises, the efficiency requirements and, not independent of the latter,

technological development.


Research head: János Dávid; research staff: Edit Fülöp, Gábor Holczer, Péter Mód, József Tajti


The other approach investigates the issue not from the side of factors influencing the employment capacity of the economy, but from that of the low level of

employment, and comes to the conclusion that the answer lies in the small size of the available labour force, pointing specifically to the mass, in the order of one million, of the unemployed and persons having exited the labour market on account of early retirement or disability. According to this approach, boosting the labour market adaptability of this population (through mental preparation, training) would (might) generate the desired increase in the rate of employment. Although there is an unambiguous and direct correlation between the size of this mass and the extent of the unbearable public burdens, and intervention in this area would certainly result in a higher employment rate, one cannot say that raising the supply of labour – in quantitative terms – would boost the employment capacity of the economy.

The economic and employment-oriented approaches are linked by the labour demand forecast and the forecast of the occupational structure of that demand. Efficiency, the use of human labour vs. new technology, is an important factor from the point of view of the utilisation of the employment capacity of the economy, i.e. the increase of the rate of employment, but it is just one (albeit not the last one) of the factors influencing the market positions of economic actors. The correspondence or good approximation of the occupational structures of labour demand and supply, respectively, contributes to the simultaneous boosting of the efficiency, employment capacity, and optimum employment rate of the economy. In themselves, the forecast figures concerning the occupational structure and quantity of the labour demand cannot be interpreted from the point of view of increasing the performance capacity of the economy or the rate of employment. They will show the direction of the necessary interventions, to be taken with utmost care, if they are matched against the labour supply ever. For, it is the result of this exercise that will show where the necessary, but not always feasible, interventions should take place.


Focus points, objectives and methods of our research The direct objective of the research is to quantify the occupational structure of the labour demand, to draw up a ten-year forecast (2006-2015) on that basis, and to interpret the data, primarily by matching them against the corresponding supply data. In our interpretation, the demand forecast and the matching of the results against the labour supply data ever, has practical purposes. In combination with the regulatory and financing decisions of the government and the municipalities, it provides a precise objective basis for designing the quantity and occupational structure of school-based secondary and higher education and adult education. Awareness of the projection data may provide a basis for the prospective training and retraining activities of the Public Employment Service. The release of the appropriate data series, and career orientation activities building on them may help those involved in career choice or change make a qualified decision by weighing their chances. Labour demand and supply are shaped by innumerable factors. In our opinion, of course, in order to approximate the demand and supply appearing in the labour market by deliberate intervention, one must study their underlying factors, to be able to identify those among them that are suitable for manipulating the quantity of the demand and/or the supply. Labour demand is shaped by the following key factors: •

positive and negative economic trend processes of relevance for the economy,

the branch, enterprise size and technological structure ever of the economy,

the opportunities available to employers; their strategies regarding the technological investment vs. human labour issue (determined partly by the market requirements and partly by factors shaping cost management/cost savings – taxes, wages and contributions, reliefs etc.),


the adaptation strategies of employers; their solutions to adapt to the givens of the labour supply; and to the o size, i.e. presence or absence, o quality, o content, i.e. vocational skills and existing working capabilities, of the supply of labour, and, finally,

the vision of the future of entrepreneurs/employers, determined on the one hand by their economic trend expectations and, on the other, their strategies for growth, stagnation or decrease.

Labour supply is shaped primarily by the following factors: •

employment and occupational structure in the pre-survey period,

income-earning strategies of employees and persons about to choose a vocation,

demand positions of employees and persons about to choose a vocation, depending on the supply ever, among other things,

regulations setting/affecting the occupational structure of school-based and adult education, and

many other factors which can be grasped essentially by sociological means








employees and career choosers their positive or negative attitude to work etc. The spatial concurrence of the demand and the supply is “guaranteed” by the relatively low mobility of Hungarian employees, which, however, is refracted by several processes. These include the expansion (through daily or weekly commuting) of the labour recruitment districts of such highly attractive employment centres as Budapest or of companies short of local labour. Obviously, it is impossible to take into account every one of the multitude of effect factors listed above in designing methods for the calculation of labour demand or supply. Therefore, the following question must be asked:


Is it possible to understand and forecast the labour demand? Some answer in the negative, referring to the fast and unpredictable changes of the economy and the market relations. Others consider this problem manageable, arguing that the known methods of economic trend forecasting allow to make projections (within certain error limits). In our opinion, the basic problem with forecasting is not the unpredictability of the economic trends, but partly the system of quantitative relationships/correlations between economic development and employment, and partly the difficulty involved in matching the different category systems of labour demand and supply, since the

demand “expresses

itself” in terms of jobs and the supply in terms of qualifications. However, the basic forecasting issue to be solved is not that, but whether we can identify a guiding principle, a logic, in employment and its job and occupational structure aspects, to see its future development in a systematic way and hence to be able to pre-calculate it. The research series grounded by us in the years 1999-2000 and 2003-2004, and implemented in 2006-2007 under the HRDOP found this logic, this principle

underlying the employment practice of the work organisations, in the relative constancy, i.e. slower change, of the work organisation methods and technologies being used. It is worth noting here that the researches from 1999 to 2004 used a radically different method than one presented below. At that time, we asked every work organisation to tell for every occupation and occupational cluster whether they thought they would employ more or less people there in percentage terms in 3, 6 and 10 years’ time. A certain uncertainty was discernible already in the answers. In the data processing stage, the incidental and illogical nature of the results proved beyond doubt the unsuitability of this forecasting methodology. That is when we changed over to the new principle.


The role of technology in the development of the occupational structure of employed workforce: technology-based employment and occupational structure forecast It is generally true that, in order to find a long-term, systemic and repeatable solution to a problem (in the given case, to the indication of the labour demand in numerical terms), one must recognise and understand the underlying motive, logic, of the phenomenon. The essential driving factor determining the demand

for labour is the task-implementation technology. Whether a production, trade, public or personal service task, there is always a technology underlying its solution. The task-solving technology may be (almost fully) mechanical, or it may rely on bureaucratic protocols or the customary co-operation of the persons performing it. The first typically involves, to use an extreme example, fully automated production processes (in reality, this is an abstraction, as the functions of the equipment are defined and programmed by experts). Another extreme example is the scientist looking for solutions for human technology who uses no routine methods at all, in order to invent new solutions. As a matter of fact, technology is the interaction of machines and equipment, work-organisation-based standard or ad hoc methods/instructions and the taskimplementing human being.

Labour demand essentially depends on what technology is assigned by the management to the task to be performed. In the past century, machines and instruments “mastered” more and more vocational skills, and this has changed the quantity as well as the quality of the role played by man and the content of his production activities. A growing number of rational work organisation procedures stabilised behind the non-mechanical activities, and this has led to a change in the skills requirements and task division of the workforce, to ensure successful work performance.

The applied mechanical and organisation technologies and their combinations ever define the labour demand of the given activity. In the market sector, the choice of technology is determined primarily by the competition of the market 131

actors and their respective competitive positions: the quantity and content demand of the markets "owned" the actors, cost efficiency, the disposable investment and working capital, and the vocational skills and physical capabilities of the available workforce.

In the bureaucratic, non-market, sector – such as administration – this choice is governed by the budgetary constraints, the employment policy criteria, the applied methods, solutions (i.e. the chosen technological work organisation system), the external demands of the consumers, the electors, and many other circumstances.

In enterprises operating under market conditions, intellectual activity, and the division of labour among those pursuing activities labelled “intellectual” traditionally, is supported on the one hand by organisational systems and on the other by IT systems mapping the operation of the enterprise partially. The standardised solutions of these systems take over the planning, registration, business calculation, commercial etc. functions of enterprises, delegating partly or wholly new sub-tasks to the workers and hence reducing the number of persons fulfilling the functions concerned. That is, the bureaucratic functions involved in company management have changed radically with the introduction of IT-based company management systems. Part of knowledge required earlier became superfluous; the number of professionals needed for task implementation has changed, and other knowledge and skills became necessary. To quote another simple example: the functions of the chipping machines have been taken over by CNC equipment, and this, in turn, altered the quantity and vocational skills requirements applicable to their operators. In the given case, a smaller workforce with radically different knowledge and experience was needed. Within a given economy/society, different technologies, implying different

knowledge, skills and experience requirements for the workers concerned, co-exist at any given “moment”. Owing to competition and the spread and interaction of professional solutions, the co-existing technologies of a given production or


activity branch/area tend to approximate one another,

they have many similar

features – and obviously the same is true for the quantity and content requirements to be met by the labour force. The various production branches (let’s just think e.g. automotive spare part manufacture and construction) are far from one another not only in terms of the occupations, but also of the skills and competences they require. The content of the technologies and occupations as well as the quantity of labour needed are constantly changing, but this change is not unappraisable, given its relatively slow pace due to the involvement of the task solution technologies and procedures, and the costs of the relevant investments and organisational solutions.

Each technology type has compulsive implications for the knowledge/occupations and the quantity of labour to be applied, and make these relatively permanent. In certain industries, this permanence lasts for decades, in others for shorter periods.

The labour demand calculation method suggested by us relies on this relative, compulsive, permanence: the applied task-solving techniques and methods “set” the vocational content of the labour demand and set its quantity, too, within certain limits. From the side of employment and labour force development, the point of departure for the calculation of the demand is the following: the division of

labour ever, as experienced in practice and the employment and occupational structure of those in employment is nothing but the impression of the applied technologies. It is the relative permanence of these technologies that makes labour demand predictable. The observation of their changes provides guidance for the estimation of the quantity and quality requirements to be met by the labour force. Of course, the quantitative changes of individual elements of the technology/vocational structure in demand ever are influenced by economic trend effects in the market sector and budgetary and employment policies in the public one. The fluctuations, however, take place (if no change in technology is involved) within certain well-defined limits, except for the case of voluntary or forced exit from the market.


Awareness of the actual occupational group structure of employment provides a basis for the estimation of future demand. According to this concept, it is possible to arrive at an empirical understanding of

the occupational group structure of employment, representing the basis of labour demand forecasting, and to make projection calculations based on its internal proportions, in combination with indicators generated by supplementary research, as indicated below: •

demographic forecast of occupational groups,

branch and company size category, and regional economic trend forecast

employment and occupational group structure development forecasting by


branch and company size. On the basis of an empirical survey covering 6000 employers, we have created

occupational group structure models for 5 work organisation categories and 21 economic branches. The resulting models were multiplied by the full-scale business site data of CSO, and this has yielded an occupational group structure representing the status quo and valid for territorial categories (region, county) including 196 occupational groups. The labour demand forecast calculations were carried out with the help of the indicators obtained from the above three supplementary researches for this structure with reference to the period 20062015. This, then, has allowed us to understand the current structure composed of 196 occupational group elements, to calculate its expected changes, taking into account the expected demographic, economic trend and internal structural developments.56


Economic trend calculations by GKI, under the leadership of Judit Adler.


.We could not use the apparently similar data series of the population census, because that was

based on a survey of the population and not the employers, and hence its employment and occupational classification system did not reflect the actual work organisation/technological labour division positions.


Global results of labour demand forecast calculation 1. In the next 10 years, as a result of the demographic developments, 1.15 million employees will exit the labour market. Assuming no change in employment rate over that period, a labour supply of that size, with adequate vocational qualifications, may guarantee the operation of the economy and the public sector. 2. Owing to the changes in work organisation and technology, significant occupational structural changes will take place in the next ten years. The changes concerned will affect some 300 thousand employees in all. They will imply no staff increase, since they will either be concurrent with labour replacement, or the employees will be able to meet the higher requirements. 40% of employees forced to improve their vocational qualification level, and will move from jobs requiring secondary level qualification to jobs requiring a degree, and 60% will be expected to acquire a vocational qualification or a new vocational qualification, as dictated by the labour market demand. 3. As a result of changes in economic trends, the forecasts project an increase in the number of the employed by 185 thousand by 2015. That is, in the period under study, we must reckon with a labour demand for 1 300 thousand new entrants, a demand for the re-training of another 100 thousand and approximately 100 thousand new working-age unemployed persons. The calculation is based on the assumption that only 50% of labour rendered “superfluous” by employment restructuring and branch restructuring due to cyclical changes will be able to find a new job (with or without retraining). 4. Beside the changes, an exceptionally wide circle of the employed will be affected by the changes in the vocational/behavioural requirements applicable to those who fill the jobs concerned. As for the behaviour-related changes, the most important relate to discipline, attention, commitment and flexibility, and as for the vocational/content requirements (applicable to those employed in organisational units responsible for leadership management, the list is headed by continuously updated professional skills, familiarity with related professional areas, smooth use of the system of IT instruments and foreign language skills.


5. The present 42% and 58% rate of non-manual and manual workers, respectively, will undergo no essential change by 2015. At the same time, the rigid distinction between non-manual and manual work has started to erode already. This is not just a statistical issue, since job content and value determines, on the one hand, the employment culture surrounding the given job, the employment relations communicated by the employment organisation and, on the other, its prestige, that is, the appeal of the given job. In the category of micro and small enterprises, these two categories have been merged from the start. 6. A minor shift is to be expected in the distribution of the employed by qualification level by 2015: in the non-manual occupations, the share of persons with higher education qualification will increase by one percentage point, to the detriment of persons with secondary education, and the proportion of manual workers with vocational qualification will increase by 2 percentage points. 7. No further decline is to be expected in the share of unqualified workers. 8. Over the next ten years, new entrants are likely to find a job if: out of 100 new entrants, 22 have a degree, 21 have adequate secondary-level nonmanual qualification and 38 manual vocational qualification; the activity of 7 relates to transportation and only 13 are unskilled. 9. The expected labour demand can be satisfied by 130-140 thousand new entrants annually. The bulk will be career-starters, but the group of 24 thousand persons unable to exercise their original vocation may also be indicated as a supply source. Furthermore, over the 10 years concerned – in contrast with those at work already now and in 2015 – basic vocational qualifications will be complemented by IT and linguistic communication skills, affecting 20–60% of the employed, to different extents by occupation. 10. The demand for non-manual workers with tertiary or secondary-level qualification will rise to more than half a million, i.e. 53 thousand annually, over the next ten years, and their distribution will be 50–50%. Within that, there will be an annual demand of 6600 for persons with a technical degree, and of 10 thousand for those with a degree in economics. There will be a demand for 2600 degree-holders in commercial jobs, and for an annual 1000


degree-holders in IT. In the following ten years, a total of almost 6 000 thousand, i.e. an annual 600, persons with legal qualification will be needed. This number doubles if we take into consideration also the jobs where various line administration (employment, health care etc.) tasks are carried out beside the strictly legal ones. 11. In the next ten years, the share of persons employed in health care, trade and service type jobs requiring vocational qualification will increase by no more than 2 percentage points, from 34% to 36%. In parallel, the share of machine operators and assemblers will decline from 7% to 5%. The demand for manual occupations will be most significant in the group of commercial-type occupations at 163 thousand. This is followed by the demand for qualified workers in the occupational groups of metal manufacture, engineering, and construction at 116 and 82 thousand, respectively. The demand for technical occupations and for agricultural ones follows with a major backlog at 27 thousand and 16 thousand, respectively. 12. In the ten years ahead, it will be inevitable to provide for new generations of skilled workers in the occupational groups of metal manufacture and engineering, since these trades have become subject to constant shortages in the past 5-8 years. According to the projections, the demand for skilled workers in the metal industry will not only increase in the next ten years, but the relevant knowledge and skills requirements will also change. 13. Construction industrial activities are expected to expand significantly in the next decade. The research suggests, furthermore, that we shall witness radical changes in construction technology, and these changes will entail changes in work organisation. It follows from the process of transformation that the construction industrial and, to a smaller extent, the engineering vocations will “split”: on the one hand, there will be a continuing need for workers meeting the traditional content requirements of these trades, and, on the other, bricklayers, for example, will be replaced by scaffold, ferro-concrete, shutter and metal structure builders. The engineering works will become more complex, and they will require much more extensive and higher-level qualifications.


