Increasing demand for skilled workers


VIKTOR WURM
Research Fellow


At end of 2017 the unemployment rate dropped to its lowest level (3.8 percent) in Hungary in the last decade. Meanwhile, GDP is growing at a 4.4 percent rate causing growing labor demand. Consequently, the shortage of skilled workforce is becoming a pressing matter for companies operating in a number of industries and services. By end 2017 open positions were at an all-time high of almost 74 000. As labor shortage is accompanied by a decline in vocational education, the shortage of skilled labor is rising at a rapid rate. However, there are already some positive signs, as the issue is being addressed by the government and companies alike.

 

THE STATE OF VOCATIONAL EDUCATION AND TRAINING

 

In the first two decades after the regime change, vocational education and training (VET) has been neglected in Hungary, despite it being a pivotal element of preparing the labor force to the needs of the labor market. According to OECD, strong vocational programs increase competitiveness, and public investment in VET can deliver decent economic returns.


Rate of enrollment to different forms of higher secondary education (at 9th grade, 2005-2016)

Source: Századvég collection based on KSH data


The disregard of VET in the past has led to a dropping rate of pupils enrolling to VET, opposed to the growing number of secondary grammar school enrollments.

Furthermore, historically VET has also been seen as low status by students and the general public in Hungary. Thusly, the rate of enrolled students in VET is lower than the OECD average, and also lower than the VET enrollment rate in other countries in the region.


Rate of enrollment in vet in selected countries (2014)

Source: Századvég collection based on OECD data


LABOR MARKET DEMAND

 

At the same time, market demand for VET attainment is increasing. According to Statistical Office of Hungary (KSH) number of job vacancies has reached 65 711 in April-June 2017 and this figure has been around 80 000 in 2018 April-June. Looking at the minimum attainment levels required in job offers from the last 6 years advertised by the largest job portal in Hungary (profession.hu), VET attainment showed the highest increase. The ratio of open positions for people with vocational education has only been marginal in 2013, but their ratio has gradually increased ever since, surpassing the need for workforce with tertiary education in 2018. On 28 May 28.5 percent of the open positions was for people with vocational education as opposed to 27.6 percent of positions requiring tertiary education. According to the relevant authority, the most pressing labor shortage could be observed in the construction industry in 2017, with professionals like carpenter and building and structure metal workers are missing the most.


Distribution of unoccupied positions by attainment

Source: Századvég collection based on profession.hu and KSH data


Breaking down the labor shortage by regions of Hungary, Budapest and Pest county has the highest numbers of open positions. Furthermore, there are only a few regions that have a clear trend of increase in open positions, namely Pest, Fejér, Győr-Moson-Sopron and Bács-Kiskun county, and the capital, which shows how unequally the labor shortage is distributed between regions. This can be attributed to the differences in the development of regions, and to the immobility of the Hungarian labor force.


Distribution of unoccupied positions by region

Source: Századvég collection based on Profession.hu data


ANSWERS TO THE ISSUES AT HAND

 

Combating the identified need for skilled workforce and frequent skill mismatch, the Hungarian government has created the National Action Plan for Hungary in 2014. According to the action plan the government has identified key intervention areas, and has dedicated itself in improving the current vocational education and training programs in order to meet the requirements of the labor-market.

VET is being reformed, in order to better meet the requirements of the market. In the 2014-2020 EU programming period HUF 7 billion has been allocated to improve VET, along with a further HUF 12 billion to combat early school leaving. Reforms to help students better decide which profession to study are being implemented through stronger cooperation with companies.

In 2018 VET has become the competence of the newly created Ministry for Innovation and Technology responsible for competitiveness. The new ministry should also ensure that the higher innovation focus moderates the labor shortage.

In order to address the issue of immobility, the government has created subsides and incentives that aid mobility, namely housing allowance, which can be deducted from the tax base of the employee, and travel
reimbursement that is a benefit companies can provide tax-free to their employees.

Századvég estimates the economy to be growing at 4 percent in 2018, generating even more demand for skilled workforce. In order to address the issue, VET is being supported and promoted, and the  government puts higher emphasis on innovation and technology to shift company activities towards more value added. Companies also focus on making their operations more efficient, while ever more frequently investing in automation and robotization.