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László Vértesy

Wages and income policy

- general aspects and the response options for COVID-19

Gazdaságelemző Intézet Institute of Economic Analysis Budapest, 2021

2

László Vértesy Wages and income policy - general aspects and the response options for COVID-19

© László Vértesy, 2021 ISBN 978-615-82444-5-9 DOI: 10.5281/zenodo.10432139 All rights reserved, including the right of reproduction, public performance, radio and television broadcast, and translation, with the respect to individual chapters. All rights reserved, including reproduction, public performance, radio and television broadcasting, and translation rights, also for each chapter.

Gazdaságelemző Intézet Institute of Economic Analysis Printed in Hungary, Budapest 3

Table of contents I. Income policy ................................................................................................... 8 1.

Income policy in general .........................................................................13 1.1. 1.2. 1.3. 1.4.

2.

Income policy in the EU ..........................................................................30 2.1. 2.2.

3.

The regulatory spehres of the income policy ........................... 17 Types of income policy ....................................................................19 Income policy and economy ..........................................................21 The tax-based income policy ........................................................24 Tax system ......................................................................................... 35 Progressive income tax rates in some countries ................. 40

Income policy in Hungary ..................................................................... 45

II. Minimum wage ............................................................................................. 53 4.

The economic effects of the minimum wage ................................... 56 4.1. 4.2. 4.3. 4.4.

Income inequalities: subsistence level, poverty..................... 60 The corporate and the other affected sectors ........................ 62 Should the minimum wage be raised? ...................................... 65 Who is the raise good for?............................................................. 69

5.

Minimum wage in the EU ....................................................................... 74

6.

Hungarian minimum wage ....................................................................86

III. Response options for COVID-19 ............................................................. 90 7.

Relevant and considerable options .................................................... 95 7.1. 7.2. 7.3.

8.

Foreign examples .................................................................................. 108 8.1. 8.2. 8.3.

9.

Labour market solutions ............................................................... 96 State intervention ............................................................................ 99 Exceptional solutions .................................................................... 101 European Union .............................................................................. 108 Western Europe ............................................................................... 115 Visegrad and CEE countries ........................................................ 121

Resources to cover lost wages ......................................................... 127 4

9.1. 9.2. 9.3.

State financial resources ............................................................ 128 Market mechanisms....................................................................... 131 Professional opinions ................................................................... 136

IV. Summary - solutions .............................................................................. 140 List of sources ................................................................................................ 143

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Wages and income policy

general aspects and the response options during the COVID-19 In the wake of the profound disruptions caused by the COVID-19 pandemic, the intricate interplay between income policy and the labour market has emerged as a critical focus for governments, economists, and policymakers worldwide. This research embarks on a comprehensive exploration of wages and income policy, shedding light on its general aspects and response strategies in the context of the ongoing global health crisis. The first section delves into the fundamental principles of income policy, unravelling the dynamics that govern its application both on a domestic level and within the framework of the European Union. By examining general aspects such as wage-setting mechanisms, income distribution, and the regulatory environment, we aim to provide a nuanced understanding of the multifaceted nature of income policy. Additionally, a closer inspection of the unique characteristics of income policy within the EU and the distinct dynamics at play in domestic settings will contribute to a holistic view of this crucial economic instrument. Turning our attention to the cornerstone of income policy, the second section explores the economic ramifications of minimum wage adjustments. Delving into the intricate relationship between minimum wage policies and broader economic structures, we examine the effects of these policies on employment, inflation, and overall economic well-being. Furthermore, we analyse minimum wage frameworks within the European Union, drawing comparisons and contrasts to elucidate the diverse approaches taken by member states. Taking a closer look at the specific case of the Hungarian minimum wage, we aim to provide insights into the challenges and successes associated with implementing minimum wage policies in varying socio-economic contexts. The third section scrutinizes the response options available to address the economic repercussions of the ongoing global health crisis. By exploring the most crucial response measures adopted by governments worldwide, we aim to identify best practices and lessons learned. Drawing insights from for6

eign examples, the section highlights innovative strategies employed to mitigate the impact of COVID-19 on wages and income. Additionally, we delve into the resources available for individuals, businesses, and local governments of lost wages, including social safety nets, financial assistance programs, and other support mechanisms designed to alleviate the economic burden on individuals and households. In conclusion, this study synthesizes the key findings from our exploration of income policy, minimum wage considerations, and response options during the COVID-19 pandemic. By navigating the complexities of income policy and assessing the diverse strategies employed to address the challenges posed by the ongoing global health crisis, we aim to contribute valuable insights to the ongoing discourse on economic resilience and recovery. As nations grapple with uncertainty, we seek to inform the development of effective policies that promote economic stability and foster a robust recovery in the post-pandemic era.

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I. Income policy The research mainly focuses on two main questions in the rich subject area: what role does the state play in the development of domestic income? and where does the Hungarian income policy stand in international comparison? Generally, any money or financial benefit received from an external location can be interpreted as income. Ordinary language does not distinguish between income and revenue. From the point of view of personal income tax, income is considered to be the income earned by an individual in any legal title and form during the tax year or the part thereof reduced by expenses. The basic characteristic of income is that it has a dual nature and value: • •

economic category: labour as a factor of production and/or the price of work, performance, and service. Resource, profitability and economy are important; social category: consumption is the source of livelihood, standard of living, lifestyle, income level, and determining factor of income differentiation.

Income is an essential concept at both the macro- and microeconomic levels. Paul Krugman's chart also shows in a simplified way that income (be it wages, profit, interest, income) covers production (Gross Domestic Product, GDP). That is why the P (product in a broad sense: goods and services, etc.) and I (income) can be used interchangeably, while the concept and calculation are better in the case of GDP upon the production, in the case of GNI, the income. The sum of incomes is the source of household consumption and savings. Only as much income must flow out as it does not endanger the purchasing power-commodity base balance or the stability of the currency. It is equally important to create a balance in the labour market. At the micro level, the most essential functions of personal income are:1 • •

consumption function: monetary income creates the possibility of consumption; incentive function: the possibility of achieving a higher income is a motivational tool;

1

László Gyula: Munkaerőpiaci politikák, Pécsi Tudományegyetem Közgazdaságtudományi Kar, Pécs 2007.

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• •

management function: income expenses must be repaid in income, both for the individual, the household and the business (yield requirement); labour distribution function: on the one hand, the supply of labour flows to where the available income is higher, and the ratio of individual work effort and income is more favourable; on the other hand, the company decides on employment based on the size of the paid income and return.

The Flows of Funds Through the Economy

Source: Krugman, Paul, Robin Wells, Iris Au, Jack Parkinson (2022): Macroeconomics. Figure 7-1 An Expanded Circular-Flow Diagram: The Flows of Funds Through the Economy.

According to the Merriam-Webster dictionary, the wage is a payment usually of money for labour or services, usually according to contract and on an hourly, daily, or piecework basis; often used in plural. Wages in plural also refers to the share of the national product attributable to labour as a factor in production. The salary is a fixed compensation paid regularly for services. The income is a gain or recurrent benefit usually measured in money that 9

derives from capital or labour, and also the amount of such gain received in a period of time. The payment is something that is paid. The remuneration means a payment of an equivalent for a service, loss, or expense. The compensation refers to payments to unemployed or injured workers or their dependents, but it can be used for payment or remuneration. The earning reflects receiving a return for effort, especially for work done or services rendered.

Wages vs. Salary Wages Wages refer to money paid on an hourly, daily or weekly basis Calculated using the number of hours worked If a wage-earner does not work, he won’t receive payment for that day Usually earned by unskilled or semiskilled workers Usually have lower positions and fewer responsibilities

Salary Salary refers to a fixed, regular payment, typically paid on a monthly basis Not calculated using the number of hours worked Workers have a number of paid leaves Earned by office workers or management Usually have higher positions and more responsibilities

Source: https://pediaa.com/what-is-the-difference-between-wages-and-salary/

The main difference between wages and salary is that wages are paid hourly, daily or weekly, while salary is a fixed amount, usually paid monthly or fortnightly. Both wages and salary refer to remuneration paid to employees for work performed. Although these two terms are often used interchangeably, they have two distinct meanings. Employers calculate wages according to the number of hours employees work, but the salary is flat and does not involve the number of hours worked. Wages are typically associated with hourly or piece-rate work and are common in industries where the hours worked may vary. Workers paid on a wage basis often receive overtime pay for hours worked beyond a standard workweek. Salaried employees receive a predetermined amount of compensation regardless of the number of hours worked within a pay period. Professional, managerial, and administrative positions often receive salaries. Income is a comprehensive measure that includes various sources such as employment, investments, business activities, and passive income. It provides an overview of an individual's or household's financial resources. 10

The wage, the price of labour, clinking in our pockets, that's how we go home. Attila József (1931): Workers In the Marxist sense, wages are indeed the price of labour,2 but let us not forget how many types of markets this labour appears in (only the two extremes are mentioned: multi and SME), and also that a third of people living on wages and salaries, half of them in the public sector and/or works for the public sector. This distinction is justified even if, due to competition, the two should only work with a slight difference somewhere.

Wages, salary and income Aspect Definition Payment Basis

Wage Monetary compensation for hourly or task-based work. Typically based on hours worked or specific tasks.

Frequency

Salary Income Fixed regular pay- Comprehensive term ment, often exfor all monetary pressed annually. earnings. Paid regularly, Encompasses variusually on a ous sources, includmonthly or yearly ing wages, profits, basis. investments, etc. Consistent, regular Can be periodic or irpayments, often regular, depending monthly or yearly. on income sources.

Paid based on hours worked, often with overtime for extra hours. Common in indus- Common in profesApplicatries with variable sional, managerial, bility working hours, such and administrative as hourly or piecepositions. rate jobs. May vary based on Fixed and stable, Stability hours worked, lead- providing a predicting to fluctuations in able income. income. Professionals, Examples Hourly or piece-rate workers, freelancers. managers, administrative roles.

A broad term covering earnings from diverse sources. Can vary based on the mix of income sources and their stability. Wages, salaries, bonuses, dividends, business profits.

Source: own compilation

2

Steedman, I. (2019). Heterogeneous labour, money wages and Marx's theory. In From Exploitation To Altruism (pp. 14-39). Routledge.

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According to the legal regulations, the property value acquired by a private individual from another person in any form and manner should generally be considered as income.3 In other words, all income is also income, but not all income is considered income from the point of view of personal income tax. You do not have to pay personal income tax on income that is not considered income. The legal assessment of this differs from country to country, so we already point out here that the international comparison that will be presented later is not completely adequate from this point of view. We mention only one of the rich examples: there are countries where pensions are also taxed, so of course, it is considered income.

3

Haig, R. M. (2020). The concept of income—economic and legal aspects. In Forerunners of Realizable Values Accounting in Financial Reporting (pp. 140-167). Routledge.

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1. Income policy in general Income policy refers to a set of government actions and strategies to influence and control the level and distribution of income within a country. The primary goal of income policy is to achieve economic stability, social justice, and a fair distribution of wealth. As a critical component of economic governance, this operates within a framework governed by regulatory circles that influence the dynamics of income determination and distribution dynamics. The chapter intricacies the regulatory circles that shape the contours. Furthermore, it explores the diverse types of income policy, shedding light on the various approaches and mechanisms governments and institutions employ to manage and regulate income in different economic contexts. By examining these fundamental aspects, we aim to gain a comprehensive understanding of the complexities inherent in income policy and its broader implications for economic stability and social equity. The first income policy as a wage ceiling, the Edict on Maximum Prices (Latin: Edictum de Pretiis Rerum Venalium, Edict Concerning the Sale Price of Goods or the Edict on Prices), was promulgated in 301 AD under the reign of Diocletian.4 This decree condemns monopolistic practices and establishes upper limits for prices and wages across various essential commodities and services. Income policy is the "value" dimension of the workforce, a system of socio-economic goals and tools that influence the size and distribution of income.5 It is necessary because, although on a theoretical level, a state of equilibrium is also created in the labour market, i.e. at the given price (wage) level, it determines the number of employed people and also the price of work as a factor of production; in divorce, this does not work only on the basis of pure market logic and autonomous market mechanisms, because very important social and economic interests and values are tied to the labour market price and labour income. It is therefore necessary that, in addition to price regulation on the labour market, mechanisms are developed that try to correct 4

Kropff, A. (2016). An English Translation of the Edict on Maximum Prices, Also Known as the Price Edict of Diocletian (Edictum de pretiis rerum venalium). Academia. edu, 337425. and Hontvari, T. Price Controls Then and Now: a Comparison of Diocletians’ Edictum de Pretiis Rerum Venalium… and the Pricestop Introduced by the Hungarian Government. Edge of tomorrow: the next generation of legal historians and romanists, 59. 5 Addison, J. T. (2016). Incomes policy: the recent european experience. Incomes Policies, Inflation and Relative Pay, 187-245.

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the "one-sided" rationality of the labour market. The purpose of the income policy is to enforce other specific socio-economic goals related to labour income in addition to the labour market value judgment; for example, implementing the principle of justice should be stimulating and motivating. It is necessary to create wage levels that encourage employment and at the same time, labour cost levels that make companies interested in employment. At the same time, this is also a dilemma because it is a question of how to enforce the two dimensions harmoniously in accordance with the socio-economic goals and in a way that creates as little tension as possible at the same time. Its task is to • •

• •

develop the rules for the qualification of different jobs and positions; by forming a uniform standard, making different training, practice, physical or intellectual activities comparable and separable from each other, and determining their ranking and hierarchical system; ensure the same assessment of jobs of the same nature within the given labour market segment; determine the size and structure of proportional wage items that take into account the different functions of income.

Governments may use various tools and measures to implement income policies, which can affect wages, prices, and overall economic conditions. The following table includes the key components of income policy. The effectiveness of income policies can vary, and trade-offs between different policy objectives may exist. Striking the right balance is crucial to achieving a stable and equitable economic environment. Critics argue that excessive government intervention in the form of income policies can lead to unintended consequences and distortions in the labour market and overall economy. As a result, the design and implementation of income policies require careful consideration of economic conditions and social goals. What is a good income policy? Obviously, the one that leaves a lot in the net for the citizens and also brings in much income for the state. With the exception of a few prosperous countries (for example, the oil states of the Middle East), both requirements cannot be met at the same time; they are at each other's expense. This is the case in all countries of the European Union, 14

i.e. in Hungary as well. In other words, they have to find the ideal ratio for which there is no uniform recipe.

Key components of income policy Wage and Salary Controls Price Controls

Taxation Policies Social Welfare Programs Collective Bargaining Education and Training Programs Monetary Policy Inflation Targeting

• measures to control and regulate the growth of wages and salaries • guidelines or limits on wage increases, especially during periods of inflation or economic instability • price controls on goods and services • prevent excessive inflation • ensure that essential goods remain affordable for the general population • influence income distribution • progressive tax systems, where higher-income individuals pay a higher percentage of their income in taxes, are one way to address income inequality • provide financial assistance to low-income individuals and families • measures: unemployment benefits, food assistance, housing support • encourage or regulate collective bargaining between employers and labour unions • negotiate fair wages and working conditions • contribute to a more balanced distribution of income • enhance the skills and productivity of the workforce • leading to higher incomes and reduced income inequality • interest rate adjustments to influence economic conditions and, indirectly, income levels. • maintain price stability, which can indirectly impact income levels by preserving the purchasing power of the currency

Source: own compilation

A good income policy has a wide range of tools. A careful state solves the ever-increasing tasks not so much by increasing taxation of incomes but rather by more and more efficient government operations. It is also clear that if people are left with more money, they will be able to spend more, which can also benefit the state, even if individuals take over part of the state's tasks. 15

A classic example of the latter is private healthcare, where, on the one hand, the state has to spend less on the given area; on the other hand, it even generates additional revenue in the form of tax on services, i.e., it wins twice as well. It is also quite clear that the higher the state taxes, the more people look for loopholes. In other words, illegal employment is on the rise. The mentality of the people in preserving the images is brought from earlier matters a lot in this question. The tax inclination/morality is different in Germany, the Benelux world, and southern European countries. Hungary ranks more towards the latter, which is primarily due to the Hungarian people's perspective, since even in the 19th century, it was a virtue not to pay taxes 6. The real social appreciation of the virilists, who already existed in the West, did not come to us even in the 20th century, although in the second half of that century, it was not even possible. The next step in the train of thought is the number of tax rates. Critics of the system argue that the one-key solution favours the rich. This is really difficult to refute on a professional basis; we will not do it. Social solidarity is very closely related to the issue - in our modern world, especially in a democracy, this would be fundamental. In addition, the current tax policy contributes to the growth of the gap between the wealthy and the poor, i.e. the gap between the poorest and the most prosperous decade has widened spectacularly and continues to widen, even though social justice would also demands that it be reduced. All the more so because most of the most fashionable (not all, there are exceptions) got their wealth through state orders. There is no burden on everyone's income, and there will never be. Two large items in particular should be listed here: health insurance and pension insurance. Even if these two have active payments for a specific service, what happens if the payments do not cover expenses? A more efficient health care system can be easily achieved even with a reasonable reorganisation.7 This is much more sympathetic than downsizing based on the lawnmower principle, but the future of pensions is no longer so simple, especially concerning the ever-growing elderly population.

6

It was at the inauguration of the Chain Bridge that the Hungarian nobility was taxed for the first time. 7 Stronger basic care in number and in authority, more one day surgery, the chronic inner classes separation from hospitals etc.

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1.1. The regulatory spheres of the income policy However, policy creation can still be successful because of the involvement of various actors, and a consensus acceptable to everyone can be established. The regulatory spheres of income policy can be divided into five categories and levels,8 and it delineates these regulatory circles, shedding light on their distinct roles and interactions within the broader framework of income policy.

Regulatory spheres of the income policy labour market

government reconciliation of interests company

employee

Source: own compilation based on László Gyula: Munkaerő-piaci politikák, Pécsi Tudományegyetem Közgazdaságtudományi Kar, Pécs 2007.

The initial circle revolves around the labour market itself, where the price of performance, namely the wage, takes shape. This price is intricately linked to the relationship between supply and demand for labour and the overall efficiency of economic activities. The ebb and flow of this circle are

8

László Gyula: Munkaerő-piaci politikák, Pécsi Tudományegyetem Közgazdaságtudományi Kar, Pécs 2007. and Eckert, S. (2018). Two spheres of regulation: Balancing social and economic goals. Regulation & Governance, 12(2), 177-191. and Sapfirova, A. A., Volkova, V. V., & Petrushkina, A. V. (2020). System of prevention of labor rights violation in the sphere of labor protection: essence and prospects of legal regulation. Revista Turismo Estudos e Práticas-RTEP/UERN, (1), 1-12.

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governed by market forces that impact the equilibrium between what workers offer and what employers seek, fundamentally shaping the wage levels. Extending beyond the immediate labour market dynamics, the second circle involves the government's intervention through income and labour market policies. The government plays a pivotal role in shaping income distribution through mechanisms such as income taxation, labour laws, and employment regulations. This circle highlights the external influences that the government can exert to ensure fair practices, foster economic stability, and address societal concerns related to income inequality. Moving beyond the macroeconomic landscape, the third circle emphasizes the reconciliation of interests. In this complex negotiation, parties representing employees, employers, and the government engage in discussions to reach wage agreements. These negotiations can occur at various levels, from the macro scale of national economies to meso-level sectoral agreements and micro-level company collective bargaining. This circle reflects the dynamic nature of wage determination, acknowledging the diverse interests of stakeholders involved in the process. Zooming in further, the fourth circle focuses on the micro-level dynamics of company wage policies. Companies have substantial autonomy in formulating and implementing their wage policies. This autonomy allows them significant flexibility in developing principles, choosing tools, and applying strategies that align with their unique organisational structures, goals, and economic conditions. The final circle delves into the realm of individual employee behaviour. This circle recognizes that actual individual income is intricately tied to an individual's performance. Each employee's choices, skills, and efforts play a pivotal role in determining their income, adding a layer of personal agency to the broader systemic forces at play. These five regulatory circles collectively form the intricate tapestry of income policy, navigating the complexities of labour market dynamics, government intervention, stakeholder negotiations, company-level strategies, and individual behaviours. Understanding the interplay between these circles is crucial for policymakers, businesses, and individuals seeking to navigate the nuanced landscape of income regulation and wage determination. What does the wage cost mean to the employer? From the point of view of businesses, it means a cost (labour cost), which includes not only wages and salaries paid to employees but also non-wage costs - thus, above 18

all, the social security contribution payable by the employer. Labour costs, therefore, have a decisive influence on the competitiveness of enterprises, although, in addition, the cost of capital (such as interest on loans and dividends paid on shares) and non- price elements (such as entrepreneurial activity, skills and labour, productivity, innovation, and brand and market positioning of products, etc.) is also not negligible.

1.2. Types of income policy Gyula László distinguishes three basic types of income policy: indicative, imperative and cooperative. The choice of model basically depends on the socio-economic philosophy and value system. The income policy considers the external regulation of the market to be justified mostly only in the following areas: legal definition of the framework conditions, supervision of the purity of the market operation, operation of voluntary supply systems, ensuring equal opportunities, prescribing at most minimum standards in terms of income. Indicative

Imperative Cooperative

Three basic types of income policy • In this model, the market's invisible hand is complemented by the soft hand of the government. • It suggests and induces the behaviour to be followed by the labour market actors. • It wants to influence employers and employees in such a way that they voluntarily incorporate socio-economic aspects into their own system of norms. • In this case, the government acts decisively, and decisions made with a heavy hand shape the distribution processes. • It defines obligations, sets limits, and enforces them with firm sanctions. • The parties realize that market regulation is not problem-free, and corrections are needed. • In order to avoid open confrontation, and also so that the government does not carry out the corrections, they are willing to cooperate, to cooperate, to a regulation in which the regulation is made jointly, in such a way that it considers both sides' interests.

Source: own compilation based on László Gyula: Munkaerő-piaci politikák, Pécsi Tudományegyetem Közgazdaságtudományi Kar, Pécs 2007.

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The indicative income policy is based on the invisible hand of the market, supplemented by the soft hand of the government. Within this, in the case of wage/price indicators, the government influences by presenting the current relationship between wage, price, and fertility growth, which is to be enforced based on the interests of the overall economy. It calls on labour market actors to voluntarily limit themselves to the level of productivity growth of the economy or the given sector when raising wages. When influencing the formation of norms, the government acts with more decisive means, the analyses are more specific, it can also directly influence wage negotiations, and it exercises supervision over voluntary agreements. The imperative income policy is the government, which directly defines obligations, sets limits and implements them with firm sanctions. The wage/price stop approach is the most drastic form of government intervention, when the government prohibits all changes in prices and wages through a central measure, freezing the (labour) market. It can only be a last resort in a particularly critical situation, but even then, it can only be used as a shortterm, temporary solution. Central wage regulation is more dynamic than the previous method because it does not freeze wages but determines the possible extent or range of movement. • •

In the case of so-called absolute central wage regulation, the government sets the applicable wage levels by central decision, which the economic agents concerned are obliged to respect in all cases. Under relative central wage regulation, the government designates certain key performance indicators and, depending on their level or variation, allows changing the mass or per capita wage. Even here, the value judgement of the labour market is replaced by central regulation. Market considerations are ignored, so the expectations of central wage policy may be formally met, but at the same time, they lead to inefficiencies in the economy.

In the cooperative income policy, the parties realize that market regulation is not problem-free and corrections are needed. In order to avoid open confrontation, and also so that the government does not carry out the corrections, they are willing to cooperate, to cooperate, to a regulation in which the regulation is made jointly, in such a way that it takes into account the interests of both sides. Its advantage is that it can correct market errors while preserving the autonomy of market participants. This is why it can be considered the 20

most market-compliant solution. Its basic condition is proper institutionalisation of the contact system, the partners' tolerance, mutual acceptance, and willingness to cooperate, and ensuring mutual benefits. In terms of the number of actors, there are two basic versions: the bilateral (bipartite) and the tripartite relationship system, when employees, employers, and the government jointly determine the orienting indicators.

1.3. Income policy and economy Income policy plays a significant role in shaping and influencing economic conditions within a country. The relationship between income policy and the economy is complex and multifaceted, with several key aspects. Income policies are often implemented to contribute to overall economic stability. By managing wages, prices, and income distribution, governments aim to prevent excessive inflation or deflation, ensuring that economic conditions remain relatively stable over time. Changes in income distribution can have a direct impact on consumer spending patterns. Policies that increase the income of lower- and middle-income households may stimulate consumer demand, contributing to economic growth. Progressive taxation, a common tool in income policy, can affect government revenues. Governments may generate additional revenue to fund public services and infrastructure by taxing higher-income individuals at higher rates, contributing to economic development. One of the central concerns addressed by income policy is income inequality. Governments may use various tools, such as progressive taxation, social welfare programs, and minimum wage regulations, to reduce disparities in income distribution and promote a more equitable society. Targeted income policies can help alleviate poverty by directly supporting those in need. This can include cash transfer programs, food assistance, and housing support to improve the living standards of the most vulnerable populations. They often include implementing social welfare programs designed to provide financial assistance to individuals and families facing economic challenges. These programs can serve as a safety net and mitigate the adverse effects of income inequality. The income policies can impact the labour market by influencing wage levels, employment conditions, and the bargaining power of workers 21

and employers. For example, minimum wage laws and collective bargaining regulations are forms of income policy that directly affect the labour market. Policies that promote a fair and predictable income environment can positively impact investment and innovation. When individuals and businesses have confidence in the stability of income conditions, they are more likely to invest in education, research, and entrepreneurial activities. The design of income policies can also have implications for a country's competitiveness in the global economy. Striking a balance between fair income distribution and economic efficiency is essential for long-term competitiveness. It is important to note that the effectiveness of income policies depends on the specific economic context, the mix of policy tools employed, and the coordination of various policy measures. Additionally, income policies often involve trade-offs between different economic objectives, and policymakers must carefully consider these trade-offs to achieve balanced and sustainable economic outcomes.

Potential benefits and drawbacks of income policy Benefits of income policy • Reduces inflation: By controlling wages and prices, income policy can help to reduce inflation. This can make it easier for businesses to invest and grow and can also help protect consumers' purchasing power. • Reduces income inequality: Income policy can redistribute income from higher-income earners to lower-income earners, which can help to reduce poverty and inequality. • Increases economic stability: Income policy can help stabilize the economy by reducing the risk of wage-price spirals, leading to stagflation.

Drawbacks of income policy • Reduces economic efficiency: Income policy can distort market prices and reduce incentives for businesses to invest and innovate. This can slow down economic growth. • Creates disincentives to work: If wages are artificially capped, people may have less incentive to work, which can reduce labour supply and productivity. • Undermines collective bargaining: Income policy can weaken the power of unions to negotiate for higher wages for their members.

