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Labour Standards and Structural Adjustment in Hungary LIBRARY [Pvkiatt9 45

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Labour Standards and Structural Adjustment in Hungary LIBRARY [Pvkiatt9 45 C C INTERDEPARTMENTAL PROJECT ON STRUCTURAL ADJUSTMENT Occasional Paper 7 Roger Plant Labour standards and structural adjustment in Hungary LIBRARY [PvkiAtt9 45 CIANNIN! FOC,NDATZN AGFOCtil.Tur- AL CA;r,S tea:fr,o 4.c44 kt; IIQU International Labour Office Geneva . Interdepartmental•Project on Structural Adjustment The aim of the Interdepartmental Project on Structural Adjustment is to strengthen ILO policy advice in relation to structural adjustment policies in order to make those policies more consistent with ILO principles and objectives. The project investigates various options to give a different focus to adjustment policies, emphasising major objectives as equitable growth, improved human resource development and social acceptability and it tries to establish how various ILO policies and policy instruments can contribute to such a different focus of adjustment policies. The range of policy instruments encompasses labour market regulation, social security, wages policies, training policies, industrial relations as well as the employment and income effects of monetary, fiscal and price policies. Greater involvement of the ILO in the area of structural adjustment needs therefore to reflect the inter- disciplinary nature of the adjustment problem by combining activities from different departments in the ILO. During the 1992-93 biennium, the project concentrates on developing policies for the following five main areas: — the role of the public and private institutions in stnictural adjustment; — the role of fiscal policy in generating employment and favouring equitable growth in a process of adjustment; w the role and function of compensatory programmes and social safety nets during adjustment; public sector adjustment, including issues pertaining to privatization; the role and function of the social partners in the adjustment process. Further information can be obtained from the Project Manager (Rolph van der Hoeven) or the Project Officer (Andres Marinakis). Labour standards and structural adjustment in Hungary Note: Occasional Papers are preliminary documents circulated in a limited number of copies solely to stimulate discussion and critical comment. International Labour Office Geneva April 1993 , Copyright 0 International Labour Organization 1993 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to the Publications Branch (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland. The International Labour Office welcomes such applications. ISBN 92-2-108929-0 First published 1993 The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. The responsibility for opinions expressed in signed articles, studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorsement by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. ILO publications can be obtained through major booksellers or ILO local offices in many countries, or direct from ILO Publications, International Labour Office, CH-1211 Geneva 22, Switzerland. A catalogue or list of new publications will be sent free of charge from the above address. Printed by the International Labour Office. Geneva, Switzerland Table of contents Page 1. Introduction 1 2. Economic restructuring in Hungary: An overview 2 2.1 The pre-adjustment situation 2 2.2 The adjustment process: An overview 2 3. International labour standards and Hungary 4 4. Structural adjustment in Hungary: The political context 5 5. Employment policies and trends, and the regulatory framework 7 5.1 Employment and unemployment trends 7 5.2 Employment policies and legislation 8 5.3 Issues in employment policy 9 5.4 Human resources development 10 6. The social welfare system: Constraints and emerging policies 11 6.1 The socialist legacy 11 6.2 Restructuring social security: Government, IMF and World Bank approaches 12 a. IMF appraisals 12 b. World Bank appraisals 13 6.3 National perspectives 14 7. Towards tripartism: Issues of labour law and relations 15 7.1 Preliminary observations 15 7.2 The industrial relations system before 1988 15 7.3 Initial developments after 1988 16 .7.4 The 1992 Labour Code 18 7.5 Issues in labour law and relations 19 8. International labour standards and the adjustment process 21 8.1 Preliminary observations 21 8.2 Labour law and industrial relations 21 8.3 Employment and unemployment 22 8.4 Social policies 23 9. Conclusions 23 Bibliography 25 •• 1. Introduction 1 This case study considers the role of labour standards in adjustment, in a formerly socialist country undergoing transition to a market economy. Parallel to the programme of economic restructuring and adjustment, Hungary has also experienced significant reforms to its political institutions, including labour laws and the industrial relations system. The economic and political aspects of adjustment are thus closely related, and extensive analysis of both is considered necessary in this study. As in other countries of Central and Eastern Europe now undergoing a transition to a market economy, a serious factor has been the rapid growth of unemployment, and the need to establish an appropriate safety net including unemployment insurance. A further need has been to maintain to the extent possible the structures of social protection and security which were an important characteristic of socialist society, while ensuring their financial viability as the role of the State in economic and social management progressively declines. A third need has been to define the role of the social partners in economic and social policy issues in general, and in employment and welfare issues in particular, within the framework of the evolving social market economy. Rather more than in the developing countries, the adjustment lending of the international financial institutions has been addressing issues of this kind, with particular reference first to social security and protection and second to human resource development. The manner in which these issues have been addressed by the Bretton Woods institutions therefore deserves quite detailed attention. I This case study was prepared as part of a more comprehensive global study on International Labour Standards and Structural Adjustment, carried out within the framework of the ILO's Interdepartmental Project on Structural Adjustment. At ILO Headquarters, particular thanks are due to the project manager, Rolph van der Hoeven, who provided valuable comments and assistance throughout, and also to Gyorgy Sziraczki, Hector Bartolomei, Edward Yemin and Jean-Paul Arles. In Hungary, an extensive programme of interviews with different government departments was arranged by the Department of International Programmes of the Ministry of Labour. Particular thanks are due to Peter Klekner and to Katalin Nagy for arranging this programme, and to Gabriella Schmeider and Krisztina Roman for providing interpretation. Among the many others who gave generously of their time and information were: Lajos Hethy, Maria Lado and Lazio Neumann (Institute of Labour Research); Csilla Lehoczky and Mariann Varga (labour lawyers); Mihaly Csako, Janos David, Istvan Gabor, Janos Kollo and Istvan Toth (academics and researchers), Andrew Rogerson (World Bank representative); and the many representatives of employers' and workers' organizations. 2. Economic restructuring in Hungary: An overview 2.1 The pre-adjustment situation The main aspects of economic and industrial restructuring relate to macroeconomic stabilisation, trade liberalization, and privatization and enterprise restructuring. Of these three aspects, some considerably predate the present political transition. Until the late 1960's, Hungary was a rigidly centrally planned economy. The New Economic Mechanism, adopted in 1968, was the first attempt at limited market reforms. The regulatory framework was adjusted, to limit the influence of central planning, and to permit more autonomous decision-taking by state enterprises. Compulsory annual planning for enterprises was abandoned, prices were determined by the market forces of supply and demand, and some enterprises were permitted to participate directly in foreign trade. Further reforms during the second NEM decade after 1979 aimed to increase economic efficiency. New pricing regulations were introduced, to connect most producer prices directly with foreign trade prices. And multiple exchange rates were replaced by a unified rate in order to prepare for the eventual convertibility of the Hungarian national currency. The banking structure was reformed, to permit the development of autonomous commercial banks. Significant efforts were also made to promote the development of small private industry, in the urban industrial and agricultural
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