Elevator pitch
In the early 2000s, Hungary’s employment rate in the working-age population was below 60%. That is now a distant memory, as labor force participation is among the highest in the EU, unemployment is consistently low, and the purchasing power of wages keeps growing at a high rate. While undoubtedly a success story, it is also a cautionary tale of coerced activation, labor market segmentation, rising inequalities, declining social mobility, and strained employment relations.
Key findings
Strengths
The employment rate in the working-age population increased by 20 percentage points between 2000 and 2024 and is now among the highest in the EU.
The unemployment rate has remained steadily below 5% for a decade.
High labor force participation among older workers and women contributed to the significant extension of individuals’ working life.
Real wages increased by 150% between 2000 and 2024.
Weaknesses
The turnaround in employment was largely achieved through workfare and reduced social assistance that forced many individuals into dead-end jobs.
Despite rising employment, continued labor market segmentation and mismatch afflict low-skilled workers, marginalized groups, and less developed regions.
Already among the highest in the EU, earnings inequality keeps increasing amid declining social safety and mobility.
The gender pay gap remains high and is increasing among high-skilled workers and public employees.
Rigid work organization and reduced worker representation trap many employees into low-quality and low-autonomy jobs.
Author's main message
According to headline indicators, the Hungarian labor market appears to be in very good shape: employment is at a historically high level, the unemployment rate has been below 5% for a decade, and real wages today are 2.5 times higher than they were in 2000. A more in-depth look, however, reveals highly worrisome developments: activation is driven by workfare and reduced social assistance, the labor market is more rigid and segmented than before, labor productivity is low, earnings inequality and social immobility is rising, and skill shortages are becoming manifest in a number of key sectors. A modern, inclusive and resilient labor market requires fully revamped employment and skills strategies.
Motivation
In 2000, Hungary had one of the lowest employment rates among EU countries (56% among those aged 15-64). In 2024, the employment rate was at a record level and among the highest in the EU (75.1%). How did this spectacular turnaround happen? Has the Hungary’s politics-driven answer to the 2008 crisis and enduring deficiencies of its welfare state, summed up as a transition from welfare to workfare, been as successful as headline indicators suggest? A systematic review of available evidence based on official statistics, survey microdata, and administrative registers suggests otherwise. The Hungarian labor market and social situation are beset by a growing number of structural problems and imbalances: rising inequalities and rigidities, increased segmentation and exclusion, strained employment relations and job matching. This article attempts to disentangle the different factors at play, provide a structured account of ongoing trends, and sketch out the preferred policy directions for the future.
Discussion of strengths and weaknesses
Employment and unemployment trends
Since 2000, Hungary's labor market has undergone significant transformations, shaped by the country’s EU accession in 2004, global economic trends and domestic policy changes. In the early 2000s, employment was stuck at the very low rate of 56% in the working-age population (aged 15-64). In absence of well-designed structural and employment policies, continued economic growth in these years did little to significantly boost employment among women, older people, low-skilled workers or those in less developed rural areas.
The 2008 global financial crisis hit Hungary hard and marked a clear turning point. Employment levels fell further and unemployment rose sharply, peaking at around 11% nationally and reaching 18% in some regions. Early interventions for increased labor market flexibility and state support were quickly turned into sweeping employment reforms by the incoming Orbán administration. These reforms aimed at stimulating both labor demand and labor supply, in conformity with a new political vision of a “work-based society” and “workfare instead of welfare”. From 2013 onward, the effect of these reforms started to bear fruit and the Hungarian labor market entered a new phase: aided by strong economic recovery, EU structural funds and growing foreign direct investment (FDI) in manufacturing and services, employment began to rise relentlessly: the employment rate in the working-age population surpassed 70% by 2019 and hit 75% in 2024. During the same period, unemployment fell rapidly below 5% and has remained close to its historic low of 3.4% even during the Covid-19 pandemic and subsequent inflation wave. Figure 1 shows the course of this transformation by year.
Despite an impressive turnaround in the employment situation, Hungary continues to face long-standing structural divides in labor market activation. While large employment gaps of the early 2000s between urban and rural areas have been largely eliminated, a substantial part of regional imbalances between Eastern and Western areas of the country still subsists today (69.8% versus 79.2% in 2023). Even less progress has been made with the labor market integration of low-skilled workers: employment gaps along educational background are roughly the same as 20 years ago and remain one of the highest in the EU (91%, 79%, and 39% among workers with tertiary, secondary, and primary education as of 2024).