Source: own compilation

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A stable macroeconomic environment, fostered by effective monetary policy, provides a conducive backdrop for income policy initiatives. Predictable economic conditions enable better planning for businesses and individuals affected by income policies. Price stability resulting from successful inflation targeting can positively impact income policy by providing a more predictable environment for wage negotiations, business planning, and social welfare program funding.9 A supportive monetary policy, with lower interest rates fostering investment, can contribute to job creation and positively impact income levels. The effectiveness of income policies, such as minimum wage adjustments or social welfare programs, can be influenced by the transmission mechanisms of monetary policy, especially through their effects on aggregate demand and employment.10 Related to monetary policy, income and inflation targeting are different but complementary approaches to managing the economy.11 In some cases, income policy may be used to support inflation targeting by providing a more equitable distribution of the costs of controlling inflation. For example, wage controls or price subsidies can help to protect lower-income earners from the negative effects of inflation. However, income policy and inflation targeting can also conflict with each other. For instance, wage controls may discourage businesses from investing and hiring, hindering economic growth. Similarly, price controls may distort market signals and make it difficult for businesses to make efficient production and pricing decisions. The effectiveness of income policy and inflation targeting hinges on the specific circumstances of the economy and the effectiveness of policy implementation. Both policy tools require careful consideration and skilful execution to achieve their intended goals.

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Davtyan, K. (2016). Income inequality and monetary policy: An analysis on the long run relation. AQR–Working Papers, 2016, AQR16/04. and Pitelis, C. (2001). Monetary policy and the distribution of income: evidence for the United States and the United Kingdom. Journal of post keynesian economics, 23(4), 617-638. 10 Davtyan, K. (2016). Income inequality and monetary policy: An analysis on the long run relation. AQR–Working Papers, 2016, AQR16/04. 11 Du Plessis, S. T. A. N., & Rietveld, M. (2014). Should inflation targeting be abandoned in favour of nominal income targeting?. Studies in Economics and Econometrics, 38(2), 118. and Arestis, P., & Sawyer, M. (2013). Moving from inflation targeting to prices and incomes policy. Panoeconomicus, 60(1), 1-17.

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1.4. The tax-based income policy A tax-based income policy refers to the use of taxation as a tool to influence and shape income distribution within a society.12 The government can also influence incomes through tax policy, so it tries to achieve a specific central distribution principle by applying more flexible and market-compliant taxation methods.13 The tools can be classified into the following important groups. Application of rewards and penalties in taxation. A central normative expectation is also formulated here, but this does not mean an unavoidable obligation. It depends on the company's own decision, but the tax consequences of its decision must also be considered: • •

if the central measures are accepted, you can use a tax discount or credit; this is the reward for meeting the government's expectations; exceeding the government recommendation may result in additional tax. This encourages compliance with the norm.

Formation of the total price of labour. The regulation of the relationship between inflation and the tax system can also be classified here. Inflation automatically pushes up the nominal wages and the value of other benefits that want to preserve the real value. In this case, the same tax rates override inflation for the budget, and the unchanged tax rate also means increasing centralisation and an increase in the price of labour. Centralisation and redistribution. The government takes away part of the income of entrepreneurs and employees and redistributes part of it in accordance with its own budget and income policy goals. The use of tax policy for income policy purposes is a flexible, market-compliant tool in the hands of the government. Taxation has not only the so-called it has hedging function, but it also fulfils an important economic and, as part of this, income policy, regulatory and influencing function. At the same time, indirect effects must be considered when using it. The economic disadvantage of intense 12

Ciminelli, G., Ernst, E., Merola, R., & Giuliodori, M. (2019). The composition effects of tax-based consolidation on income inequality. European Journal of Political Economy, 57, 107-124. and Wallich, H. C., & Weintraub, S. (1971). A tax-based incomes policy. Journal of Economic Issues, 1-19. 13 Seidman, L. S. (1979). The role of a tax-based incomes policy. The American Economic Review, 69(2), 202-206. and Seidman, L. S., Gordon, R. J., & Okun, A. M. (1978). Taxbased incomes policies. Brookings Papers on Economic Activity, 1978(2), 301-361.

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withdrawal is its negative performance incentive effect. By definition, the government's intention behind deductions or benefits of a tax nature reaches the labour market actors and prompts them to the desired behaviour if it is sufficiently emphatic and significant. It carries with it the danger that purely fiscal centralisation aspects will be imposed on the regulation of income distribution. Market behaviour can also be distorted because the widely applied tax-based income policy directs companies' attention to wages and taxes rather than the market. In many cases, the tax benefits cannot be used by the groups that are targeted by the benefits.

Key aspects of tax-based income policies Progressive Taxation

Income Tax Credits and Deductions

Wealth Taxes

Corporate Taxation Capital Gains Tax Inheritance and Gift Taxes

• higher-income individuals pay a higher percentage of their income in taxes • designed to redistribute wealth and contribute to a more equitable income distribution. Progressive tax rates may be achieved through different tax brackets, where higher incomes are subject to higher tax rates. • target specific groups or activities • tax credits for low-income individuals or families can provide direct financial assistance, effectively increasing their after-tax income • deductions for certain expenses, such as education or healthcare costs, can also be used to incentivize desired behaviours • levied on an individual's net wealth, including properties, investments, and other valuable assets • reduce wealth concentration and promote a more even distribution of resources • influence the distribution of profits and, by extension, executive compensation • impact investment decisions and economic growth. • used to address income inequality • impact the after-tax income of investors and speculators • prevent the concentration of wealth across generations • reduce wealth disparities and promote meritocracy 25

Tax Incentives for Social and Economic Goals Tax Progressivity Index

• encourage behaviour that aligns with social and economic objectives • tax breaks for businesses that invest in research and development or renewable energy projects can support innovation and sustainable development • measures the overall progressivity of a tax system • considers the combined impact of various taxes on income distribution and helps policymakers assess the effectiveness of their tax-based income policies

Source: own compilation

In the 1970s, scholars started to investigate and measure the progressivity of the income tax. The Kakwani index is the widely utilised global indicator to assess the effectiveness of tax progressivity or expenditure programs. When applied to the Personal Income Tax (PIT), the Kakwani index is computed as the disparity between the tax concentration coefficient, determined by ranking individuals based on (equivalised) pre-tax income, and the Gini coefficient for (equivalised) pre-tax income. Both the Gini and concentration coefficients measure the extent of inequality across a cumulative frequency distribution. The Kakwani index, therefore, gauges how much the distribution of tax payments deviates from equality compared to the distribution of pre-tax income while maintaining the same individual ranking. This distinction is represented as the area between the Lorenz and concentration curves. The Kakwani index ranges from -1 to 1, with a positive value indicating progressivity and a negative value indicating regressivity. 14 In the same year (1977), Suits introduced his concept. Like the Gini coefficient, the Suits index is determined by comparing the area beneath the Lorenz curve with that beneath a proportional line. In the context of a progressive tax system, where higher-income tax units contribute a more significant proportion of their income as tax, the Suits index is positive. A proportional tax, where each unit pays an equal fraction of their income, corresponds to a Suits index of zero, while a regressive tax system, where lowerincome tax units bear a greater fraction of income in tax, results in a negative Suits index. The Suits index for a hypothetical scenario where the wealthiest individual shoulders the entire tax burden is 1, whereas a situation where the

14

Kakwani, N. (1977): Measurement of Tax Progressivity: An International Comparison. The Economic Journal, 87. 71–80.

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poorest person bears the total tax burden has a Suits index of -1. Tax preferences, encompassing credits and deductions, are also characterised by a Suits index. The Suits index exhibits a valuable property: the total Suits index for a set of taxes or policies equals the revenue-weighted sum of the individual indexes. Whereas a Gini coefficient of zero implies uniform income or benefit distribution per capita, a Suits index of zero indicates an equal tax payment as a percentage of income for each individual.15

Progressive capacity across OECD countries and average rate progression metric results across 161 countries

Source: Gerber, C., A. Klemm, L. Liu and V. Mylonas (2020): Income Tax Progressivity: Trends and Implications. Oxford Bulletin of Economics and Statistics, 82(2). 365–386.

Suits formulated his progressivity index to assess and compare the varying degrees of progression evident in different taxes. In contrast, Kakwani's primary focus was on examining the impact of taxation on income distribution and the reciprocal effects of income distribution on taxes. The two scholars employ distinct terminologies and symbols; both progressivity measures are intricately connected to the Lorenz distribution of income and the Gini concentration of inequality.16 The indices are linked to the concept of tax elasticity, which equals one across all income levels in a proportional tax 15

Suits, D. (1977): Measurement of Tax Progressivity. American Economic Review, 67. 747-752. 16 Formby, J. P., Seaks, T. G., & Smith, W. J. (1981). A comparison of two new measures of tax progressivity. The Economic Journal, 91(364), 1015-1019. and Alchin, T. (1985). A comparison of the Kakwani and suits indices of tax progressivity. New Zealand Economic Papers, 19(1), 85-93.

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system. Consequently, these indices gauge the overall departure of tax elasticity from unity. Despite being commonly applied to tax policy analysis, these indices should not be viewed solely as statistical tools for assessing the progressivity of taxes. Instead, they should integrate normative judgments implicit in a social welfare function.17 Aspect Definition

Calculation Range

Kakwani Index Measures progressivity by comparing the difference between the tax concentration coefficient (based on pre-tax income) and the Gini coefficient for pre-tax income. Kakwani Index = Tax Concentration Coefficient - Gini Coefficient for Pre-tax Income It can range from -1 to 1. A positive figure indicates progressivity, while a negative figure indicates regressivity.

Interpretation Reflects how much further from equality the distribution of tax paid is compared to the distribution of pre-tax income without changing individual rankings. Does not have an explicit soSocial Welcial welfare interpretation. fare Often applied to analyze the Applicability progressivity of taxation policies.

Suits Index Measures progressivity by comparing the area under the Lorenz curve to the area under a proportional line. Suits Index = Area under Lorenz Curve - Area under Proportional Line It can range from -1 to 1. A positive figure indicates progressivity, 0 indicates proportionality, and a negative figure indicates regressivity. Reflects the deviation between the actual income distribution and a proportional income distribution. Does not have an explicit social welfare interpretation. Applied to measure the progressivity of tax systems and to assess the impact of tax changes on income distribution.

17

Kakwani, N., & Son, H. H. (2021). Normative measures of tax progressivity: an international comparison. The Journal of Economic Inequality, 19, 185-212.

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Aspect Weighted Sum

Kakwani Index Individual Kakwani indexes can be aggregated to calculate the total progressivity of a group of taxes. Measures the difference beRelationship to Gini Coeffi- tween tax and income distributions. cient Should incorporate normative Normative judgments implicit in a social Judgments welfare function.

Suits Index The total Suits index for a group of taxes is the revenue-weighted sum of individual indexes. Measures the deviation from proportional income distribution. Does not have an apparent social welfare interpretation, but researchers may consider normative implications.

Source: own compilation based on Kakwani, N. (1977): Measurement of Tax Progressivity: An International Comparison. The Economic Journal, 87. 71–80. and Suits, D. (1977): Measurement of Tax Progressivity. American Economic Review, 67. 747-752.

While tax-based income policies can effectively address income inequality and promote social goals, their success depends on proper design, implementation, and consideration of potential economic impacts. Striking the right balance between revenue generation and income redistribution is essential for a tax policy to be both fair and economically viable.

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2. Income policy in the EU For the time being, it is not possible to talk about the European Union's income policy; it can be interpreted at the level of promising initiatives. Within the EU, the landscape of income policy is intricately woven into the fabric of diverse national economies, each characterised by its unique tax system and approaches to income regulation. The nuances of income policy within the EU focus mainly on the pivotal role played by tax systems. As we navigate this complex terrain, our exploration extends to the intricate variations in multi-rate income taxes across individual member countries. By examining the interplay between EU-wide frameworks and national-level adaptations, we aim to unravel the complexities of income policy within this dynamic union, offering insights into the diverse strategies employed to regulate income and foster economic stability across member states. As a result, according to statistics, the average hourly labour cost in the EU fell between €5.4 (Bulgaria) and €43.5 (Denmark) in 2020. The average is €27.4 at the EU level and €30.6 in the euro area. Quantified in an international comparison, it looks like this:

Estimated hourly labour cost (€) 50 45 40 35

30 25 20 15 10 5

Bérek és keresetek

Norway Iceland

Denmark Luxembourg Belgium Sweden Netherlands France Germany Austria Finland Ireland Italy United Kingdom Spain Slovenia Cyprus Greece Malta Portugal Czechia Estonia Slovakia Croatia Poland Latvia Hungary Lithuania Romania (¹) Bulgaria

EU-28 Euro area (EA-19)

0

Egyéb munkaerőköltségek

Source: Eurostat (2020): Wages and labour costs

30

Labour costs include wages and salaries as well as non-wage costs such as employer social security contributions. Examining the economy as a whole, in 2018, the proportion of non-wage costs in the total labour costs was 23.7% in the EU-28 and 25.6% in the euro area. Even when examining this ratio, significant differences can be observed between EU member states: the ratio of non-salary costs in France (32.6%), Sweden (32.3%), Lithuania (29.2%) and Italy (28.4%) was the highest in Malta (6.1%), Luxembourg (11.1%), Denmark (14.1%), Croatia (15.3%) and Ireland (15.4%) and the lowest. Employees whose hourly wages are two-thirds of the national gross median hourly wage or less are considered low-wage workers. In 2014, 17.2% of employees in the EU-28 and 15.9% of employees in the euro area were classified as low-paid. In 2014, the proportion of low earners differed significantly between EU member states: the highest proportion was observed in Latvia (25.5%), Romania (24.4%), Lithuania (24.0%) and Poland (23.6%), followed by Croatia (23.1%), Estonia (22.8%), Germany (22.5%) and Greece (21.7%). In contrast, less than 10% of workers had low wages in Sweden (2.6%), Belgium (3.8%), Finland (5.3%), Denmark (8.6%), France (8.8 %) and Italy (9.4%). The information on net earnings complements the data on gross earnings and informs about the available earnings, which is the amount of gross earnings reduced by income tax and employee social security contributions and, in the case of a household with children, increased by family allowance (benefit for dependent children). In 2018, the net earnings of a childless, single person earning 100% of the average earnings of employees working at businesses varied between 5,500 euros (Bulgaria) and 41,900 euros (Luxembourg). The same two EU member states had the lowest (6,100 euros) and the highest (56,300 euros) net average earnings of married couples with two children with one earner.

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Source: https://www.forbes.com/sites/niallmccarthy/2015/03/19/the-countries-with-thehighest-income-tax-rates-infographic/#4eed1c2c5371

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In international comparison, income taxes in Hungary are very high. The table below clearly illustrates that we are almost on the podium in this comparison, so there would be something to cut back on. In such cases, the question rightly arises: where does much money go?

Source: Kyle Pomerleau (2014): A Comparison of the Taxi Burden on Labour in the OECD

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Strange as it may seem, income tax can be good by being high and adverse by being low. It is not only the revenue side of the state that must be looked at but also its expenses in everyday life: what does the citizen get for the money he pays? In such cases, we usually look to the Scandinavian countries and Finland, where the income tax is one of the highest in Europe, but the local residents receive many benefits, especially at a level that we can only dream of in Hungary, be it healthcare, pensions or education. It is also clear that this type of state involvement greatly helps tax morale. This should also be taken into account when preparing the budget.

Tax on income (%) Country Sweden Denmark Austria Finland Belgium Netherlands Slovenia Luxembourg Ireland Portugal Iceland France Germany Greece Spain United Kingdom Italy Eurozone Switzerland European Union Norway Croatia Cyprus Malta Turkey Poland Latvia Slovakia Albania

Last 57.2 55.8 55 53.75 53.7 51.75 50 48.78 48 48 46.24 45 45 45 45 45 43 41.5 40 38.6 38.2 36 35 35 35 32 31.4 25 23

Previous 57.2 55.8 55 53.75 53.7 51.75 50 48.78 48 48 46.24 45 45 45 45 45 43 42.4 40 39.2 38.2 36 35 35 35 32 23 25 23

Date Dec /20 Dec /18 Dec /18 Dec /20 Dec /18 Dec /20 Dec /18 Dec /18 Dec /20 Dec /20 Dec /20 Dec /20 Dec /20 Dec /20 Dec /20 Dec /20 Dec /20 Dec /18 Dec /20 Dec /18 Dec /20 Dec /19 Dec /18 Dec /18 Dec /20 Dec /20 Dec /18 Dec /18 Dec /18

34

Country Liechtenstein Czech Republic Estonia Isle of Man Moldova Ukraine Hungary Lithuania Belarus Russia Bosnia and Herzegovina Bulgaria Kosovo Macedonia Romania Serbia Montenegro

Last 22.4 22 20 20 18 18 15 15 13 13 10 10 10 10 10 10 9

Previous 22.4 22 20 20 18 18 15 15 13 13 10 10 10 10 10 10 9

Date Dec /19 Dec /19 Dec /18 Dec /20 Dec /18 Dec /20 Dec /20 Dec /18 Dec /18 Dec /20 Dec /18 Dec /19 Dec /20 Dec /18 Dec /20 Dec /19 Dec /18

Source: https://tradingeconomics.com/country-list/personal-income-tax-rate?continent=europe

2.1. Tax system The impact of taxes on individuals transcends the confines of income tax alone; it extends to encompass a broader spectrum of levies, including corporate tax and value-added tax. The collective weight of these various taxes contributes significantly to what is commonly referred to as the total tax burden. This comprehensive fiscal load plays a pivotal role in shaping employees' life stages and financial well-being, exerting influence at both individual and corporate levels. The assessment of the total tax burden involves a nuanced consideration of multiple taxation components. Income tax, a fundamental contributor to government revenue, is often a focal point in discussions on taxation. However, it represents just one facet of a complex web of financial impositions that individuals and businesses navigate. Corporate tax levied on companies' profits is another substantial contributor to the overall tax burden. It not only influences the financial health of businesses but also indirectly affects the economic landscape, impacting employment opportunities and investment decisions. 35

Value-added tax (VAT) adds yet another layer to the fiscal landscape. Applied to the value added at each stage of production and distribution, VAT has a cascading effect on the final price of goods and services. Consequently, it becomes an integral part of the financial considerations for both consumers and businesses. The combined effect of these taxes creates a comprehensive framework that significantly shapes the disposable income of individuals, thereby influencing their lifestyle choices, consumption patterns, and overall economic well-being. Understanding the life stage of employees within this tax-laden context requires a holistic perspective. The financial obligations arising from income tax, corporate tax, and value-added tax collectively contribute to the financial constraints or opportunities individuals encounter at different stages of their lives. For instance, during early career phases, individuals may find themselves contending with the burden of income tax as they strive to establish financial independence. Corporate tax policies, on the other hand, can impact job creation and career advancement opportunities, thereby influencing the professional trajectory of employees. As individuals progress through various life stages, the interplay of these taxes continues to mould their economic landscape. Value-added tax, affecting the prices of goods and services, can impact the cost of living, influencing lifestyle choices and expenditure patterns. Moreover, the total tax burden is not static; it evolves with changes in tax policies, economic conditions, and individual circumstances, underscoring the dynamic nature of this fiscal interplay.

Major tax rates Albania Austria

Corporate Tax 15% 25%

Income tax 23% 55%

Belgium

25%

Bosnia and Herzegovina Bulgaria

10%

50% (excluding 13.07% Soc-Ins. paid by the employee and 32% SocIns. paid by the employer) 10%

Cyprus

10% 12.5%

10% (the employee pays an additional 12.9% TB and the employer 17.9%) 35%

VAT 20% 20% (10% + 13%) 21% (6%, 12%) 17% 20% (9%) 19% (5% + 9%)

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Czech Republic

19%

Denmark

22%

United Kingdom Estonia

19% (17%) 20% 0% on retained earnings

Finland

20%

France

30%

Greece

28%

Netherlands

16.5% 25% for profits over €200,000

Croatia

18% (SME 12%)

Ireland

for commercial income, 25% for non-commercial income

53.5% (15% self-employed + 6.5% employee + 25% employer (2.3% health + 21.5% Soc-Ins. + 1.2% employment) + 7% solidarity contribution (above 1,277,328 CZK) 51.95% (including the 8% Soc-Ins. paid by the employee, but excluding the 0.42-1.48% church tax levied on members of the Danish National Church) 47% 20% (unemployment insurance tax + 2.4%, 0.8% paid by the employer, 1.6% paid by the employee and 33% of the Soc-Ins. payable before the gross salary paid by the employer; a total of about 57.8%) 25-67%, depending on net income and municipality, including 7.8% Soc-Ins. fees, employee income support and employer unemployment benefits, which average 18% 49% (45% + 4% for annual incomes exceeding EUR 250,000 for individual taxpayers or annual incomes exceeding EUR 500,000 for married couples) +17.2% for capital income 65.67% (45% >€40,000+ 7.5% solidarity tax >€40,000) + (26.95% for employee TB and 47.95% for sole proprietors) 51.75% (57.75%, including the income-related tax reduction for income between 68,508 and 90,710 euros) 40% (excluding 35.2% of insurance levied on income) 40% over €34,550 (married: €42,800); Plus USC (Universal Social Charge) 4.5% and TB 4%

21% (15%, 10%)

25%

20% (5%, 0%) 20% (9%)

24% (14%, 10%)

20% (10%, 5.5%, 2.1% and 0%) 24% (13% and 5%) 21% (9% and 0%) 25% (13% + 5%; 9%) 23%

37

Iceland

20%

Poland

19% 9% SMEs 20% 0% on retained earnings 15% SMEs 15% 5% SMEs

Latvia

Lithuania

Luxembourg

Hungary

24.94% (commercial activity) 5.718% intellectual property income, royalties 9%

Malta

35% (a 6/7 or 5/7

Germany

Norway

Italy

tax refund results in an effective rate of 5% or 10% for most companies)

From 22.825% (in some small towns) to 32.925% (Munich) depending on the municipality. 22%

27.9% (24% + 3.9% municipal)

36.94% 0 - 834,707 kr and 46.24% above 834,707 kr PLN 85,528 up to 17% 85,528 zł 32% 20% income tax + 35.09% Soc-Ins.

24% (12%)

44.27% (actual tax rates: 34.27% Soc-Ins. (nominally 1.77% to be paid by the employer + 19.5% to be paid by the employee + 1.8-3% optionally for accumulation purposes) 43.6% (40% income tax + 9% solidarity surcharge calculated on income tax)

21% (5%, 9%)

33.5% (Employee: 15% (szja), 18.5% TB contribution) + Employer tax: 15.5% social contribution tax + 1.5% vocational training contribution. Total: 50.5% 35% (additional 10% contributions paid by the employee, i.e. health insurance, pension and education); and the employer's additional 10% various contributions) 47.475%

27% (18%, 5%)

46.4% (53.0%, including the employer's social security contribution of 14.1%. All taxes include a pension fund payment of 8.2%). 45.83% (43% income tax + 2.03% regional income tax + 0.8% municipal income tax)

25% (15%, 10%)

23% (5% and 8%) 21% (12%, 0%)

17% (3%, 8%, 14%)

18% (5%, 7% and 0%) 19% (7%)

22% (10%, 5%, 4%)

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Russia

Portugal Romania

Spain

Switzerland

20%

21% + 3-9% based on profit Revenue €1m: 16% of profit

25% 4% (Canary Islands)

16.55%

Sweden

22%

Serbia

15%

Slovakia

22%

Slovenia

19%

43% (13.0% income tax, 22.0% mandatory pension fund contribution, 2.9% unemployment insurance, 5.1% mandatory universal health insurance) 48% + 5% solidarity surcharge + 11% TB (paid by the employee) + 23.75% TB (paid by the company) Employee: 41.5% [10% income tax (gross minus pension and health deductions), 25% pension contribution (gross amount), 10% health contribution (gross amount] Employer: 2.25% (mandatory employment insurance) 45% Does not include employee contributions: 6.35% social security tax, 4.7% pension contribution, 1.55% unemployment tax, 0.1% employee training tax. Does not include the employer's contribution: 23.6% social security tax, 5.5% unemployment tax, 3.5% employee tax, 0.6% employee training tax; and 0.2% FOGASA tax (employment tax in case of corporate bankruptcy)

22.5% (Canton Zug, Gemeinde Walchwil) - 46% (Canton Geneva), average 34%. 55.5%, including TB paid by the employer 52% (all included) an additional 10% above 3x the average income an additional 15% above 6x the average income 50% (19% + 25% on the part of the annual income exceeding €35,022.31; 4% employee and 10% employer health insurance; 9.4% employee and 25.2% employer TB) 50%

20%

23% (13% and 6%) 19% (9% and 5%)

21% (10% and 4%)

8% (2.5%) 25% (12% and 6%) 20% (10%)

20% (10%)

22% (9.5%)

Source: Eurostat (2020): Main tax rates

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2.2.Progressive income tax rates in some countries Some examples of progressive (multi-rate) income tax is like in some developed European countries.18 Typically, these are accompanied by a child or family discount, and the quality is significantly higher than the Hungarian one! – public service palette. We cannot present the latter due to their diversity (significantly different from country to country) and due to space limitations.19

Austria

Annual income from to [€] Tax rate [%] 0 - 11,000 0% 11,001-18,000 25% 18,001-31,000 35% 31,001-60,000 42% 60,001 - 90,000 48% >90,000 50% The Austrian income tax is defined by § 33 of the Austrian Income Tax Act (Einkommensteuergesetz - EStG). Until the end of 2020, an additional tax (55%) affects income exceeding 1 million euros.

Germany

Annual income from to Tax rate [%] €0 €9,000 0% €9,000 €13,996 14% − 23.97% €13,996 €54,949 23.97% − 42% €54,949 €260,532 42% €260,532 45% The German income tax includes five income tax bands; the first two are based on a fully progressive tax rate, and the rest are flat. The taxable income must be calculated after the deduction of personal and child benefits. In addition, German taxpayers can claim several additional deductions.20 Per18

Tofan, M. (2019). Personal income taxation. Comparative analysis for EU countries. European Union Financial Regulation and Administrative Area (Eufire 2019), 757-769. and Popescu, M. E., Militaru, E., Stanila, L., Vasilescu, M. D., & Cristescu, A. (2019). Flat-rate versus progressive taxation? An impact evaluation study for the case of Romania. Sustainability, 11(22), 6405. 19 Husman, A. I., & Brezeanu, P. (2021). Progressive taxation and economic development in EU countries. A panel data approach. Economic Computation & Economic Cybernetics Studies & Research, 55(1). 20 http://www.gesetze-im-internet.de/estg/__32a.html

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sonal allowance: €9,000 per adult. Child benefit: €7,428 per child. In Germany, married couples are taxed jointly. This means that the tax liability of the spouses is twice the average income of the two spouses. Due to progressive taxation, this reduces the total tax burden if the incomes of the spouses differ.

France

Annual income from to Tax rate [%] €0 €5,963 0% €5,963 €11,896 5.5.% €11,896 €26,420 14% €26,420 €70,830 30% €70,830 41% Income tax in France depends on the number of people living in the household. The taxable income must be divided by the number of persons in the household. Each adult counts as one person, while the first two children count as half of each. From the third child onwards, each child is considered a person. Therefore, a household consisting of 2 adults and 3 children can be considered a household of 4 people from a tax point of view.21 The rates below do not include the 17% social security contributions.

