5 minute read
5 Human capital
One of the most important factors influencing economic growth, convergence and competitiveness is human capital, which affects the performance of the national economy through both its quantity and quality. Over the long term, the available workforce is fundamentally determined by demographic developments, while the productivity of human capital is affected by the qualifications, health condition and attitude to work of the employed. In the case of human capital, at present major reserves can be identified in terms of both quantity and quality, which may contribute to successful convergence by raising corporate capacities and productivity. Similarly to underlying demographic trends in Europe, developments in Hungary are also characterised by a steady decline in and the ageing of the population. Without intervention, these developments may increasingly restrain labour supply through the decline in the working-age population, exerting an unfavourable effect on economic growth and the state budget. By 2030, the number of working-age people may decline by nearly 600,000 in Hungary. A favourable demographic turnaround can be achieved by raising the fertility rate, but this only has an effect over a horizon of several decades. The post-2010 economic policy aimed at improving demographic developments by supporting childbearing, which contributed to the fact that the total fertility rate in Hungary rose from its historical low of 1.23 in 2011 to 1.53 by 2016. However, in spite of the rising fertility rate, the necessary demographic turnaround has not yet taken place in Hungary, as the figure of 2.1 needed for social reproduction has still not been reached. If the reform path assuming a further gradual increase in the fertility rate materialises, the population decline observed in the past decades may already stop by 2030, and over the longer run favourable demographic developments may contribute significantly to economic growth, when the generations with a higher number of people born by then enter the working age. In the reform scenario, in 2030 the total number of inhabitants and the number of working-age people may be 325,000 and 150,000 higher, respectively, compared to the scenario of the middle-income trap (where the total population and number of working-age people may decline by roughly 375,000 and 583,000, respectively, between 2018 and 2030). In the past years, the expansion of employment was one of the main driving factors behind economic growth, with a major contribution from the reform measures to stimulate labour market activity after 2010. Looking ahead, one key to successful convergence with Austria is to achieve and sustain full employment, for which an increase in employment is essential, even while the population is declining. Based on our forecast for the reform path, there will be a major rise of 6 percentage points in the employment rate between 2017 and 2030, and thus the number of employed will increase even in parallel with the decline in the active-age population. The unemployment rate will be stable at around 4 percent. Within the general rise in the number of employed, the number of employed in the private sector is expected to increase by 250,000 by 2030. The return of the inactive and those living abroad may increase total employment by 175,000 people by 2030. In addition, we assume that a significant amount of workforce will return to the private sector from public administration and public work schemes. The health status of the population has a significant effect on the quantity and quality of the labour force available in the economy, and in addition to the labour market it can contribute to economic growth by numerous other channels as well. The impact of health status on economic development has been corroborated by empirical analyses. The dissatisfactory health condition of the Hungarian population contains major efficiency, productivity and growth reserves. The greatest contribution to the sustainability of the health care system and to increasing the healthy life years would be if the population’s health awareness rose in the future, and if there was much more emphasis on prevention in the health system than at present. In Hungary, many people suffer from illnesses that could be avoided with a healthier lifestyle (e.g. high blood pressure and diabetes). One of the main problems of the Hungarian health care system is that private expenditures on health are not spent in institutionalised forms, i.e. through health funds or private health insurance. It would be expedient to reduce the ratio of households’ direct (out-of-pocket) health care expenditures to below the average of the countries in the region. A well-trained workforce, i.e. human capital of adequate quality, is indispensable to increase the productivity of the economy and thus to implement sustainable convergence. The earnings level and employment rate of employees with higher levels of education exceed the corresponding data of those with a lower level of education. Consequently, it is expedient to increase the share of tertiary graduates, especially in the field of sciences. The main challenge for the education system is to prepare the youth for a future status of the labour market that is increasingly difficult to predict because of the accelerating
development. It would also be progressive if the attitude that it is possible to meet the challenges of the modern era only with the help of continuous (self-)development would spread in Hungarian society. In the future, in addition to providing basic encyclopaedic knowledge, the education system should primarily focus on the acquisition of adequate basic skills (including the English language and IT skills), and students should be vested with the need and ability to engage in continuous learning. At the whole economy level, expenditures on (public) education are basically recovered only over the long term; the achievement of short-term results requires further strengthening of the adult education and the system of corporate training.
