Job Creation and Destruction in Hungary

Abstract

The paper analyses the process of corporate job creation and destruction after the transformational recession in Hungary. Dynamic firms created jobs at an extraordinary speed before 1996, but downsizing companies destroyed jobs with similar intensity. Even though there were substantial differences among sectors, most sectors had high job reallocation rates. This contrasts sharply with developments in most transititon economies.

Gross job creation is the sum of job creation at existing companies with increasing employment and job creation of the de novo firms. Unfortunately, it is hard to identify de novo firms in the Hungarian statistical system: Companies routinely got new corporate identifier especially in the first half of 1990's, when their official organizational form was changed (e.g., they were corporatized) without any real change in the operation of the company. This practice obviously inflates gross job allocation rates. We define "narrow" gross reallocation as the sum of sectoral job reallocation at firms with continuing corporate identifier + net job reallocation at the sector. There obviously were a number of real de novo firms in Hungary in this period, and many firms went through substantial reorganizations: mergers and brake-ups, when the change of the identifier was fully justified. Thus the "narrow" gross job reallocation rate was certainly underestimates the intensity of job churning in the Hungarian economy. However, even these "narrow" measures were much higher than the gross job reallocation at other transitions economies: the "narrow rate was more than 15% in all years between 1993 and 2000.

The intensity of both job creation and destruction decreased somewhat by the late 1990's, but it was still rather high by international standards. This high intensity of job creation and destruction coincided with a rather stable employment situation at the aggregate level: aggregate employment only increased by 3% between 1993 and 2000. Earlier studies of the characteristics of Hungarian corporate labour demand showed that demand elasticities converged to the levels seen in the least flexible West European labour markets. The coexistence of a stable macroeconomic situation, inflexible labour demand and the intensive job reallocation at the firm/sectoral level is the result of a rapid and deep restucturing of the corporate sector. Rapid job reallocation was just a byproduct of the fast and very substantial differentiation of the companies, and this differentiation is strongly linked to the intensive foreign direct investment into the Hungarian economy.