Italy

Annual income from to Tax rate [%] €0 €15,000 23% €15,000 €28,000 27% €28,000 €55,000 38% €55,000 €75,000 41% €75,000 43% The Italian personal income tax system (IRPEF) utilizes five different tax rates, also referred to as "aliquote" in Italian, based on the taxpayer's total taxable income. These tax rates are progressive, meaning that the higher the taxable income, the higher the tax rate applied. In addition to the basic progressive tax rates, additional tax credits and deductions are available to taxpayers, which can reduce their overall tax liability. Personal allowance: €800 per adult. Support per child: €1,120.22

21

Public Finances General Directorate, Tax Policy Directorate: The French Tax System Redazione internet Agenzia Entrance. " Agency delle Entrate - Income tax for individuals"..agenziaentrate.gov.it. 22

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Portugal Annual income from Tax rate Tax rate Tax rate to (Madeira) (Azores) 0 - €7,091 14.5% 11.6% 10.15% €7,091 and €10,700 23% 20.7% 17.25% €10,700 and €20,261 28.5% 26.5% 21.38% €20,261 and €25,000 35% 33.75% 28% €25,000 and €36,856 37% 35.87% 29.6% €36,856 and €80,640 45% 44.95% 36% Over €80,640 48% 48% 38.4% Income tax in Portugal depends on many factors, including regional (different tax rates depending on whether you live on the mainland, the Azores or Madeira, your marital status and the number of dependents). For the sake of simplicity, the primary tax levels are summarised below. An additional solidarity tax of 2.5% is levied on income between 80,640 and 250,000 euros. An additional 5% tax applies to income exceeding €250,000.

Spain Annual income from to

Tax rate [%]

Tax rate with transitional additional compensation [%]

€0 €5,150 €5,150 €17,707.20 €17,707.20 €33,007.20 €33,007.20 €53,407.20 €53,407.20 €120,000.20 €120,000.20 €175,000.20 €175,000.20 €300,000.20 €300,000.20 -

0% 24% 28% 37% 43% 44% 45% 45%

0% 24.75% 30% 40% 47% 49% 51% 52%

The Spanish personal income tax (IRPF) system includes two significant allowances that taxpayers can claim: the personal tax exemption and the child allowance. These allowances are designed to reduce the tax burden for individuals and families. The personal tax exemption is a deduction that can be claimed by all taxpayers, regardless of their marital status or the number of children they have. The amount of the personal tax exemption varies depending on the taxpayer's age: under 65 years: €5,550; over 65 years: €6,700; over 75 years: €8,100. In 2012, a special temporary surcharge was introduced as part of austerity measures to balance the budget. The personal allowance is currently 5,151 euros.

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Finland

Annual income [€] Tax rate [%] €13,000 25% €33,000 57% €47,000 60% €83,000 67% €94,000 66% €127,000 65% The total Finnish income tax includes income tax on net salary, employee unemployment benefits and employer unemployment benefits. 23 The rate of the tax increases very gradually and quickly from €13,000/year (from 25% to 48%) and from €29,000/year to 55 %, finally reaching 67% at €83,000/year, while it falls slightly to €127,000/year decreases to 65%. A person with a medium-income receives 44 euros out of every 100 euros of unemployment benefits. The family doctor then receives an additional €100, of which the employer spends only €33 on the work. Some sources, for example, the Veronmaksajat organisation, do not include the employer's unemployment benefit.24

Netherlands Annual income from to Tax rate [%] €0 €20,384 36.65% €20,385 €34,300 38.1% €34,301 €68,507 38.1% €68,508 51.75% In the Netherlands, the sum of income tax (Loonheffing) and social security contributions form a single wage tax. This means employees do not have to pay income tax and social security contributions separately. Instead, their employer withholds the appropriate amount of Loonheffing from their salary and pays it to the Dutch tax authority (Belastingdienst). The Loonheffing system is designed to simplify the tax system for employees and employers. It also ensures that the tax burden is distributed fairly among all taxpayers. There are no personal tax-free discounts.

23

Näin vähän lisäsatasesta jää sinulle käteen – laskelman tulos yllättää myös keskituloisen. www.aamulehti.fi.; és Valtion tuloveroasteikko 2018. Verohallinto. 24 Palkansajan veroprosentit ". Veronmaksajain Keskusliitto ry. Palkkakuitti 2019". Veronmaksajain Keskusliitto ry.

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United Kingdom

Annual income from Tax rate [%] Annual income from to to — £12,500 0% £12,500 £50,000 20% £50,000 £150,000 40% £150,000 — 45% UK income tax is based on the 2019/20 tax bands. The current tax-free income threshold is £12,500. Every £2 over £100,000 reduces the tax base by £1.25 The current income tax system in the UK has two main components: •



25

PAYE (Pay As You Earn): This is a system of income tax deductions that are automatically taken from an employee's salary by their employer. The amount of tax deducted depends on the employee's gross salary, marital status, and any applicable tax credits or allowances. Self-Assessment (SA): This is a system of self-assessment for individuals who have income from self-employment, investments, or other sources that are not subject to PAYE. Self-assessment taxpayers are responsible for calculating their income tax liability and paying it directly to HM Revenue and Customs (HMRC).

Income Tax rates and Personal Allowance. gov.uk.

44

3. Income policy in Hungary The basic idea of the domestic income policy is that almost half of the domestic population (4.5 million people 26) is legally employed and earns a significant part of its income. Another 1 million people are estimated to be in the grey and black economy, about 2 million are old-age pensioners, and another 0.6 million people are below retirement age, i.e. those with age benefits, annuities, etc. citizens. There are also overlaps, so some retired people appear on the labour market, and the same is true - especially in the summer - for students. Incomes in Hungary - and this is not a government slogan - have indeed increased significantly in the last ten years. So much so that in April 2020, the average gross salary was HUF 400,000, and the net was HUF 275,000.27 This is clearly a success - he hints that it is only compared to ourselves. At the same time, our V4 neighbours are already ahead, and we are at the end of the European Union list, somewhere before the level of the Balkans. Moreover, since the system change, the gap between the wages of rich countries and Hungary has grown, which is neither an advantage from the point of view of catching up nor economic revitalisation. The Hungarian labour market can be considered mixed from the point of view of income regulation; after the regime change, the hard hand of imperative regulation disappeared after a while from the Hungarian labour market and completely gave way to market wage mechanisms, including cooperative regulation systems. Indicative regulation has always been present in the management of the economy. These can be classified as weak since the political orientation could be felt more decisively than the income policy intention. The specific numerical direction indicators have recently been formulated within the framework of cooperative regulation with a strong government influence. At the macro level, the National Interest Conciliation Council (OÉT) was for a long time the most comprehensive, national, tripartite interest conciliation forum for macro-level consultations and negotiations between national trade unions and employers' associations (hereinafter: the employees' and employers' side) and the government. Its purpose is to explore and nego-

26

KSH data, January-March 2020 KSH, June 2020

27

45

tiate the interests and aspirations of employees, employers and the government, form agreements, prevent and resolve possible national conflicts, exchange information and examine proposals and alternatives. To this end, he discussed all issues related to the world of work, including topics affecting the economy, employment and income trends, taxation, contribution payments and the budget, and draft legislation. The OÉT has not entered into a collective agreement, nor has a wage agreement, in the strict sense of the word, been established, but the social partners exchange information and opinions with each other. They determined the minimum, average and maximum wage increase for the following year. Implementing the recommendations already depended on the social partners' adaptation skills, intentions and strengths. As a result of the national negotiations, it was possible to conclude an agreement on the wage offer every year. The OÉT also had the regulatory right to determine the national minimum wage. On June 15, 2011, the second Orbán government put the proposal on the agenda of the National Assembly, which planned to transform the reconciliation of interests and abolish the OÉT, and cancelled it on July 30, in place of the Act XCIII of 2011. Based on the law, the National Economic and Social Council, which only has the authority to make proposals, stepped in. The Council is an independent of the Parliament and the Government, consultative and proposing and advisory board, the most comprehensive, multifaceted consultative forum for social dialogue between employer and employee advocacy organisations, chambers of commerce, civil organisations active in the field of national politics, domestic and international Hungarian representatives of science and art, and established churches. The Government announces the minimum wage in legislation.28 The meso level, the coordination of interests at the sectoral level, is particularly poorly developed in Hungary. There are no sector-level interest representatives. There is a chance for developing sectoral wage regulation systems where the sectoral trade union is strong, so the chances of such a thing in Hungary are quite small. In practice, therefore, only the so-called we have multi-employer collective agreements. Income regulation is really more decentralised at the company level. The size, proportion and change of wages are basically decided at the company level. Tax-based income policy was a commonly used tool of hierarchical economic management systems. It has not been used in Hungary since 1992. Various deductions from wages will 28

Government Decree 367/2019 (XII. 30.) on the establishment of the mandatory minimum wage and the guaranteed minimum wage

46

increase significantly. On the one hand, the tax system can be defined as not wanting to regulate labour income but rather through income deduction with various forms of deduction and discounts. At the micro level, corporate collective agreements only apply to some larger companies; 99.8% of the domestic corporate sector is made up of SMEs. Hungary is a work-based society, the party in power proclaims, and several measures serve to strengthen this goal since many benefits and discounts depend on it. Our Fundamental law also emphasises this: We hold that the strength of a community and the honour of each person are based on labour and the achievement of the human mind. Article M) (1) The economy of Hungary shall be based on work which creates value, and on freedom of enterprise. The excerpt explicitly addresses the foundational principles of the country's economy. The passage begins by asserting a fundamental principle: the strength of a community and the honour of each individual within that community are grounded in two key elements: labour and the accomplishments of the human mind. This statement reflects a recognition of the intrinsic value of both physical and intellectual contributions to society, suggesting that the well-being of the community and the dignity of individuals hinge on productive work and intellectual endeavours. Article M), paragraph (1) of the legal text further elaborates on the economic principles guiding Hungary, stating that the economy shall be founded on work that creates value and on the freedom of enterprise. Let us break down the legal implications of this statement: The reference to work creating value implies an emphasis on productive and meaningful labour. This aligns with the notion that economic activities should contribute positively to the overall wealth and well-being of the nation. The legal system may recognize and encourage activities that generate tangible value for society. The conjunction of the principles underscores a balance between the inherent value of labour and the freedom of enterprise. It suggests an economic philosophy that values both the individual's right to engage in economic activities autonomously and the broader societal goal of ensuring that such activities contribute positively to the community. 47

On the other hand, we live in a consumption-based national economy; since pensioners who do not pay income tax - pension, family allowance, etc. is also listed here - roughly a third of their monthly salary is taxed on their purchases (27 % general sales tax, as far as we know, the highest in Europe, certainly in the EU, they also pay excise tax on ABC 29products, and there are other mandatory/optional payments 30to the state), i.e. they are also taxpayers. The high VAT content in an international comparison:

Source: 01.png

https://files.taxfoundation.org/20200108144805/VAT-Rates-in-Europe-2020-

29

ABC, that is alcohol , gasoline and cigarettes, refers to alcohol, fuel and tobacco products One of many: highway fees, tolls. Not everywhere, e.g. in Europe's largest economy, Germany, as well as in Finland, Malta, Luxembourg, etc., the use of the state road is free. 30

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Domestic income policy must also look beyond the border. Hungarian citizens can freely take up work in EU member states, and around half a million do. It is also evident that it will take many decades for us to catch up in wages - at least the experience of the past 30 years shows this - since the 31 income difference, even calculated on a PPP basis, is at least three times, and in well-paying, sought-after professions, even four or five times. Therefore, if the Hungarian state taxes income more, then even more people will leave beyond Lajta, and we have lost the most valuable, mostly young, proactive, agile, and, in some cases, well-educated groups. Unsurprisingly, they mainly go to countries with a much higher tax burden - but the income and benefits are 32also significantly higher. We mention it here because it belongs to this idea: in the case of low income, only low taxes can be considered; unrealistically high taxation leads to poverty, so the forced low tax rate is not the merit of the government of the given poor country, but a kind of emergency management. Minimum wage. The current Hungarian minimum wage is HUF 161,000, with a guaranteed minimum wage of HUF 210,600, which is very low even in international comparison despite the recent increases. Moreover, the Hungarian economy would be able to withstand significantly more than this, which is explained by the fact that productivity has increased faster, so it would be coverage. The following table clearly illustrates our position in the EU: only the Balkans and Latvia are behind us.

31

Purchasing power on parity, the moderate difference mainly the outside higher overhead costs , respectively service fees it's because of 32 For the latter example, in Germany from 2021 the pension minimum will be 1250 euros (450 thousand HUF) , in Hungary for 10 years unchanged HUF 28,500.

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Minimum wage 2 100

16

1 900

14 12

1 500 1 300

Average annual rate of change (%)

Minimum wages (EUR per month)

1 700

10

1 100

8

900

6

700 500

4

300

2

100

0

- 100

GROUP 1

GROUP 2

United States

Albania North Macedonia (¹)(²) Montenegro (¹)(²) Serbia Turkey

Spain United Kingdom France Germany (¹) Belgium Netherlands Ireland Luxembourg

Croatia Czechia Slovakia Poland Estonia Lithuania Greece Portugal Malta Slovenia

-2

Bulgaria Latvia Romania Hungary

- 300

GROUP 3

Minimum wages, January 2009 (left hand scale) Minimum wages, January 2019 (left hand scale) Average annual rate of change, January 2009 to January 2019 (right hand scale) Source: https://ec.europa.eu/eurostat/statistics-explained/index.php/Minimum_wage_statistics

Income policy does not only mean wages but also social benefits and pensions. Raising the latter, including pensions, has become so far removed from wages - the average pension is HUF 135,000 -, especially for older pensioners, that not raising it is not so much a budget issue but rather a high degree of cynicism 33. There is only one way in such cases: the state must enter with taxpayers' money since there is no other source. 33

Should one reasonable minimum limit somewhere the basic subsistence (no at the level of subsistence minimum!) and upper there should be a limit to establish because bar completely the few are marginal main over half a million forints pensioner number and like this remuneration, the society in spite of that very irritating.

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The tax rates charged to the consolidated income tax base 2010-2016 2016 2013-2015 2012

2011 2010

15% 16% 16% The combined tax base is the sum of the income and the tax base supplement. The amount of the tax base supplement: - it does not need to be determined for the part of the income belonging to the consolidated tax base that does not exceed HUF 2,424,000, of 27% must be determined for the part of the income belonging to the consolidated tax base exceeding HUF 2,424,000. 16% The consolidated tax base is the amount of income increased by the tax base supplement (by 27 %). HUF 0 - 5,000,000 17% 32% of the part over HUF 5,000,000 The consolidated tax base is the amount of income increased by the tax base supplement (by 27 %).

Source: https://www.nav.gov.hu/nav/szolgaltatasok/adokulcsok_jarulekmertek/Atotablak/Atotablak_2010_2016_20151223_1450859694484.html

The personal income tax is payable by individuals on their income. By paying the tax, private individuals agree to bear the public burden in accordance with their constitutional obligation. Personal income taxation is based on the principle of proportionality and fairness. Its purpose is to ensure the tax revenue necessary for the performance of state duties. As a general rule, all income of an individual is taxable. A different provision can only be made by law. The basis of the tax is the income determined by law from the taxable income. The tax rate has been 15 % since 2016. Entrepreneurs' personal income tax rate is 9 % of the tax base.34 This is true for all types of taxes, so predictability is very important here, too. For companies, the ability to plan, develop, etc., because of this, it is absolutely necessary that they are in the picture at least in the medium term (3-5 years). What differs from this to a large extent in practice is a vivid example of the changes related to the itemised tax of small tax-paying enterprises (KATA), which will be promulgated by law at the same time as these lines are written. What discount the small business receives on one occasion is withdrawn - almost immediately - on another occasion, and with urgency, 34

https://www.nav.gov.hu/nav/szja_b/mi_az_szja/Mi_az_szja

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during the year. Thus, the taxpayer rightly has the feeling that the government is in a hurry. The fact that competitive neutrality has been forgotten is just icing on the cake. Because what is the essence of the new KATA? If someone as a cat switched on invoices to a business without a value limit, a 40% extra tax must be paid to whoever receives the invoice from the tax collector. This also applies to foreign-affiliated companies. If someone invoices a business for more than HUF 3 million as tax, then the additional tax of 40 % on the portion above HUF 3 million is paid by the recipient of the invoice if he is domestic. There are exceptions; for example, if the tax is billed to a state organisation, then there is no extra 40 %. (that is, for the same work in one place, in another place, that is, the state's competitive advantage is strengthened). If the company invoices a foreign company for more than HUF 3 million, the company pays the extra 40 %. In addition, if the person has a personal business of one year and invoices to the limited liability company where he is also the owner, the 40 % comes

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II. Minimum wage The concept of minimum wage, as a fundamental pillar in labour market dynamics, serves as a catalyst for economic discussions on income inequalities, corporate dynamics, and social welfare. This section thoroughly explores minimum wage, delving into its economic effects and the multifaceted dimensions it introduces to the socio-economic landscape. Examining the impact on income inequalities, subsistence levels, and poverty, our analysis extends to the corporate sector and affected industries, raising critical questions about the need for and consequences of adjusting minimum wage rates. As we navigate the discourse surrounding whether the minimum wage should be raised, we aim to dissect the beneficiaries of such wage increases. We draw insights from global perspectives and narrow our focus to the European Union (EU), specifically examining the Hungarian minimum wage. This endeavour aims to enhance our comprehension of the complex dynamics involved in minimum wage policies, encouraging well-informed conversations about their impacts on workers, businesses, and society as a whole. The minimum wage is one of the most divisive economic categories. Opinions are not only divided as to whether it is necessary but also the practice: it exists in many countries and not in many. We seek the answers to whether it is essential, and if so, what advantages and disadvantages its increase brings to the main actors of economic life, employers and employees, and of course to its creator, the state. As its name indicates, the minimum wage is the mandatory minimum wage that the employer must pay its employees based on the currently valid decree, i.e., the minimum income due to the employee. It is the lowest wage paid or permitted to be paid; specifically, a wage fixed by legal authority or by contract as the least that may be paid to employed persons generally or to a particular category of employed persons. The living wage means a subsistence wage, or a wage sufficient to provide the necessities and comforts essential to an acceptable standard of living.35 A living wage is a socially acceptable level of income that provides adequate coverage for basic necessities such as food, shelter, child services, and healthcare. The standard allows no more than 30% to be spent on rent or a mortgage and is sufficiently higher 35

https://www.merriam-webster.com/dictionary/living%20wage

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than the poverty level. The concept of living wages is not new and dates back to early America when workers demanded higher pay. The living wage should not be confused with the minimum wage, which is the lowest amount of money someone can earn as mandated by law.36

Living Wage vs. Minimum Wage Particulars Criteria used for Calculation Regulation Inflation Adjustment Amount

Living Wage It is calculated based on the cost of living, which is a function of housing, food, location, child care, transportation, health care, and other necessities. There is no established governing body for a living wage. It considers various cost-of-living considerations, which are already inflation-adjusted. The amount of living wage varies based on marital status, no. of children, debt position, location, etc.

Minimum Wage It is determined based on raises approved by Congress, which depends on the overall economic condition. Federal and state/ local governments govern it. It is not adjusted to compensate for the rising inflation. The minimum wage amount is the same across all the states. Currently, the minimum wage is lower than the living wage.

Source: https://cleanclothes.org/livingwage-old/living-wage-versus-minimum-wage 36

Schulten, T., & Müller, T. (2019). What’s in a name? From minimum wages to living wages in Europe. Transfer: European Review of Labour and Research, 25(3), 267-284.

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From the Közgazdasági Kislexikon,37 we put it this way: according to state regulations, the lowest basic salary can be paid to full-time employees. In socialist countries, its level is determined on the basis of living standards and political considerations, taking into account the level of development of the national economy. In 1972, the minimum monthly wage in Hungary was HUF 1,000, and the minimum hourly wage was HUF 5. Gross amount, i.e. there may be deductions from it, although there was a period (2002 – 2008) in Hungarian economic life when the minimum wage was tax-free, i.e. it was not subject to various deductions, so the gross amount was the same as the net amount. By definition, the state's "profit" was thus missed. Nowadays, the amount of the minimum wage set by a government decree – published in the Hungarian Gazette is binding for all actors in the Hungarian economy. The scope of the decree covers all employers and employees. Its role goes beyond those directly affected, i.e. those who earn the least, because its measure forms the basic unit of a series of tax and contribution payment obligations. In Hungary, the contribution payment obligation of the partnership and individual entrepreneur is compared to this. By definition, its effect thus affects not only those living on the minimum wage but the economy as a whole. When establishing the amount and scope of the mandatory minimum wage and the guaranteed minimum wage, the requirements necessary for the performance of the job, the characteristics of the national labour market, the situation of the national economy, the labour market characteristics of individual national economic sectors and individual geographical areas must be taken into account. The amount of the mandatory minimum wage and the guaranteed minimum wage must be reviewed every calendar year.

37

Közgazdasági Kislexikon, Kossuth Könyvkiadó, 1972

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4. The economic effects of the minimum wage Within the realm of labour market policies, the economic effects of the minimum wage have been a subject of profound scrutiny, giving rise to debates surrounding income inequalities, poverty alleviation, and the dynamics within the corporate and affected sectors. This exploration delves into the intricate relationships between the minimum wage and income disparities, assessing its impact on subsistence levels and the broader question of poverty. As we navigate through the complex interplay between the minimum wage and the corporate sector, we pose crucial inquiries about the necessity of raising the minimum wage and scrutinize the potential beneficiaries of such adjustments. This examination aims to shed light on the multifaceted consequences of minimum wage policies, fostering a comprehensive understanding of their implications for workers, businesses, and the socio-economic fabric.38 Based on economic theories and various models, it is not possible to clearly predict the consequences of raising the minimum wage.39 The literature supports the positive, neutral and negative effects in theory and with empirical data. Raising the minimum wage is a recurring proposal not only in Hungary but also in many other countries. However, there is far from a consensus regarding the expected effects. Many see it as an effective means of reducing poverty and curbing income concealment, while others see it as a step that causes the employment situation to deteriorate. Obviously, the total effect of the minimum wage increase and the direction of the effects are a joint function of many factors.40 The effectiveness of income policies, such as minimum wage adjustments or social welfare programs, can be influenced by the transmission mechanisms of monetary policy, especially through their effects on aggregate demand and employment. The minimum wage rates respond positively to increased geographical mobility when (1) mobile workers

38

Paun, C. V., Nechita, R., Patruti, A., & Topan, M. V. (2021). The impact of the minimum wage on employment: An EU panel data analysis. Sustainability, 13(16), 9359. 39 Dube, A. (2019). Impacts of minimum wages: review of the international evidence. Independent Report. UK Government Publication, 268-304. 40 Azar, J., Huet-Vaughn, E., Marinescu, I., Taska, B., & Von Wachter, T. (2019). Minimum wage employment effects and labor market concentration (No. w26101). National Bureau of Economic Research.

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face significantly worse labour market conditions, (2) the concerns of economic efficiency are small, and (3) the share of mobile workers is relatively small.41

Pro and Cos for Minimum wage Advantages

Disadvantages

• It supports workers: the minimum wage guarantees that workers receive a minimum income to help them meet their basic needs. • Reduces inequality: The minimum wage increases the overall level of wages, thus reducing inequality in the labour market. • Improve workers' quality of life: Increasing the minimum wage helps workers improve their living conditions and provides them with greater security. • Increase consumption: Raising the minimum wage increases the disposable income of workers, which can increase consumption and thus contribute to economic growth.

• Higher costs for employers: Raising the minimum wage means employers will face higher costs, which can harm businesses. • It limits employers' flexibility: Mandating a minimum wage limits employers' flexibility in paying their employees and can, therefore, make it more difficult for businesses. • It can increase inflation: Raising the minimum wage can also have inflationary effects, as companies can set higher prices for their goods to compensate for higher labour costs. • Restricts job creation: If raising the minimum wage means higher costs for employers, job creation may be more limited.

Source: own compilation

In the classical model of the labour market, no company has any influence on wages due to the assumption of perfect competition, so the intersection of labour demand and supply gives the equilibrium wage and employment level. According to neoclassical models, an increase in the minimum wage will reduce employment, as those workers whose productivity is lower than the new wage level will be laid off after the increase. According to other models, on the other hand, there is no perfect competition in the labour market, and if companies have an influence on the formation of wages, then it may happen that raising the minimum wage does not have adverse impacts and may even increase employment. However, even according to these models, there is a level of the minimum wage above which an increase

41

Fukumura, K., & Yamagishi, A. (2020). Minimum wage competition. International Tax and Public Finance, 27, 1557-1581.

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has negative effects.42 Perfect work is one model that rejects market competition if there is a monopsony in the labour market, i.e., one or at least a few companies are the determining factor on the labour demand side. Examples include cases where changing jobs is expensive, or there is only one employer within reach, and because of this, employers' bargaining position is stronger than that of employees. The minimum wage increase directly affects demand and supply in the labour market. However, its indirect effects go beyond the labour market. The changed level and structure of employment in commodity markets affect prices, the quantity and structure of commodity demand and supply. If the minimum wage affects both the labour market and the goods market, it also affects other economic processes, thus affecting the development of the budget. At first glance, it is clear that the minimum wage affects both the income and expenditure side and, thus, the balance. It is a popular view that raising the minimum wage contributes to the whitening of the shadow economy by increasing the amount of taxes and contributions that businesses pay on an employment basis. Even if this assumption were to be fulfilled, it is not certain that it would be able to offset other effects - say, in the balance of the budget - since, for example, the unfavourable budgetary effect of a possible decrease in employment could be even more significant.43

Arguments for and against raising the minimum wage Reasons • Raising the minimum wage increases • • • •

economic activity and encourages employment growth. Raising the minimum wage would reduce poverty. A higher minimum wage would reduce public welfare spending. The minimum wage does not keep pace with inflation. Improvements in productivity and economic growth have outpaced increases in the minimum wage.

Counterarguments • Raising the minimum wage would force

businesses to lay off workers and raise unemployment. • Raising the minimum wage increases poverty. • Raising the minimum wage would hurt businesses and force companies to close. • Raising the minimum wage increases the price of consumer goods.

42

Benedek Dóra - Rigó Mariann - Scharle Ágota - Szabó Péter (2006): Minimálbér-emelések Magyarországon 2001-2006. PM Kutatási Füzetek 16. 43 Halpern László – Koren Miklós – Kőrösi Gábor – Vincze János: A minimálbér költségvetési hatásai. in Közgazdasági Szemle, LI. évf., 2004. április

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Reasons

Counterarguments

• Raising the minimum wage would re-

• Teenagers and young adults can be ex-

• •

• • • • • • •

duce income inequality. Raising the minimum wage would help reduce racial and gender inequality. Raising the minimum wage would have a ripple effect, increasing the incomes of those who earn slightly above the minimum wage. Increasing the minimum wage increases employee productivity and reduces employee turnover. The current minimum wage is not high enough for people to afford housing. The current minimum wage is not high enough for people to pay for their daily needs. Raising the minimum wage would lead to a healthier population and prevent premature death. Raising the minimum wage increases school attendance and lowers the dropout rate. An increase in the minimum wage would contribute to reducing the budget deficit. Raising the minimum wage would reduce crime.

