2 Quantitative and qualitative conditions of the labour market In the pre-crisis years, one of the most acute structural problems of the Hungarian economy was the low labour market activity and employment, which restrained the economy’s growth potential. As a result of the reforms introduced since the crisis, the labour force participation rate has increased considerably, but remains low by international standards. Looking ahead, the development of the quantitative and qualitative labour market conditions is of key importance for economic growth. Human capital affects economic growth via two channels; on the one hand, through the available labour force, on the other hand, through the education level of employees. Based on various population forecasts, in the coming decades the role of the qualitative attributes of labour force may gain importance due to population ageing. A qualified labour force enhances economic growth through higher productivity. In addition, a further increase in labour market participation by groups that are currently characterised by lower participation rates may also reduce the long-term growth impacts arising from demographic processes. Based on population projections, in the coming decades ageing may continue in Hungary as well, in line with the global trends, and the extent thereof may slightly exceed the EU average. As regards the labour market, the most important demographic change may be the significant drop in the working-age population. Demographic changes may be an increasingly strong labour supply challenge over the long run. The impact of demographic changes can be offset by improving the qualitative attributes of the labour force and a further increase in the labour market participation of groups characterised by low labour force participation rate. In past years, the participation rate has increased the most in Hungary among the Visegrád countries, but by international standards it has been low for a long time. The increase in labour supply was a general process in Hungary, and the shortfall in participation can be linked primarily to a few, partially overlapping, social groups. By international standards, the activity rate of the highly qualified is still low. In addition to the demographic composition, the low participation rate is also attributable to differences in education. The qualitative features of the labour supply can best be captured by the education level of employees. Since the millennium, the ratio of persons with a university or college degree has risen significantly in Hungary. The ratio essentially corresponds to the average value of the Visegrád countries, but lags behind the EU average and the average for more developed countries. However, there are significant differences between the regions of Hungary in terms of the education level. In the coming decades, as a result of the technological progress, the labour demand for those holding a degree in technical and natural sciences – the areas were Hungary lags behind the Visegrád countries – may further increase. Besides the ratio of persons with a university or college degree, the number of those finishing vocational school in the secondary school system also shows a shortfall compared to other European countries. On the supply side of the labour market, the largest supply is in employees with secondary school education. Based on the results of international surveys, the average test results of students lagged behind the OECD average in the past period, which implies that the quality of public education should be further improved. The quality of public education is characterised by a dichotomy. The best performing schools are concentrated in the capital city. Finally, besides knowledge acquired in education, the health condition of the population is also the part of human capital. In the past decades, life expectancy has gradually increased in Hungary, but it is still lower than the value corresponding to the country’s level of economic development.
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GROWTH REPORT • 2015
