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Repor No. 8665-HU

HungaryThe Transition to a Market EconomyCritical Human Resources IssuesApril i5, 1991

Country Deparnment IVPopulation and Human Resources DivisionEurope, Middle East and North Africa Region

fOR OFFICIAL USE ONLY

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Currencl Unit ,CY198 ,CYlo G1988SV MU190t Na-rch 1991'

US$l 46,971 Ft. 50.413 Ft. 60.800 Ft. 65.030 Ft. 71.0001 Forint (Ft.) US$0.021 US$0.020 US$0.016 US$0.015 US$0.0141

January 1 - December 31

_ _~AN

CMEA - Council for Mutual Economic Assistance (COMECON)CSO - Hungarian Central Statistical OfficeCSP - Council for,Science PolicyGVTL ' Company Vocational Training List;EF . - Employment Fund . -

ES - Employment Ser%lce,FTE _ Full Time EquivalentGCSE . General Certificate of Secondary Education,GVSF - Certificate of Vocational Secondary EducationGDP - Gross Domestic ProductHAS - Hungarian Academy of SciencesIAS - - Industrial Adjustment Series_14 -- International Labor Orggn2zationIRP3 - Third,Industrial Restructuring Proje t' "KFKI - Central Physics Research InstituteKOSEF - Korea Science & Engineering FoundationLFSC - Labor Force Service CentersIOAG - Ministry Qf Agriculture and FoodMOE - Ministry of Education and CultureMOL - Ministry of. LaborMOw - Ministry of WelfareNBH - National Bank of hungaryNEM - New Economic MechanismNTC - National Training CouncilNVTL - National Voc*tional Training ListMTI - Hungarian Ne4s 4geatyOECD - Organization for Economic Cooperation &

DevelopmentONFB - State Office of Technology DevelopmentOTKA ' - The Hungarian Research FundSPC - Science rolicy Committes'UC - Unemployment Compensation

; Period average.-

-Period average covering period January to end-September, 1989.

/f Central exchange rate average (MAyA1-7,. 1990).

FOR OFFICIAL USE ONLY

This report discusses certain human resource issues which are criticalto the transition to a market economy; labor markets and emerging unesploy-ment; training for skilled workers and technicians; higher education andprofessional training; and scientific and technological research. The reportsummarizes the key problems affecting sector performance and proposes remedialpolicies and programs. The report was prepared with assistance from Hungariancounterpart working groups. The conclusions have been extensively discussedin Hungary, and a broad consensus has emerged on key issues.

Ts domet has a reuideted dlutbutbt ud may be ue by -ipiet oly in Ss pebnaucot thei soshi du. Us cttes may not othews be h dissd itout Waod Dank anutoan

HUNYMTHE TRllON TO A MARKIT ECOY

CRITICAL HUMA ISSUES

81m .4wofbc¢Xc>"lttdTALE .C

X. TiUU.OWCTIn O .i . . . . . . . . . . . . . . ..

A. 'Overview of Macroeconomic Developments sand Reonomic Reform I B. The Implicatios of Macroeconomic Develad4 BEcnomic

Reformfor lumenRssourcesStrategy. ....... ...44.4.4I1

C. Generic Issus .. 3.... .. .. . .. .. . .. . 3D. Metbodology . ..... . .............. .. . 5E. Repot St=ct=,e 4 4 4 * * * * * * * ..... . . . . .S5

I. * U AD I _O . .......... 6

A. Incmes and Icentives: Pomtg Labor arket 1lexibityd Efficiency . . ..................... . - 6

B. Unemplyment: Temporary or Long-T ?........... . . . 7C. Labor Market nstitution: Coping with Social Costs of

I. T 1O T AAS 44.u*t..n . . . . .. . . . . . . 21

A. Youth and,Adult Training .................. 21B. Training for Skilled Workers and Technicians:

Recommendations. . . . . . . . . .a . . .-. . . . , . . . . 29

IV. UIIm EWDCTION AND AM lSICL TRA131' .......... . . . 34

A. The Righer Education System inR y . . . . . ...... 34B. Finance, Costs and Efficiency . . . . . . . . . . . . . .. . . 36C. Content, Duration and Quality. ................ 41D. Participat$on Lim sigter Education . . . . 4. . . . . . . . . 42E. A Strategy for Reform ... . . . . . . 44P. Higher Education and Professional Training: RecomendatIons . 45

This report was prepared following missions to Hungary comprLisig JuliLaSchveitser (Mission Leader), Maurice Boisaeire (Education Economist). DafvdFretwell (Employment and Training peciallst), Charles Weiss (BSciece andTechnology Specialist, Consultant), a Sachi Takeda (Young Professionl).Mr. &andor Nagy (Research Assistant) contributed substantively to thepreparation of the -report. Hungia counterpart groups, oodiated by thoNationalBank of Hngary and the State Office of Tecbnoogy Development (am)contributed greatly-by preparing working papers.

THE TRAOS41}CU 1x A MIARKET ECO_N0MCRITICAL HUMAN - SO URCESUES

TAB OF CONTNT (Coat'4)

V. W In@ii¢j i AD CE CIOGICAL 2ESARCH , . , . . . . . . . . . . . . . 49

A. Human Resources and Organization for Scientific ndTechnological Research . . . . . . . . . . . . . . . . . . . 50

B. The CommercSal Explottation of Research . . . . . . . . . . . 55C. SoSentific and Tectmological Resarch: Recovaedattons . . . 57

BOX 11-1 POLICIES TO INCRASE WAG AND LA NARKET FLEXIBILITY. . . . .12BOX 11-2: I0EATIO 1M LaOR NARKET REFORMS . . . . . . . . , . . 20Box III-l: ISSUES IN YOMS TRAINING F0R AN EING K ECOMY. . . . 23Box inI-2: IssuES IN ADULT TINIING FoR AN REGN MARKET ECONOMY.T. . . .25BOX III-3 DBACKS OF TIH CURRNT ADMIS IVE STRUCTURE ... . . . . 29BOX III-4: BTSCOTQEDNGETRAINING FOR THO ssaSITION . . . 33BOX IV-1: DRWCKS OF THE CUE HIGH EDATIONAZ S.STE . . . . . 43BX IV-2: VAYS TO STRENTH HRIGH DUCATION AND PROFESSIONAL TRAINING. .48BOX V: RECOMENDTIONS TO STRENGTHEN SCIENTIFIC/TECHNOLOGICAL RESEAR 60

AlMZZ I POPULATION. ,AN WAGES 1. , 6

- A. POPULATION . 62D. E WOYM T ............... .......... 645C +* . * A ** v2 65D. POSbSIL E SCXEWIOS ARISING FROREDUCD .

OVEIJIANG IN BURYOUT. 72

TABLEt 1. ECONOM IN TRANSITION: STRUCTURAL ADJUSTMNT INOECD COUNTRIE(PARXS, 1969. OECD) . . . . . . . . 67

TABLE 2. POPUIATIONBYSXUAMDAGE GROUP'. 68TABLE 3 comRE SivE vmTLmT INICTOOFs HUARY.-

1so188 0 - 8 69TABLE 4. DISTRIBUTION OF ACTE EANES AS PER THE BRACHE OF

THENATIONALECONOMY .......... ...... . 69TABLx S. EDUCATIONAL R OF THELABR FORCE IN HUNGARY 70TABLE 6 MONTHLY BASIC WAGES, PER CAPITA LAB COSTS TO

EMPLOYERS, AND ACTUAL EARNINGS BY OCCUPATION .71TABLE7. STAF OF P"UBI EMPOYME SUVCCES PER THOUAD OF

WORIN AGE POPULTION (15-T4) . 71TAE S8. EDUCATIONAL ACIZ W T SEX FO POPULATI ONOF- AMu . ~~~18 AND Ai ,.....................* *4¢OVZ 72TABL9. POSSIBE ARIOS OF N OY IN -HUGRY (00003'S) 73.,TABLE. EMPLONNT BY SECTOR(1985) ...... *...... 73FIGURE 1-1. CHGES I3 TM TOTAL METILITY RAT- (1950-2020) .... 74FIUE1-2. ANGES IN THE AVAOXGE LIFE EXPTACYAT BIRTH

(1950-2020) 74FIGURE 2. HIGHEST COMPLED EDUCATIONAL LEV OF MM POPUATION

AGD 15 YEA AND OLDVR. .. .. 75

HUNWTHE I INON WO A MARKET 8CONO

CRNCAL HUMAN RSOURCES ISSUES

TAULS OF CONTENTS (Coat'd)

EI TIIIC EDUCA!ION 111W IN EUNGAIT ............ . . . . . . . . . . . . . 76

TABIL 1. ERIOLUEET AID TECHING STAFF IN EDUCATION .8.. . . . 80TAMA 2. DITD E OF EDUCATIONL NTTTONS . . . . . . . .6TABLE 3. BUDGETY RIEDITURE PER STUT (Ft.) . . . . . . . 82

ARM III TI SUZD RS AN CCIA 83

TABLE 1. ulIIAYt AT ON SECONAY uCaON T . . . 89TBlEA 2. SECONDARY LEVEL SCHOOLS APt0ICE SCHOOLS. 9 . 0TABL S. ADULT VOATIOAL TRAM=IIG . . . . . .- . 90TABLE 4. ADULT VOChXIONiL TDIM5--* . .*.. . .o 91TABi S. RITtAIG SUPPORT Y SECTOR .... .......... .-- 931TAM 6. NUM1 OF RNSON M YED BY SECTOR AND STAFF-GROUS,