Since 2020, Hungary also grapples with escalating labor market mismatches. Fueled by perennial demographic shifts and industrial developments, the Covid-19 pandemic and subsequent recovery exposed and intensified labor shortages in an increasing number of sectors, such as manufacturing, construction, healthcare, and information and communications technology (ICT). Skill mismatches are an important source of these imbalances: OECD estimates suggest that around one third of Hungarian workers are either over- or under-qualified, while another 35% are exposed to field-of-study mismatches [1]. The growing disconnect between workers’ competences and labor market demands is most evident in sectors, such as metalworking and engineering, that require strong vocational skills. So far, existing government initiatives to expand adult education and training, recognize informal qualifications and promote new pathways for skill development, have yielded little benefits.
International migration is playing an increasing role in shaping these recent trends. On the one hand, the emigration of mostly young and skilled workers has continually intensified since Hungary’s EU accession and reached its highest level in recent years (71 369 persons or 0.74% of the total population in 2023). On the other hand, ever larger immigration flows and the influx of legal migrant workers from mostly non-EU countries have more than offset the manpower drain in sectors like manufacturing or construction. Since 2013, the foreign-born population grew by half and makes up 7% of the Hungarian population in 2024. While employment among migrants is currently among the highest in the EU (78%), their social integration remains rudimentary.
Labor force participation developments
In the early 2000s, a significant portion of the working-age population were inactive in the Hungarian labor market. Several structural factors contributed to this, from early retirement options and generous disability benefits to limited employment opportunities and low employability among particular worker groups. However, from the early 2010s onwards, a spectacular rise in labor force participation took place that propelled the activity rate from among the lowest (59.9% in 2000) to one of the highest in the EU (78.6% in 2024).
Although aided by sustained economic growth, this turnaround was largely achieved by a concerted set of policy reforms aimed at the re-activation of the labor force. The expansion of public employment programmes (PEPs) was an important instrument, especially at the beginning of the transition. The roots of public employment go back to the socialist period and the subsequent structural transformation of the Hungarian economy in the early 1990s, where it often provided a lifeline to low-employability groups. Existing schemes were brought under a single arrangement in 2009 to alleviate the immediate effects of the 2008 financial crisis but became a central element of the incoming Orbán government’s employment strategy in the early 2010s [2]. The scale of the PEP operations quickly exploded: the number of public workers ballooned to 350 thousand by 2015 and more than 700 thousand workers (or 15.3% of the Hungarian workforce) participated during the 2010s in total. Public employment was heavily concentrated in underdeveloped regions and rural areas where, in the peak years of 2014-2015, more than 20% of all workers and 40% of Roma workers were involved. The effect of PEPs as an active labor market policy (ALMP), however, is rather limited: exit rates to traditional employment at a one-year horizon typically ranged between 10% and 40% depending on broader economic trends, and many elements of the standard ALMP toolkit aimed at increased employability (such as training, job search assistance or entrepreneurial support) were entirely missing [3]. With public worker salaries set at around 40% of the minimum wage (or 470 Euro in purchasing power parity (PPP) terms as of 2025), they certainly do not allow for a decent living or upskilling. Rather, the main role of the Hungarian PEPs appears political: substitute welfare payments for workfare, provide cheap labor and societal control at the local level, and further antagonize existing socio-economic divides through populist means [4].
Another crucial intervention that contributed to the increase of labor supply was a series of pension reforms in the early 2010s. These comprised the nationalization of private pension funds, the restriction of early retirement options, the tightening of eligibility for disability pensions, and the gradual increase of the statutory retirement age from 62 to 65 years by 2022. In a complete reversal of earlier policy aimed at shielding older and less employable workers from the labor market, these reforms pushed the majority of elderly workers to extend their working lives. As a result, the participation rate among those aged 55-64 rose by a whopping 50 percentage points – the largest margin among any socio-demographic groups (73% in 2023 versus 22.6% in 2010, see Figure 2). While these shifts strongly mitigated the effects of population ageing on pension expenditures and social spending, they also reduced the share of pension recipients in the total population to the lowest level in the EU (16% in 2022).