• • •

• • • • • • •

cluded from the workforce if the minimum wage is raised. Raising the minimum wage would put low-skilled workers at a disadvantage. Increasing the minimum wage reduces the likelihood of upward social mobility. If the minimum wage is raised, companies may use more robots and automated processes to replace service workers. Raising the minimum wage would disproportionately affect the poorest areas of the country. Raising the minimum wage increases housing costs. The free market, not the central government, should determine the minimum wage. Raising the minimum wage would reduce employee benefits and increase tax payments. Raising the minimum wage would reduce the enrollment rate of high school students and increase the dropout rate. Raising the minimum wage would encourage companies to outsource jobs to countries where costs are lower. Raising the minimum wage would not reduce crime.

Source: own compilation

The increase in the minimum wage can also affect the extent of the formal and informal (grey or black) sectors. According to the traditional argument, one of the consequences of raising the minimum wage may be that it pushes certain activities into the grey or black sector, namely for two reasons: on the one hand, to pay the employee a lower wage, and on the other hand, to reduce the increased risks due to the increase in the minimum 59

wage.44 The latter can be explained by the fact that if self-employment and performance- based pay are typical in the informal sector, then although the wages are the same or may be higher than in the formal sector, the employee receives his wages based on performance, and therefore has less chance from the employer's point of view that he does not receive (adequate) compensation for the money paid. In other words, from the employer's point of view, the risk arising from the employee's inadequate performance is lower than in the formal sector. In addition, if the higher minimum wage promotes migration from the countryside to the city, then the supply of low-skilled urban labour can also lead to the expansion of the informal sector. Based on the above criteria, nearly 6% of households were classified as being in contact with the grey economy. Within the group of active persons, 5.5% were classified as belonging to the shadow economy and 4.1 % among those employed on the minimum wage.45

4.1. Income inequalities: subsistence level, poverty One of the objectives of the minimum wage may be to improve the situation of the poor or those close to the poverty line. At the same time, in most debates about the minimum wage and empirical impact assessments, the focus is more on the employment effects, and the redistribution effects are often not taken into account. Although the examination of employment effects is also extremely important, based on this alone, we cannot provide a satisfactory answer to the evolution of families' income situation. The role of the minimum wage in reducing poverty and income differences is not clear since the poorest households typically do not have a wage.46 Regarding the desirable minimum wage level, the European Social Charter of the Council of Europe provides a guideline for the EU. The Charter states that everyone has the right to a decent living wage but does not give 44

Semjén András – Tóth István János (2004): Rejtett gazdaság és adózási magatartás: magyar közepes és nagy cégek adózási magatartásának változása 1996-2001. Elemzések a rejtett gazdaság magyarországi szerepéről 4., MTA Közgazdaságtudományi Kutatóközpont. 45 Benedek Dóra - Rigó Mariann - Scharle Ágota - Szabó Péter (2006): Minimálbér-emelések Magyarországon 2001-2006. PM Kutatási Füzetek 16. 46 Redmond, P., Doorley, K., & McGuinness, S. (2021). The impact of a minimum wage change on the distribution of wages and household income. Oxford Economic Papers, 73(3), 1034-1056. and Vastagh, Z. (2016). Az állami újraelosztás és a jövedelmi egyenlőtlenségek politikai természete.

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a more precise definition. The independent panel of experts supporting the implementation of the Charter made a more specific recommendation, according to which the optimal level of the net minimum wage is 60% of the national net average wage47 and is clearly above the poverty line. If the ratio of 60% is not reached, but it can be proven that it is above the poverty threshold, then the ratio of at least 50% is also acceptable. The ILO (International Labour Organisation) formulates two general expectations regarding the minimum wage. On the one hand, it must be consistent with wages, living costs, welfare benefits and the general standard of living, and on the other hand, it must be consistent with economic development, productivity and the need for high employment levels. The minimum wage is closely related to the minimum wage. The minimum subsistence value calculated by the Central Statistical Office (KSH) is based on the cost of the minimum food consumption required for a healthy diet compiled by the National Institute of Food and Nutrition Sciences (OÉTI). The OÉTI specifies the optimal composition and caloric value of the food basket for an average man of active age, working under moderate physical load, which is 2400 kcal. From this, the KSH calculates how much these foods would cost and considers the average monthly value of all the expenses of households consuming food of around this value to be the minimum. The subsistence minimum is a social exclamation mark even if its level is improving, and the proportion of the affected population further decreased in 2018 and fell below 30%. KSH has not since 2015, but, e.g. the Policy Agenda 2019 report provides data on the subsistence minimum in HUF and social impact, according to: 2 adults with 2 children percentage of people living below the subsistence level

2015 2016 2017 2018 255,246 256,995 262,305 274,978 41.5% 36% 30% Under 30%

Source: https://www.fes-budapest.org/fileadmin/user_upload/dokumente/pdfdateien/Letminimum_es_tarsadalmi_minimum_elozetes_adatok_2018.pdf

In other words, based on the Policy Agenda survey, in 2017, 25 % of Hungarian households lived on an income that did not reach the subsistence minimum amount per household. According to the study, these households 47

When comparing minimum wage systems, the most common method is to look at the ratio of the minimum wage to average earnings, known as the Kaitz index.

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have a larger number of people than those living above the subsistence minimum, which is why 30% of Hungarian society lives in a household that does not have a household income that covers the amount of the subsistence minimum. This clearly includes minimum wage earners as well. Taking into account the cost of living and inflation (although the latter is now quite low), and based on the above, it clearly follows that a significant increase would be necessary, at least from a social and humane point of view. In particular, given that the average salary has increased significantly in recent years, reaching HUF 239,000 net by 2019. Which at the same time results in a further (increasingly dangerous) opening of the income gap, with the considerable social tension associated with it. Furthermore, what this will result in in the future is also an important aspect since the expected pension after the minimum wage is somewhere around HUF 50,000.48 Moreover, a significant part of those affected will almost certainly be out of work by then (it already is), and around the age of 65, they will have to face this in such a way that, moreover, they will not be abundant in reserves and savings. The bomb is ticking and will explode in two decades.

4.2. The corporate and the other affected sectors In general, raising the minimum wage increases the range in which the worker is no longer worth employing because the income from the product or service he creates is less than the wage he is entitled to. This reduces the adaptability of the labour market, as it prevents the reduction of wages even when this would be necessary due to deteriorating market prospects, and in such a situation, businesses can only react by reducing the number of employees. Increasing the minimum wage can contribute to an increase in wages even if it is set below the equilibrium average wage level. It has a direct effect on the lowest-paid employees and an indirect effect elsewhere if companies want to maintain the differences in wages for individual jobs for motivational and other reasons. According to the efficiency wage model, wages are a function of productivity and encourage tremendous effort and loyalty. Therefore, firms may offer a higher-than-equilibrium effective wage in order to maximize productivity and minimize labour costs. The reason for the higher effective wage can be, among other things, the company's growing size, which makes 48

This is due to lower minimum wages in previous years.

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it more difficult to control the employees. According to efficient wage theories, where productivity is a function of wages, raising the minimum wage can also increase employment.49 Another approach emphasises that companies finance job training from wages that are lower than the worker's productivity, and therefore, an increase in the minimum wage has a negative effect on training. According to the model, there are workers whose training is only possible if the employer contributes to the costs, and there are those who are able to finance their training themselves. If the minimum wage is above the productivity of the trained worker, it is worthwhile to train the worker. Examining the long-term effects, Neumark and Nizalova draw attention to the fact that the minimum wage generally has a negative effect on the employment of the youngest, and this can have a severe long-term effect due to less experience in the labour market and a reduced willingness to work. They believe that those who look for a job in a labour market with a high minimum wage at a younger age are less likely to continue their education, and since a high minimum wage increases the length and frequency of unemployment, they are also more likely to participate in illegal activities.50 In the domestic corporate sector, nearly 880,000 people work for the minimum wage or minimum wage; among the worst-paying sectors are agriculture, construction, hospitality, and certain areas of the manufacturing industry, such as the production of textiles and clothing or the production of food, beverages and tobacco products. The regional differences are significant; the people of Budapest are in the best position. However, many of the people living in the eastern counties of the Great Plains receive the lowest wages. In line with productivity, smaller companies pay much lower wages than larger companies. Since Hungarian companies are typically small, while foreign companies are larger, this duality also appears between domestic and foreign companies. Even though the sector most affected by the increase in the minimum wage is the manufacturing industry, which is struggling to cope with the effects of the increase in the guaranteed minimum wage for skilled workers, 49

Kertesi, G. – Köllő, J. (2003): Ágazati bérkülönbségek Magyarországon, I. rész, Az ágazati járadékképződés alternatív modelljei, Közgazdasági Szemle, L. évf., 2003. november, 923–938. 50 Neumark, D. – Nizalova, O. (2004): Minimum Wage Effects in the longer run. NBER Working Paper 10656.

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including the light industry, retail trade received more attention. The highly heterogeneous trade sector, characterised by the simultaneous presence of domestic and foreign, small and large companies, has been hit by several other rapidly evolving regulations in recent years, in addition to the increase in the minimum wage. These measures were often based on the intention of supporting Hungarian-owned chains and convenience stores. Such were the special retail tax levied on sales revenue, the so-called mall stop, the Sunday shop closure that was eventually withdrawn, the initially selective and then generalised food inspection fee, or the practically ineffective laws ordering mandatory liquidation in the event of two years of loss-making operations. Furthermore, other measures are expected: the taxing of department store parking and the number of employees based on square meters have been floated in government circles for some time, but they would also regulate department store bus routes and advertising expenses. The GKI surveyed the primary experiences of the minimum wage increase in 2017, in which it was found that companies used many tricks in order to contain wage costs, such as changing norms, reducing working hours, reclassifying jobs, or reducing cafeteria elements. The proportion of payments into the pocket also visibly decreased, so the economy whitened somewhat. At the same time, the increasing labour shortage affecting almost all parts of the economy hinders the application of employer bargaining. The effect of the minimum wage increase can be seen from another perspective, also from the point of view of competitiveness. According to the EU's annual small business report, the efficiency of smaller companies is lower than that of large companies everywhere, but the difference is one of the largest in Hungary. Moreover, according to a study by the Hétfa research institute, Hungarian small companies are significantly behind similar small companies in the Visegrád countries.51 Although, overall, the effects of the minimum wage increase will not shake the majority of companies and cause only a minor disturbance, there will certainly be those that will cease to exist. Nevertheless, in the current labour shortage situation, those who have been laid off will probably find a new job easily. If, on the other hand, we protect the companies from possible negative effects, we preserve the company structure with a low level of income-generating capacity and presumably continue to slide down the country's competitiveness rankings. 51

Szerb László (2019): Emeljük a magyar minimálbért! - Áldás vagy átok? Portfolio

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4.3. Should the minimum wage be raised? However, the question – as usual – is not so simple. The opinion of this is mixed: according to the supporters, raising the minimum wage helps to raise the standard of living, reduces poverty, and encourages businesses to operate even more efficiently.52 We are getting closer to the developed world, but at least we are reaching our region. According to the opponents of the minimum wage, its rate is often too high to be achieved by mere efficiency gains, so it often leads to layoffs, i.e. increases in unemployment. Another effect is that it is particularly disadvantageous for under-educated and disadvantaged workers, who are thereby even more excluded from the legal labour market. However, a significant part of them have not been included until now if we consider public workers as a non-market factor.53 Another effect is that the minimum wage also contributes to the persistence and spread of poverty and the shadow economy. Another pitfall of the increase is that it is not simply a desk, or more precisely, a decree created at a round table, which is easy to implement. The third part is the employer's side. 3.5 million people work in the competitive sector; if there is a rise at the bottom, there must also be a change at the top. This is the biggest problem for small and medium-sized enterprises, including micro-enterprises, since higher wages have to be generated, and it is not certain that the customer side will accept this easily. 54 It is also fundamental that increasing the minimum wage does not mean increasing competitiveness. The employer's dilemma is twofold: on the one hand, continuing to catch up on wages is essential for foreign, but at least for regional competitors, 55it really should be, but it is challenging to implement, in many cases, it is impossible (in this case, the company goes bankrupt). On the other hand, this must be implemented in such a way that a large number of domestic micro- and small enterprises can produce it, or, where applicable that the developments that would improve their situation are not left behind, in the latter case, it is almost fundamental that in such cases the government 52

Clemens, J. (2021). How do firms respond to minimum wage increases? understanding the relevance of non-employment margins. Journal of Economic Perspectives, 35(1), 51-72. 53 Köllő, J. (2015). Közmunkások a legális munkaerőpiacon. 54 Harasztosi, P., & Lindner, A. (2019). Who pays for the minimum wage?. American Economic Review, 109(8), 2693-2727. 55 Artner, A., Sőreg, Á. P., & Sőreg, K. (2019). Bérfelzárkózás Magyarországon: Hipotézis vagy jól működő stratégia?. Munkaügyi Szemle, 62(5), 2-16.

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must provide compensatory investment to provide support to those concerned. In other words, there is nothing wrong if the increase in productivity exceeds the increase in the minimum wage.56 The problem is usually that it does not work everywhere, especially not in the already mentioned small ones in the backward regions. In general, the demand there is not such that it would require this, and it is good if they manage to make a daily living. Developments should be made in these areas to raise the minimum wage more easily. The state would be the primary player, with subsidies, various discounts, and increasing infrastructure. Of course, they all take taxpayers' forints, and since the local government has no money for this due to its poverty, it should be financed from the budget. Starting in this field is difficult because profitability is clearly excluded, and success is not guaranteed. The good news is that a significant part of the EU resources can be grouped here. The impact of the minimum wage increase is particularly problematic in the SME sector. In the EU's annual small business report (SBA fact sheet57), the efficiency of smaller companies is lower than that of large companies everywhere, but the difference is one of the biggest in Hungary. Unfortunately, we are also pretty far behind at the regional level.58

56

Kim, H. S., & Jang, S. S. (2019). Minimum wage increase and firm productivity: Evidence from the restaurant industry. Tourism Management, 71, 378-388. 57 The European small business package of measures (SBA) is the priority of the EU political initiative of the small - and to support medium-sized enterprises (SMEs). This one it's like that political package of measures contains 10 principles _ _ around is organised, starting with the entrepreneur spirit and “responsive administration” to the international until divorce. 58 European Commission 820199: 2018 SBA Fact Sheet - Hungary

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Hungary's SBA performance: current situation and development between 2008 and 2018

1. Entrepreneurship 2. "Second chances" 3. "Responsive administration" 4. State aid and public procurement 5. Access to finance 6. Single market 7. Skills and innovation 8. Environment 9. Internationalisation

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The Hungarian SBA profile shows a mixed picture. Hungary scores lower than the EU average in terms of skills and innovation, internationalisation, environmental protection and "second chances" and is even lower in entrepreneurship and "responsive public administration". However, access to finance and the single market aligns with the EU average. State subsidies and public procurement are the best-performing areas compared to the EU average. At the same time, progress in this area was also acknowledged; the country-specific recommendations of the 2018 European Semester emphasize the need for improvement. Since 2008, Hungary has been striving to implement the measures in almost all SBA policy areas. The most remarkable progress has been made in the area of state subsidies and public procurement, as well as the single market. Progress has also been made in access to financing, where Hungary has introduced several measures in recent years to improve the prospects of SMEs. R&D and internationalisation activities also received support, although this area still falls short of the EU average. Although it remains below the EU average based on the "second chance" principle, Hungary has made progress by adopting a new law that helps SMEs by introducing a new pre-subsidy procedure in 2017. Amendments to the Bankruptcy Act mean that viable businesses can be restructured, and honest entrepreneurs who go bankrupt can be rescued at an early stage. NAV's approach has also changed from a sanctioning approach to an educational one through a mentoring program encouraging SMEs to be honest and learn how to pay taxes correctly. Despite these positive developments in the "second chance" principle, more effort is needed. Although overall, the effects of the minimum wage increase will not shake the majority of companies and cause only minor disruption, there will undoubtedly be those who will go out of business. However, in the current labour shortage situation, those who have been laid off will probably find a new job quickly. Firms with lower competitiveness typically pay lower wages. Moreover, in Hungary, the smallest, least efficient companies have many more people working, and more people work for the minimum wage than in other EU countries, which is why the increase in the minimum wage affects them much more. If, on the other hand, we protect businesses from the expected adverse effects, we will preserve the corporate structure with a low level of income-generating capacity, and presumably, we will continue to go down in the country's competitiveness rankings. So, raising the minimum wage is a double-edged sword if there is no economic policy support behind it. 68

The official - government - press often claims that the minimum wage has more than doubled since 2010 by 2020, which is indeed the case, but only in the case of the gross (it rose from HUF 73,500 to HUF 161,000). The net minimum wage, on the other hand, only increased by 56.3 %, from HUF 60,236 to HUF 107,065. In other words, the average annual increase is only HUF 4,683, which is well below 5% per year. Over the past two years, the guaranteed minimum wage has increased by nearly 40 % - which directly affects 800,000 workers - while the average annual economic growth rate is only around 3.5-4 %, and the income and productivity of the small businesses that make up the majority of Hungarian companies are not increasing annually by 10 to 20 %. The village shopkeeper, restaurateur and service provider cannot pay 30-40 % more wages, for example, in a village in Borsod, where the majority of residents are in public employment, unemployed or retired, since the spendable money of the customers in the same area has barely increased.

4.4. Who is the raise good for? It is clearly good for the employee, especially if it is strongly reflected in net terms. They can buy more and/or more valuable things, and their wellbeing improves, affecting their mood in life and work. Its additional benefits are not to be underestimated either: they can get into better living conditions, live healthier and probably live longer. The same applies to the beneficiaries of other benefits in addition to the minimum wage, i.e. ethnic groups with several million people are thus better off. Raising the minimum wage is also an advantage for the state. After all, with the exception of a relatively narrow circle of my affected employees, he does not have to extract this, and according to the already mentioned wage table, he also derives significant income from it, which more than compensates for the wage increase in the public sector he affects. The political benefits are not incidental either: the caring state embraces even the poorest strata, thinks of them separately and supports them gallantly. With skilful propaganda, even the most modest amount can be skilfully inflated, as has been the case with pension increases for years. If the government expects businesses to pay the increased salaries in a law-abiding manner, it should make greater tax or other concessions. If only raising the minimum wage means that contribution and tax revenues flowing 69

into the budget will also increase considerably. It is no wonder that many believe that the government is not so much helping low- income people with this step but rather increasing its own income. However, government revenues only increase if the proportion of the shadow economy does not change as a result of the increase in the minimum wage. The increase in government revenue is greater, the higher the proportion of grey employers, but it decreases with the wage elasticity of labour demand. Due to the mentioned price increase, the volume of consumption, therefore, decreases, so the income from consumption taxes does not change overall. Higher contribution payments reduce the profits of businesses, which they can simply protect by slightly increasing the proportion of grey employment. If this possible reaction is also taken into account, the government income will no longer increase. In addition to the 10-60 % share of the grey economy, raising the minimum wage somewhat worsens the balance of the budget. In a completely white economy or in the case of companies with over 60 % tax avoidance, raising the minimum wage clearly improves the budget situation. This means that there is a value between 10 and 20 and 60 and 70 % of the grey and shadow economy, where the change in the minimum wage does not affect the budget deficit.59 At the same time, the state must also be careful that it can cause tensions even in its own territory. About 800,000 people work in the public sector, and such an increase affects not only the more than 150,000 people directly affected but also almost all the others due to the wage scales. Just as in the case of not touching on the latter, great anomalies and tensions arose, where the salary of a beginner employee was the same as that of someone with 15-20 years of experience, which is not the classic way of building a career, but it cannot be said to be fair either. (The wage settlement of the public sector can never be fair since other aspects also dominate, such as the reliability of the armed forces or the strength of the trade unions, etc.) But: the state can certainly make it, if not otherwise, from further deductions from taxpayers. As surprising as it may be, the permanently low wage level is not in the interest of the employer either because it goes hand in hand with the

59

Halpern László – Koren Miklós – Kőrösi Gábor – Vincze János: A minimálbér költségvetési hatásai. in Közgazdasági Szemle, LI. évf., 2004. április

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cementing of backwardness and the loss of employees.60 That is why it would be important for the business sector to develop a solution with the government and the employees' representatives that increases their competitiveness and simultaneously creates an opportunity for wage increases. One of the defining elements of competitiveness is the wage, and its low level gives the given country an advantage compared to expensive ones. In Hungary, the investor prefers places where labour is cheaper. This is almost completely true for wage work. As for the more demanding work area with skilled and qualified labour, this is no longer a primary consideration, and availability, expertise, and good work ethic are all countervailing factors, which are also important considerations for investors. In today's competitiveness, the latter is more and more dominant, and the minimum wage workforce is typically unskilled and does not represent the forefront in terms of diligence - not only because of its incentives, not even because of its wages, even if there are many exceptions. Several studies have been carried out on the subject, including a survey by GKI on the primary experience of the minimum wage increase in 2017, which found that companies used several tricks to contain wage costs, such as changing standards, reducing working hours, job reclassification or reducing cafeteria elements. The proportion of payments into the pocket also visibly decreased, so the economy whitened somewhat. At the same time, the increasing labour shortage affecting almost all parts of the economy hinders the application of employer bargaining.61 The Hungarian Chamber of Commerce and Industry published its analysis in July 2019, in which it examined nine steps that a Hungarian company can take after the January 2019 increase in the minimum wage and the guaranteed minimum wage for skilled workers.62 In terms of involvement in the implementation of the examined nine steps, a decreasing trend can be observed as the company size increases: enterprises with a size of less than 50 employees to a greater extent, while larger companies implement or plan to implement the examined measures to a lesser extent. The breakdown by economic sector shows that, as a result of the wage increase, mostly businesses operating in the field of trade are planning to implement the examined steps. The examination of the companies according to their ownership structure 60

Clemens, J. (2021). How do firms respond to minimum wage increases? understanding the relevance of non-employment margins. Journal of Economic Perspectives, 35(1), 51-72. 61 Szerb László (2019): Emeljük a magyar minimálbért! - Áldás vagy átok? 62 Gazdaság- és Vállalkozáskutató (2019): Gazdasági Havi Tájékoztató, 2019. július

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shows that in a statistical sense (at the 95% confidence level), purely domestic and partly/ mostly foreign-owned companies do not differ in terms of the measures examined, i.e. their reactions to the minimum wage increase do not differ substantially. According to the breakdown by export activity, it can be seen that the increase in the minimum wage will least affect mainly exporting companies. Both non-exporting and partially exporting companies must or have had to take steps as a consequence of the wage increase. The companys' reactions to the change in the minimum wage are illustrated in the figure below:

The proportion of enterprises that took / will take the listed steps in 2019 as a result of the increase in the minimum wage or the guaranteed minimum wage (%) layoffs will carried out

5

change the job titles and responsibilities of the workers affected by the pay increase

11

make the workers concerned part-time

12

reducing mobile elements (e.g. bonuses)

13

planned investments will be postponed to reduce other benefits (e.g. cafeteria) for… pay rises for those earning above the minimum wage to avoid wage tensions

13 30

planned recruitment is not achieved

32

implement a price increase

38 0

5

10

15

20

25

30

35

40

Source: Gazdaság- és Vállalkozáskutató (2019): Gazdasági Havi Tájékoztató, 2019. július

Of the above steps, the price increase was mentioned by the respondents in the largest proportion: more than a third of them (38 %) have taken this step or will take it this year. 32 % of the respondents indicated the lack of planned recruitment. In order to avoid wage tensions, 30 % of enterprises also raise the wages of employees earning above the minimum. A quarter of the surveyed companies (25 %) plan to postpone the planned investments. 15 % of the companies decided to reduce the other benefits of the employees 72

involved in the wage increase, and 13% decided to reduce the variable wages (e.g. bonuses). Roughly every tenth company transfers the employees affected by the wage increase to part-time employment (12 %) or changes their job title and duties (11 %). The least typical reaction is the implementation of layoffs: this was indicated by only 5% of the companies. According to the results, following the wage increase, more than half of the companies (54 %) modify their business strategy: in the framework of this, they postpone their previously planned investments, as well as the planned hiring, or raise the price of their products. 19% of the companies are planning employment-related steps: at these companies, layoffs have already taken place or will take place, jobs and tasks will be modified, or the employment of the workers affected by the wage increase will be converted into part-time employment. The proportion of enterprises that plan to reduce the affected employees' fringe benefits or variable wages is 18 %. The annual increase in the minimum wage is clearly necessary from both a social and a social point of view. It benefits the employee and the state but is problematic for the third party. However, many employers do not have this coverage, so it is no coincidence that since the system change, the minimum wage has been increased several times without reaching the level of inflation, i.e. the minimum wage has decreased in real terms. There is a way out: starting with a much more considerable disadvantage; our neighbours are now moving ahead temporarily. This may even be the pattern. The key is to develop the economy. Lastly, another critical thought: the minimum wage is more than starving to death, but not enough to make a decent living.

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5. Minimum wage in the EU There are many variations of minimum wage systems. In some countries, its level is determined by a legal requirement; in others, it is formed on the basis of formal or informal consultations between employers and employees. The minimum wage level in some countries may vary according to age, occupation, region or marital status. EU member states' minimum wage in 2019 ranged from €286 to € 2,071. The EU member states covered by the data collection can be classified into three different groups based on their gross monthly national minimum wage expressed in euros; third countries are presented as a separate group in the figure.

The monthly gross minimum wage, 2019 (€) 2 100

16

1 900

14 12

1 500 1 300

Average annual rate of change (%)

Minimum wages (EUR per month)

1 700

10

1 100

8

900

6

700 500

4

300

2

100

0

- 100

United States

Albania North Macedonia (¹)(²) Montenegro (¹)(²) Serbia Turkey

Spain United Kingdom France Germany (¹) Belgium Netherlands Ireland Luxembourg

Croatia Czechia Slovakia Poland Estonia Lithuania Greece Portugal Malta Slovenia

-2

Bulgaria Latvia Romania Hungary

- 300

Minimum 20092 (left hand scale)GROUP 3 GROUP 1wages, January GROUP Minimum wages, January 2019 (left hand scale) Average annual rate of change, January 2009 to January 2019 (right hand scale) Minimum wages, January 2009 and January 2019 (EUR per month and %) Eurostat ( earn_mw_cur )

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Group 1 includes countries where the national minimum wage was lower than €500 per month in January 2018. This group includes the following EU member states: Bulgaria, Lithuania, Romania, Latvia, Hungary, Croatia, the Czech Republic and Slovakia; their national minimum wages ranged from €261 (Bulgaria) to €480 (Slovakia). Group 2 includes countries where the national minimum wage in January 2018 was at least € 500 per month but was lower than €1,000. This group includes the following EU member states: Estonia, Poland, Portugal, Greece, Malta, Slovenia and Spain; their national minimum wages ranged from €500 (Portugal) to €859 (Estonia). Group 3 includes countries for which the national minimum wage was at least € 1,000 per month in January 2018. This group includes the following EU member states: the United Kingdom, Germany, France, Belgium, the Netherlands, Ireland and Luxembourg; their national minimum wage was between €1,401 (United Kingdom) and € 1,999 (Luxembourg). The minimum wages for all EU candidate countries showed values similar to those of group 1 member states, ranging from €181 (Albania) to €446 (Turkey). Unfortunately, in the Eurostat comparison, there is no more recent data on the gold price of workers earning the minimum wage than in 2014.