14. According to the expert estimates, the demand for machine and equipment operators will decrease, due essentially not to changes in technology and work organisation procedures, but to the rise in qualification requirements. Employers usually identify this group as a supply pool of skilled workers, because its members have been socialised already to the plant environment and, therefore, they are worth retraining.

Labour demand and employment To lay the basis of labour demand calculations and the interpretation of the results, we have made interviews and prepared branch-specific case studies. This has allowed us to observe the correlations between technologies, work organisation arrangements and employment, as well as the changes in the vocational and behavioural requirements set for workers in various occupational groups in 13 branches. On the basis of these experiences, we have designed a questionnaire-based expert data survey to measure expected changes in employment and occupational structure. This research module proves beyond doubt that the Hungarian economy is characterised by a dual structure not only in the economics sense, but also in terms of labour demand and employment: there is a deep abyss between micro and small enterprises with 1-19 employees (45% of all the employed altogether), and medium-sized and large ones. The unregulated technology and work organisation routines of the micro and small organisations are governed, on the one hand, by the demand for small series or unique products of the local market (in the geographical sense), and, on the other, by their paternalistic employment culture based on relations of trust. As compared to the larger enterprises, they are characterised by over-employment, especially in the non-manual administrative positions, coupled with moderate professional requirements due to priority given to the employment of family members. The members of the technical staff involved in production, on the other hand, are expected to have universal knowledge, a fast reaction capacity, creativity and absolute commitment. The machinery and equipment in use is often one generation behind, but the essential thing is not that, but the moderately regulated production process, in which the


capacity for professional problem-solving plays a major part. Employment efficiency is lower than at the larger enterprises. The “basic” professional requirements are radically different from those of the larger companies. Owing to their technological and professional conditions, minor entities expect workers to be familiar with the most traditional, small industrial aspects and practices of their trade as well as the most advanced professional solutions, materials and technology. Large enterprises pursue more regulated activities, usually organised into processes by technological and work organisation instruments, which require general basic vocational capabilities and skills, so to say, and the employee has no need for, and is actually often forbidden to remember, any specific manual or non-manual activities. Adaptability and trainability, that is the essential thing. All this is of particular importance for secondary- and higher-level vocational training, since a smaller plant requires the hic et nunc vocational knowledge and skills accumulated through history (and has no resources to provide relevant onthe-job training). The fixed technologies and work processes of large companies, on the other hand, are always unique and, therefore, vocational training is expected to prepare the prospective worker for working under regulated conditions, in addition to providing adequate vocational grounding. This duality of the requirements to be met by the employees generates tensions experienced day by day in vocational training and job brokerage. Keener competition affecting not only the large, but also the micro and small enterprises has a direct effect on their employment propensity: they strive to reduce the employee headcount, to substitute their work by mechanical/IT solutions. The integration of degree-holders and non-manual workers with secondary-level qualification in tight work processes allows to increase the measurable and accountable performance requirements. And once the activities suitable for standardisation have been detached from their jobs, another group of degree-holders is expected to be universal, to have a second or third degree, relevant qualifications, and to be able to fill more, and more frequently changing jobs than before.


The experience of our research is that medium-sized and large enterprises “maintain”









qualification, respectively, at a relatively low pay that has decreased significantly in the past years, and they also operate such as are filled by candidates appointed from "within", who are trained, as necessary, on company initiative.

Comparison of labour demand and supply As mentioned already, labour demand can only be interpreted in comparison with the supply, this is the only way to draw employment policy consequences. The question is whether the forecast demand, expressed in terms of qualification levels and occupational group structure, is offset by a labour supply characterised by the identified parameters. Obviously, the development of the economy driven by its own principles is ensured by the quality of the supply, its fit with the demand, and this is what may establish the conditions of the growth of employment, at an unprecedented low now, in Europe. It is particularly important to have a supply of adequate occupational structure available in the more deprived areas of the country, as the rate of employment is lowest there. The definition of the “supply” is key to our calculations. Theoretically, the labour supply is the totality of the generations entering the labour market as career starters, i.e. in the next ten years in this case, and those having exited the labour market earlier, but returning to it from “inactivity”. It is important to stress that, from the point of view of the calculation, movements within the labour market (change-over from one job to another) do not expand the supply. We have no data on those who return from inactivity, especially not on the occupational structure of this population. Therefore, our calculations could only take into account career-starters, i.e. persons leaving the school system. It is an advantage that statistics provides full-scale data in this respect, broken down by area and occupational structure. Thus, in the comparison of labour demand and supply, for the demand side we used the values of the 10-year forecast broken down by individual years, and for the supply, the partly corrected data of the educational statistics of 2005.


Correction would have required the career monitoring data of persons with secondary as well as higher educational qualifications, to be able to identify the actual demand and the rates of exits from occupations or – mainly for those with secondary qualification – the rate of persons choosing further education. In the absence of adequate career monitoring surveys, however, we could only make this correction on the basis of a targeted expert assessment of those with secondary qualification. We have calculated a shortage / surplus supply indicator based on the comparison of demand and supply. This indicators (the demand / supply quotient calculated for the given occupation and territorial unit) informs us of the ratio of the supply to the demand. Since the limited scope of this paper does not allow to present the detailed data, suffice it to show a few examples:

The survey results confirm and, what is more, quantify, the phenomenon, discernible to the naked eye, too, already, that there is a mismatch between labour demand and supply. In some occupational groups, the training supply


exceeds several times the demand and in others it is several times lower than that. The green bars in the diagram below indicate to what extent the labour demand estimated on the basis of our calculations is satisfied by the supply generated in individual occupational groups (aggregated to a considerable extent to promote transparency), that is, the group released from training with a degree or a vocational qualification and probably taking up work for the first time in 2005. The orange bars show the labour demand and supply gaps by occupational group:


Albeit with major differences by occupation, usually, there is excess supply in occupations for degree-holders or white-collar workers with secondary-level qualification, and a shortage in a significant part of blue-collar workers' jobs. 15. In the next ten years, an annual 125-135 000 career-starters and previously unemployed inactive persons should (re)enter the labour market to satisfy the moderately growing labour demand of the economy. Furthermore, another approximately 110 thousand annually will have to be retrained according to


the results of a data survey carried out in co-operation with business professionals. 16. In all probability, 75% only of the demand for new entrants can be satisfied (according to the demographic data), that is, there will be a gap of around 30 thousand young career-starters annually, who might be replaced through the reduction of the number of the unemployed/the inactive and the employment of further foreign workers. Otherwise, it will only be possible to meet the demand in numerical terms if the entire career-starter stock actually takes up work. 17. Our data show that in 2005, from 52 000 degree-holders taking up work for the first time, some 27 000 found a job in their own profession, and the others (approximately half of degree-holders) did not. Degree-holder careerstarters can actually fill any of the open vacancies. A minor labour shortage would ensue if some 1000–1000 technician’s and administrator’s jobs corresponding to their qualification in the strict sense remained vacant. In reality, however, the occupations/degrees are no doubt more flexible than that, and the output surplus of some 26 thousand degree-holders will be amply sufficient to fill the jobs concerned. 18. The widest gap between the occupational structure of supply and that of the demand occurs ion the case of degree-holders. The output surplus is biggest at 7000 persons in the category of teaching professionals in the broadest sense (from kindergarten to upper elementary school teachers), followed by 4000 in the artistic and cultural occupational group including mostly cultural managers and graduates in communications, and by 2000 in the group of welfare politicians and welfare workers. 19. Persons with a technical degree represent a more complex problem. The strongly aggregated group presented here includes 11 types of occupational groups, including shortage ones, and almost 4000 career-starters with a fashionable degree that may be more in demand in the future. Apart from these groups, there is excess supply in almost every one of the presented occupational groups. All in all, at the present output rate and structure, an annual surplus supply of 26 000 is to be expected.


20. As opposed to degree-holders, the group of manual occupations requiring secondary-level qualification is characterised by an output shortage of around 17 000 annually. Let us note here that our calculation of the demand for degree-holder labour took into account, on the basis of the relevant expert estimates, the expected future occupational restructuring of

the work

organisations: the calculation of the demand for degree-holders took into account the intensifying requirement to employ degree-holders instead of person with secondary qualification, but the opposite may also happen, although on a much smaller scale. Therefore, it is less likely that degreeholders should take the place of more of the missing supply of persons with secondary qualification than it is expected already. 21. In reality, beyond our calculations, it may be assumed that the demand for white-collar

workers with secondary qualification will be 20-25% lower, and

the deficit will be reduced by that amount, given the fact that micro enterprises employing a considerable amount of workers in this category tend to “over-employ”. The reason for that is the special family/self-employmentcentred nature of the hundred thousands of micro enterprises operated as family enterprises. Therefore, one may expect that the rate of this type of employment will decline under the effect of the strengthening of rational employment. Nevertheless, the demand surplus for persons with secondary office/manager or commercial/trade worker qualification is estimated at 712 000 annually. According to our data, in the occupational groups concerned, the training output would essentially correspond to the demand, but there is significant further education exactly in the shortage areas. Nonetheless, a higher output surplus, in excess of 2000, is recorded exclusively in the occupational group of IT specialists, having become most fashionable in recent years and propagated extensively by the secondary training institutions. This is a problem because, the vocational content of this type of training hardly exceeds the level of digital literacy that is becoming more and more common today, even without training. If we look at it from this aspect, this group of a good 2000 annually actually leaves school without vocational qualification.


22. The shortage phenomena are most serious in the area of the supply of skilled commercial workers and skilled workers with what is actually a blue-collar manual worker’s qualification. The grave shortage, i.e. high demand, encountered in trade is partly due to the fact that the GKI economic trend forecast for 2005-2015 assumed a 30% staff increase and partly to the inadequate quantity of the training output. On the basis of our empirical experiences, however, we still say that the everyday practice is that trade receives young and older workers with inadequate or no


relatively easily. This is promoted by the fact that the necessary (adult) training period is usually not more than 4-600 hours. Hence the labour demand of retail trade in outlets, employing the biggest mass, is relatively easily satisfied either by unskilled career-starters (usually with GCSE) or the representatives of










approximately 11 000 persons within the shortage are shop cashiers and shop assistants. Taking this into account, the shortage is reduced to a few hundred persons. The only necessary condition is the availability of 11 000 new workers annually (i.e. 110 000 in ten years). In our opinion, this is feasible through the involvement of persons who are inactive now. 23. The situation is different in the category of “real” manual workers, because the occupations concerned are practically impossible to learn in the context of adult education. (NB: we do not speak of trained workers here.) 24. The occupations have been grouped on the basis of their branch affiliation. As can be seen in the diagram, the shortage is gravest in the metal working and engineering occupations. In the first group, the demand for an annual 11 500 skilled workers was offset in 2005 by a mere 2836 youth entering the labour market. In construction, our data indicated a demand for 8000 and a supply of 3321 skilled workers . 25. We must pay attention to the shortage of precision engineering technicians, precision engineering being the third most significant branch of the national economy. In the wood and furniture industry (partly related to construction), and in the branch of textiles, clothing and footwear, having declined in the past years, as well as in agriculture and the food industry, both significant staff losers, labour shortage of a smaller or bigger size is accompanied by a


certain output surplus: in 2005, this totalled some 4000 altogether. The surplus is attributable to the internal occupational structure of the branch-specific occupational groups concerned, which does not match the relevant demand. And that in spite of the fact that demand shortage is commonly known in these trades. This phenomenon may have two reasons. On the one hand, the training institutions cannot change their training structure and, on the other, there are few vocations, especially for girl students, as could replace those of tailors, dressmakers, needlewomen, model makers and baking industrial vocations. 26. In the blue-collar occupations, an annual demand of 26 000 corresponds to a supply of 6500, that is, training provides for 25% of the demand – provided that the tendency of several years continues in the future. Thus the shortage of skilled labour keeps accumulating year on year and, as demonstrated by the previous years, it represents a growing obstacle to economic development year on year. 27. In view of the criteria of training levels and qualifications obtainable within the

school system, the following balance emerges: Balance of labour demand and supply: annual earnings data calculated for the period 2005-2015 and training output data for 2005 Annual result of total Satisfied earnings demand, p.a. forecast 706 155 28 000 26 000

No. of employed Degree-holders White-collar and white-smock workers with secondary-level qualification Blue-collar workers with secondary-level qualification Commercial workers with secondary-level qualification

Total Other manual workers with typically adult training qualification, mostly assemblers, machine and equipment operators Unqualified workers doing hard manual work Cleaners, security guards Total Annual 50% of manual workers forced to change vocation, to be replaced Annual 33% of degree-holders to be replaced due to being forced to change occupation Annual total estimated labour demand

Output surplus

Output shortage

26 000

2 000

Estimated no. No. of persons of vocation- remaining in quitters education ?

1 093 069

32 000

10 500

5 000


4 100

11 500

767 130

26 000

6 500

5 000

19 500

2 700

3 000

16 500

5 000

416 460

2 276 659

102 500 48 000


6 000

178 281 220 214 3 962 978

7 000 11 000 126 500

2 000

38 000

48 000

11 500

54 500

38 000

51 000

1 700

8 500

2 500

16 000

8 500

4 500

2 200 133 200


28. Given the annual output of 52 000 degree-holders and 62 000 persons with

secondary qualification (32 000 white-collar, 11 000 commercial and 17 000 blue-collar workers), i.e. the vocational training of 114 000 youth, the by-andlarge identical skilled-worker demand of 102 thousand annually is offset by an actual supply of 48 thousand. The efficiency of the training system in terms of its response to the respective demands is 50% for degree-holders, 30% for white-collar, 37% for blue-collar and 41% for commercial workers. Labour supply and demand, and status structure of the shortage occupations Annual result of the demand forecast Degree-holders White-collar and white-smock workers with secondary education Blue-collar workers with secondary education Commercial workers with secondary qualification Occupation quitters with secondary-level qualification Total

No. 28 000


Output surplus Labour supply No.

