Q: This past week the central bank issued a new study on the impact that emigration has had on the labor market. Why is that an interesting subject for the National Bank of Hungary?

A: Well, it influences both inflation and long-term growth. The primary objective of the National Bank is to attain a stable and low inflation rate and sustain it. Even on short term migration can substantively affect the supply side of the labor market and through it can alter national economy level wage dynamics, which in turn will drive inflation. At the same time, the central bank has a vested interest in the fastest possible national economic growth sustainable on long-term. So, we need to analyze every factor that can influence long-term growth trends.

Q: The Hungarian media is bouncing around a whole assortment of numbers on the migration issue. What do you think the real ones are?

A: For now I’d like to stay out of the war of estimates. The truth is that the only accurate data would have to come from the databases of the recipient countries, and those databases are tough to access. The analysis we just issued is the outcome of multi-level research. The people involved in the project were relying on a workforce survey based on a set of household poll conducted by the Central Statistics Office. That survey was conducted among people who have a place of residence in Hungary but it also includes people who work for companies that have branches in other countries. This lets us run a comparison between their specifics and those of people working inside the country. There are roughly 100,000 people in this group, which is 1.5 percent of the total population between the ages of 15 and 74.

Q: This is the group you refer to as “commuters.” But what other groups of people work abroad?

A: Obviously, there are other groups including people who have actually moved abroad but plan to return home eventually, and people who have emigrated, meaning that they have permanently moved to another country. It is hard to draw a demarcation line between these two groups since fluctuation between them is high over the course of time. We divided the groups primarily on the basis of the data available, and for the moment we only have detailed information on the commuters.

Q: I’m guessing that most of the people willing to put up with commuting are young.

A: You’re right. They are typically between 25 and 35 years old, and more men than women take these jobs. As far as qualifications are concerned, the largest groups to commute over the border for a job are of people with secondary level qualifications. As far as their place of residence is concerned, the biggest group has traditionally lived in the western part of the country, comparatively near the Austrian border, but since the economic downturn of 2008 people from other parts of the country has also chosen to commute.

Q: What do you think is behind the growth in this type of migration?

A: Some reasons are temporary while others are long-lasting. The rapid spread of globalization in past decades has reduced the administrative restrictions on the free movement of labor. In addition, differences in wages triggered by different economic development levels have also encouraged migration.

These are long-term factors. Then add the economic downturn of 2008-2009, which had a major influence on trends in the various countries. In countries where the levels of external and/or internal debt were already high in the years before the onset of the crisis (Hungary was one of these) adjustment required far greater and longer-term sacrifices on real-economy level than elsewhere. So, output in sectors that produced for the domestic market declined significantly, which in turn pushed up unemployment.

The people who thus found themselves redundant turned to countries where there were far greater chances of growth and job availability. This shift is quite visible in domestic data. The largest ratio of commuters came from sectors that were hardest hit by the downturn. These sectors included the building industry, commerce and catering. From this point of view however, the growth data of the past few quarters are encouraging since not only is Hungarian growth exceeding the European average, but output has also grown significantly in the sectors cited as critical. If this pace is sustained over the next few quarters we believe that the cyclic pattern will fade.

Q: Where are most of the people working?

A: Austria, Germany, Britain, and Ireland.

Q: In your view, is this business of people working abroad good for us of bad for us?

A: It’s hard to say, since it depends decisively on whether our migration flows prove to be temporary or permanent. As yet, not enough time has gone by to answer the question. The long-term growth potential of an economy depends primarily on the growth rate and productivity of an active employable population. Clearly, if a portion of the qualified and productive labor force moves away for good the long term growth potential of the country declines.

Productivity can also drop within the workforce remaining at home since a shorter supply of labor means that less of an effort is needed to hold onto a given job or to get a new one. At the same time, if much of the migration flow proves temporary, then the qualified labor will return with the additional knowledge obtained abroad and the long-term growth in productivity can make up for the short-term slow-down. There have been numerous examples of this in Europe (Baltic nations and Poland) and elsewhere (PR of China).

Q: What about the short-term consequences?

A: On short term it is worth exploring two factors. One is that these workers will definitely be absent from the Hungarian labor market. However, in the period following the crisis that hit us in 2008, when very many people in different parts of the country doing different kinds of work suddenly lost their jobs, the transitional migration definitely reduced the social and real economic costs of the crisis. These people continued to be active on the workforce in a situation when many people were forced off the labor market on long term. In addition, the people taking jobs in other countries tended to transfer a portion of their incomes home, which helped to spur domestic demand. Poland was the typical example of how this took place in the region.

Q: Just how flexible is that workforce? Will these people be coming home as quickly as they left? Especially if their pay is much higher in Western Europe?

A: Any number of issues other than pay might influence the decision to stay or go. One such issue might be a change in the growth prospects of a given sector of the economy in one country or another. Our research suggests that a large proportion of the people who work abroad take jobs for which they are overqualified. This is generally true for all people switching from one country to another no matter what their education level is. So, if the Hungarian economy could demonstrate the kind of growth potential over the coming 10-15 years that could really reduce the GDP and wage gap, it might increase chances that many of the people who’ve gone abroad to work would come home.

We have seen this happen elsewhere. Before the economic downturn Poland had the highest level of emigration. Following the crisis, the Polish economy became one of the fastest growing in all of Europe, which made working at home attractive to the Polish workers who had gone elsewhere. Something similar also happened in the Baltic countries after the downturn. One thing we know for sure is that we’ll need a faster GDP growth than the European average over the next few decades. And obviously, there are other factors, above and beyond the economic ones, that are extremely important. The quality of health care, of education, and of the natural and cultural environment could be some of these factors.

Q: Will anyone be coming here to take the place of those who’ve gone away?

A: Yes, there is constant immigration. Typically, ethnic Hungarians from neighboring countries choose to work in Hungary. At this time, there are about 100,000 such immigrants on the Hungarian workforce.

Profile of Mr Barnabás Virág

2000 – MS in Economics from Budapest Corvinus University, Economic Management Faculty, with major in finance

2003– Began working as analyst at the National Bank of Hungary’s economic management department, economic analysis section; has played an active role in bank forecasting and doing the groundwork for Monetary Council’s interest-rate decisions

2009 – Became chief of working group assigned to prepare Inflation Reports, the central bank’s forecast publication

2013 – Became director of economic forecasting and analysis for National Bank

Is active sports enthusiast in his free time; is particularly fond of playing basketball and bicycling.

Source:FIgyelő

Translated by Budapest Telegraph