Percentage of workers earning less than 105% of the minimum wage, October 2010 and 2014 (%)

Slovenia (¹) Romania Portugal Poland Bulgaria France Lithuania Latvia Greece Croatia Luxembourg Hungary Ireland United Kingdom Netherlands (²) Estonia Malta Slovakia Czechia Spain Belgium

20 18 16 14 12 10 8 6 4 2 0

2010

2014

The proportion of workers earning less than 105% of the minimum wage, October 2010 and October 2014 (%) Eurostat and (earn_mw_cur) the 2014 Structure of Earnings Survey

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The proportion of workers employed on the minimum wage can differ significantly between individual countries. These rates can be estimated by linking microdata from the last two quadrennial Surveys of the Structure of Earnings (SES) and the minimum wage levels in effect at that time (October 2010 and October 2014). For the sake of comparability, Eurostat narrowed the scope of the analysis to full-time employees over the age of 21 in an enterprise employing at least 10 employees and excluded NACE Rev. 2. segments belonging to the national economic branch of O. (public administration, defence; compulsory social insurance). In addition, monthly earnings calculated on the basis of SES do not include overtime pay or shift allowances. In October 2014, the proportion of employees with a salary lower than 105% of the national minimum wage was over 7.0% in the following ten EU member states applying a mandatory minimum wage: Slovenia (19.1 %), Romania (15.7 %), Portugal (13.0 %), Poland (11.7%), Bulgaria (8.8 %); France (8.4 %), Lithuania (8.1 %), Latvia (7.9 %), Greece (7.7 %) and Croatia (7.1 %). The proportion of employees earning less than 105% of the national minimum wage was the lowest in Belgium (0.4%), and in the remaining ten EU member states, this value was between 1.0% (Spain) and 5.8% (Luxembourg). Between 2010 and 2014, the proportion of employees earning less than 105% of the national minimum wage increased by more than 2.0 percentage points in Romania (11.7 percentage points), Bulgaria (5.4 percentage points), Poland (3.6 percentage points) and Hungary (2. 3 percentage points), while it decreased by more than 2.0 percentage points in Lithuania (5.6 percentage points), Ireland (5.1 percentage points), Luxembourg (4.1 percentage points), Latvia (4.0 percentage points), Portugal (3.8 percentage points), in Croatia (by 2.6 percentage points) and Slovakia (by 2.2 percentage points). The Hungarian minimum wage is the fourth lowest among the countries of the European Union; only the minimum wages of Romania, Latvia and Bulgaria are lower. Between 2010 and 2014, the number of workers earning less than 105% of the national minimum wage in Hungary increased by 2.3 percentage points, i.e. as a result of the minimum wage increases, the proportion of those earning the minimum wage nearly doubled. The Hungarian minimum wage is €464 gross and €314 net, which is outstanding in the Balkan region but the worst in Central Europe. The reference is usually the economic position, i.e. productivity. Let us see. There are very easily comparable performances. A German or French bus driver works the same amount as his Hungarian colleague, if 76

not more (the French week is 35 hours, the German 39). The same is true for shipping, education, and most services. If the output here is the same, and it is, then the productivity of these sectors is essentially the same. Comparisons are easy in industry and agriculture as well. It is based on the new value created during the unit of time. The best-known approach is to create a new product during one working hour. Here, the difference between Western and Hungarian results is significant, but let us not forget that a more mechanised construction industry or animal husbandry produces more per unit of time than its less mechanised or even manual labour counterparts. If productivity in these areas increases, horribile dictu reaches the Western level; then there is an easy opportunity for wages to do the same.

Western and Eastern minimum wages

Source: Google PublicData – Minimum wages https://www.google.com/publicdata/explore?ds=ml9s8a132hlg_#!ctype=l&strail=false&bcs=d&nselm=h&met_y=minimum_wage&fdim_y=currency:eur&scale_y=lin&ind_y=false&rdim=country&idim=country:be:de:fr:uk:bg:hu:sk:cz:pl:ro:si:hr&ifdim=country&tstart=917046000000&tend=1626991200000&hl=en_US&dl=en_US&ind=false

The graph shows that Hungary is almost on the back foot, fourth to be precise. The data are given in euros and refer to gross wages. The difference between the highest and the lowest gross minimum wage is €1,784.77. This corresponds to HUF 589,000.63 It is imperative to take into account what the 63

MNB euro average exchange rate in the end of 2019: HUF 329.82/ euro.

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cost of living is like in some countries and what kind of subsidies and discounts are or can be given to modest earners. Due to the rich scale, we cannot go into such details; it only indicates the breadth, just as there is no question of what is better. To live on the minimum wage in Luxembourg or to be a multi-degree teacher in Hungary because the minimum wage could be compared that way, right? The minimum hourly wage at our largest trading partner, Germany, is €9.19 in 2019 and €9.35 in 2020. It corresponds to a monthly salary of €1,400 (the working week there is 38 hours). However, we are on the podium; we are in first place: this is the minimum wage and the amount of tax and contribution deductions charged to salaries in general. In Hungary, wages are taxed in an unhealthy way (we are sometimes second, sometimes third in the not-so-glorious ranking of taxes and contributions on wages among EU countries), and we can also boast the highest sales tax in the world (!). Both factors are hotbeds of tax evasion (undeclared workers and evasion of VAT), while wealth is practically not taxed, and capital income is hardly taxed. However, wealth tax and interest tax are the ones that would be very difficult to avoid. Another huge problem in the country is that the level of state redistribution has been unrealistically high for decades; everyone expects everything from the state, and therefore, the state burdens the entire country with many taxes. This causes a competitive disadvantage and is why we have become the leader in the region in 15 years. Not only do we pay too much tax compared to the region (Hungary: 39.2%, Slovakia 28.3%, Romania 28.3%, Czech Republic 35%, Poland 32.5%, Bulgaria 27.9%, Greece 33.7%, Lithuania 27%, etc.), but we are ahead of Germany, England, Ireland, Spain, Portugal, Slovenia, Malta, Cyprus and the Netherlands, which are much more developed and more prosperous than us. Net wages will remain so shamefully low until a hundred forint gross wages cost the employer 121 forints, and the employee only receives 66.5 forints - pointed out Ferenc Dávid, the outgoing general secretary of the National Association of Entrepreneurs and Employers (VOSZ). Regarding this year's wage negotiations, according to him, it is not possible to talk about specific numbers until the primary tax conditions are clarified, although no significant changes are expected. Until now, the practice was that the government made an extremely detailed impact analysis available to interest rep-

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resentatives. It was possible to start from this, but now, not all important parameters are known, including when exactly employers' burdens can be eased.64 The development of the minimum wage at the level of our region looks like that in 2017 - and even earlier, in 2014 - the difference between the minimum wage in Hungary and the other three Visegrad countries was minimal. To be precise, the Polish wage was 10 %, the Slovak 5.8 % higher, the Czech 1 %, and the Romanian 42 % lower than the Hungarian. Based on the plans, by 2020, these ratios will look like the Polish wage is already 31 % higher, the Slovak wage 20 % higher, the Czech minimum wage 12 %t higher, and the Romanian minimum wage only 2 % lower than the Hungarian one. However, it is much more telling than the changes in the gross minimum wage if we examine the net value of the planned wages. The KPMG Minimum Wage Based on the Survey's analysis, the examined countries tax the minimum wages at very different rates. In Romania, the largest deduction is imposed on the mandatory minimum wage; 41.5% of the gross amount is taken by the state in the form of various taxes and contributions, followed by the Hungarian state, which charges 34 % of salaries. The withdrawal rate is 21 % for Poles, 16 % for Slovaks, and just 14 % for Czechs. The unfavourable situation of Hungarian minimum wage earners in the region is, therefore, partly caused by the state itself through the high tax burden on gross wages. Thought experiment: if the Hungarian government only taxed gross wages to the same extent as, for example, the Slovak state, i.e. half of the current tax burden hit the workers, we would immediately be much closer to the net minimum wage of the Visegrad countries. Instead of 320 euros, those involved could take home €408. Calculated at the current HUF exchange rate, this would mean a monthly surplus of HUF 29,000.

64

Facsinay Kinga: Ki lesz gazdagabb a minimálbér-emeléssel? Magxar Hang, 2019. október 20.

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Minimum wage data Country

Bulgaria Romania Latvia Hungary Croatia Slovakia Czech Republic France

Gross in own currency 560 leva 2,080 lei 430 euros HUF 149,000 3,750 kuna 520 euros 13,350 crowns 1521 euros

Gross in HUF 90,832 139,027 136,409 149,000

Net in own currency 435 1 263 306 99,085

160,463 164,960 164,472 482,507

Net in HUF

Withdrawal rate (%)

70,484 84,419 97 123 99,085

22.4 39.28 28.8 33.5

3,000 430 11,266

128,370 136,409 138,797

20 17.31 15.61

1 122

355,932

26,23

500000 450000 400000 350000 300000 250000 200000 150000 100000 50000 0

40 35 30 25 20 15 10 5 0 Bulgaria Romania Latvia Hungary Croatia Slovakia Czech France Republic Gross in HUF

Net in HUF

Rate of deduction (%)

Source: https://www.napi.hu/nemzetkozi_gazdasag/minimalber-netto-bruttofizetes.677963.html

However, the examination of the nets alone still does not provide a complete picture of the growing gap in Hungarian minimum wages - more precisely, how strong the statement that Hungarian minimum wages are worth the least among the countries examined may become next year. This 80

is different for different countries, and the price level should also be taken into account, i.e., the amounts should be exempted from this. A wage taken at purchasing power parity is suitable for this. Based on Eurostat's statistics, we took this year's difference between the gross minimum wage and the amount calculated based on purchasing power parity as fixed for our estimate of the calculated minimum wages for 2020 and multiplied the net calculated for next year by this ratio. In this way, we can obtain the net minimum wages that have been cleaned of the differences resulting from the price level, and their real value becomes comparable. Based on this, the Hungarian minimum wage is the driving force in the region. Although the net minimum wage in Romania is nominally lower, those affected can buy more of it than Hungarians back home. Together with our neighbour to the east, the Hungarian salary stands out among the Visegrad countries because the locals can live much better in the given country on the Czech, Polish and Slovak minimum wage.65

The monthly gross minimum wage, 2019 (PPP basis) 1 750 1 500 1 250 1 000 750 500 250

GROUP 1

GROUP 2

United States

Albania North Macedonia (¹) Montenegro (¹) Serbia Turkey

Slovenia United Kingdom Ireland France Belgium Netherlands Germany Luxembourg

Greece Portugal Lithuania Romania Malta Spain Poland

Bulgaria Latvia Estonia Czechia Slovakia Croatia Hungary

0

GROUP 3

Source: Eurostat (2020): Minimum wages, January 2019 65

Székely Sarolta (2019): Végleg lemaradunk a bérversenyben, ha nem lesz adócsökkentés! Mendzser Fórum, 2019. szeptember 16. : https://mfor.hu/cikkek/makro/minimalber-regio-2020.html

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It is also worthwhile to compare gross minimum wages, taking into account price level differences, using PPP (purchasing power parity, and PPS for purchasing power standard) for household final consumption expenditure. As expected, adjusting for differences in price levels reduces differences between countries. EU member states can be classified into three different groups based on their gross monthly national minimum wage expressed in PPS; the third countries are listed as a separate group in this case as well. in fig. The differences between the minimum wages of EU member states, expressed in euros, decreased from 1 to 7.7 (this means that the highest minimum wage expressed in euros was 7.7 times higher than the lowest) expressed in PPS to 1 to 2.9 ( i.e. the highest minimum wage expressed in PPS was 2.9 times higher than the lowest). Group 1 includes countries for which the national minimum wage was lower than PPS 750 in January 2018. This group includes the following EU member states: Bulgaria, Latvia, Lithuania, the Czech Republic, Estonia, Croatia, Slovakia and Hungary; their national minimum wage was between 546 PPS (Bulgaria) and 743 PPP (Hungary). In Group 1 EU member states with a relatively lower minimum wage expressed in euros, the price level is also typically lower, which relatively increases the value of the minimum wage expressed in purchasing power standards (PPS). Group 2 includes countries for which the national minimum wage in January 2018 was at least PPS 750 but lower than EUR 1,000. Six EU member states belong to this group: Portugal, Romania, Greece, Poland, Malta, and Spain; their national minimum wages range from PPS 788 (Portugal) to PPS 938 (Spain). Group 3 includes countries for which the national minimum wage was at least PPS 1,000 in January 2018. This group includes the following EU member states: Slovenia, the United Kingdom, Ireland, France, the Netherlands, Germany, Belgium and Luxembourg; their national minimum wage was between 1006 PPS (Slovenia) and 1597 PPS (Luxembourg). With the exception of Turkey, the minimum wages in PPS for each of the other four EU candidate countries were similar to those of the Group 1 Member States, ranging from 350 PPS (Albania) to 553 PPS (Serbia). Turkey, which applies a national minimum wage of 1018 PPS, and the United States, which has a PPS of 1011, had their minimum wages in PPS in the same range as those of Group 3 member states.

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Recently, much talk has been about the uniform European minimum wage.66 We briefly refer to the current unreality of this. It is fundamental that the institution of the minimum wage should be determined, taking labour productivity into account. Because - and this is a fact - within the European Union, there are very large differences between labour productivity in individual countries (and productivity does not mean how well a worker works but depends on the supply of physical and human capital and the productivity of companies). Accordingly, if there were a uniform minimum wage in Europe, which would be considered a significant increase in the less developed countries of the Union, it would be so high that it would not be worth employing a significant part of the population in these countries, including Hungary. A uniform minimum wage could, therefore, have catastrophic consequences. Macron, for example, wants a "country-specific" European minimum wage. However, it is unclear what this would mean, how much of a minimum wage increase would entail in the poorer member states, and how it would be determined. According to Emmanuel Macron, collective negotiations would precede the establishment of minimum wages. Even starting the French situation in the eastern part of Central Europe is not necessarily lucky because of the higher hourly wages and social benefits but also because the working week is only 35 hours, 13th monthly salary, etc. If it were to be decided at the European level what the minimum wage should be in Hungary, it would almost certainly have harmful consequences. It is in the interest of Western European trade unions that as many productive activities as possible are concentrated in Western Europe and that as few as possible are outsourced to Central and Eastern Europe. Along these lines, they could fight for high minimum wages for Eastern European countries, resulting in a significant decrease in employment in the latter. It could also be argued in favour of a uniform European minimum wage that it would ensure a minimum wage in countries where there is no minimum wage. However, in those states where there is no minimum wage, without exception, there are strong trade unions, often with collective bargaining

66

Müller, T., & Schulten, T. (2020). The European minimum wage on the doorstep. ETUI Research Paper-Policy Brief, 1. and Schulten, T., & Müller, T. (2019). What’s in a name? From minimum wages to living wages in Europe. Transfer: European Review of Labour and Research, 25(3), 267-284.

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at the sector level, so in practice, there is already a kind of minimum wage in these countries, only it is ensured by a collective agreement. A uniform minimum wage in Hungary would also mean that the minimum mandatory wages would be raised to at least 60% of the average. According to numbers, this means that if the Hungarian average gross salary is HUF 362,000, then the minimum wage would be at least HUF 216,000. However, the previously mentioned positive effects related to the wage increase would not be able to take effect because so many businesses would not be able to pay such a large amount, which would result in mass unemployment due to their closure, as well as a significant decrease in state revenues, which would spill over into other areas, etc. Although, according to Mt., the Government can establish a mandatory minimum wage and a guaranteed minimum wage of different amounts for certain groups of employees, the government has not yet implemented this. Germany uses a detailed minimum wage table, with separate eastern and western breakdowns to catch up.67

Sector-specific minimum wages in Germany Minimum wage Temporary employment Vocational training and continuing education services (education) Building industry Skilled workers Skilled workers, machine operators, drivers Roofing

Validity

East

01.06.17 - 31.03.18 01.04.18 - 31.03.19 01.04.19 - 30.09.19 01.10.19 - 31.12.19 01.01.17 - 31.12.17

West EUR 9.23 (Berlin: 8.91) 9.49 (Berlin: 9.27) 9.79 (Berlin: 9.49) 9.96 (Berlin: 9.66) 14.60

01.01.17 - 31.12.17 01.01.17 - 31.12.17

11.30 14.70 (Berlin: 14.55)

11.30 11.30

01.01.17 - 31.12.17

12.25

12.25

8.91 9.27 9.49 9.66 14.60

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Caliendo, M., Wittbrodt, L., & Schröder, C. (2019). The causal effects of the minimum wage introduction in Germany–an overview. German Economic Review, 20(3), 257-292. and Bruttel, O. (2019). The effects of the new statutory minimum wage in Germany: a first assessment of the evidence. Journal for Labour Market Research, 53(1), 1-13.

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Electronic service Meat industry Industrial cleaning Indoor and maintenance activities Glass and facade cleaning Scaffolding Agriculture, forestry and horticulture Painting, glazing Unskilled worker

Skilled worker

Long-term care Chimney sweep Masonry and stone carving Laundry service

01.01.17 - 31.12.17 01.01.18 - 31.12.18 01.01.19 - 31.12.19 01.12.16 - 31.12.17

10.65 (Berlin: 10.40) 10.95 11.40 8.75

10.40 10.95 11.40 8.75

01.01.17 - 31.12.17

10.00

9.05

01.01.17 - 31.12.17

13.25

11.53

01.05.17 - 30.04.18 01.01.17 - 31.10.17 01.11.17 - 31.12.17

11.00 8.60 9.10

11.00 8.60 9.10

01.05.17 - 30.04.18 01.05.18 - 30.04.19 01.05.19 - 04.20.30 20.05.01 - 21.04.30 01.05.17 - 30.04.18 01.05.18 - 30.04.19 01.05.19 - 04.20.30 20.05.01 - 21.04.30 01.01.17 - 31.10.17 01.01.16 - 31.12.17 01.05.17 - 30.04.18 01.05.18 - 30.04.19 01.07.16 - 30.09.17

10.35 10.60 10.85 11.10 13.10 13.30 13.30 13.50 10.20 12.95 11.40 11.40 8.75

10.35 10.60 10.85 11.10 11.85 12.40 12.95 13.50 9.50 12.95 11.20 11.40 8.75

Source: Statutory agreed branch-specific minimum wages in Germany in June 2017 (www.destatis.de)

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6. Hungarian minimum wage In Hungary, the institution of the minimum wage was introduced in 1989, and between 1992 and 2011, its rate was determined annually at the end of the tripartite consultations held in the National Interest Conciliation Council (OÉT). On July 30, 2011, the council ceased to exist, and the National Economic and Social Council, which replaced it, can only make proposals. The Government is authorised in § 153, paragraph (1) of Act I of 2012 on the Labour Code (Mt.) to determine the amount and scope of the mandatory minimum wage and the guaranteed minimum wage – after consultation with the National Economic and Social Council – established in a decree. Furthermore, the Government was authorised to determine the expected level of wage increases necessary to preserve the net value of gross wages below HUF 300,000, the amount of fringe benefits that can be taken into account in this context, as well as the detailed rules related to the expected level of wage increases - carried out in the National Economic and Social Council after consultation - determined in a decree. From January 1, 2020, the amount of the minimum wage and the guaranteed minimum wage will also change in accordance with the 2-year wage agreement concluded at the end of 2018. Both wages will increase by 8% in 2020 compared to 2019.

Minimum wage 2020 Gross amount of minimum wage in 2020 HUF 161,000 Contributions and deductions in 2020 Its rate in 2020 The employer Social contribution tax 17.5% HUF 28,175 pays for his em- Vocational training contribu1.5% HUF 2,415 ployee tion All employer obligations based on the gross 19% HUF 30,590 salary: It is deducted Personal income tax 15% HUF 24,150 from the emLabour market contribution 1.5% HUF 2,415 ployee Health insurance contribution 7% HUF 11,270 Pension contribution 10% HUF 16,100 All deductions from the employee's gross sal33.5% HUF 53,935 ary: In total, the following must be paid to the state each month: HUF 84,525 Total monthly employer costs: HUF 191,590 Net amount of minimum wage in 2020 (official!) HUF 107,065 86

The amount of deductions is clearly visible from the table. In short, of the gross HUF 161,000 established for 2020, HUF 107,000 will remain for the employee concerned. All these costs for the employer are HUF 192,000, i.e., the delinquent receives only half of the value of his work. Not even really, since he spends his money on shopping (only a few politicians from Miskolc can invest it), so he pays 27% sales tax. Furthermore, since this is the income group that spends the most on drinks and cigarettes in addition to the necessary food, the excise tax on ABC products is added to the deduction 68 , an additional 5-6% (for cigarettes, 10-70 forints, for spirits HUF 3,333/litre), i.e. a third of the net money goes to the state. In other words, roughly HUF 70,000 belongs to the minimum wage earner proportionally; this is 36% of the employer's pay, just over a third. To complete the picture, the guaranteed minimum wage (in everyday terms, the minimum wage for skilled workers) is only HUF 140,000 net.

Minimum wage 2012-2020 220 000 200 000 180 000 160 000 140 000 120 000 100 000 80 000 60 000 40 000 20 000 2012 2013 2014 2015 2016 2017 2018 2019 2020 Minimum wage

Guaranteed wage-minimum

Source: nav.hu

Is it a lot or a little? – the question arises, but it would be more correct: is it possible to make a living from this? The answer is simple: you can't, but you must. The wage formulated by Attila József was far behind the Western 68

ABC products : alcohol , gasoline , cigarettes , i.e alcohol , fuel and tobacco products , the advanced world almost is highlighted everywhere tax , but of this extent per country different. Hungary follows relevant to the EU regulations , such as tobacco products price is as follows year for sure woman and alcoholic drinks one part of the increase will be

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world in the 1930s, and nowadays, as Péter Gothár puts it, Time stands still.69 With us and in this regard, definitely. The Hungarian government likes to state that it has doubled the minimum wage since 2010, but this is only true for the gross wage. It rose from 73,500 to 149,000. The net – as mfor.hu recently calculated – only increased by 64.5 % from HUF 60,236 to HUF 99,085. In other words, they increased by HUF 4,316 per year on average.70

69

The film is from 1981 and evokes the 1960s, but it is as timely as the proletarian poet's poem. 70 Székely Sarolta: Minimálbér: Így vezet félre a legújabb kormányzati sikerjelentés. Menedzsment Fórum 2019. január

88

Take into account that from such a sum in Hungary, not only the directly affected approx. 1.5 million people earn around the minimum wage, but out of the 2.1 million pensioners, 600,000 have a pension of less than 100,000 forints, and we can add to this that the average Hungarian pension is only 134,000 forints. The situation of public employees colours the palette; they do not even belong to the minimum wage category, but they are very much in the social tension: we currently have 108 thousand people.71 It is also a significant aspect that the majority of our minimum wage earners cannot (they are not in such a state of health, there are no job opportunities in the area, they do not have time, etc.) get a part-time job; the same applies to pensioners and those living on pensions (age, health condition, family, etc.). This is a tremendous social tension; no government has been able to solve it.

71

KSH, October 2019, http://www.bkmkik.hu/hu/aktualis-hirek/elemzesek/3688-gazdasagi-havi-tajekoztato-2019-julius

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III. Response options for COVID-19 As the global community grapples with the unprecedented challenges posed by the COVID-19 pandemic, the need for effective response options has become paramount. It is worth meticulously examining a spectrum of strategies deployed to address the multifaceted impacts of the pandemic, focusing on key areas of consideration. In the face of economic disruptions, labour market solutions emerge as crucial mechanisms, providing insight into strategies designed to navigate the intricate dynamics of employment during these challenging times. In the second half of 2019, a new type of virus called COVID19 appeared in China; this was officially confirmed in November 2019.72 A few weeks later, in January 2020, they also became infected in Europe. The UN World Health Organisation, WHO, declared it a global epidemic on March 11, 2020, due to the large number of cases. It was also announced in Hungary at the same time.73 The coronavirus has not escaped our country either; such patients have been here since January 2020, and their number is increasing. At the time of writing this part – 2020 – the official statistics inform about nearly 3,000 cases (2,775 people). Additionally, state intervention, marked by governmental actions and policies, is explored as a central response option. This section scrutinizes the measures taken by various governments to stabilize economies, protect livelihoods, and bolster resilience against the economic fallout of the pandemic. We delve into exceptional solutions that go beyond conventional strategies, offering a nuanced understanding of innovative approaches implemented in select regions. Drawing on lessons from abroad, we investigate foreign examples, categorising responses within the European Union, West Europe, and the Visegrad and Central and Eastern European (CEE) countries. Examining these diverse approaches aims to distil best practices, identify potential pitfalls, and

72

The name of the disease is COVID-19. COVID-19 is capitalised because it is an acronym for COronaVIrus Disease, and it was first detected in 2019. Referring to the disease as the coronavirus is acceptable when writing about the current pandemic. https://www.uth.edu/brand-standards/editorial/writing-guide 73 40/2020. (III. 11.) Govt. decree emergency situation announcement § 4. This decree shall enter into force at 15.00 on the day of its promulgation.

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contribute to a global understanding of effective pandemic response strategies. Recognising the financial toll on individuals, we explore resources available for the municipalities for lost wages. This encompasses examining state-provided resources, market mechanisms, and professional opinions that collectively contribute to the holistic framework for addressing the economic challenges individuals and households face. An epidemic is spreading rapidly due to globalisation and increased passenger and goods traffic. It is present in almost all countries of the world, in some places to a huge extent, in others to a more modest extent. Most governments are trying to slow down the rate of its spread within their national competence; curfews, quarantines, and other restrictions have been introduced in many areas. Other governments vote in favour of faster contagion, and based on the herd approach, they get over it sooner (Great Britain, Sweden, and some African states). Hungary chose the former, as the healthcare capacity is scarce, and mass care would be impossible. The economic life reacted accordingly; many sectors and plants only partially functioned or stopped completely. The work of the people working there has ceased or will cease overnight, and as a result, their income will decrease or even be non-existent. There is a review of how the individual governments are reacting to this, what direct measures they are taking, and what help they are giving to employers and employees so that their people are not left without money, and that the post-epidemic period is about a rapid recovery as soon as possible. First of all, the world has not encountered this type of crisis before, so this material cannot display the entire economic arsenal, not even the one related to wages, nor present the best practice. The reason is very simple: everyone is encountering the problem for the first time, so there is no experience, not even a version that has been tested for several months; the governments of each country are trying to react to it according to the ideas and logic of narrow political and/or economic leadership. Only once in recent human history has such a pandemic occurred: the Spanish flu at the end of the First World War. In economic terms, it is impossible to adapt the experiences of this to today's conditions since a hundred years ago, it was a completely different world. Medicine was less developed; the economy was devastated everywhere due to the great war, the governments were penniless, and due to the lack of arms and armed forces, they 91

could not even organize a defence. Thus, the epidemic that broke out in the fall of 1918 claimed the lives of 50-80 million people according to various, very different estimates, but it is agreed that it was more than the death toll of the entire world war. However, the experience was still there: the effect of the measures that were not taken compounded the problem, which is why so many people lost their lives. April 2020 is illustrated in the figure below. Knowing the situation, we are forced to assume that the virus will already have a greater extent when reading the material.