Figure 2 also shows that the increase in the labor participation of women was higher than among men in all age categories (22 versus 15 percentage points) This is partly the result of targeted policy reforms aimed at bolstering employment among women and mothers in particular. A significant intervention was the expansion of family support schemes to allow mothers of young children to engage in full-time employment without forfeiting parental leave benefits. A series of exemptions from personal income tax (PIT) payments for mothers who are raising or have raised multiple children are also being introduced from 2020 onwards. Additionally, the government has also doubled the number of nursery places since 2010, easing the childcare burden and enabling more women to return to work after childbirth.
Two features are particularly noteworthy about the Hungarian labor market transition and activation strategy in the post-2010 period. First, concerns for long-term sustainability and the forward-looking challenges of green and digital transitions are almost entirely absent from the national employment strategy. Whereas the promotion of flexible work arrangements, digitization, adult training, and upskilling were part and parcel of similar labor market expansions in Poland, policy priorities in Hungary are exclusively focused on short-term activation and acute labor shortages. This is particularly worrisome for the green transition: the relative share of emission-intensive sectors and occupations is among the highest in the EU, while absorption capacities to reallocate displaced workers are among the lowest [5], [6].
Second, employment has gradually become the only effective channel of social policy and social integration in Hungary. Those who cannot work are left behind even more: the inactive, the unemployed, or large parts of the Roma population receive much lower rates of support today than ever before. Jobseekers’ allowance is one of the least generous in the EU, on account of short duration (three months), low coverage (less than 60%) and inadequate benefit amounts (approximately 500 Euro in PPP terms per month on average). For the inactive, statutory social assistance has remained basically unchanged since 2008 and is worth around 100 Euro in PPP terms per month. The preference for employment-related assistance is evident in other domains of social policy, as well: while around 85% of family and child benefit payments were lump-sum in 2000, only 45% were independent of labor market status and position in 2023. Moreover, besides the skewed composition of social expenditures, their level itself diminished significantly in recent years (19.2% of GDP in 2000 versus 16.6% in 2023). As a result, differences in labor market status and material comfort between the top and the bottom of society have widened considerably.
Real wage developments
Between 2000 and 2025, real wage trends in Hungary followed a broadly upward trajectory, though with substantial volatility. In comparison with other Central and Eastern European (CEE) countries, such as Poland and Slovakia, where balanced wage growth closely followed steady productivity gains, Hungary's experience has been rather different.
In the mid-2000s, real wage growth in Hungary stalled: despite hopes of strong convergence to Western European levels in the wake of the country’s EU accession in 2004, messy public finances and the ramifications of the 2008 financial crisis led to a decade-long period of wage stagnation. As economic growth and employment picked up again in the early 2010s, wage developments also took a marked turn. Between 2014 and 2024, Hungary’s real wages grew by more than 70% and outpaced all CEE countries by a significant margin. Interestingly, neither the Covid-19 pandemic nor the highest inflation wave in the EU put a halt to the rapid increase in earnings: by 2024, real wage growth has resumed at one of the highest rates in recent years (+9.2%).
Besides labor shortages and the tightening of the labor market, government policies were central to driving these trends. First, the elimination of progressive taxation, targeted tax cuts for families and selective wage agreements in key sectors from 2012 onwards had important consequences for both the overall level and distribution of earnings. Second, frequent and substantial increases in the minimum wage were equally effectual: the roughly 150% increase in the real gross minimum wage between 2010 and 2025 not only improved pay among low earners but also pushed up the earnings of workers higher up the distribution. Third, public sector wage reforms and sector-specific wage hikes aimed to improve the relative earnings position of public employees, government officials, and civil servants in particular, also anchored wage dynamics in the private sector.
The downside of such robust wage growth is that labor costs have completely decoupled from productivity trends in recent years. Since 2000, real labor productivity in Hungary grew by 71% in cumulative terms and remained well below the corresponding CEE average. The slowdown of productivity growth in the mid-2000s was due to both within-sector slack among exporting firms and limited impact of between-sector reallocations [7]. The sources of these are varied, but muted competition among incumbent and new entrants in specific sectors, relatively low rates of business entry, high market concentration, as well as low innovation and business-financed research and development (R&D) activities certainly played a part. Due to low levels of preparedness for the digital and green transitions, limited resilience against potential geo-political threats and high perceived corruption, substantial productivity gains, and continued real wage growth in the foreseeable future appear highly unlikely.
