DUAL ECONOMY AND UNEMPLOYMENT IN HUNGARY IN THE 1990s
György Lengyel, Budapest

• 1. The Transformation of the Dual Economy
• 2. Labour Market, Unemployment, Lastinq Unemployment
• 3. Concludinq Notes
• REFERENCES

[page-number of print edition: 80]

DUAL ECONOMY AND UNEMPLOYMENT IN HUNGARY IN THE 1990s
György Lengyel, Budapest

Major structural transformations are characteristic of the nineties in Hungary. Private property has become predominant in the economy. This affects the majority of the population because and differentiates most sharply the life chances. A 700,000-strong entrepreneurial class emerged. In the mid-nineties in Hungary - similarily to the Polish structure – private firms employed some 60% of the labour force and produced over half the GDP. Regarding the proportions of the employment, Hungarian developments indicated the preponderance of the private property in all three sectors. This deviates from the rates in surrounding countries, especially in the ownership relations of industrial companies.

As compared to industry and agriculture, the tertiary sector has risen to predominance. It is a change affecting large masses, since tertiary employment is about double the employment in industry and agriculture taken in one. If, in terms of branch structure, the fifties were the decade of industrialisation, the nineties are the decade of the ascendancy of the service sector. This complex sector which includes large budgetary organisations and self-employed alike already employed one and a half times as many people in the middle of the decade than industry and agriculture taken together. Of course, the rate of the service branch increased parallel with industry over the past decades, but this expansion did not stop when the employment in industry dropped in the eighties (Laky, T., 1997):

[page-number of print edition: 81]

Table 1

The breakdown of employees according to branches and breakdown of adult population according to activity (1949-1996, %)

employees
Branch	1949	1980	1990	1994	1996
- agriculture	53.8	19.3	17.5	9.0	8.2
- industry	21.6	41.6	36.1	32.4	31.8
- services	24.6	39.1	46.4	58.6	60.0
N (thousands)	4085	5734	5472	4136	3974
adult population
Activity	1949	1980	1990	1994	1996
- employee	44.4	53.5	52.7	40.3	38.9
- unemployed	-	-	0.1	6.1	4.9
- inactive	55.6	46.5	47.2	53.6	56.2
N (thousands)	9205	10710	10375	10277	10212

Source: Laky T., Munkaeropiaci helyzetjelentes, Bp. 1997., 8.p

It is also a development of the 1990s that the inactive population became dominant. Though not unique in Europe, it adverse1y influences the life chances of broad strata. From the early eighties, the rate of job-holders gradually decreased within the whole of the population. This demographic phenomenon has its unavoidable influence upon the welfare systems, public burdens and economic expectations. One of the possible reasons why the population assess the situation pessimistically is the shrinking portion of the population contributing to the growing public burdens. Compared to the active population, the stratum of the inactive is less dissatisfied and has a below-average action potential of interest protection.

Two other phenomena – new dualisation of the economy and unemployment – are the major topics of the present paper.

[page-number of print edition: 82]

1. The Transformation of the Dual Economy

On various occasions the concept of dual economy has had differerent connotations in social sciences. As far as we know, it was first used to denote the system of relations between traditional peasant economies and the modern industrial-servicing formations in research on the national economies of the Third World (Wertheim, 1968). Another meaning implies the dichotomy of formal-informa1 economies which is close to the distinction between first and second economies used in Hungary. This interpretation is explicated by Claus Offe in his study about the expected changes at the labour market. He draw a difference between the spontaneous processes of dualization in society and the models of dual economy based on a political programme (Offe, 1987).

In a third interpretation of the dual economy (Hodson/Kaufman, 1982; Averitt, 1968) the dividing line is between the influential large companies and the small ventures. The large enterprises having elaborate bureaucratic hierarchies and vertically integrated production processes can be characterised by diversification across industrial branches, regions and nations thanks to their ownership and control of raw material producing and distributing firms and the application of progressive technologies. As against that, the other economy is represented by small companies dominated by individuals or families supplying limited markets and their strategies of production and marketing fall behind those in the centre.

All this is combined by analysts with the question concerning the dual labour market (Doeringer and Piore, 1971). They appear to pinpoint the basic difference between the primary and secondary labour markets and connect them to the dual economy when referring to the fact that large enterprises have an internal labour market while the small firms are only in touch with the occupational labour market. It has also become a moot question in recent economic and sociological literature as to how the

[page-number of print edition: 83]

economic recession and the manpower cut-backs affect that internal labour markets and whether they entail the devaluation of loyalty for the institution (Hirsh, 1993).

