ESM in Hungary Outcomes of extensive labor market reforms since 2010

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1 ESM in Hungary Outcomes of extensive labor market reforms since 2010 Ágota Scharle Dorottya Szikra Budapest Institute for Policy Analysis ILO-EC Conference Brussels, February 2014.

2 Lasting economic crisis

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4 Political crisis Steep decline of democratic institutions and good governance - much more so than in fellow CEE countries Former democratic institutions have remained in place but substantial elements of democracy largely eradicated (EIU 2011; Freedom House 2013; Bertelsmann Stiftung 2013)

5 Political crisis Constitutional Court: right to investigate budgetary issues is ceased New Constitution of 2011 With no consultation Amended 5 times including unconstitutional acts Anti-poor legislation included

6 Political crisis 800 new acts and over 20 Cardinal laws within 4 years Individual members bills in Parliament Centralized, often arbitrary and streamlined decision-making

7 Labour rights 1. CONSULTATION The two-thirds majority means that the population have legitimized the government s decision-making without the consent of the NIRC (National Interest Reconciliation Council) Prime Minister Orbán, summer 2010

8 Consultation with civil society stopped Quasi civil organizations created ( quangos ) E.g. Council for Social Equality among Women and Men (set up in 2000) has been disbanded Representation of women in Parliament lowest in Europe 8 per cent Fidesz-loyal Roma organization

9 Labour rights 2. New Labor Code 2011 cut worker and union rights increased freedom of employers to define labour conditions constrained right to strike and bargain collectively

10 Labour rights 3. Minimume wage increase in and again after 2010 To boost labour supply by increasing the gap between the minimum wage and social assistance To compensate for the abolition of the earned incomes tax credit (justified by the introduction of the flat tax in 2011). Translates into a small drop (!) in its net amount, which the government sought to correct by strongly encouraging employers to increase wages

11 Social policy Private pensions nationalized Increasing transition costs of pension privatization 3% of GDP by 2011 Disability pension ceased allowance Early pensions stopped But: Compulsory retirement for civil servants at age 62 clotted structures Women: After 40 years possibility to retire

12 Social policy PIT decreased, VAT increased 16% PIT 27% VAT Tax credits for low earners ceased Very generous child-tax allowance esp. for 3+ Centrally set cuts of utility prices: 10+10%

13 Labor market reforms Establish a workfare society as a positive alternative to the decline of Western welfare states (Orbán 2012)

14 Labor market reforms Cutting unemployment insurance from 9 to 3 months Cutting the nominal level of unemployment assistance Public works instead of ALMP

15 Workfare in the new Fundamental Law Article 19: Every person shall be obliged to contribute to the enrichment of the community to their best ability and potential. Social rights limited to a set of risks including unemployment, but only in case it was not caused by citizens own actions. [t]he nature and extent of social subsidies are to be determined according to the usefulness of the beneficiaries activities for the community.

16 Controlling the poor

17 Hungarian Work Plan Co-ordinated by the Min. of Interior Out of the Labor Code Public works minimum wage 60% Compulsion to accept (public) work: out of social assistance if rejected Out of any assistance if failed behaviour-test: tidy house

18 Impact of labor market reforms More than 50% of unemployed have no eligibility for any assistance Statistical decrease of unemployment Falling out of the system Public works counting as employment

19 Impact of cutting access to unemployment benefits none UA PW UI

20 Issues around public works Violating the Charter of Fundamental rights Equal pay for equal work Human dignity Ethnic discrimination

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22 Impact of SP and ALMP reforms Drop in domestic demand Drop in investment Migration of skilled workers Polarizing society Downsliding middle class Increased child poverty Increasingly ethnic face of poverty

23 Szikra, D. Democracy and Welfare in Hard Times: The Social Policy of the Orbán Government in Hungary since 2010 forthcoming in Journal of European Social Policy, 2015 Spring