Earnings inequality
Earnings inequality in Hungary is among the highest in the EU, with the workers in the ninth decile earning almost four times more than workers in the bottom decile in 2022. Inequality in gross hourly wages is greater above the median (the ratio between the ninth and the fifth decile (D9/D5 ratio) was 2.1 in 2022) than below it (the ratio between the fifth and the first decile (D5/D1 ratio) was 1.8 in 2022). As elsewhere in the CEE region, wage disparities increased in the early 2000s but declined markedly following the 2008-2010 recession and financial crisis (see Figure 4 for details).
What is unique to Hungary, however, is that earnings inequality started to increase again considerably in the 2020s. Overall, high-earners proved much more resilient to the shocks posed by the Covid-19 pandemic and subsequent inflation wave in retaining their earnings potential. Preliminary data suggest that, between 2022 and 2024, earnings inequality has increased further and reached levels dating back to the pre-crisis period of the late 2000s. Recent policy changes have a lot to do with this. Paradoxically, massive increases in the uniform minimum wage contributed to the widening of the wage gap through both ripple effects (i.e. comparable or even higher wage growth among top earners) and various selection mechanisms (i.e. compliance difficulties among businesses in poorer, rural areas). The additional reduction of income tax rates in 2016 and employers’ contribution during 2017-2022 also directly increased the gap between low and high earners.
Despite these recent developments, the fundamental socio-economic drivers of earnings disparities have remained the same. On the one hand, substantial regional divides persist: the capital region of Budapest continues to earn around 50% above the the rest of the country, while earnings in rural and provincial areas are still only 75-85% of the national average. Secondly, the polarizing role of education for earnings differences has continued to increase since the 1990s [8]. Financial returns to schooling in Hungary are the highest in the EU: those with tertiary degrees earn, respectively, about 50% and 70% more than those with secondary and primary education on average. Around half of this difference is explained by differences in skills and employment conditions that also exhibit increasing divergence over time [9].
In fact, what is particularly worrisome about current distributional trends is that they are coupled with historically low social mobility. The Hungarian society is now more rigid and closed than ever before in the post-World War II period: in 2018, only about two-thirds of the working population had a different occupation than their parents, a 10 percentage points lower share than during the 1970s [10]. Given the limited role of inter-generational wealth transfers in Hungary, educational attainment is the primary channel through which social advantages and disadvantages are perpetuated. Recent PISA results show that skill dispersion among Hungarian students is very high, and the part explained by family background is the largest in the EU. Since the early 2000s, the population share of those that retain their parents’ educational attainment increased by 15 percentage points to alarmingly high rates (75% and 67% among those with, respectively, high and low education as of 2018) [8].
Gender gaps
As of 2023, women in Hungary earned 17.8% less per hour of work than men, which is markedly higher than the EU average of 12%. The unadjusted gender pay gap has seen no significant decline since the early 2000s and is particularly high among prime-aged workers and in high-tech industries such as finance or ICT. An unwelcome recent trend is the growing pay disparity between men and women in the public sector (11% in 2014 versus 19.7% in 2023), which is currently the highest in the EU.
As elsewhere in OECD countries, gender wage gaps are largely concentrated within firms. Among these, the share of within-job wage differences is particularly large in Hungary, while sorting between occupations, firms, and sectors has comparatively little effect on the wage gap [11]. As in many other domains, education plays a crucial role as of 2016, highly educated women in a particular job earned 16% less than their (highly educated) male colleagues, while the relevant difference was around 11% among workers with a low level of education [12]. This indicates the presence of a glass ceiling, i.e. particular boundaries in the corporate hierarchy above which women (and other negatively discriminated groups) are less likely to arrive.
Gender gaps in Hungary extend well beyond labor force participation and earnings. On the EU’s Gender Equality Index 2024, Hungary ranks penultimate, with particular deficiencies in the areas of political power and representation, time allocation to care and domestic work, training and education, or gender-based violence. Gender differences also matter for social mobility: while women in Hungary are more mobile than men (71% versus 64%) on average, they are also more likely to inherit potential disadvantages of family background.