Output deficit: Labour demand





26 000


2 000


32 000


5 000




26 000


5 000


19 500


16 500


2 000


11 500


8 500


46 500


54 500


102 500


29. This tragic situation is ameliorated a little by the presence of 8500 skilledworker occupation-quitters who may satisfy the demand for plant and machine








qualification, only a general work culture). Here, the demand for 6000 may be answered by a supply of 8500. The above table shows that, according to our calculations, the 54500 vacancies (102500-48000=54500) are offset by a supply of 46500 persons with inadequate qualification, unable to meet the demand of the primary labour market. The first problem is that the potential supply is smaller by 8000 persons than the demand. The second and even more serious concern is the mismatch between the status structure of the supply and the demand: it is not at all likely for persons having chosen an occupation implying a higher status to be willing to undertake a lower-status job. And even if that does happen in some cases, it is not at all likely that white-collar workers would satisfy the demand for blue-collar staff on a larger scale. We have indicated already that we see a minimum chance


only for the employers to place more degree-holders into secondary-level whitecollar jobs under the current competition circumstances, but even if they did that (concurrently with the dramatic curbing of the wages), and even if degree-holder jobseekers with no other chance would be party to that, we still do not see which group would cross the social Rubicon between white- and blue-collar workers. Not to mention the fact that it would do no harm to

mastered the trade

concerned... We could observe in our data survey covering producer and service companies their tendency to fill blue-collar vacancies with unskilled or more often inadequately skilled persons employed by them in plant and machine operator and assembler jobs. Our detailed data go to show that in the ten-year-period of 2005-2015, 90 thousand workers from an occupational group of 285 thousand would be placed in skilled workers’ jobs (based on their existing occupational culture, work organisation experience and probably on the development possibilities inherent in adult education). This may well be one source, not a sufficient and neither an undepletable one, of stopping the labour shortage. (One might count on diminishing the annual shortage of 20 000 by around 9 000 persons annually. The fate of the remaining annual 11 000 vacancies, however, is an open question, as well as the manner of the replacement of the 9000 drawn away from their original tasks. Would it be possible to switch to new technologies that would allow to preserve the current output/activity levels at decreasing staff levels?) As can be read from the first table, the annual demand for 102 thousand degreeholders and skilled workers and 6000 semi-skilled workers is accompanied by a demand for 7 000 unskilled hard manual workers and 11 000 persons doing various light/ancillary work. It will probably be no problem to fill these jobs. In summary: our calculations clearly show that the entire population of the annual 120-130 thousand new entrants to the labour market would be in demand – in an adequate occupational structure. If 30-40 thousand enter the labour market with an occupation/status that does not match the demand, the annual replacement of


this stock, with the help of our current measures (and under the current employment conditions, not to be analysed here, but not very attractive anyway), represents an unsolvable task. Therefore, in our opinion, the problem can be solved, if at all, exclusively in the longer term, with interventions based on a concerted economic, employment and social policy strategy. The above summary may represent a point of reference for the development policy of the government. However, apart from certain general tendencies, the development of the supply and demand of labour has certain regional and, in terms of the labour provided secondary-level training, some county/small-regionspecific characteristics given the existence of different occupational structures within the economy. In addition to the specifics of the economic structure, these are connected to the small regional work culture and the system of contacts between the regional enterprises and the population, the “workforce”, the training institutions and, last but not least, the youth about to choose a career. The national-level analysis may help design a government-level policy. However, interventions within the reference system of this policy are only feasible at regional or lower, territorial levels, in line with the local specifics. Consequently, it would be worth making the supply/demand calculations for these sub-county territorial levels. The interpretation of the results associated with adequately linked empirical research, could then be more specific, and hence suitable for the definition of development/action-oriented interventions. The extreme gap experienced between the supply and demand of labour, the loss of balance, is indicative of the need for the combined use of education, employment and social policy instruments to solve the problem. For example, the TISZK (Regional Integrated Vocational Training Centre) programme will only contribute to finding a remedy to the shortage of blue-collar workers, that is, to making these occupations more attractive if it will implement complex development interventions based on adequate local-level analyses, taking into


account the cultural characteristics of the social group that represents its potential blue-collar workforce.

Efforts to establish the regional-level balance of labour demand and supply should be based on regional-level calculations and attempts at complex development-oriented interventions based on the exploration of the real situation.

Finally, we must say that currently society does not know how, on the basis of what activities and underlying vocational skills, the regions, the country, “earn their living” Consequently, neither are the current and potential members of this active society able to find reference points for career orientation, their prospective life careers, so that these should be more or less in harmony with their capabilities and the real labour market demand. As part of our labour demand research, interviews with entrepreneurs and different experts working as employees repeatedly confirmed the experience that the worker retention capability of a particular occupation (be it white-collar or blue-collar) depended on professional recognition by the employer organisation, while its attractiveness in the labour market was a function of the extent to which this fact was known at the regional level. These things used to be common knowledge but as a result of changes over the past 20 years the attractiveness of employers, work for them, and employment relations in general have become less known. The lack of this knowledge has a major role to play in disrupting the balance between labour demand and supply.

Points of tension between demand and supply – Recommendations Our research report also identifies and analyses sources of tensions arising from mismatches between labour demand and supply, as well as formulating recommendations as to how to address shortcomings and contradictions. Against the current background we will now focus on the most important ones.

The primary source of mismatches between labour market demand and training output is lack of information.


Labour market actors including employees, students (and their parents), employers,






institutions, and not least the Public Employment Service along with County/Regional Labour Centres have still not received research findings offering a realistic picture of current and future labour demand and supply or a quantified description of the size of tensions.

Recommendations as to how to institutionalise forecasts of labour demand and supply and make use of results In order to obtain high-quality labour market information, it is necessary to operate on a continued basis a medium and long-term labour market forecasting system measuring the contents, quantity, and volume of labour supply in line with current economic development plans. Built on this, an information-sharing programme should be developed along with a programme allowing access to, and dissemination of, information. As a first step, information must be made available in order to facilitate a better understanding of the situation. Also, broad-based discussion and processing of information must take place with a view to finding (longterm) solutions and through that enabling society in general and youths in particular to understand and use that information in planning their own careers. Secondly, long-term economic and social development interventions must be worked out to resolve problems stemming from the fact that the structure of economic development and the endeavours of employment policy and society diverge.


Thirdly, as a parallel step, secondary, post-secondary, and higher education must be restructured in terms of contents and quantity. That will of course entail regulatory and funding reform.

Lack of co-operation between, and diverging incentives of, labour market actors Secondary and higher education institutions are indifferent to labour market needs. They only seek to meet student demand, because of •

normative funding,

efforts to maximise revenues (by maximising student numbers including fee paying students),

keeping training materials and institutions unchanged, and

protecting the livelihood of the teaching staff.

The normative system encourages training providers to focus on attracting and retaining









considerations. Competition between schools for students because of percapita financing is driven by the objective to launch courses in fashionable occupations and keep them running as long as possible. •

The school has an interest in ‘selling’ its own capacity, i.e. marketing it possibly as it is, i.e. in unchanged form.

The more academic content training has, the cheaper it is and the more available capacity is for it.

The decision-making mechanism within schools favours teachers with general (academic) educational responsibilities, who are in majority, over teachers/instructors responsible for vocational/practical training.

Schools are no longer or hardly able to pay highly-qualified young teachers with practical experience in technical sciences due in part to the limits of the salary grading system and in part to uncompetitive pay.


We have drawn other interesting conclusions as well from interviews with school financiers. Employers typically have weaker links with schools operators in places where the economy is either too strong, or too weak. In both cases, employers tend to have more direct relationships with the schools themselves. In its current structure the schooling system as a whole is too complicated for parents to understand. Even if they try to select a school as carefully as possible, they will certainly fail to find out about the recognition by the labour market of the chosen occupation. For, schools have a disincentive to disclose any information about it. Only Business Schools have developed a practice of measuring and publishing the success of their students in finding employment. They do so for a clear reason: the training content is substantive and employers’ feedback is positive, which is reflected in employment figures.

Recommendations for transforming the financing system: The system of normative funding should be reconsidered. Different solutions are needed in secondary and higher-education institutions. We recommend that the current normative funding system should include

an ‘adaptation component’, i.e. a portion of the amount payable to municipalities (based on school intakes) should be linked to launching training in occupations that are in demand in a particular region based on

occupational structure data from the labour market information system. (From time to time, financial incentives could be made available for redressing persistent skills shortages.) Even that would not be enough to reverse the current unfavourable tendencies, though. Information on actual labour market needs must be shared simultaneously with the population at large, parents, and children, along with restoring the honour of blue-collar occupations once held in high









harmonising employment policy objectives and labour market needs.


We propose as a guiding principle in financing higher education that the State should set the number of subsidised student places according to labour market needs rather than applying base funding. In addition, all institutions should be allowed to freely advertise any degree courses, but it

would be the State’s responsibility to disclose annually region-specific employment outlooks and the features of the occupations concerned (for which the current forecasting system provides a sufficient basis) based on data from the labour market information system. The State should also be responsible for conducting and making public an ‘applicability valuation’ of each course at each university. This score (value) would reflect the extent to which a particular course (in its academic, practical, and skills development content) is geared towards labour market needs.

The short and long-term requirements and demand for labour of micro and small businesses are not represented in public employment policies even though this sector employs close to 1.5m people. Demand for labour has a dualistic nature, as does the Hungarian economy. It means that the qualification requirements of large enterprises equipped with competitive high-technology differ from those of micro businesses. Medium and large enterprises have a high level of division of labour and specialisation requiring special skills and work experience, be it in skilled work or intellectual jobs linked to secondary and higher-education degrees. By contrast, micro and small businesses have a demand for complex knowledge in the conventional sense and have a lower level of division of labour, hence they need loyalty combined with rapid and creative adaptability. With voluntary chamber membership, hundreds of thousands of businesses remain unrepresented. Therefore, chambers lack sufficient information and non-member businesses are mistrustful with them.


Secondary educational institutions and their operators view chambers as competitors (especially in the case of hands-on training), and therefore do not recognise interests represented by chambers as legitimate employer interests.

There is a need for establishing communication channels through which micro and small businesses can express their requirements with regard to labour and the contents of vocational qualifications. The Public Employment Service (PES) does not have sufficient information either on the actual or the full level of labour demand. Forecasts









restructuring. This will show primarily not in staffing levels in industries and sub-industries, but in job relocations between enterprises and institutions as a function of products and changes in production, technology, and organisation. Job changes over the next ten years are expected to become more frequent. If smooth and rapid, these shifts will help economic development, otherwise they will hinder it. All this points to the need for an institutionalised job placement system that would facilitate speedy transformation by providing generalised job brokerage services rather than focusing on the unemployed and those in privileged positions (the latter being placed by ‘head hunting’ firms). Currently the PES provides job mediation only for the unemployed or employees facing redundancy. Most unemployed people have poor labour market characteristics, and therefore employers rarely rely on the PES for labour. As a consequence, local job centres only have information on a limited segment of the labour market. Most job vacancies are filled spontaneously by individual efforts. Looking at companies’ recruitment practices one can see that they prefer to advertise their vacancies (also in an attempt to poach experienced workers from











recommendation, and turn to the PES only as a last resort. As was seen earlier, the freshly unemployed or those facing redundancy but seeking to change are the quickest in finding new employment. However, even those changing jobs or newly dismissed do not have sufficient information as to where they would be needed. Finding a new job is mostly time-consuming and often goes with bitter experience, frustration, and disaffection. An overall job placement system, i.e. one serving all new jobseekers and career changers, that is everyone searching for a job including those still in employment considering a job change, could effectively help fill freed-up or newly created jobs and improve labour mobility. Also, the placement system would have more accurate and up-to-date information on labour supply and demand, as well as on skills requirements in particular jobs. Therefore we recommend that a general institutionalised job placement system should be established.

Overcoming labour shortages Research also suggests that the supply of skilled labour will fall short of future demand. At the same time there are many former skilled workers who, having lost their jobs, have been forced into semi-skilled or unskilled work in other occupations, or unable to re-enter employment have become disaffected inactives knowing that their skills have become obsolete. We propose that the PES should pay special attention to filling skills gaps by reaching out to and mobilising those jobseekers who would like to return to their initial occupations but need upskilling to do so.

Shortcomings of contacts between the PES and employers


Maintaining close contacts with employers is among the responsibilities of local job centres with a view to being informed about their labour needs, skills requirements, and any relevant changes over time. However, high job centre caseloads allow limited time for this activity. Job centres mainly contact those employers that report large-scale redundancies, or special training needs linked to recruitments resulting from capital expenditures. Job centres mostly lose sight of small firms at the same time (whereas that is where staffing level increases can expected). We recommend that employer contacts should be strengthened by the general expansion of the range of job placement services at local job centres.

Making use of forecasts Although the scope of this research was too limited to cover forecasts for all 196 occupational groups at the county/regional level, it is nonetheless clear that mismatches between labour supply and demand are present at cardinal points from the aspect of economic development and job growth. It has identified the reasons for many of those discrepancies along with proposing possible corrective measures. Some of the recommended interventions are directed at revising the operation and financing of the schooling system, others focus on concerted action and improved communication between three labour market actors (i.e. businesses, training providers, and career-choosers). Reliable information and a socialisation process ultimately leading to a successful career choice are critical to creating supply with an appropriate occupational structure. Our research highlights the fact that the activity known these days as career orientation is lopsided, mismatched to the age-related characteristics of career-choosers, devoid of the tools of socialisation, and can at best be regarded (in relation to continuing studies) as school orientation or school marketing. Those before first employment receive highly ineffective verbal help, and often from people who themselves have insufficient information about the local economy and employment situation, i.e. about exactly those factors that are supposed to offer jobseekers not only jobs


but also prospects for the future. For effective career orientation the current system needs to be overhauled in its entirety. The same purpose should be served by high-quality labour market information with a focus on labour demand. Education and training providers must be aware of, and gear the quality and quantity of their training contents to, labour demand. Career-choosers must be informed about demand for their chosen occupations, earnings outlooks, as well as key aspects of work conditions. Even if they ultimately decide against different criteria the State has an obligation to inform their decision. It is hoped that our database updated on a regular basis will enable access to medium-term forecasts on labour demand in particular regions and labour market segments as well. These forecasts can be used by the State in determining the regulatory framework, as well as by school financiers, chambers, and the PES, the latter having its own competence in adult education besides information provision. In my opinion public spending on labour market training could make an important contribution to gearing the occupational structures of local labour supply to labour demand. It could play a critical role in creating a situation where those leaving education unskilled or with unwanted skills can be trained in skills currently in demand. Bearing in mind the counter-arguments, it has to be added that it is possible to find ways by which a desired occupation can be chosen while the individual’s right of self-determination is respected.


III. Applied research to promote the matching of the supply and the demand


Developing a competency-based occupational coding system for reported job vacancies and persons seeking jobs

‒ Konrádné Bacher, Tibor Bors Borbély,

Ágnes Fekete, Leó Lőrincz, Klára Molnár, Ibolya Győri Seresné, Péterné András Solymos, Magdolna Susányi Mária 57


The concept of competency in the labour market and in VET The concept of competency and its role today

Competency, a fashionable concept these days, is usually described in Hungarian using several synonyms with complementary meanings. The word is of Latin origin and is used to denote aptitude and skilfulness, but is also translated as authority in the sense of remit. Further, competency can also be understood as skills,

abilities, or knowledge required for performing a particular activity. The Lexicon of Adult Education58 (2002) describes competency as a fundamentally cognitive feature, in which, however, emotional factors also play an important role. (It is to be noted at this point that some schools of thought lay special emphasis on the emotional factors of competency.) That entry approaches competency from the perspective of the individual. However, as we will see later, concepts created from the perspective of curricula, or even of organisations, are becoming increasingly frequent. Therefore, competency can be approached from the aspect of the individual (student, learner, employee, leader etc.), as well as of the organisation, or of the training material to be delivered. From an angle of individual psychology and pedagogy, competency is linked to the individual, i.e. the learner. From a developmental psychology perspective it is an important fact that the child develops an ever increasing ability to manipulate

the environment. Just as in the child, so in the adult the drive to explore their environment










competencies, which does not end in adulthood but accompanies us throughout life. Unless the environment contains enough new stimuli (or if it offers too many, 57

This research was completed under Research Project 1.2.2, Measure 1.2 of the Human Resources

Development Operational Programme (HEFOP).. 58

This entry was authored by Zsuzsanna Vajda.


which can be just as harmful), the developing personality loses its drive to explore it (see exploratory drive). The formation of a self-control function and a sense of

autonomy is critical to the child’s development. The competency level of the future learner/student is closely related to the successful or failed fulfilment of childhood life tasks described above (see the two Annexes below: 1. Erikson’s development model, and 2. Super’s Life Career Rainbow).