ALTERNAT.VE .E O E TIN.. . . .93Tt t'ZDUC~~ORSIX Sla D=O,. TUn ........................ 94

?5BU 1. CONPARh DM ONN XVUCWON9 9S1131 1-2. R05 OLIJE RAI0S TSlTUit5 EDCATION (1987 O

LATEST) 9S -. ... ........ .. .... . . 9TALIE 1-3. DISTRIBUTION OF STUDES By FIELD FOM SEZCTD

*OOi UNTRIE . . v . . . . . . . . . . . . . *. . . 96TABIl 2. REVENUES AND E nTURE 01 BIGER PUATi0n

IBSTITVTIONS - - . . . . . . . . . . . . . . * . . . . 97LIS 3-1. 1989 NPLAN 0IGH EDUCATION ('000 It.) . 98TAILB 3-2. 1989 RVNUE M R RIGMR EUCION ('000 t.) . . .- 98TABIS 4-1. EMEINDITURS UNI ITIES AND CQLLGE UND WDE

(#Ooo t.) 9 , . * . . * . 9 9 9

TABU 4-2. REVENUE 1R UNIVERITIS AND COLLEES UNDIM We . . . 100TABIL 5-1. E BUDPWEST TEHICAL UNIVERSIT ('000

TALE 6. R STAE F SBSDA TO HIGE EDUCAUION INSTITUTIONS 10RRECURRET E.PEN S (ft. ml11lm) . . . . . . . . . . . 102

TABLSE 7. BREA GoTH In CENTL WATEUBIDY 1F0R RECURRENTE.IPENDITU.ES8 . . . . . . . . , ,' . . . . . . . . .102

TAWS 8. STrDTUPoT IN HIGaE EUCATION .......... Lo- 103TAJL S. COSTS IN IGCEDVATION BY PACULTY IN 1987 .9. 9. .03TABIL 10. D UIO 1HIGHR EDUCATIONIN By SIE * 104TAL5 11. ADMIS1I, APPLICATION, AND ENROXE 3TIN HIIIR

DUCATON . . . . . . . . . . . . . . .. . . ..-. .

HUNGRTHE lR A MARKETCONO

CRICAL HUMAN RESOURCES ISSUES

TABLE OIF CONTENT (Coutd1)

TABL 12. STUDENT SEROLUMENT, AMISSION ANID APPICATIONS BYFACULTY * . .. . . .. . . . ... . ... . .. .. .* 105

TABLE 13-1. STUDNT ENROLLMNT BY FIELD IN RIGHER EDUCATION . . . 106TABLEI 13-2. CRNTM OF STUDENT ENROM BY FIMD . . . . . . . . . 106TABLE 14. TOTAL WNRR OF STAFF IN RIG= EDUCATION . . . . . . . 107

TABLZ 15. NUER OF TEACHG STAFF IN lHER EDUCTION(1987-88) . . * * ..................... 107

TALE 16. TEACHING AND NON-TACHING STAFF ;I UNVESIoMIOC . .. * , 108

TAL 17. STUDENTEkNBYIGON ........ ... .. * 106BML 18. COMPARATIE DATA N NUMER OF STUDE IN HIGHER

EDUCATION . o . . * * * * *,. . . . . . . . . . . 109TAL 19. WAGES OF TEACHING- STFF IN H;GHER EDUCATION .o 309TAL 20. WAGES IN HIGHER EDUCATON CO4ARPE TO OTHS . . . .,. 110

AMEX F AND TrAU . . . .. .. .

TABIE 1. NUWE OF EMLOYE IN RESEARCH EL . . . ! 12TABLE 2. DBUNOF SCIETSS ANDGINES zu in

-~~~~~~~~& IN 1989 .a 112TABLE 3. NUBE OF RESC INSTITUE. SCIENTISTS AND

EN R -Y U AUTHOR (197) . 113TABLE 4. TSCIENTIFIC' S'URBS 3

AGS(1972-1980) ..... 114TABLE 5. NUER OFS E HOLDINGSCI F DEE in

1987 o 'o 0 0 0 - O' 0 0 us.* 1TABL6. PUBLCTIO OF &D STFF BY' IELD IN 1987 .u.s. . .15TABZ 7. " R& PND - . . . . . . *. .* * * * * * * 2 . 116TABLE B. FINANCAL SOURCES FOa SARH & E(Blion

TABL 9-. R&DW ENITrURES BY TYPE OF ACTIVITIES .7 1TALE 10. D BIONOF TH TL TECHUNOLGYDEV

TABLE 12.. ALLOCATIO O1F.S THal HNA'RIA RESERAR FNJND (OMX) BYS"UPEVISIN MINSTRY 0F R&D INSTITUTES . ...... 11

TABL 12. NUMW OF SCIENIS M 10, 00 IN-ABITANTS FOS COUNTRIES . . . . . . . . . . . . . . . . . . 11.

'TABL 13. PER CAPI. R&D -gPENDITURE FOP SECT COUTRE . 11iTABLE 14. EEDTUm F R&D N SELCTE ICONmTIS . . . . . . 119TABLEU 15. SuB AND APPROVD APLICATIONS 0F0OTK . . . .. . 120AB 16. SIZE DISTRMUON OF HAS-RUW ESC ISTITUTE

Nm -AS .............. . 120

THE TRARIT!ON Tp A fUT *CODOXYCRITICL NUMA I" ORI SR

i. This report discusses critieal human resource issues for transitionto a market economy: labor markets and emerging unemployment, training forskilled workers and technicians, higher education and professional training, andscientific and technological research. The report summarizes key problemsaffecting sector performance and proposes remedial poliLies and programs. Thereport was prepared wlth assistance from Hungarian counterpart worklng groups.The conclusions have been extensively discussed in Hungary, and the broadconsensus on key issues enabled the rapid preparation of the proposed FY91 HumanResources for Technology Development project.

Labor Nazt Policies L A a td Emai 1dn eMulOyM~n.

iL. Despite progress in deregulating labor markets, extensive rigiditiespersist. Significant unemployment from releasing redundant labor and/or dowuiwardwage flexibility will v necessary to Improve, labor productivity in the statesector. Stabilization and structural adjustment is liksly to lead to high short-term unemployment rates. Although the Government has already begun to provideunemployment benefits and other services, their development and expansion needto be accelerated.

iii. Improvements ii the housing market are essential for regionalmobility of labor. As avallability of housing increases, a policy focused onovercoming labor market imperfections and on assisting younger age groups mightalleviate pressure of the demographic bulge enterLng the labor force in the nextfive years. With high femae labor force rates and the importance of two incomefamiltS, factlitating job *earch for both husbanida nd wives ts crucial. Forthe imuediate future, however, policies needto encourage bringing jobs to theworkers rather than regional mobility. >

iv. Surplus labor can be released with minimum hardship only it theQoveniuent p*a.ue an active eployment policy wifhin a maket framework. Thisinvolves: a) improving the inutitutional infrastructure and functioning of thelabor market (wage determination, employment and training services, labor marketinformation, etc.); and. b) improving the labor supply side, by restructuringvocational trainlng for youth and adulis, and reforming higher education. Highereducation reforms are urgent although their impact will be seen only in themedium term. Rigidities in the supply and demand of labor are equally serious.

v. .. Unemployment co ation was established it 1989 and fundad fromthe state budget as an interi e. In February 1991, Parliaent passed anew Employment Law wbich provides for financing of unemployment compensationthrough unemployment insurance. The insurance pool will be finafced through apayroll tax on employers and an individual tax on employees wLth contributions.

from the general state budget to assist with deficits. Zey issues are: a) thesharing of the burden of an unemployment Insurance payroll tax; b) the effectof the unemployment tax as another payroll tax on the marginal costs of jobcreation; and c) the effect of relatively high unemployment benefit and longduration of eligibility on prolonging the average duratlon of unemployment.However, fixed time-based unemployment compensation is feaslble only if otherpayments of last resort, such as family inuome supplements, are made to thosewho do not find employment during the time they receive compensation. A separateBank report on these issues is under preparation.