Cases of COVID-19 in the selected countries

Deaths from COVID-19 in selected countries

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The appearance of the coronavirus immediately brought the economy to a standstill. Among its first effects on incomes, it should be highlighted that the wage problem appears immediately. The decline, or even the shutdown, was felt almost immediately in many economic sectors: tourism, hospitality, a large number of industries, etc. Due to the lack of demand and orders, in most cases, part-time work, mass layoffs have occurred and will occur in more challenging situations, and employers cannot pay or can only pay significantly less since this has never happened before, and no one was prepared for this. One thing is certain: the current economic downturn caused by the epidemic will be bigger and longer than the last one in 2009. The current measures - including wages - aim to ensure that the market recovers and the plants start up as soon as possible after the pandemic subsides. Everyone, at least most employees, expects help from the government's measures, but so do the businesses involved. Money must be given to the workers, not only on a humanitarian basis but also out of a well-conceived interest, since without income, there is no demand, the economy stops entirely and then comes anarchy and chaos, the consequences of which are unforeseeable, i.e. it must be avoided at all costs. Important: at all costs. The simplest forms of help for loss of wages offer many - but not the majority - a partial, or in more fortunate cases, a complete solution. Due to the short amount of time that has passed, there is no practical experience anywhere, and where it might be – China – is not relevant due to the specific nature of the country, above all, its political system and closely related data management and information filtering. Sector

Gross Undertaking Budget Nonprofit

Earnings trends, January–February 2020 Altogether average change commonthly earnpared to the ings, same period of HUF/person the previous year, % 390,800 344,600 335,100

9.1 9.0 10.7

Without public employees average change commonthly earnpared to the ings, same period of HUF/person the previous year, % 391,400 377,500 351,400

9.0 7.7 8.7

93

Total national economy Of this: public employees Net Undertaking Budget Nonprofit Total national economy

376,300

9.2

386,300

8.7

81,300

0.0

x

x

259,900 229,200 222,800

9.1 9.0 10.7

260,300 251,000 233,700

9.0 7.7 8.7

250,200

9.2

256,900

8.7

Source: KSH: KSH: Gyorstájékoztató Keresetek, 2020. január–február

How much wages should be replaced; how much will the loss be? The latest from the KSH, 2020. based on its summary for the January period, the gross average salary was HUF 376,300, with a 9.2 % increase compared to the same period of the previous year. In net terms, this is roughly two-thirds (such a high deduction is rare in EU countries), i.e. about HUF 250,000. There are hardly any such low wages in Europe. In terms of purchasing power parity, the situation is a little better. Thus, the Hungarian €13,824 is the seventh smallest among the listed countries; behind us are only Slovakia, the Balkans and some countries of the Baltics. From the point of view of our topic, this is an exceptional advantage now because less has to be spent on wages when compensating for the epidemic. A fundamental problem is the lack of reserves when the epidemic appears. Although the economy has been doing well in recent years, the government did not really think about it; rather, it helped faster growth and its background. To use the political parlance of the day, the Hungarian people are not really thrifty. Even in more prosperous times, they do not think about later retirement or illness. Moreover, many people live at such a level of poverty that they have daily living problems and no opportunity to save at all. According to a recent survey, about half of the employees only have a reserve, which is only enough for one or two months.74

74

HVG April 2, 2020 p. 6

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7. Relevant and considerable options The COVID-19 pandemic has unleashed unprecedented challenges globally, necessitating a meticulous examination of response options to address the multifaceted impacts on societies and economies. Within this context, this chapter meticulously scrutinizes relevant and considerable strategies that have emerged as crucial in mitigating the economic repercussions of the pandemic. As we navigate this exploration, particular emphasis is placed on three pivotal categories of response options: labour market solutions, state intervention, and exceptional measures. In essence, we provide a comprehensive analysis of response options for COVID-19, acknowledging the urgency of identifying and implementing strategies that are not only relevant but also capable of addressing the considerable economic and social disruptions triggered by the ongoing global health crisis. Through a systematic examination of labour market dynamics, state interventions, and exceptional measures, the contribution gives valuable insights into the ongoing discourse surrounding pandemic response and recovery efforts.

Relevant and considerable options Relevant and considerable options Labour market solutions

State intervention

Exceptional solutions

Home office

Government supplement

Moratoriums

Unconditional basic income

Work force redeployment

Sectoral tax exemption

Unemployment benefit

State acquisition

Sick leave

Income replacement

Extraordinary salary changes

Early retirement pension Disability declaration

Source: own compilation

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There are many options for the exceptional management of wages and employment: home working, government supplements, workforce redeployment, sick leave, percentage reduction, early retirement, moratoriums, unemployment benefits, income replacement, sectoral tax exemption, unconditional basic income, extraordinary salary changes, state acquisition.

7.1. Labour market solutions As a cornerstone of economic stability, the labour market is a focal point of analysis. Labour market solutions are evaluated for their effectiveness in navigating the complexities arising from disrupted employment patterns, providing insights into adaptive strategies to sustain livelihoods and maintain workforce resilience.

Home office Today's technical development, above all the spread of the Internet, makes it possible to work from home. The home The appearance of office almost immediately followed the creation of IT, long before the outbreak of the epidemic, in some Scandinavian states; in Finland, it already has decades of experience and is being used successfully.75 In times of a virus, it is perhaps the simplest means of replacing classic office work, even where it can be solved due to the nature of the task.76 In many places, however, the apartments are not prepared for this, even though the relevant technology would be good not only for work but also, e.g. also for the school progress of the child(ren) during an epidemic. This is where the government's potential role appears: facilitating computer purchases, providing discounted or even free hardware and software necessary for work and study, making Internet services cheaper (e.g. VAT exemption) or free. The distribution program can be made cheaper if the state also involves market participants and companies: it makes them understand that one of the ways of future office development is the home office, and this can have many advantages because it is cost-saving (no office space or infrastructure is needed), and with proper 75

Yang, E., Kim, Y., & Hong, S. (2021). Does working from home work? Experience of working from home and the value of hybrid workplace post-COVID-19. Journal of corporate real estate, 25(1), 50-76. and Oksanen, A., Oksa, R., Savela, N., Mantere, E., Savolainen, I., & Kaakinen, M. (2021). COVID-19 crisis and digital stressors at work: A longitudinal study on the Finnish working population. Computers in Human Behavior, 122, 106853. 76 Von Gaudecker, H. M., Holler, R., Janys, L., Siflinger, B., & Zimpelmann, C. (2020). Labour supply in the early stages of the CoViD-19 Pandemic: Empirical Evidence on hours, home office, and expectations.

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organisation, work from home can be just as effective. In addition, it can have many secondary benefits, e.g., part-time employment, individual schedules, missed travel time and expenses, etc. Accelerating this type of development with numerous tax incentives – is available free of charge; in our view, the traditional administrative, research, etc., most of the work can continue this way. Its primary problem is that it cannot be used in all areas since personal presence is necessary in many places, so much so that it cannot be substituted.77 Another disadvantage of Hungary (which also occurs in many other countries of the world) is the relative lack of infrastructure, as there are still apartments and parts of the settlement where there is no electricity, let alone a computer. The latter is already giving individual governments the task of quickly installing a power source, even with a solar solution, to provide PCs capable of even more modest services.

Work force redeployment One of the least painful solutions is the redeployment of the workforce. It's strange but true: the crisis also has winners. Sectors are booming (food trade, delivery, etc.), and there was already a labour shortage in others (construction, healthcare, seasonal agricultural work, etc.) - these now require people. The role of the state here is clearly to help the process. This applies, on the one hand, to speed up the process, i.e. to the organised redirection of the freed-up workforce, and on the other hand - where justified to the partial compensation of declining wages due to job changes. It is clear that this is also one of the cheaper solutions. The COVID-19 pandemic presents unique challenges in developing flexible redeployment strategies and delivering training promptly while following infection control recommendations. To tackle these challenges, which are relevant to inform the development of targeted and adaptative training and redeployment plans considering the needs of HCWs.78 The only major drawback is that significantly more – by an order of magnitude – workforce is released at failing businesses than these sectors can absorb.

77

Fadinger, H., & Schymik, J. (2020). The costs and benefits of home office during the covid-19 pandemic: Evidence from infections and an input-output model for germany. Covid Economics, 9(24), 107-134. 78 Faderani, R., Monks, M., Peprah, D., Colori, A., Allen, L., Amphlett, A., & Edwards, M. (2020). Improving wellbeing among UK doctors redeployed during the COVID-19 pandemic. Future healthcare journal, 7(3), e71.

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Sick leave Another solution is employee sick leave. The affected employees realised this themselves; most of the family doctors are also partners in the tender; it has only two flaws: the limited duration and the fact that it does not generate income, so it takes taxpayers' money.79 It is good for the state because the fund is paid by social insurance, where social security has already allocated money. The first few days – 15 days in Hungary (sick leave with 70% reimbursement) – are the employer's cost, so the government is relieved of the burden until then. The sick pay can come afterwards so that the employee will receive only 60% of his previous income (50% in the case of hospital care). The disadvantage of both is that it is not a permanent solution due to its time limit (one year, but if the epidemic drags on?), and it only applies if the person concerned has 730 days of continuous insurance coverage.

Extraordinary salary changes The wage problems of the epidemic situation include extraordinary salary increases. In connection with the spread of the pandemic, there will be areas where, due to the mass spread, it is necessary to work at full capacity, often well over 8 hours a day and 100%. This will be the case, above all, in healthcare. The promised one-off sum of 500,000 HUF for the summer is to be welcomed, but together with the Hungarian Medical Chamber, we also say the solution is to raise wages permanently. Temporarily, they can appeal to professionalism, but the future strained work will probably force them to raise salaries at least for the extraordinary period, as is already the case in several European countries. It is even possible to double healthcare wages, such is the example of neighbouring Slovenia, which produces the highest medical wages in Europe as of last month. There are not only raises but also wage cuts. The employer can pay 4080% of the previous salary for the epidemic, so the employee gets all the money, stays with the company, and can be used as a temporary solution.

79

Pichler, S., Wen, K., & Ziebarth, N. R. (2020). COVID-19 Emergency Sick Leave Has Helped Flatten The Curve In The United States: Study examines the impact of emergency sick leave on the spread of COVID-19. Health Affairs, 39(12), 2197-2204.

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The fundamental problem is that those most affected, those in the lower segment of the SME sector (micro and individual enterprises), do not have enough reserves to be able to implement this. Most EU countries use it.

7.2. State intervention The role of state intervention is based upon the fact that it has a powerful mechanism to counteract the pandemic-induced economic downturn. By investigating the measures governments implement to stabilize economies and protect vulnerable sectors, we aim to discern the impact of these interventions on broader economic recovery and societal well-being.

Government supplement It is also one of the cheaper solutions if the state helps those companies where there is a shutdown or reduced operation due to necessity, and the management is willing and has some means to temporarily pay the workers. Supplementing the employer's wages, it is more beneficial for the government to provide a partial income than if it had to bear the entire amount. It is also important that after the crisis subsides, the employee will still have his place, the company will not have to look for a new specialist, and the economy will recover sooner. It is no coincidence that this has become one of the most common practices. It was introduced in many Western European countries, three Visegrad countries, and some states in the Balkans. At the time of writing this study, the Hungarian leadership is already dealing with this. The disadvantage of the scheme is that it cannot be used everywhere, as there are/will be many companies that go bankrupt, and a different method is needed there.

Moratoriums The introduction of various moratoriums reduces social tension. Although this does not mean any income replacement or supplement, it helps to temporarily reduce the burden of the affected workers, waiting for the time when they will receive their usual salary again and can settle their arrears. As the saying goes, he who wins time wins life. Many people use it: Italy, France, Austria, etc. The Hungarian government has already introduced such measures, which are expected to be applied even more widely. The disadvantage, in addition to the fact that the difference is paid out of taxpayers' 99

money, is that it only affects the stratum that has some sort of debt. However, they should be very selective here: the repayment does not matter. Eviction, tax withholding, e.g., suspension, but this discount no longer applies to bailouts or foreign currency borrowers. Sharing is just as difficult in many cases of KATA. For the latter, e.g. a taxi driver receives the 4-month discount (March-June, they are exempt from paying the itemised tax, for now, it affects 81,000 people), but a theatre ticket seller does not, although the former likely has a few daily rides, even the latter nothing due to restrictions. We cannot even cite international examples here since KATA is a Hungarian invention. They are not the same, but there are similar ones in other countries as well, taking care to cover a sector as completely as possible. There is no perfectly fair solution; the policymaker has to draw the line somewhere. In our opinion, the depth and length of the crisis will also be the determining factor here, and the daily situation will force the expansion.

Sectoral tax exemption The sectoral tax exemption helps wage payments. This is also the case in several European countries (Austria, Germany, Italy, Spain, etc.) – the affected. The basic goal is for the companies to be able to pay the wages at least partially so that the people remain and the future restart can be as smooth as possible. Here, too, it is difficult to draw a line as to who the beneficiaries should be.

Unemployment benefit Unemployment benefit. We emphasise that this is a temporary solution, neither good for the state nor the person concerned. The three-month period in Hungary is not adequate at the moment either; obviously, as the crisis drags on, it needs to be amended here as well. The general European practice in almost every country is that it is difficult to find a suitable job in 6 or 9 months (Austria, Germany, etc.), even in "peacetime" in 3 months. Currently, the job search allowance in Hungary is only HUF 69,000, and after three months, it is only HUF 22,000, then the so-called they can get the support that replaces employment. He should be called a living artist or a politician who can really make a living from this.

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Income replacement Another tool is the income replacement of workers laid off during the crisis. It is clearly necessary if only to avoid political and social storms, which entail an even greater risk in an epidemic. The rate varies; 40-80% is accepted in most countries. Its application is common; from Poland to Portugal, it is almost everywhere. It is difficult to predict the start of economic recovery, but the later it is, the luckier (?), but certainly more reasonable to establish a lower amount. We believe that the epidemic will drag on, and the government will also "flatten" the spread curve, which is why the smaller but long payment is justified. Therefore, a state statement is necessary so that company managers know what to expect. Either he terminates the employee and avoids further wage costs but loses the employee, or he waits for the government's support to pay the subsequent wages, and then he can keep his man. At the time of writing these lines, the time and extent of the income replacement cannot yet be known, only that it is "up in the air".

7.3. Exceptional solutions The exceptional solutions extend the conventional frameworks and are brought into focus. These innovative strategies and policies implemented by various entities shed light on unique approaches that have proven relevant and considerable in the face of unprecedented challenges.

Universal or Unconditional basic income The universal basic income (UBI) or unconditional basic income instead of wages is a special benefit. This social policy concept involves providing all citizens or residents of a country with a regular, unconditional sum of money, regardless of other income sources or employment status. The primary idea behind UBI is to ensure that everyone has a basic income to cover their essential needs, such as food, shelter, and clothing, and to provide a financial safety net for individuals in society.80

80

Gentilini, U., Grosh, M., Rigolini, J., & Yemtsov, R. (Eds.). (2019). Exploring universal basic income: A guide to navigating concepts, evidence, and practices. World Bank Publications.

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UBI within a Social Assistance Cube

Source: Gentilini, U., Grosh, M., Rigolini, J., & Yemtsov, R. (Eds.). (2019). Exploring universal basic income: A guide to navigating concepts, evidence, and practices. World Bank Publications.

The concept of UBI has generated both support and criticism. Supporters emphasize its potential to address poverty, enhance social justice, and adapt to economic changes. Critics raise concerns about funding, potential disincentives to work, and the overall economic feasibility of implementing such a program.81

81

Johnson, A. F., & Roberto, K. J. (2020). The COVID‐19 pandemic: Time for a universal basic income?. Public Administration and Development, 40(4), 232. and Prabhakar, R. (2020). Universal basic income and Covid‐19. IPPR Progressive Review, 27(1), 105. and Nettle, D., Johnson, E., Johnson, M., & Saxe, R. (2021). Why has the COVID-19 pandemic

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Key features and principles of Universal Basic Income Unconditional Payment Regular and Predictable Individual and Universal Poverty Alleviation Simplicity and Administrative Efficiency Promotion of Individual Freedom and Autonomy Adaptation to Economic Changes Stimulus to Economic Activity

UBI is provided to all individuals unconditionally, without any means test or work requirement. Every eligible person receives the payment regardless of income level, employment status, or other factors. UBI is typically distributed at regular intervals, such as monthly or annually. The predictability of the payments helps individuals plan their finances and meet basic needs consistently. UBI is designed to be individual and universal, applying to every eligible person in society. This universality ensures that everyone benefits from the program, including those with low incomes or no traditional employment. One of the main goals of UBI is to alleviate poverty by providing a reliable income floor. It helps ensure that individuals and families have the means to meet their basic needs, reducing economic insecurity and vulnerability. UBI is often seen as a simple and administratively efficient way to provide social support. Its universality reduces the need for complex means of testing and administrative overhead associated with traditional welfare programs. UBI is seen as a tool to enhance individual freedom and autonomy. Providing a basic income gives individuals more flexibility to make choices about their lives, such as pursuing education, starting a business, or engaging in creative pursuits. Some consider UBI as a response to the challenges posed by automation and technological advancements, which may lead to job displacement. Providing a basic income ensures that individuals have financial support even in the face of changing economic conditions. Supporters argue that UBI can stimulate economic activity by providing individuals with the means to spend on goods and services. This increased consumer spending, in turn, can contribute to economic growth.

Source: own compilation

increased support for Universal Basic Income?. Humanities and Social Sciences Communications, 8(1).

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Several countries and regions have conducted or are considering UBI pilot programs and experiments to assess its impact on society, the economy, and individual well-being. There was already such an example in Finland, but now Spain wants to introduce it due to the epidemic. It's not a wage because you don't have to work for it; it can even be rational in theory, but we can't yet show such an example in practice.82 The Spanish government has not yet decided on the date and amount of the introduction; as a guide, the Spanish minimum wage is currently €1,050/month.

Uni versal

Frequency/size

Cash based

Scope

Unconditional

State provided

Which Initiative Is Currently a Pure UBI? Initiative (year)

Mongolia (2010–12)

Yes

Yes

Yes

Iran, Islamic Rep. (2011)

Yes

Yes

Yes

Yes

United States (Alaska) United States (Eastern Band of the Chero kee Nation) Kuwait (Amiri grant) Italy (Reddito di Cittadinanza) China (Macau SAR)

Yes

Yes

Yes

Variants Yes State

Yes

Yes

Yes

Yes

Tribe

US$4,000–US$6,000/year (disbursements made every 6 months)

Yes

Yes

Yes

Yes

National

US$3,600/one-off

Yes

Yes

National

€780/month

Yes

Yes

Region

Variable annual payments; in 2019, P 10,000 for residents P 6,000 for nonresidents

Yes

Full-scale program Yes National National

Tog 10,000 (US$7)/month 2010; Tog 21,000 (US$17)/ month until 2012 Rls 445,000 (US$40– US$45)/person/month (25% of median income) US$1,000–US$2,000/year

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In Finland, two thousand unemployed people aged 25-58 were selected to receive €560 a month in benefits, with no strings attached and no conditions attached, regardless of their employment status or anything else. They looked at the impact of the unconditional fixed monthly benefit of €560 on their behaviour (mainly on their labour market behaviour) compared to the 'behaviour' of a control group of 5,000 people who received benefits (with conditions) under the normal unemployment benefit system.

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India (Telangana) India (Odisha)

Yes

Yes

Yes

State

Yes

Yes

State

Kenya (GiveDirectly)

Yes

Yes

United States 1970s (Indiana, Iowa, New Jersey, North Carolina, Seattle/Denver) Canada (Manitoba)

Yes

Yes

Yes

Households

Yes

Yes

Yes

Households

India (Madhya Pradesh) India (New Delhi) Namibia (Otjivero Omitara) Finland (Kela)

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

United States (Oakland, CA) United States (Stockton, CA) Netherlands

Yes

Yes

Yes

Yes

Korea, Rep. (Gyeonggy)

Yes

Rs 5,000/acre biannually (Rs 10,000/year) 5 instalments of Rs 5,000 (Rs 25,000/year) for small and marginal farmers; 3 instalments of Rs 5,000, Rs 3,000, and Rs 4,500 (Rs 12,500/year) for landless workers; Rs 10,000/year for vulnerable agricultural households

Pilots

Yes

Yes

Villages

Yes

Individuals Households Individuals

Yes Yes

Yes Yes

Unemployed Households Individuals Individuals 24-yearolds

Long-term UBI: monthly payments equivalent to US$23 (US$0.75/day) for 12 years Short-term UBI: monthly payments equivalent to US$23 (US$0.75/day) for two years Lump-sum UBI: US$500/one-off Variable guarantee levels and marginal tax rates

Variable guarantee levels and marginal tax rates: Can$3,800, 0.35 Can$4,800, 0.50 Can$5,800, 0.75 Adults: Rs 200/month (later raised to Rs 300); children: Rs 100 (later raised to Rs 150) Rs 1,000/month US$100/month €560/month US$1,500/month US$500/month €960/month US$883/year

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Spain Yes House€100–€1,676 (US$110– (Barcelona) holds US$1,850)/month Source: Gentilini, U., Grosh, M., Rigolini, J., & Yemtsov, R. (Eds.). (2019). Exploring universal basic income: A guide to navigating concepts, evidence, and practices. World Bank Publications. 22-23.

State acquisition State acquisition of distressed companies is also known as partial nationalisation. This solution has been used several times in history, but now it is about rescuing companies in crisis, or more specifically, their employees. Examples already exist in Germany and Britain, and the employees of such companies can now feel relatively secure, but certainly more so than their counterparts in the market sector, as their wages are directly guaranteed by the state.83 Governments may consider acquiring distressed companies during the COVID-19 pandemic for various reasons, driven by the unprecedented economic challenges and the need to mitigate the impact on businesses, jobs, and overall economic stability. Here are several reasons for the state's acquisition of distressed companies during the COVID-19 crisis: • • • •

prevent widespread job losses, and maintain a stable labor market during economic downturns; prevent the collapse of critical sectors and industries that play a vital role in maintaining overall economic stability (measure to avoid systemic risks); acquire distressed companies operating in strategically important industries, such as healthcare, energy, or transportation provide necessary goods and services, and state acquisition becomes a corrective measure.

83

Rose, N. (2020). Will competition be another covid-19 casualty?. The Hamilton Project, Brookings, 2020-15. and Kazmerzak, K., & Widnell, N. (2019). The Distressed Business Standard in Times of Crisis. Antitrust, 34, 22. and Precourt, E., & Oppenheimer, H. (2016). Acquisitions of bankrupt and distressed firms. International Journal of Bonds and Derivatives, 2(1), 1-39. and Iwasaki, I., Kočenda, E., & Shida, Y. (2021). Distressed acquisitions: Evidence from European emerging markets. Journal of Comparative Economics, 49(4), 962990.

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Early retirement pension Closely linked to social security is the introduction of early retirement. There is already something like this in Hungary, a mass version of the departure of women from the world of work after 40 years. (We did not find a similar example in the EU.) In times of crisis, the probable age limit is the uniform 60; in the case of mass unemployment, it is 58, possibly 55. The amount of pension to be paid would decrease proportionally to the size of the time discount, but this would still be a solution for many, especially considering that it is no longer certain that older colleagues who have dropped out or will be dropped out will be taken back by their company after a while. The social aspect of the matter must also be taken into account: what does it mean if the number of pensioners suddenly jumps in a society with an increasingly high proportion anyway. Nevertheless, now there is a growing pandemic, and this overrides everything.

Disability declaration - Reduced working capacity Qualification as a person with reduced capacity for work in the context of COVID-19 may involve health considerations and the pandemic's impact on an individual's ability to work. It is important to note that the specific qualifications and criteria may vary by jurisdiction, and legal definitions and policies can differ. Long-term effects of the virus, ongoing health issues, or complications may contribute to a person's reduced capacity for work. In Hungary, if it becomes permanent, i.e. after the 140th day of sick pay, the socalled percentage reduction is not only economically but also socially one of the most harmful, not to mention the mental and, later indeed, physical destruction of the affected persons. This should definitely be avoided, so we do not want to give any ideas here either!

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8. Foreign examples The quest for effective wage and labour solutions has become a shared imperative among nations. Recognising the interconnectedness of economies and the need for collaborative strategies, an in-depth exploration of foreign examples could be helpful, focusing on three distinct regions: the European Union (EU), West Europe, and the Visegrad and Central and Eastern European (CEE) countries. Through this examination, we seek to contribute valuable insights to the global discourse on pandemic response, fostering crosscultural learning and collaboration in the pursuit of resilient and adaptive labour markets. Income replacement. Compared to the fact that the crisis caused by the epidemic in Europe is only two months old, there are already quite a few examples of such measures. The person concerned - and who is not? - most governments reacted quickly to the new situation, particularly to the loss of wages for workers in crisis sectors. In most places in Central Europe, it is called Kurzarbeit, on the one hand, because it is a matter of shortened working hours in most cases, but as we will see, the abbreviation often means only 0 hours, so the interpretation of Kurzarbeit there is instead that it lasts for a short time, is temporary, only it is and will be during the epidemic, and after that, the traditional order will slowly be restored. It was introduced everywhere in the Visegrad countries, the last in Hungary on April 7, 2020.

8.1. European Union As the pandemic unfolded, nations worldwide responded with diverse and innovative approaches to address the economic challenges posed by the health crisis. Although the European Union entrusts the way of settling lost wages to the national governments, it provides significant help with its recommendations and financial support, especially for the poorer countries and those more affected by the epidemic. The most common variant is support for reduced/ceased working hours. The Hungarian word usage has been used since the announcement by the Minister of Innovation, László Palkovics,84 that it is a kind of the German name Kurzarbeit. As an overview, we present where it was introduced in the 84

At a press conference on April 7, 2020

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EU before the Hungarian launch: Austria, Bulgaria, Czech Republic, Denmark, United Kingdom, France, Poland, Germany, Italy, Portugal, Romania, Spain, Sweden; Norway and Iceland complete the line.