The successful

fulfilment of each self task will lead to the formation of a mature personality. With regard to career or occupational socialisation, successful vocational training and then a successful choice of occupation (part of which is workplace socialisation including socialisation into the world of work during first employment) can be described along principles similar to those of the general model of personality development. Donald Super’s model (see Annex 2) enriched with life and occupational roles has been designed to understand this connection. Annex 1 – E. Erikson’s development model59

0-1 year

Trust vs. Mistrust


energy of being

2-3 years

Autonomy vs. Shame and Doubt


energy of sensing and action

4-5 years

Initiative vs. Guilt


energy of fantasy and feeling

6-11 years

Industry vs. Inferiority


energy of knowledge, learning, and cooperation

12-18 years

Identity vs. Role Diffusion


energy of renewal and belonging

Early adulthood

Intimacy vs. Isolation


energy renewal and love

Later adulthood

Generativity vs. Stagnation


energy of renewal and activity

Old age

Integrity vs. Despair


energy of renewal

Individuals with stronger internal control tend to have better competencies than those driven mostly by external control. Successful acts in childhood, youth, and 59



then in adulthood lead to a strengthened sense of competency in all cases (‘I can do it.’ ‘I am capable of it.’). A lack of a sense of competency produces exactly the opposite; described in everyday words, hopelessness and clumsiness will prevail, which is referred to in technical terms as learned helplessness or learned hopelessness (see deviant career). The persistent lack of a sense of competency (i.e. a sense of achievement based on a well- completed task) can lead to the individual’s reduced potential to cope (coping level and psychic immunity level), which in turn gives rise to psychosomatic illness and the impairment or even loss of their capacity to work. In literature there is also reference to the concept of individual competency

systems differentiated by competency area (i.e. there are social, methodological, and personal competencies), and the concept of competency can also be

interpreted as competencies found in a particular field of activity (i.e. in VET or work).


Annex 2 – D. Super’s Life Career Rainbow

In defining the concept of competency, the Hungarian language often uses authority, ability, (vocational) expertise, and knowledge (in a particular technical area), as well as know-how (i.e. ‘I know how to do it’), a borrowing from English. The explanatory dictionary’s definition (1972) of competent (‘illetékes’ in Hungarian) used in the sense of authority primarily refers to a person’s right of action in a particular case, and secondly to the degree of a person’s expertise and proficiency. The third meaning of the adjective denotes a person’s right to money (i.e. in the sense of ‘remuneration base: wages due for public sector work’, i.e. due payable to a civil servant having both authority and expertise). The first and second meaning of authority therefore encompasses the individual’s expertise as well as authorising assignment, or license, to perform an action. (In


the world of work, the latter is manifested by an employment contract, job description, and, in the public sector, appointment.) The notion of knowledge as defined by the same dictionary refers to the sum of experience, facts (direct or indirect), and ideas acquired about a particular field of reality. In its second meaning, knowledge is related to being informed and experienced. A third interpretation is knowledge acquired indirectly, through learning. (In philosophy, epistemology is a field dealing with the ability to know reality.) Among the different types of knowledge, expertise and vocational skills play a key role as a body of knowledge required for exercising a particular branch of science or engaging in a practical occupation. The 19th century saw the transfer of expertise to apprentices or students of sciences in specialised schools proliferating in industrialised countries. Vocational schools have become the scene of transferring and developing (vocational) expertise in modern society. (Today in Hungary the system includes vocational schools, vocational secondary schools (for over-16s), higher-level vocational training, bachelor training, master training, and adult vocational training). However, the desire for acquiring knowledge cannot be separated from the individual’s desire for knowledge (cf. thirst for knowledge), in which the individual’s attitude, interests, and motivation play a central role. Ability (1997)60 can be regarded as the individual’s psychic characteristic, which develops and strengthens in practicing a particular activity. The measurability, i.e. manifestation, of ability is linked to activities (e.g. the quality of performance in completing a particular job task can be judged more or less accurately following a testing period, which is why the Hungarian Labour Code provides for a trial or probationary period, and why work trial or, in the case of high-paid positions, Assessment Centres have become standard practice). In terms of assessing abilities, a long-standing issue of research theory has been the impact of genes 60

Lexicon of Pedagogy. Editors: Zoltán Báthory, Iván Falus 1997


and inheritance versus the environment (education, socialisation, enculturation etc.)61 on them.

Education theories make an important distinction in differentiating knowledge and action-based skills. In cognitive psychology, abilities correspond to what is known as procedural knowledge (progressive, i.e. process-type knowledge manifested in action). Abilities are divided into a general and a specific field. -

General abilities (e.g. the ability to communicate, creativity, team work etc.) are those the individual uses in learning as well, and are manifested in many different activities.


Specific abilities (e.g. the ability to read, use language etc.) play a central role only in specific situations.

Another categorisation distinguishes physical/motor and intellectual abilities. The mapping of intellectual abilities is based on intelligence research (see the entry by Benő Csapó). As part of the assessment of abilities (aptitude and IQ tests, assessment of disabilities etc.), a major role is played by assessment related to the successful completion of work activities (F. Parsons, 1908 Boston). The initial idea that every individual can be placed in a job best fitting their capabilities and that every person can be developed has in a hundred years grown into a standalone science (work psychology) and a range of independent occupations (career and learning counsellors, work and career psychologists etc.) As this question concerns the subject of this paper only tangentially there is no need for more information about it. The last concept that needs clarifying in exploring competency is skills. Skills62 are understood as sequential and instrumental operations shaped, practiced, and

in part habituated, by way of learning, in the process of ontogenesis. As this series of activities in part functions unconsciously, they also ensure workers’

flexible adaptation to new situations (cf. workers’ flexibility in the European 61

The entries were authored by Benő Csapó, Judit Petri Feyér, Judit Páli, Ottília Boross


Based on Miklós Győri, Lexicon of Pedagogy 1997


Employment Strategy). Practiced activities can have both intellectual and motor components. Many psychologists (e.g. J. Piaget and A. Karomiloff-Smith) attach special importance to developing skills in childhood which will later form (in their opinion) the basis of learning (see acquiring skills). Well-built skills enable the individual to respond to changes and become easily, effectively, and readily trainable in later life stages. Therefore, skills are pivotal from the perspective of our subject matter. In the light of criticism, as well as opportunities offered by everyday practice, we do not think that appropriate parameters can be attached to a modern, competency-based job placement database without distinguishing between core competencies, soft skills/competencies (key supra-occupational competencies), and hard skills/competencies (vocational skills). Therefore we abide by the recognition that competencies used independently can be interpreted on their own but will produce the ‘big picture’ only when seen together from the aspect of a particular job vacancy or position on the one hand, and that of the individual jobseeker on the other63. The figure below compares the importance of personality-related ‘soft’ competencies with formal professional competencies (e.g. a certificate) with regard to performance in a particular position.


Basically, the situation is similar to that of today’s fashionable fantasy role-playing games (whose

predecessor was the paper-based AD&D prior to PCs), i.e. the player’s character (warrior, magician, wanderer) is built of standalone competencies, but the character itself can be interpreted as a sum of all these.


The relation of soft and hard skills to performance64

Soft competencies

Potential Can he/she?

Values and attitudes Why?

Hard competencies

CV Experience Education Knowledge

Workplace style How?

How will he/she perfom at this company according to the current strategy?


2. A transforming corporate world – The changing function of personnel management Since the 1990s, competency-based HR management systems have been playing an increasingly important role (competency-based selection, e.g AC; competencybased career management etc.). In Central and Eastern European countries, this change has taken place simultaneously with the system change. While within companies HR functions are replaced by ICT, frontline leaders assume a growing number of personnel management tasks. Since companies are exposed to technological changes just as e.g. vocational training is, increasingly important decisions become dependent on the competency of frontline leaders. This is particularly true of those industries where production is sensitive to knowledge and technology.

64 2005. 11. 19.


The economy: The new link between the labour market and vocational training

Education systems CBT (competency-based training) Development of learner’s personal competencies and competencybased curriculum development

Organisational HR CBP (competency based plan) Jobs and sub-tasks based on competency

The State: Social demand for ‘competency-based’ job placement services and for registration and development of occupations, training and vocational training courses

*Linkages shift from formal competencies in use since the 19th century to individual and organisational competency levels. (Borbély 2005©)

Frontline leaders have a growing need for HR to provide them with appropriate support information to enable fast decision-making in personnel matters (e.g. when the costs and benefits of training employees in a new programming language have to be considered). Jobs and compensatory and remuneration systems, i.e. the functioning of the entire company, is increasingly dependent on assessing competencies.


specialised literature of the 1990s writes about competency-based manpower management plans.


CBP (competency-based plan) is equivalent to what is CPT (competency-based training) in the education system (for more on CPT, see Point 3 below.) Based on the works of Newman, Milkovich (1996) and Gomez–Mejia (1998), Poór et al (2000 p.213) describe competency-based personnel management as follows: − Make clear to employees that continued learning pays off in both individual

careers and the success of the firm. − Motivate employees to acquire competencies. − Explain and minimise debates arising from differences in abilities (sic!). − Facilitate the development of competencies related to other areas of HRM.

As opposed to job-based systems, competency-based personnel systems compare the required competency levels. Large organisations typically define layers, grades to be reached through different competency levels, and link wages and incentives to those grades. In operative work, the competency-based approach has two disadvantages: 1.) it is time-consuming (and hence costly), and 2.) it is expensive to exclude subjective bias (which is exactly what a highly-qualified HR officer requires), so it gets back to costs again, a sensitive issue in the business sector.

3. New forms of competency-based and modular training; Efforts in the EU Competency-based training (CBT) is defined as training whose curriculum is

designed and implemented in a planned and systematic manner with a view to developing the students’ combined knowledge, skills, and attitudes (István Kiszter)65. Competency-based training allows a wider scope of movement and provides focus for training in occupations and jobs reflecting the actual and current needs of the economy. Since CBT is inherently composed of a learning process adjusted to the individual pace of each student and a modular approach, it is possible to select elements of










competencies. The traditional training system does not allow that since it is not possible, or is difficult, to decompose. The two main approaches of modular 65

Source: Lexicon of Adult Education and Training 2002


training evolving from 19th century adult training in the USA (Adrianna Soós 2002)66 can be described as 1.) based on learning materials and 2.) driven by students’ needs and existing knowledge (István Kiszter 2002)67. The modular system can be built on available 1.) time, 2.) subject, or 3.) it can be a project, i.e. a set of inter-related training materials. The education system envisaged by the EU by 2010 meets those criteria. Both higher education and secondary general and VET systems are moving in this direction, which will be coupled with the future student’s and worker’s increasing mobility and flexibility. Since the turn of the Millennium, Europe as a whole (Bologna 1998, Prague) and, in the case of certain measures (Stockholm 2001, Copenhagen 2002), Member State Governments have made serious efforts to transform training at all levels. Just as the rise of the USA (and smaller countries, such as Finland and SouthKorea, too) was underpinned by general and vocational education organised on the basis of a unified structure, language, and culture, so does the European Union aim to attain competitiveness and social cohesion objectives declared in Lisbon. Chronologically, it was the Bologna Process launched in 1998–1999 that put on the agenda the transformation of European higher education to harmonise it with the far more competitive structure of the Anglo-Saxon system. Hungary adopted its so-called ‘Little Bologna’ Act in 2005, as a result of which 2006 saw the advertisement of undergraduate (bachelor) courses at all universities (in 2005 the new type of training commenced only at faculties voluntarily offering new courses), while the Hungarian Accreditation Committee allowed a 3-year grace period before graduate (master) courses were launched. (The setting up of training compatible with the Bologna Process will be completed by 2010.)




Source: ibid.


As a result of change, over 400 college courses will be replaced by hardly more than 100 undergraduate (bachelors courses (so there will be a change not only in number but in name as well). The core objectives of the Bologna Process: The most important goals set in 1999 are as follows68: − Establish an easy-to-understand and comparable training system (e.g.

introducing diploma supplements) − Introduce a training system based on two main inter-related stages known as

cycles, which already provides vocational qualifications in the first cycle (bachelor’s training) sufficient for finding employment in the labour market, as well as serving as a necessary condition for entering the second cycle (master’s training). − Establish a unified credit transfer system. − Facilitate mobility of teachers and students/learners. − Establish cooperation in quality assurance in European higher education. − Support the European dimension of higher education and incorporate

knowledge about the EU in education. The Council of Ministers meeting in Prague added the following three points to the agreement: − Promote life-long learning. − Maximise student participation in realising a European Higher Education Area. − Increase the attractiveness of the European Higher Education Area.

Progress to be achieved by 2010 in the Bologna (higher education) and the Copenhagen (vocational education and training, VET) Processes is summarised in the European Qualification Framework (EQF) as follows: The three main building blocks of the EQF: 68

Source: On the way to a new European degree. Modernising Hungary’s higher education, November 6, 2005, p. 6.


− Common reference points based on three fields (knowledge; skills; personal

and professional competencies), at eight levels in all. − Tools and instruments to help users make sense of common reference points









EUROPASS, ECTS). − Common principles and procedures to make operations safe.69 TRAINING AND EDUCATION BY 2010: THE STRUCTURE OF THE EQF


The document cited above defines the concept of competency around four factors as follows (p. 12): − Cognitive competencies, which can be divided into two parts: theoretical

concepts and experience-based concepts. − Functional competencies, i.e. skills and know-how, which develop through

social practicing at the workplace. − Personal competencies, which include the understanding of our own

behaviour in a particular situation. − Ethical competencies, i.e. personal and professional values.

Work in Hungary will be visible when the National Qualification Framework (NQF) has been introduced. 69

Source: Commission Staff Working Document - Towards a European Qualifications Framework for

lifelong learning, 8. 7. SEC(2005)957, p. 9.