Vi. The Hungarian Employment Service has a crucial role in assittingindividuals affected by structural change. Improvements are needed to assistadult and displaced workers cope with restructuring, as well as to help youthand other entrants move into the labor force. Strategies which need developing

-c-oncurrently to strengthen-services include: a)- expanding job vacancy and--_placement systems; b) enhancing vocational aptitude and interest assessment; c)expanding availability and quality of occupational and educational information;d) providing special assistance for older displaced otrkers; e) creatingindustrial adjwAtment services to handle nmas layoffs; f) expanding and upgradingaeployment se.ldce staff; g) reviewing the re-start loan scheme for start-upmi¢roenterprises to evold abuse, and studying the adequacy of traiLng andsupport services for small businesses; and h) systematically evaluatIngaeployment service and beneflt programs for cost and benefit to the client.

laform of the IHunarian frainins System

vii. A major reform of the training system is underway. In conjunctionwith the local councils, the MLnLstry of Education (OE) Is responsible foradministration of youth training in secondary vocaticnal schools. Tbe MNE isresponsible for academic subjects, while the Minitty of Labor (MDL) ha chargeof vocational curricula. An autonomous, parastatal Eational Training Council(NTC) has been created for admitnstration of adult tralning. The RTC tll befunded by the employment fund, the state budget, and the sale of services andmaterials. Changes in the training system include: a) revising the existingvocational secondary-school program; b) allowing virtually all primary schoolgraduates to enter either gymnasium or vocational secondary schools; and c)removing specialized apprentice training from the public secondary school systemand placing it under the control of the ETC. Primary school graduates will entergeneral or vocational secondary education for ten years of genral educationcommon t4 gymnasium and vocational students (eight primary and two lowersecondary). The sehools will delay occupational training until grade 11 andprovide several opportunities for entry to specialixed vocational and apprentLietralning. Students under the age of 16 would be hased out of apprentictraining as the institutions are reoriented to serve the needs of ts.

vivL. Adult trainlng would be provided through regional training cetersand by restrutured programs in existLig institutions. Some of the apprentice

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schools would be converted into adult training centers, others into vocationalsecondary schools. Adult regional training centers would: a) serve an area thatwould allow adults to commuto to day and evening classes; b) have the option ofstarting satellite operations as needed; c) be open to adults over 16 years ofage regardless of educational background (The centers should provide minimumacademic qualifications to needy adults.); d) schadule entry/exit on a weeklyor monthly basis for the majority of programs, as opposed to once a year; anda) deliver training on a modular basis to give cr5dit for previous skills, toaccount for different rates of learning and to facilitate retraining. Regionalcenters would be managed by a local couneil under NTC policies.

Higher dcto

ix. Recommendations in higher education aim to improve quality, relevanceand participation, to strengthen financing and efficiency, to reducefragmentation and to upgrade administration, teaching and research. The reformsinclude: a) structural reforms,-including the integration of specLalized regionialinstitutions into comprehensive universities, the integration between thedifferent levels of hlgher education and greater Institutional autonomy; and b)financial reforms, which go hand in hand with increased institutional autonomy.The bulk of state funding should-be provided fro -a single fundLg agency toimprove financial managewent and accountability. Other options include: a)normative financing, fundin from foundations, direct budgetary support forstudents, student loans, increased earnings from contract work, and companysponsorship; b) increased student participation by measures such as Introducingmodular programs and emphasizing shorter degree programs in the uni Vrsities,and selectively increasing capacity In high priority areas such,as electronics.Laformatics, biotechnology, social sciences, business education and foreignlanguages; c) enhanced cooperation between research institutes and universLtLesin postgraduate education and research training, and simplification of theprocedures for anarding postgraduate degrees; and 4) increased use -o competitlvefunding to encourage reform and innovation..

SetentLfic and echneological Resear-

x. ScientLfic and technologlcal dvelopment in Hungary has been limitedby the lack of demand for improved tecbnology in Hungarian industry. The recentsevere decline in CMEA markets for ungarian technological exports has leftHungarian industry with manufacturing capacity for which there is little market.The resulting crisis requires a rethink of science and techn&wlogy strategy. Thebulk of investment in science and technology supports.indigenous research andevelopment, with very little spent on adaptive research or other investmentsneeded for Importation of foreign technology. As a result, the links betweenresearch and technology transfer are weak in many fields. Until this situationis rectified, the primary e-onomic justification of basic research in the natutalsciences is the suppor.t of graduate and undergraduate education. In the longerrun, Hungarian research will also make a strong cont#ibution to industrialcompetLtitveness, both by providing an essential underpinning to the absorptionof foreign technology, especially in manufacturlng, and (once the qualLty of

iv *

Hungarian manufacturing has improved) by creating and transferring new technologyto Hungarian industry for commrcialisation on world markets.

xi. The imaediate task is to preserve Hungary's scientifi¢ andtechnological capability, to modarnize it, to manage it efficiently, and to linkit to teaching and to commercial activity in such a way as to support themergence of Hungary into Europe and into international markets. The reportfocuses on organization, staffing and financing issues in the education, trainingend deployment of research workers in universities, research institutes andenterprises. The human resource issues affecting science and technologicalresearch have much in common with those in higher education, particularly thoseconcerning postgraduate education and training.

xii. Recommendations include: a) linking research, education andcommercializati4n by improving the links between Hungarian basic research andundergraduate and graduate education, and strengthening the capability ofHungarian research institutions to market and commercialize their researchservices; b) reorienting the Hungarian Academy of Sciences i"to two autonomousfunctions: as a learned society and as a body to prepare a stiategic plan forand to administer the Acadewy researah institutes; c) establishing OTKA as apermanent body to support basic research funding (Grants would be awarded bypeer review, augmented as necessary by international participation.); d)preparing polieies to guard against brain drain and the aging demographics ofHungarian science; and e) charging the newly established 'Council for SciencePolicy and its Science Policy Comittee, independent of the Academy and otherscientific bodies, with formal responsibility for global policy of scientificand technological development. Policy responsibilities would encompass humanresources, research, and the scientific and technological elements of suchbroader issues as ecwnomic policy, industrial competitiveness and environment.Such policy should be made with the full collaboration of the Hungarianscientific and tecbnological community, and with the broader Hungarian public.

w~~~

I. ZIRoDU.atI R

A. O¶rerview of Macroeconomic bewelonmenta and Economic fl9afot

1. Hungary is well known among the Central and Eastern European countries fora sequence of economic reforms beginning in the late 1950s and culminating inthe New Economic Mechanism (UEM) in 1968, which modified traditional centralplanning to make it more flexitUs. The NM resulted in economic improvementsfor a few years. But. problems of inflation and macroeconomic imbalances arose,and the pace of reform was uneven in the late 1970s and 1980s. The recentevolution of multi-party democracy has facilitated the realization that only acomplete transition to a market economy -- with competitive product, capital andlabor markets - - would make the economy internationally competitive and restoreeconomic growth.

2. The new Government's recent medium-term economic,program addressei theseproblems. It is implementing a comprehensive program to support the developmentof the private sector, including direct foreign investment. The Government alsorecognizes that the exercise of 'effective ownership interest in efterpriiis whichare still state-owned is necessary for improving the efficiency of resource use.This will also allow the state to act decisively in restructuring or closing downinoolvent enterprises and in sharply reducing subsidies to other enterprises.,The Government is also addressing social safety net issues In a joint- study withthe Bank. The import liberalization program, which was initiated in 1989 andis being intensified during 1990-1992, will increase competition in the economyand exert strong discipline am the behavior of domestic firms .- Through furtherdecontrol of prices, liberalization of the financial system and deregulation,the role of the state in the economy will be reduced, while the progressivereduction in taxes and government expenditures (primarily subsidies) will permitthe market to emerge as the principal means of allocating resources.

3. Despite the anticipated growth of the private sector, large scaleunemployment, which the Government has limited capacity to address, will resultfrom the above measures for the first tim since the end of World War II.Moreover, new skUlls will be needed by Hungprian managers, professionals andworkers if Hungary is to develop into a competitive open economy. The twinpressures Implied by these two developments present a formidable challenge tothe human resource sector.

S. The Kplications M nAcroeoltomie 9eve ts and Sconomic Reform «orHuman Resourpets Straty

4. The transition to a market econmy In Bungary has major Implications forhuman, resources. Unl s rapidly addressed, rigid labor markets, an unresponsivetraining system, and fragmented and outdated higher education inappropriatelylinked to industry and scientific R&D will severely constrain the- economicreforms and the move to a market eonomy.

. . .................................................................................................................. .

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5. Short-term stabilization and medium-term structural adjustment,particularly industrial restructuring and agricultural reforms, are expected tolead to unprecedented levels of unemployment in Hungary. In the immediatefuture, the most obvious task of the Goverimant is to improve unemploymentbenefit administration and to strengthen employment services. The latter isparticularly important, since guaranteed employment under the old system hasresulted in a virtual absence of institutions which can assist the unemployedreturn to productive work.

6. The larger underlying problem, however, is the inadequacy of the educationand training system for the emerging market economy. A mismatch between existingsadlls and new requirements is pervasive. First, appropriate retraining andadult education must be instituted to facilitate the reentry of displaced workersto the labor market. Second, the education system must be reoriented to providebetter training to the now generations. Particularly urgent are improvementsin the content, quality and cost-effectiveness of youth training and highereducation. The economic stagnation over the past 15 years has resulted in lowinvestments in human resources. Although about 70X of the secondary school-age population is enrolled in secondary school, about half is i-. -narrowapprentice training with very little general secondary education beyond theprimary school level. Only 15X of the university age population attends collegeor university, compared with about 30X in OBCD countries. As Hungarian industrybegins to compete in international markets, the low level of education andtraining of murh of its work force will be a major constraint to competitiveness.Improvements to primary and -general secondary education, 3 1 while criticallyImportant, are outside the scope of this report.

7. Institutional mangement in education also O*eds an overhaul. Xanpowerplanning resulted in an overly complex managemnt matrix involving the Ministryof Education and Culture (MOE) and other line ministries which supervisedproductive enterprises. A more flexible approach capable of quick adaptationto shifting market conditions is urgently noeded.

S. Hungary also faces a major challenge In science and technology. Theimmediate task is to preserve Hungary's scientific and technological capability,to modernize it, to manage it efficiently, and to link it to teaching and tocommercial activity in such a way as to support the emergence of Hungary intoEurope and into international markets.