European countries where support for shorter working hours has been introduced or increased

Source: European governments start paying the wages of workers in trouble, G7 March 25, 2020

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The rate of state coverage of lost wages 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

80%

80% 60%

75%

80%

70%

70%

80% 60%

66%

75%

70%

75%

75% 75%

40%

Source: own editing based on European governments begin to pay the wages of workers in trouble, G7 March 25, 2020

Brussels also moved; on April 2, Ursula von der Leyen, the President of the European Commission, announced a 100 billion euro job protection program. With the SURE program (Support to mitigate Unemployment Risks in an Emergency), companies would employ fewer hours but continue to pay employees full wages. The aim of the program is to prevent mass redundancies. The member states would pay the wage difference to the companies, which the loan would cover the EU gives to the governments. According to the plans, the European Commission would help member states with the program in a particularly disadvantaged situation due to the coronavirus. However, while the €37 billion investment initiative created by reallocating cohesion funds has national quotas based on the size and economic performance of the countries, with SURE there would be no pre-allocated amounts for the countries, the decision would be in the hands of the Commission. However, in order for the European Commission to take out the 100 billion loan, the member states would have to guarantee a quarter of the amount.85 To fund this initiative, the Commission has been issuing social bonds. The Social Bond Framework aims to instil confidence in investors by ensur-

85

https://economy-finance.ec.europa.eu/eu-financial-assistance/sure_en and https://kpmg.com/xx/en/home/insights/2020/04/european-union-government-and-institution-measures-in-response-to-covid.html

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ing that the funds raised are dedicated to authentic social objectives. On October 27, 2021, the EU SURE social bond was officially listed on the Luxembourg Stock Exchange and is featured on the Luxembourg Green Exchange, the world's foremost platform exclusively dedicated to sustainable securities.

Other main measures taken in the case of the coronavirus: The European Commission is freeing up investment liquidity of around 8 billion euros, which means that this year, the member states do not have to repay the unused sums that they can call from one of the regional or cohesion funds. Considering the member states' average co-financing ratio, these 8 billion euros enable the use of funds in the amount of around 29 billion euros across the EU. This is how we get 37 billion euros, of which 5.6 billion euros fall to Hungary (about HUF 2,000 billion).

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The €37 billion can be broken down as follows. The amounts to be released as liquidity include the unused pre-financing from EU cohesion funds that Member States would typically have to repay to the EU budget by the end of June 2020. The corresponding part of the EU budget refers to the co-financing from the EU budget that will become available if the amounts to be released as liquidity are used to finance the response to the Crown Virus, as recommended by the Commission. The ratio between the two items varies between Member States, as the co-financing rates also vary between Member States. In fact, they depend on the relative prosperity of EU Member States. The sum of the two is the total investment. It represents the total amount of EU budget resources that Member States can use to fight the coronavirus without receiving additional new funds from their national budgets. The remaining amount of the European Structural and Investment Funds, ESF, shows the unused cohesion appropriations per Member State. Given that this is the last year of the current long-term EU budget (2014-2020), the amounts vary widely from country to country.

Indicative breakdown of the amount of investments belonging to the coronavirus response investment initiative* per Member State (€ million)

Bulgaria Belgium Czech Republic Denmark Germany Estonia Greece Spain France Croatia Ireland Italy Cyprus

Amounts to be released as liquidity (1) 122 37 294 18 328 73 355 1 161 312 174 1 853 7

Related part of the EU budget (2) 690 29 869 20 498 222 1 421 2,984 338 984 1 1 465 39

Total investment (3)=(1)+(2) 812 66 1 163 38 826 295 1 776 4 145 650 1 158 3 2 318 45

The remaining amount of ESB funds 546 373 3,956 47 1 906 397 0 7,086 1 311 0 0 8,945 0 112

Latvia Lithuania Luxembourg Hungary Malta Netherlands Austria Poland Portugal Romania Slovenia Slovak Republic Finland Sweden EU-27 total: United Kingdom ALTOGETHER:

Amounts to be released as liquidity (1) 118 222 1 855 9 14 13 1 125 405 491 115 527 24 23 7,678 244 7,922

Related part of the EU budget (2) 674 1 264 1 4,748 39 11 6 6 310 1 407 2,588 471 1 948 24 23 29,073 311 29,384

Total investment (3)=(1)+(2) 792 1 487 2 5,603 48 25 19 7 435 1 813 3,079 586 2 475 48 46 36,751 555 37 306

The remaining amount of ESB funds 0 0 0 0 0 0 25 0 0 0 0 146 349 460 25,546 2 408 27,954

Source: European coordinated response to the coronavirus: Questions and answers. European Commission, 13 March 2020

The European Central Bank (ECB) expanded its asset purchase program by a total of 870 billion euros, pumping additional liquidity into the economy equal to 7.3 % of the euro area's GDP. In addition, commercial banks are offered a refinancing opportunity of 3 trillion euros at an interest rate of minus 0.75%. They effectively pay the banks to lend to the economic actors. Following the Commission's proposal, the Council decided to give Member States a free hand in the area of budgetary policy. They can easily increase their expenses, reduce their incomes, release budget deficits, and take out loans if they want to - for once, no one will be condemned for this. Anyone who still dreams of the concept of a "stability pact", "convergence program" or "excessive deficit procedure" understands exactly that this is an unprecedented and significant decision. At the same time, the relaxation of state aid rules was announced. Finally, again at the Commission's suggestion - and with the support of all Hungarian MEPs - the member states will have the opportunity to have the EU structural funds its subsidies may even 113

be wholly regrouped to overcome the health and economic crisis caused by the virus. In addition, the EU will pay the advances owed to the member states immediately and unconditionally, while the expected repayments will be waived until 2025. At the same time, he opened the EU Solidarity Fund and the Globalisation Adjustment Fund to them. When considering the significance of these decisions, it is again worth recalling that in the last ten years; cohesion policy has – with reason and rightly – marched in the exact opposite direction: trying to tie subsidies more and more to conditions and to put them at the service of the EU's common economic policy objectives (cf. Lisbon and Europe a 2020 strategy ).86 In addition to the existing framework, according to the current plans, the European Commission would take out a loan on the international financial markets, which it would pass on to the member state in the form of a loan. The solution would be favourable for countries in a particularly difficult situation, such as Italy and Spain because the EU can obtain financing on better terms than they can. However, in order for the European Commission to take out the 100 billion loan, the member states would have to guarantee a quarter of the amount. Who has to guarantee what amount would be determined based on the country's size and economic performance? However, the program can only start if all 27 member states agree to the guarantee.87 At the same time, it is questionable whether the member states that vehemently reject Eurobonds, such as Germany or the Netherlands, will agree to a very similar solution when the union, i.e., the paying member states, takes out a loan together. This is all the more so because some of the member states have already taken out loans independently or are planning to. Most of them resort to preferential loans provided by the European Central Bank. According to the plans, the European Commission would help member states with the program in a particularly disadvantaged situation due to the coronavirus. However, while the EUR 37 billion investment initiative created by reallocating cohesion funds has national quotas based on the size and economic performance of the countries, with SURE there would be no pre-allocated amounts for the countries, the decision would be in the hands of the

86

https://www.portfolio.hu/unios-forrasok/20200404/itt-az-eu-s-penz-hol-az-eu-s-penz-amagyar-koronavirus-valsag-alatt-424164 87 https://ec.europa.eu/info/sites/info/files/economy-finance/sure_factsheet.pdf

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Commission. 88Based on the current EU rules, wage subsidies cannot exceed €200,000 per company per month, so only SMEs can count on this. The graph below shows the use and amount of EU funds decided by the Commission and the national decision:

Source: https://ec.europa.eu/info/live-work-travel-eu/health/coronavirus-response/jobsand-economy_hu

8.2. Western Europe Austria In Austria, around 200,000 people lost their jobs by the end of March. Various estimates indicate that this is only the tip of the iceberg. The government reacted quickly: the rescue package put together in the first round is €38 billion, of which €4 billion is immediate aid, and €9 billion will be spent on guarantees, guarantees, and loan disbursements. The surprisingly quick action was greatly helped by the fact that the chambers and trade unions proved to be willing partners in the support request, especially in the case of wages.89 The exemption of taxes will be about 10 billion, and 15 billion will go to the most seriously affected sectors, e.g., tourism. The companies' first 88

https://index.hu/kulfold/eurologus/2020/04/02/100_milliard_euro_eu_a_koronavirus_gazdasagi_pächte_ fizetesek / 89 Baumgartner, J., Kaniovski, S., Bierbaumer-Polly, J., Glocker, C., Huemer, H., Loretz, S., ... & Pitlik, H. (2020). Die Wirtschaftsentwicklung in Österreich im Zeichen der COVID19-Pandemie. Mittelfristige Prognose, 239-265.

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reaction was to lay off workers en masse, including foreigners for the first time, so the Hungarians were also dismissed in the order of several thousand. (In the second step, however, the loophole opened: after the repatriation, there was suddenly a burning need for seasonal agricultural work and home care, which the Austrians are generally not willing to do. In this - but only this! - border crossing has already been restored in both Hungarian and Slovak terms.) However, many companies kept their employees and switched to Kurzarbeit, i.e. shortened working hours. In the case of the latter, the Austrian government created a fund with €1 billion so that retained employees can receive 80-90% of their previous salary, 100 % in the case of apprentices. More precisely: 90% up to €1,700 gross, 85% between €1,700 and €2,685, and 80% above. There is also a ceiling of €5,370. The employee can stay at home for 11 weeks, after which he can be employed until he has reached 50 hours. After that, the support can be extended for another 3 months. During the months of the crisis, the employees must first take their full leave and the days off for previous overtime, and they must undertake to return to the company after the crisis. The reduced working hours are interpreted flexibly: it can range from 10% to 100%. By the way, the "classic" unemployment benefit is significantly smaller: only 55% of the salary. 90 Example of Kurzarbeit :

Source: https://imgl.krone.at/scaled/2120422/v4dd061/full.jpg

The figure above starts from a gross monthly salary of €2,000, which means €2,570 to the employer. Not a typo: Austrian working hours are not 40, but only 38.5 hours per week. 10% is indicated in red Kuzarbeit. The Austrian crisis management arsenal is particularly rich: there is also a fund 90

https://ooe.arbeiterkammer.at/beratung/arbeitundrecht/arbeitszeit/Kurzarbeit_wegen_Corona.html

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to which individual entrepreneurs, artists, startups, non-profit organisations and SMEs can apply for support. The amount that can be disbursed in this way can be up to €6,000 for three months. The number of applicants so far is over 100,000, and the allocation has already begun.

Germany Germany reacted almost immediately to the expected drop in GDP and the crisis situation at companies, therefore suspending the constitutional provision prohibiting the increase of the public debt, and thus the budget borrows €152 billion. (for comparison, the total amount of the planned budget for 2020 is €362 billion). This is the money that will alleviate the difficulties of employees and employers. By the way, the rate of contraction caused by the crisis is put at 4-20 %; the latter was reported as a pessimistic version by Munich's Ifo, which is considered 91the most authoritative of the German economic research institutes. Kurzarbeit, i.e. shortened working hours. In German jargon, this means that if a workplace is temporarily closed, the employer must notify the labour office of the shortened working hours, which can be as little as 0 hours per day. In such cases, the state assumes 60% of the workers' net salary - 67% in the case of family members and the corresponding social security contributions.92 The condition is that the person has unemployment insurance (Arbeitslosenversicherung). This system has existed in Germany since the 1990s, and it was not originally created as a crisis management measure: there are many reasons why orders in a factory may decrease, demand may fluctuate seasonally, production may be interrupted due to bad weather or similar external reasons, etc. The support can be applied for immediately, online, and the government allocated 10 billion for this at the start. The aid fund for the SME sector is 50 billion, of which individual entrepreneurs can receive a one-time extraordinary support of €15,000, and from the €100 billion of the economic stability fund created for large companies, the state may even temporarily 91

originally Informations- und Forschungsstelle (Ifo) für Wirtschaftsbeobachtung (1949), currently ifo Institute - Leibniz Institute drill Wirtschaftsforschung an der Universität München 92 Aiyar, M. S., & Dao, M. C. (2021). The effectiveness of job-retention schemes: COVID19 evidence from the German states. International Monetary Fund. and Krolikowski, P. M., & Weixel, A. (2020). Short-time compensation: an alternative to layoffs during COVID-19. Economic Commentary, (2020-26).

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become an owner of the company. It does not apply to companies performing public duties. The fear of the epidemic in itself does not entitle the employee to stay at home, but if his job is such that the virus seriously endangers his health, then yes. The aid also applies to foreign workers. Two examples of Kurzarbeit : •



A single worker in Thuringia (tax class 1) has a gross monthly salary of €4,000. Through Kurzarbeit, the company now pays only €2,000. In this case, they will receive a monthly allowance of €641.76 from the state. A mother from Frankfurt with 2 children (tax class 3) had a gross monthly income of €2,800. Thanks to Kurzarbeit, the company can only give €1,000 a month. At that time, he will receive a monthly subsidy of €882.50 from the state.93

In other words, this Kurzarbeit does not look exactly as the Hungarian innovation minister refers to it. People can also request deferred payment from the tax office, and it is possible not to pay the rent, which previously, under normal circumstances, allowed immediate termination but now does not give a reason to terminate the contract. Initially, this was created for small businesses and individuals, but the big ones also want to use it; for example, the well-known Adidas company in Hungary announced that it no longer pays rent for its stores either.94

France In France, millions of citizens spent the last Friday of March organising work and child care from next week; many are taking time off, and those who can work from home. Parents raising children younger than 16 who cannot work from home will automatically receive sick leave at the employer's request from Monday, Labour Minister Muriel Pénicau announced. He also confirmed that due to the spread of the coronavirus epidemic, the government would pay for the forced leave of employees of businesses mainly active in tourism, hospitality, transport, the entertainment industry and cultural life in the form of unemployment benefits. By the end of March, 80,000 employees of more than 5,000 French (mostly small) businesses had taken advantage of

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https://www.bild.de/geld/wirtschaft/wirtschaft/groko-plant-erhoehung-was-sie-ueber-kurzarbeitergeld-wissen-muessen-69604926.bild.html 94 https://www.dgb.de/themen/++co++a94a239e-6a99-11ea-bab2-52540088cada

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this opportunity, which has cost the budget more than 240 million euros so far. Didier On March 24, Agriculture Minister Guillaume asked people who were forced to be idle to "join the great army of French agriculture", which is suffering from a labour shortage. Two hundred thousand direct jobs are currently available in agriculture deprived of foreign labour, which is usually employed in the fields, the head of the ministry said on BFM television.95 The Minister of Agriculture addressed the millions of unemployed people and the hundreds of thousands of French people who are on forced leave due to the restrictions introduced due to the spread of the epidemic and cannot leave their homes due to curfews. He cited those working in catering, tourism and services as examples. The minister's call has caused a considerable stir in French news media; a day after the government decided to tighten curfews, official government communications have been asking people to stay in their homes for weeks. However, the request was also popularised by agricultural organisations, so on the first day, around 13,000 people, 40,000 two days later, and 207,000 by Sunday signed up for the platform, on which employers and employees of the agrarian farm can find each other. At the same time, French public radio, Business FM, drew attention to the fact that only 3,000 of the farmers applied, as many are reluctant to employ inexperienced workers.96

Italy The Italian government has launched a €25 billion economic stimulus package to counter the economic difficulties caused by the coronavirus in Italy. More than €10 billion of the planned amount will be spent on maintaining employment and a further €3.5 billion on health and civil protection under the Italian government's financial and economic package, Cura Italia (Cure Italy), announced by Prime Minister Giuseppe Conte at a video conference on 16 March. It was enacted into law on 18 June (Il Decreto Legge) and published in the Official Gazette (Gazzetta Ufficiale) on 17 June in issue 70.

95

Abbreviation for Business FM, a French-owned and French-language 24-hour news channel. 96 https://www.agrarszektor.hu/karrier/koronavirus-sikeres-volt-a-francia-mezogazdasagiminiszter-akcioja.20850.html

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The announced labour measures include a one-off net payment of €600 for March for self-employed and seasonal workers who are out of work due to the virus and support for small one-person businesses. The affected workers will also temporarily not have to pay contributions and taxes. Redundancies from the start of the epidemic on 23 February will be frozen. The quarantine period will be interpreted as sick leave. Families hiring babysitters because of the school holidays will receive a monthly allowance of €500, rising to €1,000 for health workers. If the parents stayed at home with the children (up to the age of 12), they can count on 15 days of paid leave with 50 % of their salary. The government package provides financial support to taxi drivers, postmen, and workers in the cultural and media sectors. Health care and civil defence share 3.5 billion equally. The package also serves to pay overtime for doctors and nurses.97 Doctors, nurses and medical technical staff receive a one-time payment of 1,000 euros.98 The measures affect 9 million workers, practically all laid-off workers whose salary in the previous year did not reach €40,000. The provisions provide funds for the authorities to reserve hotels to accommodate quarantined and sick persons, and they can dispose of private clinics to free up saturated public hospitals. The Roman government is allocating money to convert some factories to face mask production.99 Indirectly, the loss of wages is mitigated by the following measures: The repayment of loans and credit debts, for which the state guarantees, will be suspended for eighteen months. The same applies to different insurances. Until May 31, the tax obligations of individuals and businesses up to two million euros will be suspended: this also applies to tax advances and social security contributions. After that, repayment can be made in a lump sum or in instalments. In March, the tenants of the business premises are assisted with 40 % of the rent. The Italian state provides funds for the costs of disinfecting workplaces. The measures help maintain Italian exports, public transport and freight, and a separate chapter deals with the support of the Italian airline 97

https://infostart.hu/kulfold/2020/03/16/koronavirus-lokes-a-gazdasagnak-olaszorszagban https://www.ilfattoquotidiano.it/2020/03/18/coronavirus-decreto-cura-italia-ecco-tutte-lemisure-per-dipendenti-autonomi-e-professionisti-ei-dettagli-sul-rinvio- delle-scadenze-fiscali/5737942/ 99 https://www.adiconsum.it/coronavirus-e-lavoro-premio-di-100-euro-per-il-mese-dimarzo/ 98

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Alitalia. They also announced that a new economic package will be implemented in April using EU funds.

8.3. Visegrad and CEE countries Hungary 105/2020 entered into force on April 16, 2020. (IV. 10.) Government decree on the support of reduced working hours during the state of emergency within the framework of the Economic Defense Action Plan. In the context of the Hungarian Kurzarbeit, the capital and county government office, acting as a state employment agency, provides support to the employee at the joint request of the employee and employer for economic reasons related to the state of emergency. The support can be established for the period following the submission of the application. The support can be determined in months, which is a maximum of 3 months. The amount of the support is 30, 40 or 50% of the amount of the monthly absence fee determined by the date of the announcement of the state of emergency, reduced by the personal income tax advance and contributions determined according to general rules 70% of the proportionate part of the lost working time. When determining the monthly amount of the support, the amount of the absence fee that can be taken into account as a maximum, reduced by taxes and contributions, may not exceed twice the mandatory minimum wage, reduced by taxes and contributions, effective at the time of the submission of the application.100 The support is paid to the employee monthly in arrears; it cannot be paid for unpaid leave but is free of public load. The amount of state support per month per individual can be a maximum of HUF 74,946 net, which is tax-free from the individual's point of view, and the employer is charged only for the wages and contributions paid by the individual for work and individual development time. A maximum of twice the minimum wage, i.e. a maximum of HUF 214,130, can be taken into account as lost wages. For example, the net salary of an employee is twice the minimum wage, HUF 214,000. His employer sends him to work part-time; he receives 50% of his salary from the company (HUF 107,000). The state provides a 70% subsidy for the 50% lost from the salary, thus compensating the employee (and relieving the company of the 100

Government Decree 367/2019 (XII. 30.) on the establishment of the mandatory minimum wage (minimum wage) and the guaranteed minimum wage 2. § The compulsory minimum basic wage (minimum wage) for full-time employees shall be HUF 161,000 from 1 January 2020 if a monthly wage is paid for full-time work.

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burden). The amount of the subsidy is 70% of 50% of HUF 214,000, i.e. HUF 75,000. In other words, the employee receives a net of HUF 182,000 after the subsidy instead of the original net salary of HUF 214,000. The employer must also pay wages for the individual development time.101 This is the working time corresponding to 30% of the lost working time, i.e. 6 hours for an employee originally employed for 40 hours per week. According to our interpretation, all of this means that the company pays the salary for parttime work (e.g. 50 %) and 30% of the missing 50% of the time, i.e. 15% of the original salary. All of this also means that the worker can receive up to twice the minimum wage of the original net salary in the context of Hungarian short-term work. However, the regulations on what needs to be done during development are unclear.102 The rules were partially corrected on April 21, 2020 (Government Decree 141/2020), so wage support can be applied for even two hours of work.103 In other words, instead of 50%, the government recognizes a 75% loss of turnover in the case of the job protection wage subsidy. The application process has been simplified, the range of beneficiaries has been expanded, and they can apply for the program by filling out the forms available on the munka.hu website. The question is, however, what will happen to the unemployed after the three months have passed. The average salary is around HUF 250,000 net, and they will not give that much for public mass work, public work, and the offer is in vain if they do not accept it. The government has announced several loan schemes. Businesses can use the overdraft facility only in conjunction with the job retention working capital loan, in addition to a job retention loan, a working capital loan and an investment loan. In the framework of the current account loan and the job retention loan, the owners can borrow 9 months' wages at an interest rate of 0.1 % for a term of 2 years in order to keep jobs. The working capital loan 101

individual developmental time: the employee to his job , or the employer for his activity connecting development in order to support duration under obsession that follower two year within the reduced is exempt working hours because of falling out working hours thirty percent appropriate degree of working obligation fulfillment from under 102 Hogy működik majd a magyar kurzarbeit? Konkrét számokat mondott az államtitkár. MTI 2020. április 10. és Itt a kormány ünnepi ajándéka: megjelent a magyar kurzarbeitszabályozás. Portfolio 2020. április 10. 103 reduced working hours: part-time working hours of at least twenty-five per cent but not more than eighty-five per cent of the working time under the contract of employment as amended after the declaration of an emergency, averaged over three months

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for financing inventories will be available for micro, small, and mediumsized enterprises with an interest rate of 0.2 %, and the investment loan will have an interest rate of 0.5 %. The Széchenyi card includes four programs that the government has already accepted. These essentially mirror the previous programs, only providing businesses with a more favourable interest rate.

Czech Republic In the Czech Republic, the state takes over 60-80 % of the wages of companies that had to shut down due to the restrictions. The cost of the measures announced until April of the workplace protection program is approx. 100 billion kroner (HUF 1,300 billion), to which additional assistance provided in the form of loan guarantees worth another 900 billion kroner is added. According to the announcement issued after the government meeting, the state reimburses 80% of the wages of their employees to those companies that have stopped completely due to the epidemic, and the employer pays 100 % of wages, while to those companies whose production is limited in some way was, wages by 60 %. According to the decision, the affected companies must pay their employees, and then they could submit their support applications to the labour offices at the end of March; the state will transfer the money to their account in April. In the first case, the maximum upper limit of state support is 39,000 crowns (526,500 forints); in the second case, it is 29,000 crowns (391,500 forints).104 Self-employed people who have been adversely affected by the epidemic will also receive a one-time subsidy of 25,000 crowns (337,500 forints) in April. The government had previously exempted them from paying the minimum health and pension fund contributions for six months. In practice, this means around 30,000 crowns (405,000 forints). There are almost 950,000 self-employed people in the Czech Republic. The epidemic killed about half of these, affecting approx. 55% unfavourably. The tax return deadline was postponed from March 31 to July 1. There is no late interest and no personal income tax not to send an advance payment. Due to the closure of schools, the so-called care fee (for children aged 6-13) is 424 Czech crowns (approx. HUF 5,500) per day.

104

https://www.portfolio.hu/gazdasag/20200401/koronavirus-mentopäck-a-csehek-allamibertamogatast-adnak-a-vallalatoknak-423470

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Poland In Poland, the government will pay 40 % of wages if the company agrees to continue employment, but only up to the average wage. The employer pays an additional 40 %, so the employees will only have a 20% loss of income. Self-employed persons whose income in March has halved at least compared to the previous month will be exempted from paying pension contributions for three months and receive 80 % of the minimum wage from the state. A large part of the package (212 billion zlotys, approx. HUF 17,000 billion), which accounts for about 10 % of the Polish GDP, is aimed at keeping jobs, partially paying company wages, and supplementing them. The regulations, which are still awaiting approval by the Senate, aim to preserve jobs, support employees, small and medium-sized companies, and health care, strengthen the financial sector, and include measures against excessive price increases and a program of state and local government investments. Among other things • • • •

for three months, the state covers social security for companies forced to shut down due to the epidemic, contributes to the payment of wages. the payment of corporate income tax (CIT) is postponed, they extend the term of working capital loans.105

Slovakia In Slovakia, the new Matovic government's finance minister says the bailout will see the government pay 80 % of workers' wages in companies forced to shut down due to the coronavirus epidemic, in what Eduard Heger says is the biggest bailout in Slovakia's history, amounting to around €1 billion a month. In addition to individual entrepreneurs, Slovakia also provides assistance to employees of companies whose sales revenue has fallen; the amount of support is proportional to the level of sales revenue decline. Employers can defer their contributions to state social and healthcare systems and delay certain tax payments if their sales revenue has fallen by 40 %. Parents who stay home with their children due to closed schools will receive 55 % of their previous salary even after the usual 10 days. In addition to direct

105

https://www.portfolio.hu/gazdasag/20200328/koronavirus-gyorsan-terjed-a-jarvany-aregioban-lengyelorszag-gigantikus-päckot-fogadott-el-422640

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aid, the Slovak state also offers companies bank guarantees of up to 500 million euros per month.106 Wage support is also provided to companies that are still operating, but their turnover has decreased: in the case of a 20% drop, for example, €180 per employee per month, and €540 in the case of an 80% drop.107 There is no time limit yet; three months is likely. The latter also indirectly helps the continuous payment of wages and workforce retention.

Romania In Romania, Minister Ludovic Orban adopted a proposal similar to the Czech package at the end of March: the Ministry of Labour will finance 75 % of the wages of workers who were sent on forced leave by employers affected by the coronavirus. However, according to Orban's statement, it cannot be more than 75 % of the Romanian gross average salary. According to Orban's confession, the members of the Romanian cabinet also thought about not paying the forced leave, but the salary, but that would have supported the continued going to work. Since one of the best ways to spread the coronavirus is "social distancing", i.e. keeping a distance between people, so they decided to finance freedom instead. Romanian parents are also entitled to paid leave, but this can only be used if the employer does not otherwise provide the opportunity for remote work or if this is not covered by the Ministry of Defense, the Directorate of Prisons, the state health institutions, or the Ministry of the Interior, Economic and for employees of certain institutions subordinate to the Ministry of Transport. In the application submitted to the employer, it must also be stated that the spouse did not request leave from work for a similar reason. The government also reimburses the employer for the reduced wages of stay-at-home parents – admittedly, after the fact.108

Slovenia Measures have also been taken in Slovenia. We have already discussed the current doubling of doctors' wages, which is unique in Europe (the local average wage is more than four times higher, reaching the German level). In addition, a number of wage-related measures were adopted. The state pays the various contributions, as well as the sick pay contribution, for the em-

106

portfolio.hu HVG April 2, 2020, page 25 108 https://merce.hu/2020/03/20/romaniaban-es-csehorszagban-is-fizetest-biztosit-az-allamazoknak-akiknek-a-munkahelye-bezart-a-koronavirus-miatt/ 107

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ployees sent on forced leave. Micro-enterprises employing 1 or 2 people receive 70% of the minimum wage without contributions 109. The supplement to the salaries of health workers and civil defence workers is grandiose: between 10 and 200 %. At the same time, there was a 30 % wage deduction in the sphere of civil servants. Those who cannot go to work due to the pandemic and the restrictions will have the same status and rights as those who have lost their livelihood as a result. Those with the lowest pension also receive an extraordinary pension supplement. Those who work as small entrepreneurs (micro-enterprises employing one or two employees, sole proprietors) receive a monthly income from the state equal to 70 % of the minimum wage, after which they do not have to pay contributions. These businesses do not temporarily have to pay a monthly income tax advance either. During the crisis, in order to strengthen the liquidity of the companies, the government introduced a so-called "guarantee scheme" and bought up the banks' claims against the companies, as well as temporarily frozen their obligation to pay income tax. The value of the announced Slovenian economic stimulus package is 2 billion euros (about 710 billion forints).110

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HVG April 2, 2020, page 8 https://www.portfolio.hu/uzlet/20200325/koronavirus-brutalis-fizetesemelest-kapnakaz-egeszsegugyi-dolgozok-sloveniaban-421782 110

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9. Resources to cover lost wages As the pandemic drags on, the issue of lost wages has become a pressing concern, necessitating a comprehensive exploration of resources available for mitigation. This chapter meticulously examines three key avenues – state resources, market mechanisms, and professional opinions – that constitute the multifaceted toolkit designed to address the financial challenges faced by individuals and households during these unprecedented times. There are many solutions, but they are almost identical in that none of them are satisfactory. The state coffers are finite everywhere. The practice is also different in the EU countries, although the union tries to act in a unified way, recommends and supports, and now practically all available money is distributed. This is a very effective help for many countries, including those wishing to join. The two primary sources are the respective states and the European Union. In addition to the money, the latter only gives general instructions, i.e., it does not limit the benefits, so each government decides how to settle the wages of lost employees. It is the same in Hungary.