These questions have relevance to Hungary as well (Gabor, 1997). Not only the recession and staff reduction, but also the reduced markets of state-owned large companies and the appearance of unemployment, as well as privatisation and the beefing up of a sector of small entrepreneurs act in the direction of economic dualisation. While earlier the institutional separation of the first and second economies (Sik, 1995) was coupled with a significant number of actors being involved in both, now the roles are separated in person and the two economies are not divided along state control or legality.

Regarding large companies, the internal labour market is a sort of protection against the challenges of the occupational markets by ensuring higher income, better promotion chances, larger autonomy (Galasi, 1982). It is also true to say that large enterprises defend themselves against the risks of employing untested labour and ensure the loyalty of the collaborators while small enterprises do so by using family labour. Has loyalty lost some of its importance? One cannot preclude this in the case of large enterprises, for splits and the reshuffling of the markets have transformed the field of forces and signposted new points of reference. In addition, a structural modification of loyalty can also be noted. The late phase of planned economy was dominated by elements of public and organizational loyalty, while aspects of personal loyalty came to the fore in the transitional economy. Layings-off and privatisation send part of the labour force into small entrepreneurship as employees or employers. This may induce uncertainty in the internal labour markets.

It is to be inquired what happened to the internal labour markets, whether they have been eliminated or they have survived, how the employees assess the guarantees of job

[page-number of print edition: 84]

security, promotion and income chances. Are foreign firms interested in creating internal labour markets, or contrarily, they prefer the mass spread of closed technologies and the concomitant target-oriented skilled work leading into a blind alley? Here, the figures of a representative survey of 1500 made by Tarki in Spring 1997 are relied upon (Tarki Omnibusz 97/III). The survey has shown that promotion within the place of work primarily depends on the size of the institution and the occupation, and not on the form of ownership.

One-fifth of the employees declared they had chances of promotion in their places of work. This characterised the younger age brackets more than the older ones. In institutions with a manpower of over 300 the rate of those having promotion chances was 29% or twice as much as the promotion chances of employees in small ventures. Concerning position, the leaders, especially the middle managers see chances of internal promotion. Besides them, only the intellectuals deem their chances above average. All this is naturally connected to the level of education, former managerial experience, chances of getting a job in the external labour market, and class identity.

The different areas of the service sector offer radically different possibilities for in-job promotion. Two-fifths of the employees in financial institutions - while only one-tenth of those in personal services - see chances of rising higher within their employment.

The employees of Hungarian and mixed ownership companies (part Hungarian, part foreign) say they have average chances of promotion within their firms, and they make up the overwhelming majority of the labour force. By contrast, one-third of the employees of foreign-owned companies say that they have chances to rise within the firm. This fact is to be handled with caution, however, on account of the low rates, and because intellectuals are overrepresented in these companies.

[page-number of print edition: 85]

Table 2

[page-number of print edition: 86]

Within the circle of those who saw promotion chances, two-thirds had above-average income. A similarly strong correlation was found between promotion chances and annual bonuses.

Half of the employees said it was impossible that they might lose their jobs, and within this group, those who have prospects of promotion were above average by one-quarter. Nearly half the employees felt they would not easily get another job if they were laid off, but only a quarter of these trusted in promotion within the company.

As for the social background, those whose parents or grandparents included entrepreneurs had a far higher share in promotion chances. As has been seen, the role of schooling is even more important here. A more detailed analysis has shown that it is not having a diploma alone that improves the imagined chances of promotion, but within this, high-school graduates have a higher rate. Compared t.o less than one-fourth of university graduates, more than one-third of college graduates see chances of career rise within the firm.

Among those trusting in their chances in the internal labour market, those with former experiences in the second economy are overrepresented together with those who have former managerial experience or used to have a say in decision-making. All three groups make up a little more than a quarter of the respondents each, and more than a third of those with promotion chances in the internal labour market – the latter two adding up over two-fifths of them. As for class identification, it is clearly the middle-class members that have above-average trust in promotion within their employment. More than half of the sample felt they belonged to the middle class, and more than three-quarters of those who had internal chances of rise.

Within that, about a quarter of the active population identified themselves as intellectuals, somewhat fewer as managers and administrative workers, but these made out about two-fifths of

[page-number of print edition: 87]

those with hopes of rising in the firm. It must be noted that the majority of leaders reported to be intellectuals.

In-house promotion chances obviously characterised mostly the employees of large-staff institutions. Similar is the case with the extent of income and the subjective feeling of job security. While more than half of the employees of firms with a staff below 50 have below-the-average income, the corresponding figure in enterprises with a staff of over 300 is one-third. One fifth of small-firm employees and a quarter of medium-size company staff felt that they might lose their jobs while this applies only to one-sixth of the employees of large enterprises.