4. Attempts to document competencies Documenting the competencies an individual has acquired during their lifetime has great traditions. In pre-war Hungary, work-related knowledge and skills were documented e.g. in a housemaid’s record, and then during socialism in workcards. The mobility of apprentices in the Middle Ages was also influenced by the reputation of the master’s workshop where they had obtained work experience. In the early 21st century, the majority of employers tend to trust (admittedly or instinctively) jobseekers with vettable references. This intelligence-gathering and rating goes back as far as the years spent in vocational training (along with an eye on the professional prestige and rating of the secondary schools and universities concerned), and then continues by following the individual’s work history with rival employers. Market players know exactly where to ‘poach’ labour from, for higher wages, better work conditions, or more complex and challenging tasks, and conversely, in the case of jobseekers, where to look for jobs. In making the final decision to hire someone both sides can have doubts as to whether the other party, the selected employer or employee, will really live up to the expectations their references give rise to. If the position to fill is expensive, an Assessment Centre (AC) or a psychological aptitude test can be used. However, with most ‘cheap’ jobs it is not worth spending on expensive procedures (i.e. when expenditures on the selection procedures exceed the intended amount of six months’ incentive budget), except when State financing is available or in the spirit of an inclusive society70 (i.e. as part of combating ethnic, gender, linguistic, cultural etc. discrimination). In order to help in these situations, the Hungarian Labour Code provides for a probationary period, while the informal labour market simply uses with undocumented ‘trial days’ to handle the uncertainty. The non-professional competencies of adult workers are even more difficult to document than are professional competencies. Competencies, skills, and abilities obtained from a harmonious family life or well-chosen hobbies, although standard elements in CVs, are nevertheless (or because of this) a ‘grey area’ for the HR 70

Le recrutement par simulation, ANPE Georges LEMOINE method.


manager. They are, except for membership in community or professional organisations, almost impossible to assess and test. That said, competencies acquired in the flow of life are all contributory to the fulfilment of one’s career path or, put in negative terms, are lost from it. As a consequence, employers in most industrialised countries have a vested interest based on their own elementary business interests in trying to map these competencies. The most common and oldest method is to give references in CVs or in exploratory interviews, which can refer to a person representing a professional or even community organisation, in addition to former employer companies. However, as a consequence of decades under state socialism, these types of personal references had been discredited, and in transitional societies, including Hungary, they have fallen into disuse. Over the past 15 years, they have been regaining their role slowly but clearly, though.71 The theory of LLL and LWL in andragogy with regard to competencies

Life spaces

Changing circles of friends


Membership and work in community and professional organisations Hobbies Family(ies) of origin

Family(ies) of procreation Jobs, assignments

Basic training

Vocational training

Further and retraining

=LLL Life flow (years)


This kind of reference is not necessarily identical with the ’influential’ references of young people

coming from reputable families and studying at elite universities, which are under the influence of a negligible (compared to the size of the population) number of interest groups in the USA, considered the most open society. Therefore, while any adult born in the USA can in principle run for President it is in fact a very narrow segment that does actually have a chance.


(Borbély 2005©)

Besides the concept of LLL (life-long learning) the modern literature of andragogy also uses the idea of LWL (life-wide learning) to point out that all experience a person acquires in their life can be developed with sufficient practice, and form the basis of competencies. Therefore, andragogy in the 21st century takes a longitudinal as well as a ‘life-wide’ view of the learner/trainee and builds on their entire life experience. Under this principle as applied to the world of work, the competency level of labour is identical with LLL multiplied by LWL. (Note that, in its philosophy, this approach is identical with the developmental and work psychology schools of thought introduced in the first part.) In other words: L of C(level of competency) = LLL x LWL Since the late 1980s many countries have tried assessing and issuing employee’s and jobseeker’s competency certificates complying with the modern theories. Career and work psychologists, who use counselling as a method, have since the inception of their fields built on giving written or verbal feedback to their clients about their competencies.

5. Competency certificates and competency dictionaries Compared to other countries, France has been a leader in making individual competency balances. Since the French system is partly relied on as the professional basis for building the EU system, let us have an brief overview of its conceptual framework72. In France, the assessment of professional competencies (competency balances) is governed by legislation. The function itself is similar to the EUROPASS procedure and document, which was extended to the EU-25 Member States in 2005. The above-mentioned assessment and certification of professional competencies (in French VAE, Validation des acquis d’expérience) is made in accordance with VET descriptions supervised by individual ministries. (In 2003, 32,500 VAEs were 72

The system was studied as part of Study Tour 1.2.2 under Component 1, Measure 1.2 of the



made/issued.) Most VET courses are to be found with the Ministries of Education and Labour. The three main elements of qualification descriptions include REAC (Référentiel Emploi Activités Compétences), RF (Référentiel de Formation), and RC (Référentiel de Certification et/ou Validation). In this division, competencies that can be acquired in practicing an occupation also play a part. Competencies in these detailed qualification descriptions can be identified in the ROME job placement system. Qualification descriptions also include so-called competency lists. CCPs (Certificats de Compétences Professionnelles) can also be issued as a step toward the VAE, or the FPC (Formation Professionnelles Continue), i.e. in order to encourage life-long learning. Assessment is done in real-life workshops or workplaces, where trainers evaluate candidates. Based on their performance, in this assessment, professional competencies can be certified even without formal vocational education. As a general ordering principle, the issuance of certificates is linked to three-year work experience. The VAE is issued for five years and then it expires and has to be obtained again. Let us take a plumber for example. In this case the person’s competencies in maintaining and fixing pipes and installing new pipe systems etc. are assessed. The main goal of the assessment, as explained by the speakers, is to improve as much as possible the labour market chances of job-seekers or prospective participants of upskilling courses. Assessment can therefore be of two types depending on its objective: ECCP (Évaluation des Capacités et Compétences Professionnelles), or ECAP (Évaluation des Compétences et Acquis Professionnelles). The former represents competencies recognised on the basis of professional experience, the latter certifies knowledge gained from life experience. The procedure is as follows: 1.) Assessment of activities and competencies (analyse des activités, analyse des compétences) 2.) Evaluation 3.) Comments. Following the adoption of legislation in 2002, assessment of competencies after each VET course is now compulsory, and the assessment is documented. Upon


request from companies, it is also possible to explore the competencies of employees. Let us now talk about CBIC (Centres Interinstitutionnels de Bilan de Compétences), i.e. the Interinstitutional Centre of Competency Balances. The organisation was jointly set up by the Ministries of Labour and Education in 1986. CBIC has a hundred institutions all over France. The opportunity to make a competency balance is also covered by the French Labour Code. The balance is made in a 6–8 week period during which the assessed client continues to cooperate with the assessor. The assessment consists of three parts: preliminary stage, assessment stage, and evaluation stage. In the first stage, individual meetings are held where the client’s voluntary and unconditional cooperation in the procedure is clarified. Without that it is not worth making the competency balance, nor is the assessment allowed. The preliminary stage is free of charge, and the client can freely choose not to continue to participate in the assessment. If on the basis of the preliminary stage the subject of the assessment reports that they cannot co-operate with the selected assessor, another assessor can be appointed to work with him. The CBIC can refuse to work with clients on grounds of personal, family, or health problems revealed from the preliminary discussions. The assessment stage begins with mapping the client’s entire professional career path and relevant aspects of their personal life. In doing so, the chronological events in the client’s professional, corporate, social, political, and economic environment, as well as in personal life are viewed side by side. By the end of the assessment, the person’s decisions and decision-making mechanisms are revealed. The findings of the assessment conducted on the basis of individual questioning are compared with results obtained from tests and questionnaires used in the second stage. The next stage of analysis focuses on the individual’s professional experience. It gathers each activity, their standards, and the personal resources mobilised for


their completion. This latter step covers professional skills and any applied supraoccupational competencies. The life situations where these are ‘worth’ mobilising are also explored. The final outcome of the assessment will reveal: − competencies, − existing competencies transferable to other vocational areas, jobs, or

employers, − the entire personality (professional interest, work-life balance, personal

motivations, values, etc.). The assessment completed in this way can be used for different purposes and different time-spans. Regarding time-spans, there is short (a few weeks), medium (about 1 year), and long-term (5 years) planning. With regard to its purpose, the assessment can be a preparatory step towards redundancies, a career change, or health rehabilitation etc. On completing the assessment, clients are allowed an opportunity to share their experience. A written copy of the findings is handed over to the client and then the rest is destroyed (!). (This is the procedure even if it is commissioned by ANPE or an employer.) In the case of assessments commissioned by an institution data that can be transferred to it and those protected by privacy are clarified beforehand. The law provides that irrelevant details cannot be revealed to the Employment Service (a szolgálatnak=ANPE?) and that a contract must be concluded and signed by both parties with the client The contract contains the rules of co-operation and that participation is voluntary. In special cases, the CIBC can be authorised to retain the assessment materials for a maximum of one year. In France the first act on promoting life-long learning, which governed the use of the VET Fund, was adopted in July 1971. In December 1991, the Government declared that a competency balance was an entitlement for every citizen. July 1992 saw the creation of VAP

(the balance of professional competencies), and

then in January 2002 its upgraded version, VAE, came to life. In May 2004, the Act on LLL of 1971 was replaced by a new law governing rights related to social


dialogue and VET. Under the new act, every employee is entitled to vocational training days of up to 20 hours per year. This quota can be collected for up to 6 years, i.e. the employee is entitled to a maximum of 120 hours of VET leave every 6 years. The problem is that while large companies release employees on VET leave, SMEs and micro-business do not. Therefore, access to VET is unequal. Although under the law VAE is an entitlement to every citizen, it is not available free of charge. If the individual walks in from the street to get assessed, they will have to pay EUR915. Employers pay EUR2000 for the same assessment. For ANPE, an assessment with a limited scope costs EUR760. ANPE refers approximately 1,000 people to CIBC in the Île-de-France region, tying up 50% of the organisation’s capacity in Paris and the Paris Basin. ANPE’s clients are mostly over-45s and/or long-term unemployed.

6. Conclusions and recommendations Workers’ mobility and flexible forms of employment are becoming increasingly common. Employers seek more and more to hire labour for time-limited projects. Today it is almost inconceivable to have a career tying the employee to a single employer. As in inventory management, so in the field of HR ‘just-in-time’ management has become the rule. In this new situation the Internet offers optimum solutions to both employers and employees through its speed, interactivity, and internationality. Estimates from reliable sources envisage the move of the entire labour-market activity to the World Wide Web by the end of this decade. The deployment of a competency-based job placement system should be started at the intersection of the shared interests of the corporate, business sector and the Public Employment Service (PES). That meeting point can be identified through work and activity analyses and occupational analyses performed by State institutions (PES, Central Statistical Office, National Institute of Vocational Education etc.) on the one hand, and through job analyses and snapshots on the other.


Therefore, in analysing occupational activities the following framework should be considered (Völgyesy 1995): Vocation: an occupational activity which responds to the person’s moral values and emotional needs, and often stems from an intellectual source. Occupation: a job-task that can be performed following theoretical and practical preparation. Job: a paid work activity. Jobs are as many as there are workplaces. (These days, as a result of multinationals and the proliferation of the English language, the term position is used synonymously with job, even though their original meanings are different.) The English language also uses the term job-vacancy. Job operation: a matrix-like combination of organisational functions within an organisation (as defined by its Articles of Association or Business Plan/Strategy) and duties and tasks required for their fulfilment. Position: a group of duties and responsibilities forming the main operational area of an occupational activity. A position can include several duties. Work duties fulfilled as part of a position are linked to knowledge and skills that have been acquired through the person’s professional training and career path. Duty: denotes duties within a position. Task: a combination of similar steps performed by the same person in relation to a piece of work. Sub–task: a process, such as setting a machine, linked to a task within a duty. In this case the SOR (stimulus-organism-response) is critically important.

II. IT options for establishing a competency-based job placement system Before going into the details of an IT systems plan, attention has to be drawn to an important methodological issue arising from the fact that the Public Employment Service currently does not have a multi-tier (szintezett) code system


that could enable the technical implementation of competency-based job placement. Data broken down in such detail (see the points above) are not available to any organisation. For a final data architecture, it is certainly necessary and justified to wait for the final outcome of developments in progress under NDP (National Development Plan) I. Without those, a transforming and progressively disappearing system would be developed unnecessarily. With regard to IT development within the PES under HRDOP Measure 1.2, the issue of harmonising developments and programme releases has to be dealt with. The new Integrated System (IS) also described in this document is currently under development and is designed to replace several obsolete solutions (UGYFU, IK etc.). Therefore, in designing the system, the professional considerations of the current project must be taken into account. However, full-scale development should be deferred until the availability of initial experience from operating the IS, otherwise too many enhancements can paralyse what should be smoothly functioning job placement.

The need for competency It is clear from the above that the IS will be a solution to the problem of managing and maintaining master data and code files, but it will be able to work only with existing codes. Currently, we do not have a code file to indicate which

jobs should be filled with which qualifications, expertise, or experience. The largescale work which commenced as part of the current project is focussed on harmonising links between our existing code systems, i.e. between FEOR (the Hungarian Standard Classification of Occupations) and qualification codes, including OKJ (National Qualifications Register) codes which were in effect in different periods and the codes of qualifications acquired before 1993. A user interface will allow matching occupations with qualifications. After defining links, this newly assembled database, which includes code matchings, can also help placement officers in their work. The user interface will look like this:


The mediation and job placement process would be substantially facilitated by the addition of competency codes to our code systems both from the aspect of jobs and from that of training (e.g. required knowledge, skills, abilities, and behavioural characteristics etc.), to identify the competences which will enable the job seeker to fulfil a particular task successfully. For example, if in a particular area certain skills gaps are identified, but there are jobseekers with similar qualifications, then they can fill those gaps by attending upskilling courses (which can be specially targeted VET courses as well). Targeted training can be made even more effective if the jobseekers’ knowledge, skills, and experience amassed over the years are also registered on our databases and taken into account in assigning our clients into training. In the project we have categorised competencies in compliance with the system adopted and used in the EU (i.e. professional, methodological, social, and personal competencies). In the world of work, requirements posed to the worker appear as suitability for solving specific tasks. Therefore, in exploring competencies, support information provided by job experts, i.e. job analyses, knowledge, and personal competencies, must be relied on as a critically important point of departure.


Competencies cover the worker’s knowledge, ability, and suitability required for performing tasks. Hence competencies attached to occupations, jobs, and qualifications determine requirements. Therefore, the competency profile of a qualification consists of two dimensions of a person’s set of competencies: a task profile and a characteristics profile. For the structure of the competency profile, see figure on the next page. The competency profile can be divided into a task profile and a characteristics profile, which can be further broken down into task groups and professional as well as characteristics competencies. The task profile should include the tasks of the ‘target’ professional work activity. Each task group is composed of several tasks, which in turn comprise sub-tasks. Task groups are the largest units of a qualification’s competency profile, i.e. they are subsets purposefully created from pre-defined task-profiles. Task groups should be defined on the basis of units that can be formed under qualifications. In grouping tasks, those that are also part of other task groups should be highlighted (e.g. ‘Assess work’; ‘Make calculations’; ‘Interview clients’ etc.), and in naming them reference should be made to where they belong. Task (A repetitive unit regardless of the organisational framework and division of labour, which is composed of sub-tasks and/or sub-operations arranged in a specific sequence and produces a unit that can be transferable, saleable, or accounted for with a specific functional goal.) Sub-task, operation (A task-group or work process can be divided into successive, complementary, and temporally separable

work phases which will generate a

predictable change in the outcome of the work.)


Competency profile

Task Task profile

Task group Task group

Task Task

Sub-task ement Sub-task Sub-task

Task group Task Task Task

Sub-task Sub-task Sub-task

Professional competences Professional competencies

Applied professional Applied knowledge professional knowledge Graded vocational Graded skills vocational

Characteristic profile


Methodological, social and Methodological, personal social and competences personal

Methodological competencies Methodological competencies

competencies Social Socialcompetences competencies

Personal competences Personal competencies


Characteristics profiles Characteristics profile (A structured listing of characteristics typical of a person, which are grouped into categories, are selected from specific sets within a category, and also include references to the standard of performance or quality.)

