It appears that the Hungarian government has decided to implement an accelerated wage convergence program over the coming years. Under this plan, the minimum wage is expected to reach €1,000, while the gross average wage is projected to rise to HUF 1 million by 2028. The feasibility of this goal is questionable, especially considering that real wages have increased by only 3.1% annually over the past 20 years. Moreover, achieving this target would also require a comparable wage increase for public sector employees, civil servants, and other state workers—at a time when this year’s annual public education salary increase was funded by the European Union.
Past economic policy visions and overarching plans have not resulted in a breakthrough in wage increases. Since 2008, Hungary has reduced Poland’s and the Czech Republic’s wage advantage by 8-10 percentage points, while catching up with Slovakia. Meanwhile, Hungary’s wage gap with Bulgaria has narrowed significantly—while Bulgarians earned less than half of Hungarians in 2008, this has shrunk to merely 75% by 2023. A similar trend has been observed with Romania, where the relative wage level compared to Hungary improved from 69% to 89%. It is worth noting that countries with lower starting wages typically experience faster wage growth.
Monthly Net Average Wages in Hungary and Regional Countries (2008-2023) and Projected Hungarian Wage Growth (2024-2028) (€ per person/month)
(Source: GKI, own calculations)
The recently announced government program assumes a HUF/EUR exchange rate of 420 by the end of the period, implying an annual depreciation of approximately 1.5%[1]. According to government projections, nominal wages in euros would increase by 9% annually. However, this would translate into an annual cost increase of 0.5% for foreign assembly plants operating in Hungary and 0.7% for other foreign businesses. Such an increase could eliminate their profits (which typically account for about 2.5% of revenue[2]). To remain competitive in the region and avoid excessive labour costs for foreign investors, a more realistic exchange rate target would be HUF 500 per euro by 2028.
Wage trends are influenced both by salary developments in different occupational groups and by the changing composition of the workforce. The faster the proportion of higher-earning employees grows within the workforce, the faster the average wage increases. Between 2009 and 2023, the share of workers with only a primary education (who generally earn lower wages) fell from 11.5% to 10%, while the proportion of those with higher education increased from 24% to 32%. However, the positive impact of this shift on wages was offset by the fact that salaries for white-collar workers increased at a slower rate than those of manual labourers.
Employment Distribution by Highest Level of Education (%)
(Source: KSH – Hungarian Central Statistical Office)
In 2008, white-collar workers earned slightly more than twice the wages of manual labourers, but by last year, this ratio had declined to 1.6 times. This is due to the fact that, over the past 15 years, real wages for manual labourers increased by 1.7 times, while salaries for white-collar workers only grew by 1.3 times. Why did wages for manual labourers rise more rapidly? For one, the number of manual laborers increased by 16% (193,000 people), but due to accelerated investment projects, labor demand rose even faster. This excess demand led businesses to compete for (skilled) workers by offering higher wages. Furthermore, the forced increase in the minimum wage played a significant role, as it outpaced the overall average wage growth.
The rapid rise in the minimum wage (and the guaranteed minimum wage) has resulted in a growing number of employees earning these wages, while companies employing such workers have faced above-average increases in labor costs. As a result, many businesses have been limited in their ability to raise wages for other employees. Excessive minimum wage hikes can ultimately lead to job losses. This, in turn, exacerbates emigration and cross-border employment, as many employers are unable to offer competitive wages.
Changes in Real Wages, Minimum Wage (2008=100), and Labor Productivity (2007=100) (2008-2023)
(Source: GKI, own calculations based on KSH data)
The government’s wage increase program aligns with long-term trends, as the proportion of university graduates will continue to rise, contributing to higher average wages. However, the state aims to accelerate wage growth beyond this natural trend, partly through further minimum wage increases. Based on experience, such measures will likely fuel inflation again.
Moreover, this policy is ultimately detrimental to economic growth, as it places disproportionate financial burdens on small and medium-sized enterprises (SMEs). Additionally, it remains unclear how this strategy will be applied to public sector wages, as the government has historically struggled to raise salaries in this sector. While the economic policy objective of increasing wages sounds appealing, it comes with significant drawbacks—such as currency depreciation and inflation. Nevertheless, these side effects might help the government meet at least some of its wage growth commitments.
[1] If we were to compare this very reserved forecast with the trend of the last 5 years, then a depreciation of 3-4% is more likely, with expected HUF/EUR exchange rate reaching 450 by 2028.
[2] For foreign owned vehicle manufacturers in 2022: 2.2%