Work organization, job quality, employment relations
Besides employment and wage developments, qualitative and organizational aspects of jobs are equally important determinants of workers’ overall experience and well-being. In this regard, Hungary performs rather weakly.
Work organization in Hungary has remained highly traditional and shows signs of increasing rigidity. The share of employed persons working regularly from home decreased significantly (5.7% in 2000 versus 4.1% in 2024) and is among the lowest in the EU. While part-time employment increased marginally (3.9% in 2000 versus 5% in 2024), the incidence of both self-employment (10% in 2000 versus 8.2% in 2024) and temporary employment (7.1% in 2000 versus 4.2% in 2024) are lower than 25 years ago. While atypical work is often associated with a precarious labor market status, it is also an important source of dynamism, innovation, and integration in modern labor markets.
Job quality, as measured by the OECD’s job quality framework, shows mixed patterns. Due to the combination of comparatively low hourly earnings and high earnings inequality, Hungary has the lowest earnings quality in the entire EU. Tight labor markets and low risk of dismissal imply that other dimensions of job quality, such as labor market insecurity and job strain, are somewhat below the relevant OECD and EU averages [6]. Eurofound classification based on survey self-reports also reveals that close to 40% of Hungarian employees are trapped in poor quality jobs that rank lowest in terms of skill use, discretion, and earnings prospects [13].
Poor employment relations likely have something to do with this. The 2012 overhaul of the labor code significantly increased employer flexibility with respect to working hours, overtime, and dismissal, and curtailed the influence of trade unions. As a result, collective bargaining coverage and union density have declined to one of the lowest rates in the EU (13% and 8% as of 2019), far below the European average (61% and 23%, respectively). Most wage negotiations now take place at the company level, while tripartite social dialogue at the national level, once a key feature of Hungary’s employment relations, has become largely symbolic. With unions sidelined and workplace representation weak, many employees lack meaningful channels to influence working conditions or dispute employer decisions: close to half of all workers report little or no autonomy on the job.
Limitations and gaps
During the last 25 years, the Hungarian Central Statistical Office (HCSO) has implemented several methodological changes to calculating labor statistics. While these adjustments are generally aligned with evolving international standards, one should exercise caution when interpreting time trends or structural breaks in the data. More importantly, data quality and comparability has come under increasing scrutiny in recent years due to a growing perception of direct political pressure and questionable methodological or communication choices by the HCSO. Particular concerns have emerged in relation to social and poverty statistics, due to the discontinuation of subsistence minimum calculations in 2015 and inconsistencies in EU-SILC income microdata since 2018 [14].
Concerning the use of administrative sources, new data policies and regulation emerged in response to EU developments in the early 2020s. These aim to improve the consistency and availability of public sector data that had been compiled in an isolated and uncoordinated manner across different agencies. The lack of interoperability remains a major difficulty and potential benefits of administrative data use and evidence-based planning are also eschewed due to decision-makers’ lack of interest [15].
Summary and policy advice
Since 2000, Hungary’s labor market has undergone a major transformation, shifting from low employment and high inactivity to one of the highest participation rates in the EU. This shift was driven by post-2010 policy reforms emphasizing workfare, public employment, less generous pensions, and targeted tax incentives. Despite rising employment and wages, deep structural divides have remained: low-skilled workers, rural populations, and marginalized groups face increasing social exclusion amid growing inequalities and declining inter-generational mobility.
Therefore, Hungary should rebalance its labor market strategy by shifting from short-sighted activation goals toward coherent policies of long-term inclusion and resilience. This requires investing in adult education and vocational training to address skill mismatches, improving the social safety net for inactive populations, and prioritizing inclusive digital and green transitions. Policy must also tackle wage inequality and low social mobility through fairer tax structures, targeted support for disadvantaged regions and education reforms to break intergenerational cycles of poverty.
Acknowledgments
The author thanks the anonymous referee(s) and the IZA World of Labor editors for many helpful suggestions on earlier drafts. The author is also grateful to Piotr Lewandowski and Iga Magda for help with data.
Competing interests
The IZA World of Labor project is committed to the IZA Guiding Principles of Research Integrity. The author declares to have observed these principles.
© Balint Menyhert