Professional competencies, including •

Applied professional knowledge (It is a combination of applied professional knowledge indicated as competencies, which are closely linked to work tasks, and of the information content, with the specification of the type and level of application.)

Professional skills and abilities, including information-related abilities, which are professional skills interpreted as instrumental knowledge, including graded competencies, used in performing tasks.

Methodological, social, and personal competencies: These appear within the qualifications’ competency profiles as non-graded competencies. (Selection will be made on the basis of the component analysis of task competencies. It will be supported by a computation formula, which takes into account the weight of each task and the component-based frequency of each competency.) •

Methodological competencies •

Thinking (summarising ability, logical thinking, systemising ability, knowledge retention, inference ability, etc.)

Problem-solving (fault finding ability, verifying ability, situation recognition)

Work method/work style

(practical task interpretation, intensive

work, keeping the environment clean) •

Social competencies •

Co-operation (sociability, politeness, firmness, tolerance, etc.)


Communication (composition skills, correct use of language, intelligibility, etc.)

Conflict management (ability to make compromises, conflict aversion, etc.)

Personal competencies •

Physical characteristics (stamina, strong build, outward appearance, etc.)

Physiological characteristics (vision, hearing, sense of balance, spatial vision, etc.)

Psychological characteristics (emotional stability, composure, frustration tolerance, etc.)

Character traits (commitment, perseverance, reliability, self-management, etc.)

Qualifications according to the new OKJ reflect work activities not requiring higher-education degrees on the one hand, and can be directly integrated into a database that can be applied beyond the scope of VET on the other. In the case of significantly diverging task profiles (work activities), it would in principle be enough simply to compare characteristics profiles to decide how well a person working in a particular occupation or having a particular qualification would meet the requirements in another occupation/qualification, or what other competencies, if any, they would have to acquire. If the knowledge and personal characteristics of the individual can be matched with professional requirements linked to the tasks of a particular occupation, we can then set up databases which will facilitate clients’ career planning. Thus participation in VET, along with achievements will enable adaptation, career changes, and career path development. The figure on the structure of competency profiles also shows which elements the code tables should cover. Linking qualifications and jobs with competency profiles


will naturally demand immense professional and analytical work, the completion of which is a precondition of migrating the job placement system to a new platform. The outcome of this work will be seen after several years, so if we are to integrate competencies into our job placement system before full completion, it would make sense to explore and add characteristics profiles to the unemployed register and the reported vacancies database using the system adopted and in use in Europe.


The competency-based job placement system and its environment The proposed competency-based job placement system will use central databases and a central code system. The code system used by the placement system and the databases of employers, jobseekers, and training providers must be maintained centrally. Employers’ administrators can use the Internet for posting and updating employer data and job vacancies. They can send automatically targeted ‘job messages’ to the writers of jobseeker CVs against different search criteria. Jobseekers can browse the Internet for advertised jobs. They can post their CVs. The system will send automatically targeted messages to CV writers according to the set job search criteria. The web-based job search and CV search user interfaces will be complemented by a characteristic profile search interface, which can be uploaded and browsed both by the employer and the jobseeker. Kiosk-based interfaces now available in all local job centres are continuously upgraded by the addition of job and training information. Both databases are gradually









qualifications are needed for filling particular jobs and also what further qualifications they would need to add to their existing ones in order to fill those jobs. At local job centres information provision (in person or via telephone, display boards, in writing, or in newspaper ads etc.) will remain part of job placement services. Placement officers will be responsible for updating the jobseekers and reported vacancies databases. IT support for the counselling process, including job and career counselling (career choice and career change counselling) is gradually increased. Job counsellors can take into account already available characteristics profiles. They can look up the characteristics profiles linked to jobs, to identify any other vacancies the client could fill based on their own characteristics profiles and qualifications. The next diagram shows the main functional groups of the


competency-based job placement system and its environment. The main functional groups of the operational process are identical with those described for the IS (integrated placement system), except that the contents of functions are expanded by taking into account competencies. The key activity groups will be introduced after this diagram. Main functional groups in the competency-based job placement process


National database

Posting and updating job vacancies at job centres 2 Job centre-based placement (mediation) between reported vacancies and jobseekers

Uploading and updating CVs and jobs on the Internet. Browsing jobs and CVs.


Uploading and updating countylevel job and training information.


5 KIOSK Browsing jobs, CVs, and training options.

Employer contacts.

Countylevel database



8 Counselling (job counselling, career counselling, and job search counselling)


Posting and updating reported vacancies Job-centre-based administrative tasks will be expanded. Apart from entering and updating employer and job information, placement officers will also add task profiles to qualifications required for filling vacancies. Thus IT support will be available for –

entering and updating employer information

entering and updating job vacancies (vacancies can be reported in person at job centres, and by mail, e-mail, or phone)

uploading task profiles required for jobs

printing out certificates at the request of employers to confirm that vacancies have been reported.

The central system already allows each job centre access to the entire database of employers and job vacancies.

Job placement (Matching and placement administration) Competency-based job placement will be preceded by adding competency data to the existing databases on jobs and jobseekers. We have identified and entered the typical competencies of those jobs for which employers seek employees. We have included the competencies that an ideal candidate should have in order to fill particular vacancies. We have posted all relevant competencies of job seekers. Thus job placement (i.e. matching between vacancies and jobseekers) can be done between characteristics and task profiles as well. In this way, hit lists can include vacancies the jobseeker did not think of, but has the right characteristics and experience to fill. The employer posting the vacancy will be happy as the job is filled by a jobseeker who can contribute their performance to attaining the organisation’s









Placement/employer contact officers can therefore provide more effective services to their clients.


Posting, updating, and browsing CVs and jobs on the Internet The data entry and search interfaces in the IS will have to be complemented with a competency entry interface. Employers reporting vacancies can fill in task profiles and characteristic competencies required for particular jobs. Job seekers can enter their own characteristic competencies. Characteristic competencies and task profiles will be entered by selection from the existing code system. Users (employers and jobseekers) can browse publicly available reported vacancies and CVs that they find appropriate on the basis of their selected search criteria, which also include competencies. They can save the selected search criteria and request regular (daily, weekly, or monthly) updates of newly posted or modified jobs placed on the Internet that meet those criteria.

Entering and updating labour market training information By expanding our code system with characteristics competency and task profile codes, training options can be linked with competency profiles. Apart from showing users what characteristics they should have, we can also inform them about jobs they can fill having completed a particular training course. These training options are available to jobseekers registered in our database.

Browsing information, jobs, CVs, and training options Self-information opportunities agree with what has been described in relation to the current system. However, we would like to provide more detailed information about the growing and improving range of our services available to support employers and jobseekers. Information on occupations (jobs) and qualifications will be accessible on our kiosks. Both databases are regularly updated by the addition of related competencies. The user can check what qualifications would qualify them for what jobs, along with what additional training they would need to fill their qualifications gaps for particular jobs. The client can enter their own competencies to see their relevance in relation to particular qualifications. In the same way, they can check what jobs their


characteristics can make them suitable for.

All that information can help the

client in their job search. The same interface can be used by placement officers to support their job matching services. However, information provision (in person, by phone, on notice boards, in writing, or in newspaper ads etc.) will remain part of job placement at local job centres

Counselling IT support for the counselling process (job and career counselling including career choice and career change counselling, together with job search counselling) will be expanded. The counsellor can take into account and enter characteristic profiles that are available about the job seeker. They can check the database of job-related characteristics profiles for jobs that the client could fill based on their characteristics profile and professional knowledge, or for training they would need so as to fill vacancies their characteristics profile otherwise suits them to.

The code database of the competence-based job placement system The code database in the IS is one of the master files. The validity of codes in the code database must be monitored and updated regularly. The code database must contain competency profiles, and the elements of these must be linked with jobs and qualifications. This solution will enable the jobseeker not only to browse for a particular job but for all jobs that they are suitable for.

The methodological sources of the database The data sources necessary for building a competency-based database and job placement system are therefore as follows:




EMPLOYER (public and private sector)

Formal competencies Higher education: MUP (Hungarian Universitas Programme) (PhD, MA/MSc, BA/BSc, FSZ)

FEOR (Hungarian Standard Classification of Occupations) Only incomplete or fragmented competency profiles are available.

With new courses, competency profiles are available (exceptions: higher-level vocational training, PhD courses)

Job descriptions In-company issue, profiles are not consistent.

Secondary vocational education (OKJ (National Qualifications Register) 2006, With new courses, competency profiles are available.

Adult training Accredited programmes No competency profiles are available.

Specialised courses (e.g. law, psychology, medical, social, public administration etc.) No competency profiles are available.

Foreign language skills, examinations Unified under the new system.

Non-formal competencies General education (6+6 classes as of 2007) Competency profile under development under HRDOP.

Their assessment is unresolved.

Assessment: On trial days – illegally In probationary periods – legally In Assessment Centre (AC) In Development Centre (DC)

(Cf. French, Belgian, Canadian examples.)


Using the EU systems (EQF, EUROPASS-DS and diploma supplements) the necessary coding can be done locally, or it can be purchased, which is subject to decision. The well-functioning French or German system can also be adapted. However, the

adaptation will raise a number of operational issues, such as e.g. reconciling differences between the schooling systems, managing economic and social differences, as well as handling problems related to system updates. The final decision can be made by the PES in consultation with the relevant agencies (Central Statistical Office, National Institute of Vocational Education, National Development Institute, etc).



Hungarian-language description of the XPERT key skills development training package (Borbély) A. Benedek – Gy. Csoma – L. Harangi (editors) (2002) Felnőttoktatási–, és képzési lexikon – (Lexicon of Adult Education and Training), MPT– OKI– Szaktudás Kiadó Ház, Budapest Commission Staff Working Document - Towards a European Qualifications Framework for lifelong learning, 8. 7. SEC(2005)957 Tibor Bors Borbély (2004) Fiatal álláskeresők kulcsképességeinek fejlesztése – (Key skills development in young jobseekers), presentation, Kontakt Alapítvány– Taninfo Bors Borbély Tibor (July 2005) Életpálya–építés, pályafutás, (Career path building), presentation, EFOTT, Venice Bors Borbély Tibor (September 2005) Az EUROPASS dokumentumcsomag (The EUROPASS document package), MS Carver, S. Charles– Scheier, F. Micheal (2002) Személyiségpszichológia (Perspectives on personality), Osiris, Budapest pp. 260, 262–265.. Tünde Dancsó (2005) A szociális kompetencia megjelenése a Nemzeti alaptanterv kiemelt fejlesztési feladataiban (Social competencies in key development tasks of the National Core Curriculum), In: Új Pedagógiai Szemle 2005/4;– 04–ta–dancso–szocialis – DISCO – Leonardo da Vinci Pilot Project Survey of Existing Thesauri and Skills Lists – Anglophone Countries Study tour in France, May 2005 (NEO–PES, funded under HRDOP 12.2.) Új Pedagógiai Szemle. No. 2004/11.–11–ta– gergely–kulcskompetenciak , 19.11.2005. József Kárpát, ÉLETPÁLYA–ÉPÍTÉS ÉS TANÁCSADÁS (CAREER PATH DEVELOPMENT AND COUNSELLING), ( Ágnes Krepelka – Beáta Szűcs Pató –Adrienne Kertész (14 Nov. 2005) A kompetenciák fogalma, módszerkompetenciák, társas kompetenciák és személyes kompetenciák (‘The concept of competencies; methodological, social, and personal competencies), presentation, NSZI HRDOP, Project 3.2.1. (CEU)) Kulcskompetenciák meghatározása és kiválasztása OECD összefoglalás (Identifying and selecting key competencies – OECD summary); transl. and ed.: Ildikó Mihályi, / Új Pedagógiai

Szemle Lifelong learning: citizens’ views (2003) CEDEFOP EU Luxembourg Munkakör-értékelés








method), 2005. 11. 19. OECD PISA és ALL vizsgálatok eredményei (Test results: OECD, PISA and ALL) Oktatás – rejtett kincs (Education – The Hidden Treasure), Osiris Kiadó -– Magyar UNESCO Bizottság Budapest, 1997. Translation: Mihályné Balázs


Poór et al (2000) Személyzeti/ emberi erőforrás menedzsment kézikönyv (The HR Management Handbook), KJK– Kerszöv, Budapest, Chapters V–VI. Péter






Személyiségpszichológia ea. Új úton, az európai diplomához A magyar felsőoktatás modernizációja

(On the way to a new

European degree. Modernising Hungary’s higher education) Ministry of Education, Felsőoktatási Helyettes Államtitkárság, November 2005, University of Glasgow, UK, 25th January 2005 Pál Völgyesy (1995) Pályaismeret (Carreer knowledge), GATE, Gödöllő Szakképzés-fejlesztési stratégia ( VET development strategy),

2005–2013 OM–FMM publishers:

NSZI 2005 Károly Barakonyi (2004) Rendszerváltás a felsőoktatásban, Bologna-folyamat, modernizáció (Restructuring higher education, the Bologna Process, and modernisation), Akadémiai Kiadó, Budapest EUROPASS No 2241/2004/EC of the European Parliament and the Council of 15 December 2004 on a single transparency framework for qualifications and competencies


Developing the monitoring system of active measures and labour market programmes ‒ edited by Miklós Temesfalvi The standard national monitoring system in use for more than ten years has been most adequate for monitoring and tracking the active employment policy measures, so much so that it has received considerable acclaim also from foreign experts. However, in response to the social and economic, as well as employment-related changes of the past period, new employment policy measures were introduced in the legislation, such as labour market services and programmes, and new forms of assistance











disadvantageous situation, to mention the most important only. This together with the steady growth of the funds involved has made it imperative to establish the necessary conditions for monitoring the effects and expenditures of the new forms of assistance. The main objectives and principles of the previous monitoring system have been retained, but the scope of the survey methodology was extended to cover more labour market measures, and to account for the differences of their various groups. The proposed method for monitoring active measures, human services – job brokerage included – and labour market programmes, respectively, has been prepared on that basis. The first step of the development of the project “Upgrading, introduction and operation of the monitoring system of active measures and labour market programmes” concerned the assessment of the current national monitoring method. A status evaluation report, the closing document of the first phase of work, was submitted in end-December 2005. In the development proposal specification phase, we reviewed the relevant foreign experiences and investigated the possibilities of their adaptation in addition to concentrating on the lessons of the evaluation. In line with the international practice, we defined the possible circle of information to be generated by the monitoring system, to make it suitable also for external communication. The new monitoring system outlined in


this paper has been drawn up in co-operation with colleagues within and without the organisation, on the basis of information acquired in Austria, the proposals of several Hungarian experts and our own experiences. The development period from 2005 to QI 2008 saw several major changes, which aggravated the accomplishment of the project tasks. Suffice it to mention here the most prominent among them: the region-based restructuring of the PES organisation and the amendment of the Employment Act and the related legal regulations. It is commonly accepted in Europe that the main role and task of employment policy is to provide equal opportunities to citizens who are temporarily or permanently unable to compete in the labour market. We have kept that in mind when working out the monitoring project, and also the requirement that the completed professional materials should be consistent with the PES Modernisation Programme. Care has been taken to ensure that the monitoring surveys should support and confirm the achievement of the strategic targets, and allow to manage any new problems that might arise in the performance stage. We deemed it necessary to provide on-going information to participants (trainers, employers, labour market service providers) on their co-operation with PES and its results. Through monitoring, we strive to provide as extensive information as possible to decision-makers and staff members in various fields and at various levels, on assistance provided to the participants. Therefore, data related to the operation of the measures, of relevance for their effects, must be available continuously. It was a problem in the previous monitoring exercises that elementary pieces of data available in various other professional systems were not incorporated in the monitoring statistics. For example, the grouping of the participants (employers,


service providers, trainers) by economic branch, legal form, activity area, staff number or other criteria (e.g. employers employing the total number of subsidised staff /less than that; persons re-entering the register etc.) was missing. Therefore, we considered it useful and justified to extend the scope of the investigation of the various groups to cover the aforementioned criteria, in order to increase the depth of the analyses and assessments. We identified as one of our main tasks the acceleration of the operation of the system; therefore, manual activities related to monitoring, i.e. forwarding of information and result measurements by physical mail, had to be reduced to the minimum.