By contrast, control over the work process, the freer arrangement of the work time, the autonomy of decision-making are clearly in favour of small ventures. It is a question to be settled whether this is due to the self-employed being ranged with the small entrepreneurs, or because a small venture does require flexible work organisation and larger autonomy among the employees as well.

Taking a look only at the chances of the employees of small and large enterprises, omitting the self-employed mostly working in small organisations, the differences remain in terms of promotion chances, fear of unemployment and incomes. Employees of large organisations get about one-sixth higher wages than those employed by small ones, fewer of them are afraid of losing their jobs, and see greater chances of a career rise both in the internal labour market and in the special occupational markets. When it comes to the autonomy of decision-making, however, the advantage of small organization disappears. All that remains is only a statistically insignificant advantage for the employees of small organisations in the more flexible handling of the working time.

Some one-fifth of employees feel they would stand a chance of getting a better job elsewhere. Among these, the employees of

[page-number of print edition: 88]

banking and other service branches as well as trade and building are overrepresented. Also overrepresented are employees of private firms and large enterprises, the managers, intellectuals and the administrative personnel. As regards schooling, not only the diploma holders but also those with secondary education have above-the-average expectations to get better jobs in the special occupational labour markets. It has to be emphasized, however, that those who see chances of promotion both in the internal labour market and in the occupational markets have a very small rate, the great. majority not seeing any better chances either within or outside their current employment. The figures also confirm that the possibility of a more favourable job correlates with special skills, training and social endowments. The promotion chances within an enterprise and in the partial occupational markets practically characterise the same social groups, with minor deviations. This does not mean that there are no significant differences in promotion chances between certain manual jobs on the special markets of labour, but it indicates that at the level of major social groups, both segments of the labour market offer better perspectives to managers, intellectuals and white-collar workers, as self-reported by the participants.

2. Labour Market, Unemployment, Lastinq Unemployment

The socia evaluation of unemployment has not considerably changed over the past decade. The majority of people thought in the late eighties and still think even more emphatically that unemployment is to be avoided at any cost, and less than half think that the solution of the economic problems is impossible without accepting unemployment as a corollary.

[page-number of print edition: 89]

Table 3

Should unemployment be avoided according to occupational groups
(1988-1997, in %)

	unemployment should be avoided at any price			problems of the economy might not be solved without unemployment
	1988	1994	1997	1988	1994	1997
managers	15	33	27	85	67	73
self-employed	40	38	42	60	62	58
professionals	26	19	23	74	81	77
adult population	54	62	59	46	38	41
active population	54	51	47	46	49	53

Source: Tarki A (1988) Household Panel Survey(HPS, 1994, 1997)

In the meantime, however, the opinion of certain social groups has changed. The groups that argued for unemployment – managers, entrepreneurs, intellectuals – though still adhering to this stance, have become more hesitant. Their opinions fluctuate now compared to the marked position they took in the late '80s, when unemployment was only a potential problem of economic policy. The adult population has become similarly uncertain. Within the active population, however, the rate of those who think that unemployment is an inevitable social phenomenon has been constantly increasing and passed the half mark in 1997. That, in turn, means that wide circles of workers and employees also share this view.

In the early '90s, the number of the registered unemployed was more or less the same as that of the registered entrepreneurs, amounting to some 660,000 in 1993 or 13% of the active population. This has only shown slight decrease, coming under the half-million mark in the second half of the decade and starting to slightly increase recently.

[page-number of print edition: 90]

Table 4

Unemployment and fears of unemployment
(1988-1997, in %)

	Unemployed	Those who fear to lose their job (potentially unemployed)
1988	(0.1)	16
1992	8	32
1993	13	29
1994	11	24
1995	10	28
1996	11	31
1997	9	26

Source: Tarki A (1988), HPS (1992-1997)

The unemployment rate among men was and still is higher than among women. Startling at first, this phenomenon is chiefly due to the fact that women are getting squeezed out of the labour market faster, becoming inactive at a greater rate than men (Laky, Labour market situation report, 1997). It is worth remembering that a substantially larger portion of the jobless are not members of trade union and other professional organization than those who have not lost their jobs. One-fifth of the job-holders reported to belong some trade union and one-tenth of them to some other professional association, while only sporadically can such examples be found among the unemployed. This is, in part, explained by the potential of professional organization for protecting their interests, and in part, by the recruitment strategies and social composition of these bodies.

