Hungary needs labor that's nowhere to be found

In the suburbs of Budapest, Gergely Falusi Toth plunges metal pieces into a high-temperature salty bath. "There is a lot to do. I regularly do overtime," says the 23-year-old, who started work at Techniques Surfaces a year and a half ago. Alongside him, 26 other workers are busy surfacing or packaging various metal parts, a quarter of which will end up in Audi cars. Techniques Surfaces is the Hungarian branch of France's HEF Groupe, which does surface engineering. Its customers are car-industry suppliers, like Boschor Valeo.

The company employed only 11 people in 2008. Between 2011 and 2017, it tripled its Hungarian turnover. Now it "would need to hire more to respond to the growing demand," explained Gyula Juhasz, its Budapest manager. But Juhasz has trouble finding new employees.

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"Back in 2011-2012, when we published ads on web portals, 50-100 potential recruits showed up. This year, when I wanted to hire three workers, only six people responded to the offer. Three of them found the wages too low and declined. I ended up hiring three people but with no choice," complained the plant manager for whom recruitment has become more of a hunt than ever before.

Perils of full employment

Hungary has been attracting foreign capital in the manufacturing sector since the fall of communism in 1989, and even more so since it joined the European Union in 2004. Labor shortages began to become a problem as early 2013. Now they appear to be critical.

In September the state statistics agency listed only 48,460 vacancies. Audi, Bosch, Continental, Lego, Mercedes, Opel and Samsung are among the big foreign firms that employ thousands of workers in their Hungarian factories.

Prime Minister Viktor Orban has conducted an intensive industrialization policy since taking office in 2010. "We are naturally glad when companies build plants here, it helps the Hungarian economy but … investments closer to our heart are those done by Hungarians," he said in late March as he inaugurated a new Hungarian-owned factory in the country's east.

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In the wake of his reelection, little change is expected. "[Our] goals include economic growth, sound finances and the continued pursuit of full employment – which is now well within reach, and which I think is achievable," he said in an interview in late April. The latest government statistics put unemployment at 3.8 percent between December 2017 and February 2018. With a labor market of 4.6 million people, around 279,000 people were looking for work.

Higher wages, lower profit margins

At the same time, the government has repeatedly raised the minimum wage in the past three years — by 8 percent in 2018 alone — while general wages have also risen steadily since 2015. The trend will continue at the pace of a 12-13 percent rise yearly, according to Laszlo Parragh, head of the Hungarian Chamber of Commerce and Industry, in a recent interview with the newspaper Magyar Idok.

In Gyula Juhasz's plant, employees have seen a salary increase of roughly 40 percent since 2011. A technician now makes 170,000 forints monthly (about €550). "Hungarian salaries needed to catch-up," the manager pointed out. "But we can't increase the prices of our products."

Techniques Surfaces profit margins in Hungary have shrunk accordingly, which doesn't bode well for the future. If Hungary can boast unemployment of just 4 percent this year, Juhasz thinks it has a lot to do with Hungarians leaving the country.

According to various sources, 350,000 to 500,000 Hungarians are working outside their homeland — which represents about 10 percent of Hungary's total workforce. The country may be struggling to find people for jobs in all sectors — from cleaning to nursing, from industry to agriculture, from bus drivers to web developers — but "one can make three to five times more working in Germany or the Netherlands," admits Juhasz ruefully.

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"Hungary has around 50,000 people working as cleaners. The sector needs 10,000 more," says Zoltan Paar, head of MATISZ, the Hungarian association of cleaning technology.

"Even with higher salaries, we're still unable to compete with Austria, which also faces a lack of labor in the cleaning sector," he added. "We're seeing the same situation that Western countries faced 20 to 30 years ago, but it's happening very intensively in Hungary."

'Without workers, business will leave'

But Hungary has no plan B. It has not been able to tap into cheap flexible labor from neighboring countries as Poland has done with Ukrainians. Ethnic Hungarians from Romania, Serbia or Ukraine started arriving some time ago, but many of them took Hungarian passports in order to be able to move with ease elsewhere in the EU. Moreover, since the refugee crisis of 2015, Orban's government has made rejection of immigration the cornerstone of its policy.

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"We would have no problem employing immigrants to work here," argues Joachim Rilling, general manager of the Hungarian subsidiary of France's Axon' Cable. The company's Kecskemet plant employs about 300 people producing high-tech cables for the auto industry. As its turnover has continued to rise, so have salaries — from 5-10 percent annually over five years.

Labor has become rare and precious here too. The company is "surviving by hiring fresh, young labor trained at the plant," says Rilling, but if nothing changes "the industry will eventually move out of Hungary."