Stage 2. – Information provided by fact-sheet- and questonnaire-based surveys

Stage 1. – Information retrieved exclusively by IT means

Employment, Days 1-89 Re-entrants to the registry Entrants to the measure

Drop-outs from the


Completion of the Unregistered persons



Employment, Days 1-89 Employment, Day 90

Employment, 90th day


Figure 1.

We have taken into account that employment or employment-related information retrieved from IT databases – as indicated in Figure 1 – contains numerical data only and, therefore, we worked out methods for generating (quality) subjective evaluations. These make it possible to typify by target group the reasons of job preservation/loss following the subsidy period, and to present the results from the side of the employers and the employees, respectively. As for the support schemes terminated already, relevant information may be gathered via survey forms filled in by clients re-entering the register, and although it is not compulsory to use such information when drawing up the reports, it will provide important feedback to the professionals of the areas concerned on the degree of preparedness for work of the programme participants. Similar information may be obtained also by telephone interviews.


A new feature was introduced to allow the bar-chart-type display of employment on Day 90 and within the period delimited by it (days 1-30, 31-60 and 61-89, respectively). Furthermore, the development allows to repeat the survey on Day 180, exclusively by IT-based data collection. As for the monitoring process, we defined standardised groups based on roles played in the measures, i.e. participants (individuals) and contributors. The contributors are the employers in the employment promotion measures; the training-providers in the training measures; the service providers in the labour market services, and one (several) of these groups in the programmes, depending on the specific programme component. Spreadsheets showing the most important data content and indicators can be generated automatically for the purpose of report-making. In addition, various queries may be initiated, which can be fine-tuned by the introduction of filtering conditions specified by status (measure entrants, drop-outs and persons completing the measure with success; re-entrants to the register), time period (a given, specified, time interval) or date.



Technical systems

National employment database

Life course log

Employers to be

Specification of supports/benefi ciaries to be

Surveyable support schemes Individuals to be investigated

Data retrieval from the national

Data retrieval from the individual’s life course log

Questionn aire no

Questio nnaires

Financial data

yes Questionnaire delivered, processing

Generation of statistics

Application to be implemented Data of existing application Data sources

Figure 2.

The data source of the IT module is the totality of the professional systems responsible for, and recording, the administration and financial implementation of the given subsidy scheme. That is where one can identify which support schemes have been terminated already and need to be investigated at a given point in time. The data sources of the pilot module relate to subsidies, employers, individuals and to technical systems covering the same. Queries may be based on the life course log of the individual and on the national employment database. The pilot module can be finalised with incomplete IT support, provided that the life course data are available in the datastore.


Data retrieval from the national employment database is based on individual ID data and shows whether the person concerned is in employment on the given date. The question may be supplemented by whether the individual is still employed by the subsidised employer, identified by tax number, or found another job with another employer.

Delivery of the survey forms/questionnaires; processing The data source is the subset of individuals involved in the support measure, filtered on the basis of previous examinations. The envisaged IT support relies, basically, on a WEB technology. The survey forms/questionnaires must be designed so as to allow extension beyond the mandatory data domains. The questionnaires are delivered by e-mail if the addressee has internet access, or else by physical mail. The questionnaire data are processed automatically on the basis of the e-mailed replies, or by loading onto a WEB-based interface in case of information received by physical mail. Persons re-entering the registry may fill in the survey forms on the computers installed in the PES self-information areas.

Generation of statistics, analyses Beyond the data indicated in the foregoing, statistics must be supplemented with the financial data of the subsidy schemes, the data source of which may be the technical systems or a separate financial register within the integrated system. Unit costs and the efficiency of individual support schemes may be calculated from these data. Keeping the retrieved and systematised pieces of information in an appropriately structured form allows to make queries of any data content as well as standard queries. It is possible to define statistics at will on that basis.



90. napopn fennálló, 180 napon belül megszűnő munka + I. Employment relationships terminated within 90 days



Entrants to the measure

II. Elementary data of measure contributors

Regional I.

Employment in effect on Day 90 Office-level

Employment in effect on Day 180

Drop-outs from the mesaure

Settlementlevel Administrat or-level

Result survey





III. Data of the survey forms/questionn

Successful completion of the measure I.



Measure terminated, return to register I. Elementary data of measure participants




Measure terminated, placement

Figure 3. 3



Since the services offered by the PES have been used by a growing number of clients during the years, it has become imperative to ensure their predictability, measurement and comparability. The development of the labour market service monitoring system was authorised under Decree No. 30/2000. (IX. 15.) GM of the Minister of Economy on labour market services and related assistance, in effect since 2000, and by Act IV of 1991 on job assistance and unemployment benefits. The PES has significant experience concerning the application and utilisation of the monitoring system of active measures, but no such system has been worked out for the labour market services yet. It has occurred in connection with the present project that the effectiveness and efficiency of the latter should also be monitored. Efforts have been made to produce a study suitable also for the examination of the possible outcomes, positive consequences and processes of the labour market services. Since once again it was an important criterion to reduce manual work to the minimum, the operation was based primarily on the processing of IT-based data. Information on service quality and client satisfaction may also be collected by survey forms, suitable for IT processing, and communicated via the mailing system. It was not at all easy and simple to measure the outcomes and the effectiveness of the services. For, no methodological description is available to us on the services concerned (except for the Job Seekers’ Club). Without a standardised set of content and methodology requirements, it is impossible to guarantee a uniform content-oriented measurement system allowing for comparability. Currently, there is no standardised counselling practice either within the PES or in the area of outsourced services: there are no mutually accepted regulations,


protocols or standards and, last but not least, no counsel-related documentation routine applicable to both on-site and subsidy-based outsourced services. Prior to the development of the monitoring system, we had to clarify the following essential technical issues concerning the framework setting and content of counselling: •

Who should be provided counsel?

This raises, on the one hand, the problem of the scope of access to applied human services. That should either include everyone in need of the service (jobseeker, student, employed person, disability pensioner etc.), or certain clients only (those to whom the mediator offers this service). The experience is that the counties follow different routines in this respect. A further problem is whether there are social groups/target groups within the circle of potential clients whose involvement in applied human services is of priority importance. The profiling system, an application attempting to categorise the clients, could be linked to a criteria set that would allow to outline the manner of assistance and the circle of services to be proposed. •

Who can provide counsel? What qualification, professional competences, experience should that person have? The qualification requirements expressed under Decree No. 30/2000 GM cannot be regarded as indicative, because the scope of persons licensed under it is much too extensive.

When can we speak of counselling? How can counselling be distinguished from information provision?

What are the time frames of counselling? When does it start, how long does it last, when is it completed or terminated? (Specification of the performance criteria.)

Although we did possess a methodological description for the Jobseekers’ Club, that was a recommendation only, not a binding prescription, and it is not subject to professional control currently.

In the majority of human services, it is difficult to measure effectiveness, because it is hard to demonstrate the exact contribution of a given service to the later


placement of the client. Placement is often the result of a combination of simultaneous placement, training and various other human services. The most one can investigate is whether a client, successfully placed or involved in training or other service or a labour market programme, had had recourse to a human service of some kind and if so, what exactly. The Jobseekers’ Club is an exception, as it is possible to identify the number of clients having found a job within three months following the session.

The institutions of professional control and supervision have not been established either, and hence little information is available on the quality of the professional work. Furthermore, the qualifications and professional competences of the service providers should be reviewed. Despite the above uncertainties, service monitoring is part of the monitoring system of the Public Employment Service. In case of active measure monitoring, the services themselves must be investigated prior to the commencement of the measure (employment promotion subsidy, training etc.). The following information sources may be used: •

PES offices providing human services at the local level,

service centres providing human services at regional level and coordinating office-based human service provision,

the National Employment and Social Office providing national-level professional management, and

civil organisations providing human services on the basis of Decree No. 30/2000. (IX. 15.) GM, and the participants of measures without the Public Employment Service.

Monitoring system of “Labour market services” 1.

Applied human services Collective category including the forms of counselling named under the points of Decree No. 30/2000-es GM, which contains the following services: 1.1

Work counselling



Career guidance


Job-search counselling


Rehabilitation counselling


Psychological counselling


Labour market information provision


Job brokerage

We made no distinction between the individual forms of counselling when we designed the monitoring system (despite their significant differences in terms of content), but used the collective category of “applied human services” instead. Consequently, every counselling service can be examined according to one and the same monitoring system. The preparation of the human services monitoring system involved the following tasks. •

Specification of the indicators

Design of the survey (interview or feedback) forms

Measurement levels, specification of frequency

Design of table systems

The preparation of the monitoring system of applied human services included the following phases: •

Input or initial monitoring (measurement of the specific features of the target group)

Process monitoring (investigation of the operation and quality of the service)

Output monitoring (measurement the effectiveness of the implemented service)

Mediation monitoring Query levels worked out in the mediation monitoring system: Level 1: Monitoring implementation level The following statistical data gatherings were solved at this level:


Following mediation: • Number of employments on Day 90, • Number of employments on Day 180, • Number of employments on Day 90 terminated by Day 180.

Level 2.: Territorial dimensions subject to monitoring Optionally: • national, • regional, • county-level, • office-level, • settlement-level.

Level 3. : Level of the contributors (employer) One can specify at this level, from the side of the monitoring information system,

those data of the employer and the employer’s

labour demand data that should be processed for statistical purposes. It is possible to query at this level any feature for which data are available, that is, any elementary datum and the and/or combinations of such data pertaining the organisations using the service or to their labour demand. Level 4.: Level of individuals involved in mediation This level provides for the generation of statistical data based on the criteria applicable to individuals involved in mediation.


MONITORING OF LABOUR MARKET PROGRAMMES Work concerning the monitoring of complex labour market programmes initiated by PES must target first of all the professional and methodological design of such a monitoring system, the details of which have not been specified so far. The legislative basis for the planning, implementation and financing of labour market programmes to be initiated and implemented by PES was created in 2000, under the Employment Act and its implementing provision. We have had little experience concerning the monitoring and evaluation of these initiatives. The planning and operation of labour market programmes and the development of their monitoring system differs in several aspects from the corresponding functions for the traditional employment policy measures and labour market services. The monitoring system, now complete, gives special emphasis to the following: accurate selection of labour market programmes; preparation of wellfounded plans; expert implementation; output; effectiveness, and the most efficient possible utilisation of the funds.

Ex ante, in progress and ex post evaluation The European Union has given special emphasis for a long time to the evaluation of subsidised programmes, the development of their monitoring methods, and the investigation of effectiveness, efficiency and social and economic impacts. Although even the EU lacks standardised monitoring regulations of its own, a uniform conceptual and interpretation system is about to emerge regarding programme evaluation and monitoring and the grouping of the indicators, which has become more and more known and accepted in Hungary, too, in connection with the introduction of programmes enjoying PHARE and ESF funding.

Utilisation of monitoring and evaluation results The priority objective and function of in-progress programme monitoring and evaluation is to provide periodic feedback on programme implementation and, closely related to that, to introduce the necessary and expedient corrections in


time to improve the results and quality, and the effectiveness and efficiency of programme implementation. The ex post monitoring and in-depth final evaluation following the termination of the programme takes into account, on the one hand, the effect indicators of the programme, which can be measured at a later date. On the other hand, through the detailed processing of programme implementation experiences, the analysis of the achievement of the targeted indicator values and the identification of the reasons of any deviations or of weaker performance, it provides feedback to promote the more prudent and better planning of future programmes, to improve the ex ante evaluation and the selection of programmes scheduled for implementation at a later date, as well as their more effective and efficient implementation. That is, the monitoring and programme evaluation results may be put to use primarily by the programme-planning and -implementing PES centres themselves. Thorough analyses/surveys of merit, and management policies based on them, may result in significant savings and efficiency improvement through more cautious programme design and implementation, and the exclusion of less useful programmes and more emphasis on the more efficient ones.

Summary of the main objectives and tasks In order to fulfil the above objectives, we considered it important primarily to carry out the following tasks: •

Suggestion concerning the main criteria of the design of labour market programmes, and recommendation in that context concerning the content of the monitoring plan.

Specification of the circle of indicators proposed for application.

Investigation of the success and efficiency rates of

labour market

programmes. •

Design of quality audits; suggestion concerning the use of evaluation sheets.


Design of the process and criteria of monitoring, evaluation and feedback to be carried out during programme implementation.

Analysis of the quantifiable and non-quantifiable effects of the programmes.

Proposal concerning the establishment and operation of a Monitoring Group.

Specification of the IT support demand. o Identification of the criteria of analysis, query and spreadsheet design and of the scope of the necessary elementary data. o Recommendation for the utilisation of monitoring results within and without the organisation, and for the dissemination of best practices.

Content of the labour market programme monitoring plan One of the distinctive features of labour market programmes is that the entire process of the complex measure must be thought over in every detail and planned also in writing before they are launched. Decree No. 6/1996. (VII. 16.) MüM of the Minister of Labour, as amended in 2000, specifically regulates the relevant tasks.

Persons to be involved in the labour market programmes The








opportunity mainly to unemployed persons (jobseekers) who cannot be placed in the primary labour market with the help of job brokerage services and “traditional” active employment policy measures alone. The programmes give these people a chance to improve their employability and working capability through the combined use of various services and assistances offered during a longer programme period, and hence to find a job in the primary labour market more easily once the programme is over. According to the classification and grouping based on the profiling system, the programme can improve the chances mostly of jobseekers commanding no marketable working skills, i.e. no skills in demand on the primary labour market, who lost a great part of their labour market value or perhaps never had any.


Planning of the selection of programme participants The specification of the number, features and selection methods of persons to be involved in the programmes is a task (most important from the point of view of efficiency,









differentiated by programme type and specific programme. The needs analysis and the identification of the programme objectives, as well as awareness of the financial limits, helps design the relevant terms of reference and identify the characteristics of the target group.

Contributors to the implementation of the programmes •

Organisations or individuals delivering labour market services,

training organisations, and

employers of the members of the target groups

may act as contributors. The










implementation of individual programme elements after the preparation of the programme plan, and their activity is referred to explicitly under the legislation of active measures and labour market programmes, respectively.



PC1, entrants

PC1, completion

PC2, entrants

PC2, completion

PC1, exits

PC2, exits Compute rised data

Further PCs Successful completion


Registered on Day 180. after completion?

Inprogress/ ex post programm e interviews , questionn aires

EFFECT indicators


Employed on Day 180. after completion?



Monitoring survey data

EFFECT indicator

Employed persons

Figure 3.