Solutions for the resources to cover lost wages Resources to cover lost wages State financial resources

Market mechanisms

budget transfers

special tax

adaptability and resilience

insurance products

extra personal income tax

one-time wealth tax

employment schemes

financial instruments

absorption of the freed-up workforce

civil organisations

loans

private individuals Source: own compilation

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9.1. State financial resources Against the backdrop of widespread economic uncertainty, state resources emerge as a crucial pillar of support. Governments worldwide have implemented diverse fiscal strategies to alleviate the burden of lost wages, ranging from direct financial assistance and unemployment benefits to broader economic stimulus packages.

Budget transfers Budgetary reallocations, which in short means deductions from areas that are not important at the moment, and some of them can be used to compensate wages. Almost all countries are forced to do this; the extent varies from nation to nation. For example, the Balkan railway or the investment in Paks can be a big part of the reallocation. Foreign capital is significant for both, but so is state money. Human life comes first. Without wages, there will be no demand; the economy will shut down.

Special tax A special tax on banks, multinationals and other sectors could also be a means to replace lost wages.111 Some countries introduced new taxes specifically designed to address the pandemic's economic impact. These taxes included: • • •

taxes on excess profits: governments levied temporary taxes on certain industries, such as pharmaceuticals or online retailers, that experienced significant profits during the pandemic; taxes on financial transactions: governments introduced temporary taxes on financial transactions, such as stock trades, to raise revenue and discourage excessive speculation; taxes on pandemic-related goods and services: some countries imposed temporary taxes on pandemic-related goods and services, such as face masks or medical supplies, to recoup the costs of the pandemic response.

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Savitska, S., Pravdiuk, M., Dolzhenko, I., Banera, N., & Samchyk, M. (2022). Tax systems of Ukraine and EU countries during the COVID-19 pandemic: current status and prospects. Independent Journal of Management & Production, 13(3), 145-160.

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In 2020, France introduced a temporary tax break for businesses that offered financial assistance to employees affected by the pandemic. The break covered up to €5,000 per employee and was applicable to businesses with fewer than 250 employees. Germany temporarily deferred corporate income tax payments for businesses that experienced revenue losses due to the pandemic. The deferral was available for up to 12 months and was applicable to businesses of all sizes. Italy temporarily reduced the value-added tax rate on certain goods and services, such as food and hygiene products. The reduction was implemented in 2020 and was applicable for a period of six months. Belgium permanently reduced the corporate income tax rate from 33 % to 25 % in 2021. The reduction was intended to boost business investment and economic growth. Denmark expanded its digital tax regime in 2021 to capture revenue from large multinational corporations that derive significant profits from digital activities. The expansion was intended to ensure that these corporations pay their fair share of taxes. Finland set new rules in 2021 to ensure fair taxation of individuals who work remotely due to the pandemic. The rules clarified the tax implications of remote work arrangements and provided certainty for both employers and employees. Spain introduced a temporary tax on excess profits earned by pharmaceutical companies in 2021. The tax was intended to recoup the government's pandemic response costs and ensure that pharmaceutical companies bore a fair share of the burden. Sweden has a temporary tax on financial transactions in 2021. The tax was intended to raise revenue and discourage excessive speculation in the financial markets. The United Kingdom launched a temporary tax on certain pandemic-related goods and services, such as face masks and personal protective equipment (PPE), in 2020. The tax was intended to recoup the government's pandemic response costs and discourage hoarding and price gouging.112 Withdrawal from large enterprises that previously generated extra profit has already happened in Hungarian practice, and the probable spatial and temporal spread of the epidemic justifies it. These large companies usually have enough reserves to pay their employees (reduced) wages even during the crisis. Although the Union promotes competitive neutrality, the latest decision of the EU court in March 2020 is that national governments can 112

Waris, A. (2021). Solidarity Taxes in the Context of Economic Recovery Following the COVID-19 Pandemic. NYU Center Int. Coop, 1-37. and Collier, R. S., Pirlot, A., & Vella, J. (2020). Tax policy and the COVID-19 crisis. University of Oxford, Saïd Business School, Centre for Business Taxation.

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introduce such. In Hungary, the British-owned Tesco and Vodafone sued the Hungarian state without success.113

Extra personal income tax Although the amount will not be significant, social justice - this is how it works in most of the countries of the developed world - requires that the rich pay more through solidarity; we can only agree with the opposition's proposal that for incomes above HUF 500,000 a month, 5% (up to 10 %), and for those above 1 million FT per month, the tax on the part above the limit should be 10 % (up to 20 %). By definition, this money would be used for the wages of those who lost their jobs. A one-time income tax is also conceivable, although we have not encountered such in the Union.

One-time wealth tax An additional source of income can be the one-time wealth tax. Extraordinary time, extraordinary withdrawal. Please note that this should be handled differently from Western European practice. In Hungary, similar to the other countries of the Eastern Bloc, everyone could buy their former council apartment, so in our country, the so-called proportion of small multimillionaires is beyond Lajta. Nevertheless, in most of these cases, multimillion-dollar real estate assets do not mean wealth, just a modest living. At the same time, they are confiscating assets of those who get rich quickly and especially not necessarily cleanly accompanied by society's far-reaching approval, beyond the fact that it is not only fair but also solidarity-based.

Loans By borrowing loans, the government can also find a source for lost wages, and although interest rates are currently extremely low on the international financial markets, these amounts will have to be repaid in the future, which may prolong the crisis.

113

https://www.bloomberg.com/news/articles/2020-03-03/vodafone-tesco-lose-eu-courtclash-with-hungary-over-taxes

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9.2.Market mechanisms Market mechanisms are pivotal in the resource landscape for covering lost wages. Analysing the adaptability and resilience of market-driven solutions, it explores how private-sector strategies, including insurance products, employment schemes, and financial instruments, contribute to the economic recovery of individuals and households grappling with income disruptions. Addressing the significant challenge of lost wages requires a multifaceted and adaptive approach. Several resources and mechanisms can play a pivotal role in providing financial support and mitigating the economic impact on individuals and communities. The following key elements encompass a comprehensive strategy for covering lost wages:

Adaptability and Resilience Cultivating adaptability and resilience within the workforce is essential. This involves empowering individuals with versatile and applicable skills across various industries. Training programs, educational initiatives, and professional development opportunities enhance the workforce's adaptability.

Insurance Products Insurance products, such as unemployment insurance, income protection, and similar financial instruments, serve as a safety net for individuals facing sudden income loss. Governments and private entities can collaborate to ensure the availability and accessibility of these products to a broad spectrum of the population. Insurance companies have developed a variety of new products to meet the needs of individuals and businesses affected by the COVID-19 pandemic. These products can be broadly categorised into the following areas:114 •

Cancel for Any Reason (CFAR) policies: allow policyholders to cancel their coverage for any reason at any time, typically for a

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Babuna, P., Yang, X., Gyilbag, A., Awudi, D. A., Ngmenbelle, D., & Bian, D. (2020). The impact of Covid-19 on the insurance industry. International journal of environmental research and public health, 17(16), 5766. and Harris, T. F., Yelowitz, A., & Courtemanche, C. (2021). Did COVID‐19 change life insurance offerings?. Journal of Risk and Insurance, 88(4), 831-861.

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fee. This can be helpful for individuals or businesses who are unsure of their future plans and want the flexibility to cancel their policy if necessary. business interruption insurance: covers businesses for losses caused by a wide range of events, including pandemics. It can help businesses recover lost revenue, cover the costs of repairs and restoration, and pay employees who cannot work.115 travel insurance: covers trip cancellations, trip interruptions, medical expenses, and lost or stolen baggage due to COVID-19. It can help to protect travellers from financial losses if they need to cancel or postpone their trip due to the pandemic. hospital indemnity insurance: pays a daily benefit to policyholders who are hospitalised, regardless of the cause of their hospitalisation. It can help to cover the costs of out-of-pocket expenses, such as co-pays and deductibles, for policyholders who are hospitalised with COVID-19.116 critical illness insurance: pays a lump sum to policyholders who are diagnosed with a covered critical illness, such as cancer, heart attack, or stroke. It can help provide financial support to policyholders and their families facing the financial burden of a critical illness.

In addition to these specific products, insurance companies also offer various other COVID-19-related services.117 Remote underwriting allows insurance companies to underwrite new applications and renew existing policies remotely, which can help speed up the process and make it easier for policyholders to get the coverage they need. Virtual claims processing allows policyholders to submit and manage their claims online or through a mobile app, which can help simplify the claims process and reduce the amount of 115

Bisco, J. M., Fier, S. G., & Pooser, D. M. (2020). Business Interruption Insurance and COVID-19: Coverage and Issues and Public Policy Implications. Journal of Insurance Regulation, 39(5). and Nebolsina, E. (2021). The impact of the Covid-19 pandemic on the business interruption insurance demand in the United States. Heliyon, 7(11). 116 Gangopadhyaya, A., & Garrett, A. B. (2020). Unemployment, health insurance, and the COVID-19 recession. Health Insurance, and the COVID-19 Recession (April 1, 2020). and Garrett, A. B., & Gangopadhyaya, A. (2020). How the COVID-19 recession could affect health insurance coverage. Available at SSRN 3598558. 117 Ramasamy, D. K. (2020). Impact Analysis in Banking, Insurance and Financial services industry due to COVID-19 Pandemic. Pramana Research Journal, 10(8). and Levantesi, S., & Piscopo, G. (2021). COVID-19 crisis and resilience: Challenges for the insurance sector. Advances in Management and Applied Economics, 11(3), 1-12.

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time it takes to receive benefits. With medical guidance, some insurance companies offer policyholders access to medical experts who can guide COVID-19-related topics, such as testing, treatment, and prevention.118

Employment Schemes Implementing employment schemes, such as subsidised job programs, apprenticeships, and work-sharing arrangements, can provide temporary relief and stability for workers facing reduced hours or job loss.119 These schemes can be designed to encourage employers to retain their workforce during challenging economic periods: •





short-time work schemes: also known as furlough schemes, allowed businesses to reduce their employees' working hours while continuing to pay them a portion of their wages. This helped to reduce businesses' labour costs without forcing them to lay off workers. job retention schemes: provided government subsidies to businesses to help them retain their employees. This could involve paying a portion of the employee's wages, providing training and skills development support, or offering grants to help businesses adapt to the pandemic.120 self-employment support schemes: provided financial assistance to self-employed individuals who were facing financial hardship due to the pandemic. This could involve grants, loans, or tax breaks.121

The UK's Coronavirus Job Retention Scheme (CJRS) is a governmentbacked program that pays up to 80% of the wages of employees who are unable to work due to the COVID-19 pandemic. The scheme is open to businesses of all sizes and was available for up to 3 months. The USA's Paycheck 118

Rajnikanth, R., & Doss, S. (2021). Impact of COVID-19 Pandemic on the Life Insurance Industry. Bimaquest, 21(2). 119 Weber, T., Hurley, J., & Adăscăliței, D. (2021). COVID-19: Implications for employment and working life. 120 Organisation for Economic Co-operation and Development. (2020). Job retention schemes during the COVID-19 lockdown and beyond. OECD Publishing. and Drahokoupil, J., & Müller, T. (2021). Job retention schemes in Europe: A lifeline during the Covid-19 pandemic. ETUI Research Paper-Working Paper. 121 Blundell, J., & Machin, S. (2020). Self-employment in the Covid-19 crisis. Centre for Economic Performance, London School of Economics and Political Science.

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Protection Program (PPP) provides loans to small and medium-sized businesses to help them cover payroll costs and other expenses during the pandemic. The loans are forgivable if businesses use the funds to maintain employment levels. France's "Plan d'Action pour la Résilience du Travail" (PARETE) was a French government program that supports businesses in various sectors, including tourism, culture, and healthcare. The program includes grants, loans, and tax breaks. Germany's Kurzarbeitergeld (KUG) is a German government-backed program that pays up to 67% of the wages of employees who are unable to work due to economic downturns, such as the COVID-19 pandemic. The scheme is open to businesses of all sizes and is available for up to 24 months. The Canada Emergency Wage Subsidy (CEWS) was a Canadian government program providing wage subsidies to businesses affected by the COVID-19 pandemic. The subsidies are based on the number of employees and the size of the business's revenue losses.

Financial Instruments Leveraging financial instruments, including grants, low-interest loans, and targeted financial aid, can offer immediate relief to those grappling with lost wages. Governments, financial institutions, and philanthropic organisations can collaborate to design and implement effective financial support mechanisms. The European Social Fund Plus (ESF+) is a key instrument of the EU's cohesion policy, which aims to promote social inclusion, employment, and education. The ESF+ has provided €20 billion in financial assistance to support those affected by the COVID-19 pandemic. This funding is used to provide direct financial support to individuals and families in need, help businesses adapt to the changing economic landscape, and fund job creation and training initiatives. The European Investment Fund and the European Investment Bank provide €11 billion in financial assistance to support those affected by the COVID-19 pandemic. This funding has been used to support SMEs and mid-cap companies, invest in infrastructure projects and provide loans to local authorities. The NextGenerationEU is a €750 billion recovery fund that was created to support EU economies in the wake of the COVID19 pandemic. The fund has provided €141 billion in financial assistance to EU Member States. This funding has been used to support investments in green and digital technologies, foster innovation and research and improve digital infrastructure. 134

Among the additional examples of EU financial instruments is the Coronavirus Response Investment Initiative (CRII), which is worth €40 billion to fund businesses affected by the COVID-19 pandemic. With €800 million, the EU Solidarity Fund provides emergency assistance to Member States affected by natural disasters. The European Investment Bank Pandemic Response Facility (EIB PRF) is another €100 billion to provide lowcost loans to businesses and governments affected by the COVID-19 pandemic. The €750 billion Sure Guarantees scheme provides guarantees to banks and other lenders, making it easier for them to provide loans to businesses and individuals.

Absorption of the Freed-Up Workforce Facilitating the absorption of the freed-up workforce into emerging sectors or industries with high demand is crucial. Initiatives that align the skills of displaced workers with the needs of growing sectors can expedite the reintegration of individuals into the job market. Sectors with a labour shortage can absorb a part of the freed-up workforce. (For example, in Hungary, the construction industry, IT, healthcare, law enforcement, food trade, etc.) New jobs usually pay a lower wage, so the people involved are reluctant to accept them. State compensation can be a solution when only the difference, or rather only a part of it, should be reimbursed. It is not a state role, but the companies that help a lot in alleviating the problem find a solution on their own, especially if they can also give work to their suppliers through their advance orders.

Civil Organisations Civil organisations, including non-profits, community groups, and charitable foundations, play a pivotal role in providing support and resources during times of economic hardship. These organisations can offer direct assistance, advocacy, and community-based solutions to address the unique challenges faced by individuals experiencing lost wages.

Private Individuals Community solidarity and individual support are integral components of a resilient response to lost wages. Friends, family, and community networks can provide crucial emotional and financial support during difficult times, emphasising the importance of social cohesion in navigating economic challenges. 135

9.3.Professional opinions A generally accepted solution is that, according to the teachings of Keynesian economic policy, if there is a situation in which there is a lack of demand in the economy, the private sector is unwilling or unable to spend, and there is a lot of free capacity, then the state must step in and undertake the temporary spending, even at the cost of an increase in debt. The United States, Germany and most of the major economic powers are also starting to stimulate their budgets, even undertaking to increase their debt stock. However, based on the Mundell -Fleming model, Keynesian economic policy is effective only in large closed economies, but not or at least much less so in small open economies. Moreover, fiscal stimulus is almost completely ineffective in a small, open economy where a floating exchange rate system is also used (as in our country). The smaller and more open an economy is, the truer it will be that stimulating internal demand primarily increases imports, worsens the external balance, and at most, a very small proportion of the demand would go where it is intended, i.e. to help domestic businesses and employees. However, the peculiarity of the COVID-19 crisis is that it would be challenging for fiscal policy to appear as a customer in the service industry and in the sectors where it would be needed now. The most common public orders (construction industry) are not effective now because the government could not secure orders for companies in troubled sectors (for example, the market of tourist services, theatres, restaurants, cosmetics, etc.) as customers. This would not be easy to implement in terms of content and technology. It is also possible that - although the state would not buy services, it could still support companies and employees through transfers and nonrefundable subsidies. However, this would only be financially viable and profitable if the crisis was short-lived, the economy would start in a few months, and the usual level of market orders would be restored. Furthermore, it is a general problem that such transfer-type subsidies are counterproductive because they delay and prolong the adaptation of companies and employees. The longer the crisis and the slower the adaptation, the greater the social costs of the shutdowns and subsidies. The fiscal expansion seems to be most effective, but in the current situation, the economy is hit not only by a demand shock but also by a supply shock. Capacities are (also) reduced because the production and/or importation of raw materials and semi-finished products is hampered. Therefore, stimulating demand cannot achieve the desired output-increasing effect. Tax 136

and contribution exemptions also maintain and even increase the motivation to adapt to the crisis situation and do not increase the risk of reckless behaviour. Suppose the state acts quickly and decisively in such a (considered temporary) crisis, even on a social basis, to support companies and employees who are in trouble due to external circumstances (through no fault of their own). In that case, it can prevent these companies (and employees) from going bankrupt and becoming insolvent, and with this, we create the possibility of fast reconstruction. On the other hand, if the state does not help, the multitude of companies and their relationship systems may disappear, which would also cause a structural crisis. The subsequent reconstruction can only be realised much more slowly and more expensively.122 Government loan schemes, state interest subsidies and guarantee schemes are available to support loans to households and businesses. With a loan, it is advisable to support businesses and employees who see that the current crisis only causes temporary liquidity difficulties for them but that profitable operation can be ensured in the long term. On the one hand, the support of loans leads to a much smaller extent to reckless and irresponsible behaviour, and on the other hand, it is possible to provide assistance to a wider range of people since money is available for many more programs from the available budget. In accordance with the Leeper model, the central bank also announced an expansionary monetary policy. The majority agrees with the MNB's measures, which are aimed at raising short-term interest rates (BUBOR) and reducing forint short positions (carry trade) and, on the other hand, at reducing long-term interest rates and thereby encouraging domestic lending.

122

Kertész Krisztián: Koronavírus-válság: Óvatosan a fiskális élénkítéssel! Nemzeti Közszolgálati Egyetem, 2020. április 18.

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Theoretically, the Leeper model can be used to make several predictions about the impact of COVID-19 on the economy: The model predicts The pandemic will lead - the pandemic will lead to a to a temporary decline decline in economic activity in economic activity due to the decrease in demand for goods and services - the decline will be temporary, as prices and wages will eventually adjust to the new economic conditions. The fiscal response to the government's fiscal rethe pandemic will have sponse to the pandemic, a significant impact on such as increased spendthe economy ing and tax cuts, will have a significant impact on the economy. The monetary policy response to the pandemic, response to the pan- such as lowering interest demic will be less effec- rates, will be less effective tive than fiscal policy: than fiscal policy.

Because

the government's spending will boost aggregate demand, while the tax cuts will stimulate consumption and investment. the sticky prices and wages assumption means that interest rate changes will not have a significant impact on aggregate demand.

Source: own compilation

On April 10, 2020, 15 Hungarian economic experts123 (including, for example, Ákos Péter Bod, Attila Chikán) made the following five proposals to the government, which they believe are necessary for the effective management of the crisis:124 •

A comprehensive wage guarantee program based on the German model (without special Hungarian additions) in order to preserve jobs.

123

Bihari Péter, Bod Péter Ákos, Chikán Attila, Felcsuti Péter, Győrffy Dóra, Király Júlia, Mellár Tamás, Nagy Zoltán, Oblath Gábor, Palócz Éva, Petschnig Mária Zita, Prinz Dániel, Riecke Werner, Scharle Ágota és Vértes András 124 Magyar közgazdászok: A kormány nem érti vagy nem vallja be a válság súlyosságát. 2020. április 10.

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• •





Compensation of income losses that cannot be treated with the wage guarantee program with monetary benefits. The extension of the jobseeker's allowance, the increase of the family allowance and the extension of employment replacement subsidies to help people in difficult situations. Considerable central support for local governments and non-profit civil organisations performing social tasks, which are better able to provide personalised assistance to those who find themselves in difficult situations. Involving the wealthier layers of society in crisis management, enforcing the principle of solidarity. A significant increase in budget expenditures, in addition to a significant reduction in deferred expenditures, is necessary because, in this situation, an increase in the budget deficit cannot prevent effective government action.

We mention another, not very lucky, transitional measure package (Edina Berlinger), which would include: doubled family allowance; every Hungarian citizen over the age of 18 receives a monthly allowance corresponding to public work (net HUF 54,000), so-called solidarity support; and a 10% solidarity tax.125 According to his calculations, per child, on average, approx. Twice the HUF 15,000 family allowance, calculated with 2 million children, means an additional monthly expenditure of HUF 30 billion. The HUF 54,000 monthly subsidy due to the subject is HUF 432 billion per month, calculated with 8 million adults. The 10% solidarity tax would generate HUF 152 billion in revenue with an average monthly gross income of HUF 380,000 and 4 million employees. The above: 30+432–152=310 billion HUF/month. This is very similar to György Surányi's proposal. 126 He calculated a much higher subsidy of HUF 100,000 per month (plus an additional HUF 50,000 for dependent children), but only for those who lost/will lose their jobs after March 1, 2020. He also proposed a 5% solidarity tax for earnings above HUF 7 million (HUF 580,000 per month). Both versions would quickly increase the national debt.

125

Berlinger Edina: Először a családokat mentsék, ne a vállalatokat! Portfolio, 2020. április

1. 126

Surányi György a koronavírus-válságról: A kezelés egy lehetséges iránya. Portfolio, 2020. március 25.

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IV. Summary - solutions Wages and income policies play a crucial role in shaping the economic and social well-being of individuals and societies. They influence the distribution of resources, the purchasing power of consumers, and the overall level of economic activity. During the COVID-19 pandemic, wages and income policy has taken on even greater importance as governments have sought to mitigate the economic and social impacts of the crisis. These policies have played a significant role in preventing widespread poverty and social unrest during the crisis. However, some policies have been more effective than others, and there is a need for further research and evaluation to determine the best approach to wages and income policy in the context of the pandemic. As a recommendation, governments should continue to invest in wages and income policy as a means of promoting economic and social wellbeing. Targeted and temporary measures may be more effective than across-the-board policies in addressing specific economic and social challenges. There is a need for better data and analysis on the impact of wages and income policy in order to inform policy decisions. Governments should engage with stakeholders, including businesses, unions, and civil society organisations, in the design and implementation of wages and income policy. Due to the already-mentioned advantages, the multi-rate, progressive income tax option is worth considering. However, the tiers of the combined tax base must be brought closer to reality; otherwise, the phenomenon of tax evasion will continue again due to the low band. KSH data can serve as a starting point. A central element in income increases is the increase of the minimum wage and the guaranteed minimum wage; in addition, it must also be enforced when raising pensions and annuities so that they directly follow wages. Otherwise, the social gap will open excessively wide. Stronger social support for people in need. Recognition of certain family-related services as real work (e.g. home care). Additional discounts are needed for micro and small businesses, especially in professions with a shortage, as incomes here are increasing at an increasingly high rate. Also, the tax benefits of multis (weighing the advantages and disadvantages) require consideration, primarily concerning employment. The source of all this – most of it – is one of the highest taxation rates in Europe. 140

Source: https://data.oecd.org/tax/tax-wedge.htm

In the field of income policy, the powers of the National Economic and Social Council need to be extended and strengthened, or the National Interest Reconciliation Council should be re-established. The general goal for the entire tax system is a predictable tax policy, the prohibition of annual or more frequent changes, and the reduction of the number of tax types. In addition to creating an efficient state (smaller staff, greater performance, simplifications), a more reasonable use of taxpayers' money is also important, especially in two areas: health and education. This also applies to the minimum tax or tax exemption for the essential services of disadvantaged small settlements. The VAT rate must be restored to at least 25%, later to less. Social and income inequalities can be mitigated by the introduction of a luxury tax on the purchase of this type of product or a wealth tax - only among the top ten thousand. In the case of the luxury tax, the historical precedent is Article XVI of 1920 on the luxury sales tax. The luxuries were, above a certain purchase price: pearls and precious stones; precious metals (gold, silver, platinum); original works of sculpture, painting and graphics, works of applied art; antiquities; musical instruments; decorative items, home furnishings, carpets made of rare materials; special garments; firearms; land, water and air vehicles; exotic and wild animals, plants; perfumes and toiletries etc. The tax exemption applies if the objects, due to their 141

quality, can only be used for religious, ecclesiastical, public education, scientific, technical, or medical purposes or were verifiably used exclusively for these purposes. The tax rate was 10%. A combination of market-driven initiatives, social support structures, and targeted interventions is essential for effectively addressing lost wages and fostering economic recovery. A collaborative and holistic approach that engages various stakeholders is key to building a more resilient and adaptive economic system. The market-driven resources are available to cover lost wages, emphasising their adaptability and resilience. Through a comprehensive examination of insurance products, employment schemes, financial instruments, the absorption of the freed-up workforce, civil organisations, and private individuals, the study aims to provide valuable insights into the multifaceted strategies employed within the market to address the challenges posed by income disruptions. Wages and income policies are complex and multifaceted issues, but they have the potential to make a significant difference in the lives of individuals and societies. By investing in wages and income policy, governments can promote economic and social well-being, reduce poverty and inequality, and build a more resilient and equitable society.

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