9. The focus on science and technology in this report is on organization,staffing and financing isues which relate to the education, training anddeployment of resarch workers in universities, research institutes andenterprises. Other important and pressing issues of broader science and

'I- The World Bank has recently been requested by the Minister of Educationand Culture to assist with a study of secondary education.

'The human resource issues affecting scince and technological researchhave much in common with those in higher educatlzn, particularly thoseconcerning postgraduate education and training.

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technology policy are outside the scope of this review and are best addressedin the context of overall industrial development. The FMS TchnologyDevelopment ProjectV has at least partially touebed on those policy issues andsupports the establishment of institutions providing technical services relatedto standards and quality coAtrol, two critical aspects of industry technologydevelopment. However, an early stage science and technology policy review fromthe industrial policy perspective is highly desirable.

10. Successful implementation of the structural reform also requires a reviewof the overall social policy and programs to ensure that the adverse impact ofunemployment and price increases on the welfare of the population is notunacceptably severe or prolonged. The World Bank will collaborate on a phasedreform of social programs for this purpose. This is particularly important,since social programs in Hungary have not led to a satisfactory level of welfarefor the general population, in spite of government expenditures constituting 331of GDP.

11. Four human resource issues are critlcal to the transition to a marketeconomy: labor markets and emerging unemployment, training for skilled workersand technicians, higher education and professional training, and scientific andtechnological research. The report is structured around these themes and isnot intended to be comprehensive. Rather, the intent is to summarize the keyproblems affecting sector performance and to propose remedial policies andprograms. The study could not have taken place without tse 'hard vwork andcooperation of numerous Hungarian colleagues on the working parties which wereformed to provide expert advice to the Bank on the." topics. We acknowledgegratefully their contribution, as well as the cooroinating roles of the NationalBank of Hungary and the State Office of Technology Development (OMFB). Ourconclusions have been-extensively discussed in Hungary, and the broad consensuswhich has emerged on key issues enabled the rapid preparation of the proposedFY91 Human Resources for Technology Development Project.

C. Generic Issues

12. Three issues: (1) sefficiency, (2) finance and (3) institutionaldevelopment are fundamental to performance in all four focal areas.

Efficiency

13. Improving the utilization of existing resources needs urgent attention.Better value could be obtained from existing programs and institutions at alllevels of the system. New employment and labor market programs need to becarefully evaluated to determine cost-effectiveness. Staff-student ratios,staff-student contact hours (particularly in higher education), and utilizationof classrooms and laboratories are often low by international standards,suggesting that improved efficiency is achievable. The small size andspecialized nature of many education and scientific research institutions makethe economic use of expensive equipment and facilities difficult. Nearby

Loan number 2966-HU.,

institutions are already sharing facilities, and it would appear possible formore institutions to do so with respect to libraries, research laboratories,language training resources, basic science courses, employment services and evenadministrative staff. Modern communication and education technology, includingdistance learning, could also improve access to, and efficiency in, educationand employment services.

Flunue

14. There is a widespread feeling in Hungary that the quality and relevanceof education is declining, particularly in expensive science, technology andvocational training. Improved quality, efficiency and relevance will requireenlarged capital and recurrent expenditures on better facilities, now equipmentand updated programs. The financial needs are large and urgent, since manycurricula, laboratories and workshops need extensive revision and re-equipping.In addition, new programs, e. g., in management training, foreign languages,employment, etc., must be introduced to meet the needs of the modernizingeconomy.

15. How can additiolal financial resources be made available? -Governmentpriority is to reduce the budget deficit. It is therefore unlikely that thestate will allocate all additional funds. Can additional resources be mobilizedthrough fees and user charges, and provision of services? Two arguments againstintroducing cost recovery in Hungary are: (a) fees would be inequitable and notfeasible at a time of inflation and pressure on family budgets; and (b) demandfor training and higher education, which is already depressed because ofartificial wage compression, would further decline if fies were charged. Botharguments have merit. However, experience in other countries shows that withan adequate safety net (i.e., unemployment insurance, targeted job trainingschemes, scholarships and student loans), user charges can increase equity byreleasing funds to improve access for disadvantaged groups, while at the sametime requiring those who can pay to contribute to the cost. At least in highereducation, the wage compression argument does not appear to be borne out by thedemand/supply ratio, which shows over 2.5 applicants for each place. Thedemographic bulge now working its way through the secondary school system willadd further pressure on school enrollments and on employment services. Inaddltion, the reoval of wage regulation should over time increase the salarydifferential between university graduates and skilled workers (1he experienceof market economies).

16. The financing issue will be touched on frequently in this paper. Thereare no easy solutions. However, the issues -- free, but heavily rationedprovision by the State versus cost sharing and possible wider access; publicversus private; revenue earning, etc. -- need to be part - of the emergingpolitical debate in the country.

Institutinal AMURROXmn

17. Institutions have developed in response to the needs of a centrally plannedeconomy which emphasized direct lines of control between sector ministries andrelated enterprises. Lines of authority tend to be complex, and decision making

5-

cumbersome. Institutions will need greater delegated authority andaccountability to respond quickly and cost-effectively to individual needs.

18. Although institutional and technical competence in Hungary is generallyhigh, new knowledge 1I needed. Expertise should be rapidly developed in: thefinancling and administration of a range of services for the unemployed, includingunemployment insurance and benefits, as well as proactive measures to help theunemployed find a job and employers to find qualified workers; eploymentgeneration and small business assistance; educational finance and administration,including higher education; and science policy. In many areas, new institutionsand services need to be created. Technical assistance can accelerate thisprocess.

D. bt4tboagY

19. Missions for this study took place during 1989. Hungarian counterpartworking groups were formed for the four thmess: labor markets and emergingunemployment; training for skilled workers and technicians; higher education andprofessional training; and scientific and technological research. The workinggroups prepared extensive briefing papers and commented on early draft papersfrom the mission. Mission members visited many schools, training centers,enterprises, employment offices, universities and research institutes, and heldextensive discussions with senior government officials and experts. Commentsand factual corrections on preceding versions of this paper have, to the extent'possible, been incorporated into this report.

B. &aDort Structure

20. Since Hungarian readers are familiar with, and in fact provided, most ofthe descriptive materials and data, these are presented in annexes. Annex Iprovides background information on labor and employment issues .Annex Itdescribes the educational structure in Hungary. Annexes III, IV and V presentdata on training and retraining, higher education, and science and technologyrespectively. The main text focuses on findings and recommendations for the fourthemes. The report is supported by working papers by local experts andministries, as described in the bibliography.

21. The goal of the current economic reform is to develop a flexible anddynamic market economy for goods, capital and labor. The transition will Involvecoping with disequilibrium In the labor market, a large and complex topic. Themain focus of this section is on linkages between the labor market and humanresource use and development: (a) the role of incomes and iacentives in aflexible and efficient market allocation of human resources; (b) the imnediateproblem of the likely magnitude and duration of unemployment; and (¢) relatedinstitutional development and policy options. The longer-rum questions of howeffectively to develop a work force for a restructured Hungarian economy arediscussed in sections III to V.

A. !nco9f and Inenivs: ProMon b arket llzibilit ad Efficiency

22. Rigidities in the structure of wages and salaries cause distortions in theuse and development of human resources. For examplo, some engineers and skilledtechnicians in the state enterprise sector earn not much more, and in some casesless, than semiskilled end unskilled workers because of a rigid, centrallyimposed system of wage brackets. By comparison, the general level of wages ardsalaries is higher, and the compression of wage structure is less in the privatosector. As Hungary moves towards a market economy, the state enterprise sectorwill have to allow much greater flexibility (including downward) in thedetermination of emloyment, wages, salaries and other components of individualincome according to relative productivity ana scarcity in tho labor market.While some state enterprises may need to raise wages for certain skill groupsto compete with the private sector, downward wage flexibility may be requiredfor other skill groups. Downward wage flxibility, where called for, would serveas an alternative to unmployment.- This is required not only for human resourceallocation reasons, but also for overall macro- and microeconomic efficiency.

23.- Altering these features of the wag, structure will not be easy. SomeHungarian labor analysts note that the degree of wage differentiation allowedby the previous system of wage brackets was not always iWplemented by the firmsthemselves. Thus the example of engineers sarni-ng less than skilled and semi-skilled workers shouLd not be attributed solely to the constraining effects ofthe system of wage brackets. Other factors in the personnel and payments systemsat the enterprise level are also responslble. For example, enterprise managementneeds to be freed from any external interference in determinrng the wage andsalary structure within the enterprise.

24. Thus far some crucial policy decision hawe been taken with respect to wagedetermination. For example, the Government bas taken an approach to macrolevelwage determination which aims at limiting the rate of wage increases to thatconsistent with macroeconomic stability. In the macro-bargaining round, theGovernment, trade unions and enterprises hold discussions in which they agreeupon guidelines for wage increases. After agreoment in the macroround, -theGovernment withdraws and allows the microround of wage bargaining to be conductedbetween the enterprises and trade unions. The strict regulation of wagestructure prevalent in the past has now been repealed and the wage structure willbe the outcome of bargaining between individual enterprises and workers. Theestimated level of wage cost increases in 1989 is about 13X to 14X, and this is

7.

higher than the 3X to IO range recommended by the National Board forReconciliation of Interests. This situation should be monitored carefully sincelack of downward flexibility of real wages makes it all the more difficult tocope with unemployment.