The professional monitoring and evaluation plan is based, essentially, on the fulfilment of the programme objectives and of the detailed activity timetable, and on the target values of the indicators. The following shall be investigated: 1. extent, results and problems of implementation during the programme process; 2. accomplishment by the specified deadline of the envisaged activities/milestones; 3. experiences of programme management, information flows, co-operation with partners within and without the organisation; 4. reasons of quantitative and qualitative deviations from the programme plan. The necessary interventions or corrective actions must be taken in time, at management level.

Content of the monitoring plan Suggestions going beyond the content requirements of planning as specified under Decree No. 6/1996.(VII.16.) MüM of the Minister of Labour: •

Short and clear specification of the main objectives regarding the programme and the target group.


Exact specification of indicator values set as programme objectives, broken down by input, output, outcome, result and effect indicators. (In justified cases, specific interpretation and method of calculation of some indicators. In case of multi-annual programmes or programmes involving the phased entry of programme participants, forecasting of the targeted annual or quarterly cumulated input and output indicator values, to make subsequent continuous monitoring and time-proportional evaluation easier and more realistic.)

Scheduled dates and envisaged measures and criteria of the quality and satisfaction surveys. (Design of the questions to be asked in the survey forms and of the criteria of collective discussions. The dates are linked to individual programme phases and/or to service or assistance programme elements.)

Design of specific measurement and evaluation methods for the preimplementation phase, the final evaluation of the programme and the ex post efficiency analysis, respectively. (In this stage: specification of surveys and evaluations to be delegated to appointed staff members of the PES centres and to external contributor organisations or experts, respectively.)

Design of the preparation, forwarding, evaluation of, and feedback on the financial and professional overviews and reports. Specification of the criteria, schema, deadlines, responsible persons and mechanisms related to the compilation and evaluation of the reports.

The financial plan, the main data of which are also input indicators, must be worked out by all means in a breakdown by cost type and year. It is furthermore advisable to compile a cumulated financial plan broken down by quarter and programme element, and to monitor the financial commitments and actual allocations within this system (in addition to the continuous updating of cash-flow plans).

Specification of the circle of indicators proposed for application

Input indicators •

Total cost of the labour market programme (in HUF)

Breakdown of programme costs by cost type and year


The simplest and most important of the above input indicators is the total (budgeted and actual) cost of the labour market programme. It is problematic to indicate in the lines of the priority input indicators costs (especially wages and wage-type costs) related to human resources utilisation, belonging to the category of operating expenses, and even the planning and monitoring of such costs is subject to debate. In the last analysis, it is possible to take into account the intra-organisational cost elements among the cost index indicators – in the form of a separate partial indicator –, but it is also acceptable if part of the PES centres does not want to indicate and examine these cost elements separately for each labour market programme, but prefers to account for them separately in a later “fine-tuned” model only, in view of the experiences of several years. In a deeper chronological breakdown of the input indicators, it is advisable to plan and examine performance by programme phases, too, in addition to calendar years and quarters. The simplest and most important of the above input indicators is the total (budgeted and actual) cost of the labour market programme. Anyway, it is especially important under these programmes to break down the costs as much as possible, and to provide partial calculations and basic background calculations to support them, especially if implementation is cofunded by the EU. A growing role is assigned to well-founded cost planning and cost utilisation analysis during the implementation phase of the labour market programmes. Since the programmes last for several years and the Labour Market Fund has an annual planning regime, the cost plan must be broken down at least to calendar years. As for the analysis of the disbursements, cumulated quarterly or monthly planning and process monitoring is recommended. In our opinion, this methodology can be used with good results in an adapted form for interpreting cost types and calculation methods, and for making the relevant background calculations. The specification and display of the priority


input indicators, on the other hand, does not require and even makes superfluous such a detailed breakdown, as it would make the indicators non-transparent and almost unmanageable.

Output indicators •

Number of persons involved in the programme

Number of persons involved in counselling and in min. 3-day collective (training) human services within the programme

Number of persons involved in mentoring within the programme

Number of participants of (bridging, initial or vocational qualification) training

Number of persons involved in community work programmes within the programme

Number of persons involved in other subsidised employment (apart from community work) within the programme

Average duration of programme participation, in days

Average duration of training participation, in days

Average duration of participation in subsidised employment, in days

The simplest and most important indicator is the number of programme participants. The other indicators (their number can be chosen at will) provide important pieces of information on the inner content and structure of the programme, and the time span of the more significant programme elements.

Result indicators •

Number of persons having completed the entire envisaged programme with success

Number of persons having completed the training component of the programme with success (certificate, qualification)

Number of persons having exited the training component of the programme before completion and placed in non-subsidised jobs

Number of persons having completed subsidised employment successfully


Number of exits from subsidised employment due to employment in nonsubsidised jobs

The most informative of the above-listed indicators is once again the first one, i.e. the number of persons having completed the entire envisaged programme with success (and the rate calculated on that basis), which reflects, among other things, the extent of the conscientious and careful selection of the participants. The proposed result indicators are applicable to the most frequently occurring social-group-specific and re-integration programmes affecting special target groups.

Effect indicators •

(Number and) ratio of persons employed in non-subsidised jobs on Day 180 following the successful completion of the programme within the total population having completed the programme with success

(Number and) ratio of persons having completed the programme with success, employed for some time in non-subsidised jobs, but not in employment on Day 180 following the completion of the programme

Average period of employment (days) of the persons specified under the previous indicator

(Number and) ratio of persons employed in jobs matching their newly acquired vocational qualification within the total population involved also in the vocational training programme component and employed in nonsubsidised jobs on Day 180 following the completion of the programme

The effect indicators and other important quality factors are designed in the framework of the survey carried out on Day 180 following programme completion, with the help of survey forms.

Monitoring of the effectiveness and efficiency of labour market programmes It is possible to derive further indicators and ratios from the input, output, result and effect indicators detailed above, in compliance with the definition and interpretation of effectiveness and efficiency taken over from the EU. Hence


the effectiveness (success) indicator is the % rate of the actual (fact, timeproportional) to the envisaged (targeted) value of the same indicator;

the efficiency indicator, on the other hand, indicates the correlation between the resources spent on the programme and the results/effects of the programme expressed most often in terms of natural indicators. (Labour market programmes usually specify the expenditure per person, per day of assistance or per created/preserved job expressed e.g. in HUF/cap. or HUF/cap/day, which may also be interpreted as unit expenditure.)

Monitoring, evaluation and feedback during programme implementation Essence and objective of in-progress evaluation, and monitoring and feedback of evaluation results In-progress programme monitoring involves continuous data and information collection concerning the implementation of the programme, and the periodic comparison of such data with the targets set under the programme plan. The main goal of this process is to identify any backlog or deviation relative to the time-proportional fulfilment of the targets and task specifications under the programme plan, and to point out their causes. Concurrently, it prepares the steps to be taken to speed up the processes, to eliminate hindrances and to ensure the most successful possible performance of the original programme objectives.

Summary of the main characteristics of the development In addition to the active measures, the scope of the development of the monitoring system comprises – partly for economic considerations, and party because










employment – the human services and the labour market programmes. We have proposed different monitoring solutions for these areas, due mainly to the specific features of the policy groups concerned. Accordingly, as far as the active measures are concerned (employment expansion, support for would-be entrepreneurs and for participation in training), we shall focus on the completed assistance schemes, that is, planning will not be part of the monitoring process.


In the area of the services and the labour market programmes, monitoring covers assessment based on the plan values and the fulfilment of the projections. These belong to the circle of success rate investigations and represent an important part of monitoring. The interpretation of the concept of “result” has been extended to comprise employment by subsidised and non-subsidised employers, respectively. In addition, part-employers have also been identified. Under the expanded results, it is possible to account for persons employed on Days 1-30, 31-60 and 61-89, respectively, within the period until Day 90 following the completion of the measure. Beside the results, we examine whether the jobseekers concerned received human services prior to the measure itself. The same must be shown for jobseekers reentering the register. It is possible to assign characteristic elementary data to the contributors of the measures (employers, trainers, service providers) and to the individuals, and these can be set as query filters (e.g. subsidised/non-subsidised employment by the employer, sex of individuals concerned, etc.). In addition to the queries, assessment is supported by summary tables, and we have made proposals also for indicator generation and application. Moreover, the detailed documentation includes the most important financial tables of the expenditures. According to our proposal, if monitoring is operated as a separate technical system, the result surveys can be repeated any time. The system shows in the result measurement phase those among the entrants to the measure who had been in the register already. The employment of the


remaining entrant stock is investigated on the basis of the national employment database – this accelerates the operation of the system. The surveys cover also the wages: it is possible to evaluate the development of wages prior to entry to jobseeker status, expected wages indicated by persons in jobseeker status, and wages disbursed during participation in the assistance scheme. With adequate professional preparation and IT support, it is possible to assign a control group to the core group involved in the assistance scheme, in the knowledge of the relevant parameters of the participants, and to identify the relative success and efficiency rates of the two groups. It has occurred in the design phase that if no data certifying employment can be accessed by IT means, a sampling procedure may also be used, and the relevant questionnaires have been worked out. Monitoring is linked to registration data available in the profiling system; that is, it has become possible to monitor whether jobseekers can meet the requirements set by the employers without assistance, or exclusively in case of participation in labour market programmes or not. We shall certainly have many discussions in the future, too, on the necessity of setting up monitoring workgroups and on what they should look like, i.e. whether they should be formal or informal, how many persons they should include and whom exactly, but the designers of this project have taken up position in favour of the establishment of such groups. We are driven by the intention to arrive at proposals of merit based on the upgraded monitoring system resulting from their activity, to promote the qualified decision-making of the employment service management by presenting several alternatives. We have expressed our suggestions concerning the composition and functions of the monitoring workgroup in two versions (stressing that the regional PES centres should be allowed to decide on their establishment and composition at their discretion). One version sets a narrower task range, namely that the activity of the group


should focus on specifying alternatives, whereas the other extends to the coordination of the entire monitoring system. The question of responsibility for the implementation of the monitoring process has been raised, mainly in connection with the labour market programmes: should this task be performed within or without the organisation, or would it be a “healthier” solution to divide it between an internal and an external body. It is also a question whether we should be satisfied by monitoring the achievements of PES offices and centres relative to their own previous results, or whether we should also look at what their results, of this or that kind, are attributable to, how they relate to the national averages and trends and what measures would allow to improve their indicator values. Anyway, the result indicators proposed by us greatly depend on the labour market situation and environment, and there are significant differences in this respect in the country, at regional as well as small regional level. There are also differences in the employment conditions of the programme participants. It would be unfair to use the results of areas in a better position as reference base for comparisons or expectations. Therefore, we consider it necessary to filter out the differences due to these gaps, but we have not worked out a method for that yet. Of course, the questions raised by the use of the methods presented and described in brief in the study papers, as well as other development issues, must be answered by the technical managers and the decision-makers, but we are quite certain that, as far as the main functions are concerned, monitoring must remain one of the signalling systems of assistance utilisation.


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munkaerõ-piaci támogatások helyzetértékelõ zárótanulmánya, 2006. 3./ Sándor Epresi: A bértámogatás monitoringjának informatikai feladatai, 2007 4. Ildikó Balkányi Sarvai: A monitoring informatikai támogatásának folyamata, 2007 5./ A foglalkoztatáspolitikai eszközök monitoring rendszerének szakmai specifikációja bér- és járulékalapú támogatás esetén (Technical specification of the monitoring system of employment policy measures for wage- and contribution-based assistance). Study Volume, Ed.: Miklós Temesfalvi, PES Centre of County Szabolcs-Szatmár-Bereg, Nyíregyháza, MS, October 2006) 6./









koncepciója (Development concept of the monitoring system of labour market programmes). Background study; PES Centre, County Pest, Budapest, MS, February 2006) 7./ Éva Juhász, Ferencné Lovas, Ágnes Boros, Mária Kukla, Éva Harasztosi: Humánszolgáltatások

monitoring rendszerének szakmai specifikációja, 2007 8./ Cshománé Handrik Anita: A monitoring csoport működtetése és a monitoring hasznosulása, 2007 9./ Mária Frey –János Simkó: Az aktív munkaerő-piaci programok értékelésének módszerei. Nemzetközi tapasztalatok – hazai adaptációs tervek (Methods for the evaluation of active labour market programmes. International experiences – domestic adaptation plans), Statisztikai Szemle, 1993., Nos 5 and 6. 10./ Mária Frey –János Simkó: Hazai modellkísérlet az aktív munkaerőpiaci programok értékelésére (Domestic model experiment to assess the active labour market programmes), Munkaügyi Szemle, 1993., No. 9. 11./ Bernadett Gergely: A munkanélküliség megelőzése és kezelése Baranya megyében- a HEFOP 1.1. intézkedés mnegvalósításának sajátosságai, eddigi eredményei és fejlesztési lehetőségei (Unemployment prevention and management in County Baranya – specificities, results so far and development options of HRDOP Measure1.1.),

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12./ Irányelvek és útmutató az eredményesen működő monitoring rendszer megvalósításához (Guidelines and guide for the implementation of an effectively functioning monitoring system), in: Adetef, Kei and Euro-prospective, December 1998. 13./ Gyula Nagy, Gyula Tokai, Éva Kemecsei, Ildikó Sarvai, Ferencné Gazdag, Éva Juhász, Ferencné Lovas, Ágnes Boros, Zoltán Dobrozsi, János Simkó, Mária Frey, László Cseppentõ:

Foglalkoztatáspolitikai eszközök monitoring rendszerének fejlesztési koncepciója, 2007. 14./ János Simkó, Ferencné Bodorkós, Bernadett Gergely, Anikó Gyõri, Ferenc Kacser, Miklós Udvarnoki: Ajánlás a munkaügyi központok által mûködtetett munkaerõ-piaci programok értékelési

és monitoring-rendszerére, 2006. 15./ János Simkó: Az aktív munakerőpiaci programok értékelésének módszerei és tapasztalatai (Methods and experiences of the evaluation of active labour market programmes), Munkapiac, 1995, No. 4. 16./ János Simkó –András Péter –Miklós Udvarnoki –Norbert Molnár –Zsolt Várkoly: Az aktív munkaerőpiaic programok hatékonysági vizsgálatához használt monitoring rendszer modellje és szervezési dokumentációja (Model and organisation documentation of the monitoring system used for the efficiency examination of active labour market programmes), PES Centre, County BorsodAbaúj-Zemplén, Miskolc, 1995. 17./ János Simkó –András Péter –Miklós Udvarnoki: A munkaerőpaici eszközök és programok célszerűségének vizsgálata (Examination of the expediency of labour market measures and programmes), (Final Study of the research commissioned by the National Labour Market Committee (Országos Munkaerőpiaci Bizottság), December 1996. 18./ János Simkó: Elgondolások és javaslatok a 2000. évben indított megyei munkaerőpiaci programok monitoring rendszerének kialakításához (Ideas and proposals for the design of the monitoring system of county labour programmes launched in 2000), Prepared for the Monitoring Committee of the Ministry of Economy, MS, September 2000. 19./ János Simkó: Koncepció a munkaügyi központok által működtetett munkaerőpiaci programok értékelési és monitoring rendszerének a továbbfejlesztésére (Plan for upgrading the evaluation and monitoring system of labour market programmes operated by the county PES centres), MS, Miskolc, February 2006.