There was an especially high rate of unemployment in the young generations. Though considerably reduced, it has remained the highest among the age groups. Behind the initial unemployment of career beginners known internationally no lasting unemployment is lurking and an active employment

[page-number of print edition: 91]

policy and re-training programs can be used with above-average efficiency in this group. For the socialisation patterns, however, this phenomenon has a salient and far-reaching effect.

It applies not only to the young but also to all of those coming to the end of their unemployment benefit that their chances have been restructured since the early 1990s. According to the findings of a follow-up study (Lazar-dr.Szekely, 1996), in the first half of the decade, hardly more than a quarter could find a new job when the dole ran out, the majority remaining unemployed (two-fifths of the group) and about a third becoming inactive (Laky, 1997: 71).

Table 5

Chances of getting a job again (1993-1996, in %)

Among those who have exhausted the unemployment dole	1993	1994	1995	1996
re-employed	27	29	42	44
unemployed	41	34	28	30
inactive	32	37	30	26
TOTAL	100	100	100	100

Source: Lazar-Szekely (1996), quotes Laky, (1997) 71. p.

In 1996, more than two-fifth of the unemployed found new employment when the unemployment benefit was stopped, about a quarter of them became inactive and less than a third remained jobless. That means that the proportions have been reversed in terms of access to the labour market.

The rate of lasting unemployment was somewhat higher in the older active groups (aged 40-54), among those with primary schooling only, among the villagers and the Gypsies. In these groups, this rate is either growing or stagnant.

[page-number of print edition: 92]

Table 6

Proportion of unemployed and lastingly unemployed within social groups
(1994-1997, in %)

	rate of unemployment		long-term unemployed as % to all unemployed
	1994	1997	1994	1997
male	16	12	58	52
female	11	7	42	43
16-19 years	52	23	-	-
20-29 years	15	12	44	45
30-39 years	13	10	53	43
40-54 years	14	8	61	65
55 - years	8	1	-	-
less than 8 elementary	35	21	-	67+
8 elementary	26	21	58	60
vocational school	17	11	52	36
secondary education	10	6	48	50
tertiary education	3	2	-	27+
Budapest	12	5	41	45+
villages	18	13	56	57
belonging to the Roma minority	47	32	67	80+

Source: HPS, 1994,1997

Thus, lasting unemployment is outlining a closing-dropping off social stratum (Laki L., 1997). This is reflected in the prestige relations. In a rural environment, the aids and extra-income benefits allocated by the local government have a far more marked role in designating social marginalisation than the unemployment benefit. Young people who availed themselves of

[page-number of print edition: 93]

the possibility of the dole, did their best to avoid having to apply for a social allowance, if only for the reputation of the parents and the family.

The overwhelming majority of the long-term unemployed belong to the lowest income quintile. Two-thirds of them say they belong to the lower or the working class. A negligeable number derive from entrepreneurial families, used to be managers or party members. Their former careers are characterised by ups and downs as well as by radical leaps to various social positions.

We may agree with Adam Przeworski that the uncertainty caused by unemployment may undermine the confidence in democratic institutions (Przeworski, 1993). The unemployed, and within this group the subgroup of the lastingly jobless have an above-average acceptance of authoritarianism, of statements such as the following: people can be divided into two groups: the weak and the strong (88 and 75 %, resp.); what the country needs is not so much laws and political programmes as courageous and untiring leaders (73 and 64 %, resp.). This correlation is mainly attributable to the level of schooling. Unemployment in general and long-term unemployment in particular strongly correlate with dissatisfaction and to a lesser degree with trust in the national institutions.

There are tension-decreasing behavioral signs as well. Two-fifths of the active population are afraid that their families' finances will get worse by the next years, and about half think that the majority of the population in general will fare like that. The rate of those who share this opinion among the long-term unemployed is far higher at nearly two-thirds. Two related tendencies, however, assert themselves among the long-term unemployed. One is that estimates and expectations are better for one's own family than for the whole of the population. The other is a cautious optimism that future tendencies are seen in a somewhat more propitious light than the past ones.

[page-number of print edition: 94]

3. Concludinq Notes

Among the major changes at the employment market, a new dual structure has evolved in the economy. The dividing line is being drawn between the small ventures and large enterprises. While earlier the first and second economies overlapped since the persons acting in both were the same, now the actors are different in the two halves. The entrepreneurial ambitions realised earlier in the second economy are now channeled into the small businesses. This is also borne out by the decreasing tendency of household production for the market with the increase in the number of enterprises. The internal labour market is accessible to about one-fifth of job-takers, characterising mostly the intellectuals, white-collar workers and middle managers employed by large enterprises and institutions, especially in finance. This entails better job security, promotion chances, incomes and bonuses, obviously also correlating with the composition of this labour force by education. By contrast, the advantage among small entrepreneurs lies in autonomous decision-making and control over the work process which, however, only applies to the firm owners and not to their employees.