25. Another key area of income determination will be the remuneration ofmanagers in the competitive state enterprise sector.-1 The competitive sectoris defined to include state enterprises which depend fudaentally on the marketand whiceh will be affected by reduced subsidies and harder budget constraintsintended to make them more competitive. This would also include the expandingsphere of private enterprises. The noncompetitive sphere includes governmentagencies which depend upon the state budget for the major part of theiroperational and investment finances. Certain types of public works and publicutility enterprises ave also included in the noncompetitive sphere. How theremuneration of managers of competitive state enterprises will be deterd.ned isnot yet clear, but labor market forces are likely to widen salary differentialsbetween top managers and other professionals and skilled workers, especially asthe pool of managers who can cope with market changes will likely be limitedinitially. A system in which total managerial remuneration depends more directlyon enterprise performance is needed. This vould give managers of successfulenterprises much higher incomes and would attract more talented people.

26. The above considerations point to increasing inequality of incomedistribution. However, this might prove more acceptable if productivity gainsallow for real wage increases that do not create inflationary pressures. Thereal dilemma of the Government is that significant unemployment from releasingredundant labor and/or downward wage flexibility will be necessary to improvelabor productivity in ovarmanned state enterprises. This raises the issue'ofthe capacity of tnstitultons to cope with the social costs of adjustments sothat the economic reforms are not stalled during the transition.

Z. Unemplovmeut: Temoorarv or Iwg -erm?

27. The need to release significant labor from the state enterprise sector iswidely understood in Hungary. The state enterprise ector is in many ways asurplus labor economy with a great deal of underemployment and disguisedunemployment. Releasing labor from this sector would help to raise theproductivity of Iabor remaining. But it is important to address the questionof how the workers released from the overmanned state enterprises and largecooperatives can bo quickly reallocated to productive employment in other firms.Initially, this productive reemployment is likely to be, for the most part, inthe expanding private sector. The ability to quickly reemploy labor maderedundant will also help reduce the social costs of adjustment by limiting theduration and hardship of unemployment associated with restructuring.

The distinction between state enterprises in the competitive sphere andthe noncompetitive sphere Was elaborated in a paper by the Institute for LaborResearch for the National Conference on Wage Reform and Economic Recovery(Budapest, May 1988).

28. Unemployment was not considered a problem in the Hungarian labor marketuntil quite recently. Official unemployment statistics are recognized to belimited only to the registered unemployed. But tho staff of the CentralStatistical Office (CSO) and the Ministry of Labor (MOL) unofficially estimatthat, if reliable data on the registered and nonregistered unemployed wereavailable, the unemployment rate would have averaged about 1.5X in 1989 and wouldlikely have been about 4X in December 1990. Many state enterprises havedisguised unemployment due to rigidities of the labor market and overall economicinefficiencies. Estimates of overstaffing in the state enterprise sector rangeas high as 20X to 301. Import liberalixation, loss of CHEU markets andrestructuring or liquidation of enterprises are expected to give rise tosignificant increases in open unemployment. However, restructuring will likelycause much higher levels of unemployment. By way of comparison, Annex 1, TableI gives a summary of economic growth and the labor market performance of OECDeconomies, showing the wide variation in unemployment in industrial marketeconomies. But even under optimistic scenarios, Hungary is unlikely to do betterthan small OECD economies which have been among the best in containingunemployment, e.g., Austria and Sweden. It may well be that Hungary will haveto accept long-run unemployment rates in the range of 51 (250,000 persons), withcyclical fluctuations around this long-run level. Simple scenarios of reducingovermanning auring the transition period reveal that unemployment rates couldbriefly peak at 14X or even more in 1991 and 1992 (Amnex I section D and Table9: scenarios of potential unemployment). However, such scenarios are based onassumptions that need to be refined further to make reliable projections.Specifically, more detailed data on manpower utilization at the enterprise leveland an analysis of relative compotitiveness of various subsectori will be needed.In addition, key policies, e.g., pace of stabilization, income- replacementratios, duration of unemployment benefits, will have an impact on unemployment.YThe experience of Poland is also relevant here. By the end of 1990, 12 monthsafter the stabilization program, registered unemployment had reached 1.1 million,or about 8.11 of nonagricultural employment. Although the Goverrment has alreadybegun unemployment benefits and employment service programs, their developmentand expansion need to be accelerated (paras. 44 to 53).

29. A key question is the nature of this anticipated unemployment. Will itbe merely frictional, in which workers released are simply in a short transitionperiod between jobs, or, to a large degree, also structural, in which there isa mismatch between supply and demand of workers in certain skill and occupationalgroups? Policies and programs for addressing these two varieties of unemploymentare quite distinct. Minimizing frictional unemployment, which can be expectedto be present to some degree in any market (or even centrally planned) -economy,involves effective labor exchanges and other less formal -networks (e.g., family,friends, newspaper advertisements) to disseminate information efficiently toewployers and workers on current job opportunities. Structural unemployment,on the other hand, is more deeply rooted in labor market supply-demand imbalancesand thus takes longer to resolve. Extensive retraining programs coordinated witheconomic restructuring policies (piras. 46 and 47) and reform of pre-service

Detailed unemployment projections are being developed for the .. aumnResources for Technology Development Project. -L

L9-

education and training programs (section II$) are required to address structuralunemployment.

30. The difficulty with estimating how serious structural unemployment iLlikely to be is that economic and employment forecasting is often based uponparameters estimated from past trends. More fundamentally, experience since theinception of the OECD Mediterranean Regional Project in the early 1960s showsthat long-term forecasting of manpower demands, using linear skill demandfunctions based on fixed coefficients, has proven too unreliable to be useful.The reason is that, in the long run, labor substitution effects are expected inresponse to factor price changes. However, such forecasting models have somspotential usefulness for short-to-medium term (around one to five years) labormarket analysis and are used in the USA and in soae European countries inconjunction with other indicators concerning potential labor market developments.

31. But even if the methodological validity of such short- to medium-term labordemand forecasts is accepted, structural discontinuity resulting from the reformprocess itself will preclude the use of the standard emloyment and occupationalforecasting models until the structure settles down and a new data base can beassembled. Nonetheless, it does appear, based upon interviews with enterprisemanagers and planners, that some significant structural unemployment will haveto be addressed, especially in some of the counties with stagnating economies.Economic restructuring will likely result in a different profile of skillsdemanded from their work force. Comparison with trends in Western Europeaneconomies may suggest vossible trends of the skill profile during restructuring.For example, an OECD study which examined this topic across member countriesfound that the fastest growing occupations were professional, tachnical andrelated work and the slowest growing were productioh and related work. Thisoccupational trend is also associated with the rapid growth in the servicesectors , which include many kinds of professional, technical and businessservices. The implications for education and training will be discussed insections III and IV.

32. It is important to identify segments of the population particularlyvulnerable to unemployment so that necessary preventive/corrective measures canbe taken at an early stage. For instance, there is a strong sense that regionssuch as Borsod will be more vulnerable to unemployment than others. Differentialimpacts on regions need to be carefully studied using data on geographicaldistribution of industries and their competitiveness P Another potentiallyvulnerable group is women, although unemployment data up to 1988 do not make aclear caso for them. In the future, since female labor force participation ishigh in Hungary as in most other Eastern European countries,7 women may be asaffected as men by rising unemployment. Table 8 in Annex I shows thateducational opportunities have improved significantly in the last two decades

This will be studied as part of preparation for the FY91 Human Resourcesfor Technology Development.

Germany, UK, France and Japan all had female crude activity ratios ofless than 40X in the mid-1980s while it-was 41X in Hungary. Finland andDenmatk had female crude activity ratios of close to 50.

- 10

to the extent that higher percentages of women than men finish secondary schooland higher education. This leaves the possibility that women over 40, with lessqualification, could be more vulnerable to mass layoffs and less equipped forreemployment If they are active in the labor force. On the other hand, the laborforce distribution by sector indicates a relatively high female concentrationin trade, while more men are employed in industry and agriculture (Annex I, Table10). This implies that if unemployment is larger in industry, women may be lessaffected than men. Overall, the current situation does not appear to Indicatea clear direction for immediate action other than that more detailed projectionsfor unemployment, paying particular attention to categories of vulnerable groups,are urgently needed.

Job Creation versus Job Protection

33. The question of the private sector as a source of job creation to absorblabor released from the state enterprise sector becomes very important in thiscontext. In most market economies, such as neighboring Austria, small privAtecompanies are a major source of net job creation. Austria, in fact, providesan example of an economy where many small manufacturing and engineering firmsexist alongside larger nationalized industrial firms. Despite some problemswhich have surfaced in the past few years in the nationalized industrial sector,this has been regarded as contributing to Austria's success in keepingunemployment among the lowest in the OED. Hungary recently abolished theemployment ceiling for private companies as a step towards dismantlingrestrictions in the private sector. A further analysis of remaining barriersto entry of small businesses, formal and informal, would help to improve policiesand programs.

