Strikes appear imminent at several automotive companies in Hungary, as tightening labour markets wind up the tension between companies and employees, local press reported on June 6. However, while the shortage of skilled labour across Central Europe and the Baltics is offering unions serious leverage after years of slack, it also threatens to stifle investment and economic growth.
While earlier this year German car manufacturer Audi was able to avoid a strike by offering a healthy wage hike, serious labour disputes are underway at six companies in the auto and electronics sector in Hungary, Nepszabadsag reports. The tight labour market in Hungary and across the region threatens significant long-term risks.
In line with Prime Minister Orban Viktor’s dream of making Hungary a regional leader in industry, the country saw auto production boosted last year in plants operated by Audi, Suzuki and Opel. While the auto sector accounted for 19.2% of industrial output in 2012, that accelerated to 28.9% last year and has become a key driver of Hungary's small, export-dependent economy.
However, with another large investment due from Daimler, and suppliers also piling in, the tightening labour market is becoming a serious challenge to further expansion, analysts warn. Unemployment in the country has been steadily falling, reaching a new record low at 5.8% in February-April.
The opposition insists that state work schemes are massaging the figures, and indeed there is clearly some truth to that. However, analysts also note to bne IntelliNews that in some spots - such as the carmaking hub Gyor - unemployment is approaching just 1%.
While the government schemes have knocked number off the jobless total to offer a short term data boost, for the longer term, Budapest may do better to offer improved education and training. Like many of its neighbours in the region, the lure of EU states to the west have hit Hungary's demographics hard in recent years, draining the young and the skilled and producing a rapidly aging society. Meanwhile, the skills of those remaining unemployed are limited, reducing the pool from which companies can recruit.
“The skill mismatch index [calculated as the gap between the proportion of low-, medium-, and high-skilled in the working age population and the corresponding proportions in employment] is currently at an all-time high in Hungary," Gyozo Eppich, deputy head of research at OTP Bank tells bne IntelliNews. "This means that the labour market is even tighter than the headline unemployment figure would suggest.”
"In all main sectors of the economy more and more companies say that labour shortage became the main production limiting factor,” OTP noted in a recent report. According the European Commission’s latest country report, published in April, 60% of companies in the manufacturing sector point to labour shortage as a problem.
That has companies fighting one another. “In the the entire manufacturing sector, there is a very rough head-hunting activity. Companies try to ‘steal’ the best professionals from each other,” Robert Kesze, president of Continental Automotive Hungary Kft told local Vilaggazdasag.
The head for the local unit of the international tyre giant claims the issue is crucial for overall economic growth. The automotive industry will only be able to push GDP further if new investments arrive, he suggested.
However, new projects are already threatened due to the labour shortage. “Hungary might not have enough workforce to offer if companies want to expand,” Eppich warns.
The first reaction of enterprises to such problems is generally a stronger utilization of the existing labour force, OTP points out. However, productivity gains in CEE are notoriously tricky to drive, while Zoltan Laszlo, vice-president of the Vasas Trade Union Alliance, stressed to Nepszabadsag that overtime is one of the key factors for employee dissatisfaction.
“Local interest protection groups claim that some of the companies are exploiting their employees almost until they drop. At some companies the full-year overtime budget was exhausted by the end of May,” he said.
The union official claims that currently there are sharp labour disputes at six manufacturing units in Hungary, generally centered on wage hikes. Employees say they would be content with a rage between 7% and 12%.
OTP’s analysts point out that labour shortage is present in all sectors of the economy, and the rising number of strike threats is triggering a spiral of wage inflation. “While wages in the private sector grew around 4.5% in recent years, according to our current calculations the growth rate could reach 6% this year,” Eppich says.
At the same time, as Western-European markets continue to recover from the crisis, they are both stimulating demand for exports from the region and attracting skilled employees. That has economies across CEE facing similar problems.
Neighbouring countries, with higher wage levels, face even stronger labour shortage problems, and from these countries an “even stronger labour drain effect” can be detected, the OTP report notes.
While Orban may be leading a bitter fight against the EU's efforts to get CEE states to accept migrants, companies across the region are making it clear that they want to open up the borders.
In a recent poll, Czech companies said they regard a shortage of qualified staff as the biggest threat to growth potential, and that they only expect the problem to get worse. Lobby groups say Czech industry lacks as many as 150,000 workers - mostly in technical professions – and advocate opening the labour market to foreign workers. The Czech Exporters Association has called on the government to loosen visa policy to simplify attracting workers from countries such as Ukraine, Vietnam, and Russia.
Slovakia – which produced more than 1mn cars last year and solidified its position as the world’s greatest car producing country per capita – also worries about capacity restraints. “It was such a positive year for the automotive industry we were even concerned the development would be too rapid and intense in terms of labour mobility and finding [qualified] workers,” association the chairman of the country's Automotive Industry Association said in April.
The problems have set up a merry-go-round. While many Slovaks go to the Czech Republic seeking higher wages, Hungarians head to Slovakia for similar reasons.
The gross monthly wage of a blue-collar worker in Hungary’s auto sector is around €1,000, according to Portfolio.hu, but Jaguar Land Rover - which plans to launch production at a new Slovak plant in 2018 – is reportedly offering €1,250. Slovakian companies also attract Hungarians by offering better working conditions, and managers that speak foreign languages, auto industry figures point out.