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The paradox of low wages

November 11th, 2015

A business commentator points out that the low wage level which has so far boosted investment in Hungary is becoming increasingly problematic for companies, as many qualified workers leave the country. He suggests that the government should intervene in order to increase wages and maintain Hungary’s competitiveness.

The wage level is a serious hurdle to fast economic growth, Gergely Kiss writes in Napi Gazdaság. While low wages have attracted significant investment,  especially in the automobile industry (see BudaPost November 3), Hungary’s competitiveness is coming under pressure due to the lack of a proper workforce, Kiss notes. He goes on to note that according to labour statistics, more than 71,000 workplaces are unfilled. The lack of qualified workers is a major challenge for logistics companies as well as for the automobile sector and processing industry. Kiss recalls that some large scale foreign investment projects, including the opening of a Jaguar Land Rover assembly unit, have been cancelled in the absence of a qualified workforce.

“The main reason for the lack of enough qualified workers is migration,” Kiss claims. He suggests that in order to stop the emigration of workers, Hungarian companies should increase wages significantly. It is, however, not possible to make Hungarian wages competitive with German ones since such a hike would without doubt make Hungarian companies’ operation unprofitable. Paradoxically, as the global economy expands, there is a growing demand throughout Europe for well-trained workers, Kiss continues. However, according to Raiffeisen Bank, a 15-20 per cent wage rise across the board would not seriously decrease Hungarian firms’ profits. As a possible compromise, Kiss cites economist Zoltán Pogátsa’s call for government intervention in order to enforce higher wages to maintain Hungarian competitiveness.


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