34. Job creation strategies are all the mora important given the demographicbulge now working its way through the education system and, which, by about 1995to 2000, will appear in the younger age cohorts of the labor force. Althoughin the long run Hungary faces a stable or slightly declining population and laborforce, this short-run acceleration in labor force entry comes at a particularlycrucial time in the economic reform process. Exactly how this oorks out willdepend upon changes in the crude activity ratios, especially for women, which,in Western market economies, -have been more sensitive to wage changes than maleparticipation rates. The Government has introduced provisions for earlyretirement of workers in declining industries and certain types of extended leave(e.g., to care for sick relatives), which would provide some flexibility in thelabor force. However, the likely need for raising the retirement age to easethe demand on the social security (pension) system will create additionaldemographic pressure on the labor market.

Regional Isbor Nobility Versus Regioiial Dvelnoment

35. Although there was considerable rural-urban movement of labor during theintensive phase of industrialization in the 1950s and early 1960s, there islittle regional-mobility at present. For example, in those areas experiencingserious economic decline, such as Borsod county in the northeast, unskilledworkers are most affected by unemployment. Although there are vacancies forunskilled labor in Budapest, housing shortages and the strength of cultural andregional ties limit the geographical mobility of unskilled4labor.

11

36. Improvements in the housing market are essential for increasing theregional mobility of labor. As availability of housing improves, a policyfocused on overcoming labor market imperfections and on assisting younger agegroups might alleviate pressure resulting from the demographic bulge. Youngerpeople, married or unmarried, are typically sore mobile than older persons. Thisis even true in the United States, which is noted for its geographical mobilityof labor. Thus, if economic incentives are strong enough, there would be somimprovement in the regional mobility of the labor force. Given the high femalecrude activity ratios and the importance of two income families, facilitatingjob search for both husbands and wives is crucial. However, if regional mobilityis too strongly encouraged, some regions may be deprived of their most talentedyoung people, reinforcing their long-run economic-decline.

37. The Government bas started to address regional development issues throughthe Bank-financed Third Industrial Restructuring Project (IRP3). The pilotscheme started in early 1987, and lessons learned need to be disseminatednationally. These schemes have included development and field testing of: a)short-term labor force analyses, b) methods of evaluating and improving thecost-effectiveness of employment programs, c) techniques to assist with masslayoffs, d) new employment service techniques, and e) new approaches to adulttraining in Borshod county. One of the major questions is the prospect forfinding'new jobs for unskilled labor. Wi#hin the regional development strategy,sectoral And occupat4onal mobility of labor is the key issue, since sectors suchas mining and metallurgy will be on the decline In Borsod, and other soetors withnew occupational patterns must be developed. The usual mechanism for effectingthis in a market economy is growing unemployment and stagnating relative realwages for workers in the declining sectors. At the same time, rapidly growingseetors with rising relative real wages attract workers.

38. This adjustment mechanism also operates between regions as well as sectors.Thus the question of the optimal mix of regional labor mobility and regional4evelopment is linked to the goal of establishing an efficient and flexible labormarket discussed in section IIA.

C. * Labor Markt nstitutiont.: Coning with IScIal Costs of dJustnent

39. The Government has already taken initiatives to reduce wage rigidities atthe micro-level within the overall context of macrolevel ceilings aimed atcontrolling inflation (para 24). However, given the current difficult economicenvironment, both for the Government and the competitive sector stateenterprises, it would take some time for the wage structure to realign itselfwith market determined values, especially if hard budget constraints are

Implemented and enterprises try to protect workers' jobs. Lrge increases inthe relative wages of professional and tecbnical wor'Ars are likely to bump upagainst the total wage bill ceiling agreed upon in the macro-bargaining round.Suggested policies to increase wage and labor market flexibility are summarizedin Box I1-1.

. . . . ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'

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BOX II-1: POLICIES TO INCREASE WAGE AND LABOR MARKET FLEXIBILITY

1. Enforce the stated intention of reducing subsidies to competitivesector state enterprises with vigor and make them compete on equalterms with cooperative and private enterprises in the capitalmarkets. This will force inefficient overmanned enterprises torelease labor and use remaining labor more efficiently. Releasinglabor will free up some space in the constrained aggregate wage billto realign wage structure faster. However, active and efficientemployment services (paras. 44 to 64) are crucial to deliverunemployment benefits and to quickly reallocate temporarilyunemployed labor.

2. Introduce a system of managerial compensation that relatescompensation to profitability and.other enterprise performancei.ndicators. In the past, managers in Hungary did relatively wellsalary-wise, yet they were not much at rizk wheit their enterprisesperformed poorly. On the other hand, managers will neei morerespons4.bility to take decisions without falling back vn their lineministries. Also, workers who deriVe paert c their income fromprofit shaives may be more prone to accept thLe larger incomedifferentials in favor of management in such a system if their totalincome .prospects..Via profit sharing is eanhanced.. :Anagers will needsignificant training to operate in this new environment,.

3. Review incomes and incentives for high-level managers, engineers,scientists, and research and development persennel Personnel in.thiese professional groups are crucial, although they comprise onlyAbout ... l. the.active labor force. Consider not only monetaryremunerationi bit also the "psychic income" from hating propet:failities, equipment and cohditions.for creative work. Many .countries suffer.a "brain drainf" of their most creative managers.scientists and;enginee.rs by. not paying suffident attti to this.

4. Revew pay and employment policy in what would be termed the civil..service in market economies, i.e., ministriesand other government .agencies which come-. under tate budget upport:. The general strategy.- .for civil service pay determination in many market ecfnomies is. tofollow wage trends in the competitive setors.: In aCtUal practice,this strategy becomes corplicated by questions of.valid comparisons,si:nce the occupational-mix, nonwage working conditions and securit.of employment are different between the civil service and the

.competitive sectors. Despite such complications, he .overnmentshou1d initiate. studies of appropriate strategies for detarmihing the.: structure of pay. and of employment in sthe cvil service. Maittaining

-salry levels in real terms would likely require significant.to- : uctions. in civil service emplo ment.;..

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Unemployment Insurance Financini and Benegfits

40. In 1986, the first system of unemployment compensation was established inthe form of an extended term of advance notice, whereby employers had to payemployees their average wage for six months after giving them notice ofdismissal. In 1989, unemployment compensation (UC) was established to replacethe above with funds from the state budget as an interim measure (para. 61).In February 1991, Parliament passed the new Employment Act, which provides forfinancing unemployment compensation through unemployment insurance as isconventional in the industrial market economies. The unemployment insurance fundis financed through a payroll tax on employers, an individual tax on employeesand contributions from the state budget to assist with deficits ir the fund.During the transition period, state budget contributions would be needed to copewith growing unemployment, but as the system settles into a steady-stateequilibrium the proportion of these contributions can be reduced.

41. Hungarian authorities will also want to consider wider aspects of socialinsurance programs, including pension plans, health insurance and other socialservices. Many aspects of social security now provided through the state budgetshould be financed through social insurance methods as the economy becomes moremarket oriented. For more detailed coverage of these issues, the reader isreferred to a joint study of the Government and the Bank on social policy anddistribution under preparation.

42. For the above measures to be implemented with minimum unemployment andsocial hardship, the Government needs to formulate an active employment policywithin a market framework. This involves:

a) improving the institutional infrastructure and actual functioningof the labor market, e.g., wage determination, employment andtraining services, labor market information services, etc.; and

b) improving the labor supply side, e.g., by restructuring vocationaltraining for youth and adults and reforming higher education.Although the impact of these reforms will be seen only in the mediumterm, their introduction is urgent. Rigidities in the supply oflabor are no less serious than rigidities on the demand side.

43. We turn to these longer-run, supply side issues after discussion below ofeffective employment services.

E1ployM=n services

44. The Hungarian Employment Service (ES) has a crucial role in the successof the wage and labor reforms, particularly in assisting individuals affectedby structural change. Hungarian studies have identified a need to expand andimprove services in Hungary to assist: a) adult and displaced workers cope withrestructuring; and b) youth and other entrants move into the labor force. TheThird Industrial Restructuring Project (IRP3) is providing limited resources fordevelopment of model to4ployment services including: a) program planning andevaluation systems; b) occupational information, assessment and job search

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strategies; and c) industrial adjustment services for mass layoffs as used inother countries. A review of these programs is available and is being used toassist further development of the ES. Several strategies need to be developedin parallel to strengthen employment service programs:

Expanding Job Vacancy and Placement Systems

45. Current systems have limited penetration into the labor mazlet and shouldbe enhanced. Only about 30X of job vacancies are listed at local offices. Butthe Government looks to local offices as the major avenue for dealing withredundant workers. In two of the 20 Labor Force Service Centers (LFSC), whichprovide local employment services, the IRP3 project is developing model materialsand techniques, and training staff to use them, to increase the awareness andinterest of employers and workers in registering at local offices. This workwill need to be expanded to the remaining 18 centers. Alternative approaches,including promotion of private manpower services, is also being examined, basedon international experience which indicates that public labor exchanges are notalways the preferred method of finding workers or employment. Private exchangesare now beginning operations in Hungary.

Inhancina Vocational Antitude gad Interest Agossasent

46. The Ministry of Education and Culture (NOE) provides limited assessmentand vocational guidance for young people deciding on careers. Comprehensiveself-administered assessment services are not available at LFSCs. These shouldbe developed. Assessment services provided by the Pedagogical Institutes andenterprises tend to be complex, require specialized staff to administer and arenot directly linked to occupational and educational information. The IRP3project is funding identification, adaptation and testing of n'w assessmentinstruments in two local centers. This work should be expanded, nationalassessment programs doveloped and local service center staff trained to use them.Schools can use the same assessment systems. Training in the use of assessmentinstruments should be included in teacher training, particularly for vocationalInstructors and counseling staff in secondary schools and colleges.