An approximately 400,000-strong stratum of unemployed has emerged, half of whom are lastingly out of work. Though the rates of re-employment have improved recently, this is a source of dropping out and social tension. Fears of unemployment are fluctuating, considerably increasing lately in intellectual and white-collar groups.

In terms of interest protection and assertion, the real dividing line is between the active and inactive populations, which is obviously tied to age-specific features. As for satisfaction, however, unemployment and especially lasting unemployment was the stronger watershed. One-third of the adult population on the whole but over half of the unemployed were dissatisfied with their standards of living.

[page-number of print edition: 95]

REFERENCES

AVERITT, Robert T. (1968), The Dual Economy. New York: W.W. Norton C.

BALASZ, Janos (1996) Iparvallalatok longitudinalis panelvizsgalata 1992-1997, [Longitudinal panel survey of industrial enterprises 1992-1997] Budapest University of Economics.

DOERINGER, Peter B., Michael J. PIORE (1971) Internal Labor Markets and Manpower Analysis. Lexington, Ma: Heath Lexington Books.

GABOR, R. Istvan (1997) 'Belso versus foglalkozasi munkaeropiac – a posztszocialist atalakulas elhanyagolt dimenzioja' [Internal vs occupational labour markets – a neglected dimension of post-socialist transformation] Kozgazdasagi Szemle No.6.

GALASI, Peter, Ed. (1982) A munkaeropiac szerkezete es mukodese Magyarorszagon [The structure and working of the labour market in Hungary] Budapest: KJK.

GALASI Peter, Gabor KERTESI, Eds. (1996), Labour Market and Economic Transition, Hungary 1986-1995. Budapest: ILO.

HODSON, R., R.L. KAUFMAN (1982) 'Economic Dualism: A Critical Review'. American Sociological Review, Dec.

HIRSH, Paul M. (1993) 'Undoing the Managerial Revolution? Needed Research on the Decline of Middle Management and Internal Labor Markets'. In: Richard Swedberg, Ed.. Explorations in Economic Sociology. New York: Russel Sage F.

[page-number of print edition: 96]

JANKY, Bela (1997), Az Gllam szerepenek valtozasa a 90-es evekben [The change in the role of the state in the '90s] (manuscript)

LAKI, Laszlo (1997) Munkanelkuliseg, szocialis gondok [Unemployment, social welfare problems]. Budapest: Struktura-Munkaugy.

LAKI, Terez (1997) Munkaer5piaci helyzetjelentes [Situation report of the labour market] Budapest: Labour Research Institute.

LAZAR, Gyorgy, Judit SZEKELY (1996) Reszletes jelentes a munkanelkuli ellatasra valo jogosultsagukat 1995. evben kimeritettek koveteses vizsga.latanak eredmenyeirol [Detailed report of the findings of the follow-up people who used up their entitlement to the unemployment benefit in 1995]. OMK, September

LENGYEL Gyorgy, Istvan Janos TOTH (1997) Osztalyhelyzet es jovedelmi eselyek [Class position and income chances] (manuscript)

OFFE, Claus (1987) 'A munkaeropiac jovoje' [The future of the labour market] Szociologiai Figyelo, No.l.

PRZEWORSKI, Adam (1993) 'Economic Reforms, Public Opinion, and Political Institutions: Poland in the Eastern European Perspective'. In: Bresser Pereira, L.C., J.M. Maravall, A. Przeworski, Eds. Economic Reforms in New Democracies. Cambridge: Cambridge University Press.

SIK, Endre (1992) From the Multicolored to the Black-and-White Economy (The Hungarian Second Economy and the

[page-number of print edition: 97]

Transformation Revisited). Paper for NSA/NRC Workshop on Economic Transformation The Reorganization of Ownership and Finance. Washington, November 2-3, 1995

SPEDER, Zsolt (1997) Alkalmazkodo haztarta.sok a gazdasagi atalakulasban [Accomodating households in the economic transformation] (manuscript)

Statisztikai Havi Kozlemenyek [Monthly Statistical Bulletin] (1997) Budapest: CSO, nos.1-2.

TARKI OMNIBUSZ 1997/III., n= 1045

WERTHEIM, W.F. (1968) 'Dual Economy'. In: David L. Sills, Ed. International Encyclopedia of the Social Sciences. Vo1. 4. New York: The Macmillan C. and The Free Press.