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Hungary Underemployment and Unemployment
After World War II, Hungary suffered from chronic,
widespread
underemployment. Until the late 1980s, the leadership
stubbornly
clung to the principle of full employment, and employment
rolls
swelled because, as a consequence of low wages, it was
more cost
effective to employ human labor than install labor-saving
equipment or implement other efficiency measures. In
addition, an
enterprise tax based on average wages encouraged managers
to pad
their payrolls with low-paid, redundant employees who
worked at
or near full capacity only during the closing weeks of a
plan
period when pressure to meet targets was most intense.
Underemployment combined with other factors to make the
country's
labor productivity only 40 to 50 percent of that in
Western
countries. In the late 1980s, the government shelved the
principle of full employment and enacted measures,
including new
bankruptcy and tax laws, to induce enterprises to use
labor and
other resources more efficiently
(see Economic Regulators
, this
ch.). Vigorous implementation of these measures will
entail
layoffs, retraining, and early retirement for many
workers.
Hungary was the first member of the Council for Mutual
Economic Assistance
(Comecon--see Glossary) to acknowledge
the
existence of unemployment. Marxist-Leninist ideology has
always
considered socialism and unemployment incompatible, and
until
1987 even the word unemployment was taboo in
Hungary. The
ideological implications of this policy shift outweighed
the
scale of the potential layoffs. The government reported
that
30,000 to 40,000 people were unemployed in late 1987, and
government officials have estimated that another 100,000
to
150,000 workers might be laid off while Hungary
implemented its
economic reform. Compared with Western countries, however,
Hungary's unemployment problem was relatively small: a 4
percent
unemployment rate is generally considered full employment
in a
free-market economy; in Hungary this percentage would
amount to
about 240,000 people.
In 1987 Hungary became the first communist state to
establish
public works programs to provide jobs for the unemployed.
In 1988
it created an unemployment relief fund with the capacity
to
benefit 25,000 people. Nevertheless, critics argued that
the
government did not allot sufficient funds to these
programs to
deal with projected layoffs.
Data as of September 1989
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