Exuandinu Availability and OualiSv of Occugational an4 Educational nfgormation

47. Better information needs to be made available to youth and adults throughlocal LFSCs. Occupational information is currently developed from enterprisevacancy listings and information is published for each county by local LPSCs.County councils are expected to provide information on courses run by employersand education and training establishments.

48. In practice, little information is available in local centers either ona county or national basis. Information is primarily quantitative and presentsa short-term view of a small portion of the labor market. Local staff are notwell prepared to provide information to clients. A similar information shortageexists in secondary schools. It is critical to fill this vacuum, link theinformation to the assessment process (para. 46), and train staff in LFSCs andeducational institutions to use the information. Again, the 11P3 project isdeveloping model materials and techniques that will be tested in two local

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centers. These information systems should be expanded, provided to additionalLFSCs and adapted for use in public schools.

Special Assistance for Older Disulaced Vorkers

49. Special approaches should be developed to assist displaced workers re-enter the labor market. While profiles of such displaced workers have not yetfully emerged in Hungary, research in other countries indicates that they areoften older employees with limited education and skills who have been with oneemployer for some time.V These individuals experience particular adjustmentproblems including unwillingness to accept dislocation and employment inalternate occupations, a reluctance to undergo training and negative attitudestoward relocation (Annex III para. 5).

Creating Industrial Adiuatment Services for Mass Layoffs

50. In-plant industrial adjustment services (LAS) encourage consultation andcooperation on the part of labor and management to plant closures, threat oflayoff, technological change, plant expansion, transfer of workers, -rovisionof layoff assistance and high labor turnover. The services should be impiementedquickly in communities and enterprises encountering mass layoffs. Lootl LFSC8and communities are ill prepared to deal with even small numbers of frWotionalunemployed, and mass layoffs can have a devastating effect on communities,families and individuals, unless special assistance is provided.

51. Some countries (e. g., Canada and Sweden) have developed successful andcost-effective LAS which are usually coordinated by a committee of representa-tives from labor, management and the community. Hungary has initiateddevelopment of a model IAS through the IRP3 project and should expand this workbased on evaluation of the model program.

^ipandlng 1muoXment Service Staff and ImprZvtng Stgf Trainiln

52. The Ministry of Labor (NOL), formerly called the State Wages and LaborOffice, administers employment services at the local level in cooperation withCounty Councils. There are too few staff (only 223 for the whole country), onlyabout one third have training beyond secondary school, and only a small minorityhave specialized training. In comparison, a local Job Service Center in Maine,USA, with a staff of 42, serves a population of only 150,000. Table 7 in AnnexI shows that the staffing of employment offices in OECM countries range between0.1 to 1 person per thousand of working age population, wuch larger thanHungary's ratio of 0.03. Additional staff are needed to liprove counseling,provide the employment service programs and administer employment fund/safetynet programs.

53. To improve services, the MOL initiated a one-week course in 1988, and plansare underway to set up a two-tiered intermediate and higher education system of

8/ Flexibilit in the Laboy Markt. The Current Debte OECD, Paris, 1986.

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in-service training. In addition, faculties of sociology and psychology inhigher education institutions should modernize their programs to provide a cadreof counaelors with occupational guidance skills for the MOL, schools and majorenterp-ises.

Small Business Promotion for Job Creation

54. Small business development is an important component of any job creationstrategy because: a) small businesses constitute an important part of the privatesector in most economies; b) they are generally labor intensive; and c) self-employment is an attractive option in the face of limited employmentopportunities. For economies in transition where there is no developed classof entrepreneurs, there is an additional appeal: since new entrepreneurs arelikely to start small, promoting small businesses is synonymous with promotingprivate sector development. However, such enthusiasm should be viewed with anote of caution. First, small business development should not be overemphasizedas an effective solution to unemployment. The ratio of the unemployed that havepotential as entrepreneurs is small, normally 2X to 31 in OECD countries, letalone the ratio of those that succeed. It is important to recognize that smallbusiness development/self-employment promotion can be only one of many employmentservices and should not be exranded at the expense of others. Second, smallbusinesses are particularly vulnerable to economic downturns, and therefore toplan start-up operations during a period of economic uncertainty may beparticularly difficult.

55. In July 1988, three counties in Hungary introduced a small, experimentalbusiness credit scheme basis under the name Ore-start loans." Under the scheme,commercial banks provide to selected unemployed people loans of up to 300,000forints, with a maturity of ten years. These loans are subsidized by the EFwhich pays the bank interest on the loans for the first four years. The numberof loans rose from 317 in 1988 to 7,806 in 1989 as the system was extended tothe rest of the country. The scale of the operation is expected to rise furtherand was estimated to take up 411 of the total EF expenditure in 1990. This haslonger-term implications because of the four-year interest payment commitment.The performance of their credit granting system or the subsequent monitoring hasnot been studied in detail, mainly because the scheme was not expected to growso rapidly. The rapid growth raises concern about abuse and calls for the reviewof the system to ensure appropriate appraisal and monitoring methods, carefulallocation of responsibilities and appropriate training of staff.

56. The experience of other countries reveals that small business developumntgenerally requires a two-pronged strategy: a) provision of financial assistance;and b) provision of advisory/training services for project development andbusiness support services for start-up operations. In addition, but outside thescope of this report, is the need for a suitable legal and regulatory environmentfor small business development. Credit schemes to the unemployed to start uptheir own businesses need to be established alongside advisory/training services,since most unemployed people are not equipped with appropriate business skills,nor are they natural entrepreneurs. Considerable training and advice willtherefore be necessary for them to successfully develop business ideas and tomanage start-up operations. Such training programs are often designed to screeneffectively those who are not serious candidates. The survilval rate of small

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businesses can also be improved through provision of appropriate businessservices, such as shared space, accounting and administrative support services,and marketing information. One "small business incubator" is being establishedin conjunction with the IRP3 in Hiskolc.

>7. It is recommended that the review of the re-start loan scheme becomplemented by a study on the adequacy of local organirations to providebusiness training and support services for start-up operations.

Evaluatlna Emplovment Service and Unemnlovment Benefit Programs

58. Better data are needed to evaluate the cost-effectiveness of differentemployment services, retraining and unemployment compensation programsadministered by the MOL. The current MOL information system provides on-linecommunication services with county labor offices. U4olerstandably, the firstpriority is for administration of the UC and Employment Fund (EF) programs.However, the system should be upgraded so that it can be used to help evaluatethe cost-effectiveness of a broad range of employment service programs (e.g.,which UC/EF clients have the longest unemployment, which type of EF programsare most effective for different clients, and which employment services resultin the greatest "reduction in search-timeQ for different clients).

59. The MOL is responsible for the administration of EF programs. Theobjective of the EF is to finance schemes to assist citizens in gainingemployment, and in particular to assist those who may lose employment due toeconomic restructuring. The EF supports payment of the costs of retrainingprovided by enterprises, retraining adults without employment, public serviceemployment, early retirement, and other programs within the jurisdiction of theNOL including resumption benefits (para. 55: small business re-start loans).The MOL prepares an annual plan for utilizing the BF, which is approved by theNational Board for Reconciliation of Interests. The EF obtains its resourcesfrom the State Budget.

60. The EF is helping workers displaced by economic restructuring. In 1989the EF supported limited retraining services for workers without employment (130courses with an enrollment of 375). The proportions of individuals in theseprograms were well balanced geographically. In addition, the MOL providedsubsidies to enterprises for 888 training courses for 5,148 persons in allbranches of the economy. In 1989 the MOL also provided EF funding forinvestments that created 7,174 jobs, small business loans to 7,806 persons, earlyretirement for 6,292 persons and public service for 11,000 persons. In 1988,prolonged notice (job-finding subsidies) were also provided to 4,000 people.

61. A UC system was introduced in Hungary in January 1989 (para. 40). Fourprincipal changes have been introduced: a) Benefits are now payable with aminimum of 12 months' work in the previous four years compared to the earlierrule of 18 months in three years. b) The minimum period of entitlement after12 months of employment is now six months (The maximum benefit period of twoyears would apply only to someone who had spent the previous four years ininsured employment.), and the Temporary Allowance is phased out. c) A newbenefit, "unemployment assistance," payable for six months, is proposed for

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career beginners. This gives a previously excluded group access to benefits.(d) Persons quitting their jobs voluntarily are disqualified from unemploymentinsurance for 90 days when they become eligible for the same benefits as otherunemployed workers. During the first half of the entitlement period, theinsurance benefit is still 70X of the earnings during the last 12 months ofunemployment; for Phase II, the benefit will be 50X of the same earnings base(in contrast to 60X under the old system). The maximum benefit is still threetimes the minimum wage, but the minimum benefit is now 100l, rather than 80X,of the minimum wage. Without data on the profile of claimants, it is notpossible to determine whether the average unemployed person would fare betterunder the new or the old system. In any case, it would be better for the benefitto be stated as a flat rate at least during the Phase II entitlement period.Although this would not necessarily entail cost savings to the Solidarity Fund,it would involve less administrative burden on employment offices and employersthan an earnings-related benefit.

