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Doubts about Hungary’s growth model

October 31st, 2017

A conservative commentator thinks that the Hungarian economy cannot sustain growth in the long run as Hungarian firms cannot significantly increase wages to stop emigration and ease the labor shortage.

In Magyar Nemzet, Tamás Torba believes that the Hungarian economy is facing a severe structural crisis. The conservative columnist believes that the Hungarian growth model which was grounded in a cheap workforce has become unsustainable, because Hungarian workers leave the country towards western European countries who offer significantly higher wages. After decades of high unemployment, he explains, labour shortage is becoming the tightest bottleneck hindering GDP growth. In order to stop emigration, employers would need to offer higher wages – which they cannot afford if they want to remain profitable, Torba explains. He goes on to suggest that the government could ease the shortage of labor in the private sector through laying off hundreds of thousands of public employees – which is highly unlikely to happen, as such a step would impair the popularity of the governing parties.

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