The worsening demographic situation is a common topic of public discourse both in Hungary and abroad. The current functioning principle of the pension system (a pay-as-you-go system, where the working population supports retirees) is increasingly unsustainable in its current form, raising concerns about its future viability, especially as the average pension continues to drift further from the average wage. Another key question is how many people will be employed in the future and whether a significant influx of guest workers will be necessary to sustain GDP growth.
Over the next 20 years (including 2024), approximately 2.6 million people will reach the current retirement age of 65, while at most 1.9 million people will enter the labour market (at an average age of 20). As a result, in 20 years, there will be at least 700,000 fewer working-age individuals in Hungary if the current retirement age remains unchanged. Consequently, employment is expected to decline by 530,000 people.
Number of People Reaching Retirement Age and New Workforce Entrants Per Year (2024-2043, Thousands)
(Source: GKI own calculations)
How Can the Workforce Shortage Be Mitigated? Several approaches can help offset the labour shortage: attracting home highly skilled Hungarians working abroad, reducing sectors that require a large amount of manual labour (allowing workers to shift to more efficient areas), and increasing labour force participation. However, further mobilization of the existing 300,000-strong potential workforce is highly uncertain. This number must be adjusted for individuals unable to work due to health or physical limitations, as well as those already employed but working off the books. Thus, only a small and difficult-to-access segment of the population remains available for workforce expansion, which offers little short-term relief.
A shrinking workforce is expected to reduce total wage earnings. The following estimates are based on 2023 wage levels. Data from 2023 indicate that average earnings increase until the age of 35, after which they stagnate or slightly decline. However, this trend is unlikely to persist, so for future projections, wage reductions beyond 35 years of age are not considered (using an incremental approach). According to KSH (Hungarian Central Statistical Office), real wage growth over the past 20 years has averaged 3.1% per year, and this rate is used for the next 20 years in projections.
It is important to note that new entrants and retirees do not have the same earnings levels. Over the next 20 years, the wage gap between those entering and leaving the workforce will increase, from HUF -227 billion in 2024 to HUF -1,425 billion in 2043 (in real terms). Despite a 530,000-person, or 11.5%, decline in employment, the total wage bill is expected to nearly double from HUF 33 trillion in 2023 to HUF 63 trillion in 2043. However, this is a best-case scenario, as it does not account for additional reductions in employment due to premature deaths, disability retirements, or emigration.
Demographic Effects on Total Wage Earnings (2024-2043, Billion HUF)
(Source: GKI own calculations)
The projected doubling of total wage earnings is primarily driven by two factors: real wage growth and higher levels of education. Between 2003 and 2023, the proportion of individuals with only primary education fell from 26% to 13%, while the share of those with higher education increased from 15% to 29.8%. Since more educated workers generally earn higher wages, this trend is expected to continue, meaning that by 2043, a smaller proportion of the workforce will be engaged in manual labour.
As a result, economic policies should focus on fostering high-value-added jobs that require specialized knowledge and offer higher wages. However, current economic development policies do not reflect this need. Industrial assembly plants and battery factories mainly create low-skilled jobs, while intellectual and managerial positions are often filled by employees from the foreign parent companies. To ensure Hungary’s economy adapts to unavoidable demographic changes, a significant paradigm shift will be necessary.