62. A number of countries (e.g., USA and UK) neglected systematic evaluationof ES and UC systems and invested considerable funds in ineffective and expensiveprograms. The MOL has started a pilot project, with the assistance of the U.S.Upjohn Institute for Employment Research, which has resulted in the developmentof a draft "County Employment Fund Master Plan" and a "Guide to Micro Data forIF Effectiveness Monitoring. I These two documents are being field tested in twocounties, with IRP3 project funds, to develop cost-effective approaches. Thiswork should be further refined and expanded for use countrywide, payingparticular attention to the following:

a) First, the characteristics of ES clients should be compared againstthe services rendered (e.g., employment counseling, use of the laborexchange, occupational assessment, job search training) and EFsupport provided (e.g., retraining, early retirement, public serviceemployment, small business loans), to determine the cost-effectiveness of different programs with different clionts. Thisanalysis should include evaluation of the cost of programs delivered,job placement rate of clients, and remuneration levels of clientsin new jobs. In addition, EF service providers (i.e., traininginstitutions) should be evaluated in terms of cost-effectiveness,job-placement and retention rates, and capacity to place traineesin jobs with appropriate wage levels. Results of this evaluationshould be used to: a) help shape development of employment services;b) award contracts to EF service providers; and c) develop an ESand EF annual planning and budgeting process at the county levelwhich can help forecast the state budget for ES and EF programs.

b) Second, the cost-effectiveness of the UC system for different clientsshould be carefully evaluated in conjunction with the use of variousemployment services. Some countries have set very restrictivepolicies in the use of UC which do not contribute to the early returnof workers to jobs. Tne issues that should be addressed include:a) Can UC claimants take training without losing UC benefits? b)Can UC funds be used for payment of other than UC benefits? c) Canlocal government use UC funds to pay costs of job search, training,

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worker relocation or starting a business? d) Can the UC claimantuse UC benefits for whatever purpose he/she chooses?

63. Different countries are experimenting with various options, includingjoint application of UC and EF services, with some success. These programsshould be examined and appropriate flexibility built into the emergingunemployment system.

64. Initial cost calculations and projections for operating the UC/EF systemundertaken by the M0L endorse the urgent need for this type of evaluation.UC/EF cost estimates completed in May 1990 for calendar year 1990 indicateconsiderable overexpenliture (9,632 million forints against the planned budgetOL 5,600 million forints) even with a conservative estimate of year-endunemployment (100,000). The major problem is the overuse of small businesscomponent of the EF, which has grown rapidly to take up 41X of all UC/EF clientexpenditures (para. 55), and there is little or no evidence that new businesseswill survive to provide long-term employment. This cost-projection model isbeing refined in conjunction with the development of the planning model(para. 62).

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BOX II-2: RECO0INDATIO1NS FOR LABOR AllT REFORM

1. increase wage and labor market flexiblit. Subsidies to enrterprisesshould be terminated to encourage release of surplus labor. Whileemployment services have to be rapidly improved to cope withsubsequent unemployment (para. 28); the cost of unemployment benefitsshould not be the reason for delayirg inevitable restructurtng. Thecost of "soft budget" is likely to be far greater than the payment ofbenefits. In addition, income incentives for high-level managers,engineers and scientists must match responsibility. In stateenterprises, managerial compensation should be linked toprofitability and other performance indicators to encouragemanagerial autonomy,

2. Improve the Unemployment Compensation System. The level and durationof benefits should take into account their disincentive effect on jobsearch. The medium-term goal should be an unemployment in urancescheme supported by employer and employee contributions with theGovernment covering deficits which may be large during thetransition.

3. Stentgn tht gmDloyMent Service. Improvements will assist adultand displaced workers cope with restructuring and help youth andother entrants move into the labor force. Strategies needing.concurrent development include: a) expanding job vacancy andplacement systems; b) enhancing vocational aptitude and interestassessment; c) expanding availability and quality of occupational andeducational information; d) providing assistance for. older displacedworkers; e) creating industrial adjustment services to handle masslayoffs; f) expanding and upgrading staff; g3.reviewing the smallbusiness re-start loan scheme to avoid abuse, and studying theadequacy of training and support services for small businesses; andh) systematically evaluating employment service and benefit programsfor cost and benefit to the client.

4. Evaluate Fiscal Polcies. Evaluate the UC/EF system, especially todetect inappropriate expenditures and abuse, Placing ceilings onsome EF items such as re-start loans may be necessary to avoidserious fiscal deficits.

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III. TRAINING FOR SKILLED WORKERS AND TECHNICIAS

65. Hungary's education and skill requirements are changing as the countrystrives to introduce a market economy, improve productivity and quality, increasehard currency exports and compete in international markets. The followingdiscussion and recommendations for changing the training delivery system arepresented under two major headings:

a) A review of the Hungarian youth and adult training system including:(i) youth training, ii) adult training, (iii) internal and externalefficiency and (iv) administration.

b) Recommendations for reform including: (i) delivery of youth andadult training and (ii) administration.

66. Recommendations are based on a review of international trends andexperience including: youth and adult training system models; special problemsin training displaced workers; and administrative approaches (Annex III).

A. Youth and Adult Training

67. Youth training is defined as training for young people of compulsory schoolage (up to 16 years of age). This training normally occurs prior to entry intothe labor force and is generally long term (over one year).

68. Adult training is defined as training for individuals beyond compulsoryschool age. The training is less than at the higher education level. Adulttraining has long- and short-term components. Long-term training may qualifyan adult for initial employment or a new or different occupation (qualificationor pre-service training). Short-term training may improve the skills of adultworkers for their current job (further/continuing education) or qualify them fora related occupation (retraining).

69. Although youth and adult training are discussed separately, there isclearly overlap between the two. In fact, one of the trends emerging ineducation and training in OECD countries is a blurring of the distinctionsbetween youth and adult training. Education and training is increasinglybecoming a lifelong process.

Youth Training

70. About 95X of primary school graduates enter some form of secondary level(grade 8+) education and training. Of these, around 25X enter academic secondaryschools (also referred to as grammar schools or gymnasia), 301 enter vocationalsecondary schools and 451 enter apprentice schools (Annex III, Table 1). The5X of primary school graduates who do not proceed further generally take upemployment and/or some part-time schooling. This report focuses on developmentof the youth training system, as opposed to primary or academic secondaryschools.

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71. Two types of youth training are provided in secondary schools:

a) Apprentice schools. These schools provide specialized training foryoung people up to 25 years of age. Apprentice schools are includedunder youth training because the majority of participants are between14 and 17 years of age (95X in 1987).Y This training providescertification in 128 occupations on the National Vocational TrainingList (NVTL). Training includes two-year programs in typing andstenography (63 schools), three-year health care training (29schools) and three-year, apprentice-based training in conjunctionwith enterprises (299 schools). Taken together, these schoolsenrolled about 215,000 students (442 of secondary enrollments) in1989/90 (Annex III, Table 1). Approximately one third of the 51,599persons who passt I final skilled workers' examinations were female.Apprentice schools do not provide a General Certificate of SecondaryEducation (GCSE), and graduates cannot proceed to college oruniversity without completing additional secondary school classes.

Apprentice training in Hungary is quite different in its structureand achievement from the German-Austrian system in spite of itslabel. As in most countries with previously centrally plannedeconomies, the schools are geared towards the provision of narrowlyskilled specializations, especially for heavy industries, based onmanpower planning.

b) Vocational secondarv schools. These schools provide generalvocational training for four years and a Certificate of VocationalSecondary Education, equivalent to a GCSE plus a skilled worker'scertificate. With this certificate, a graduate can apply for collegeor university entrance. The schools provide an initial two-yeargeneral education program, including vocational exploration, at theend of which the student can enter a two- or three-year technicalspecialization or join the apprentice program. These schools do notall provide specialized skilled worker NVTL certification. The NOEis also experimenting with a five-year technician's certificationprogram in a number of vocational secondary schools. There were 381vocational secondary schools with an enrollment of 157,194 (321 ofsecondary enrollments in 1989/90).

72. Special qualifying programs are available for apprentice school graduatesto obtain a GCSE, and for vocational secondary school graduates to obtain NVTLcertificates.

9/ Statistical Yearbook, Hungarian Central Statistical Office, 1987.

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BOX II-l: ISSUES IN YOUTH TRAINING FOR AN EMERGING MARXET ECONOMY

1. Too early IpRcidlization. The majority of students enter specializedtraining at 14 years of age, grade nine, and are not mature enough tomake a long-range career choice.

2. Weak general educAtionl. Students entering specialized training tooearly have inadequate general education to absorb high-leveltechnical training.

3. Centralized ind cQumbersome decisign Making. Institutions experiencedelays in gaining approval to start/revise long-term training.Training is based on national syllabi and textbooks, as opposed tomodular units. The former are inflexible, require considerable timeto update and are difficult to use/adapt for retraining adults.

4. Low instructgr salaries. Wage differentials between technicalteaching staff and technicians in enterprises may widen in comingyears making it more difficult to hire and retain good teachers.

73. Apprentice schools suffer from four structur&l problems:

a) External efficiency of training. Although exact figures onemployment of apprentice school graduates are not available, onestudy by the National Pedagogical Institute found that 56% ofapprentice school graduates were not working in their field:; threeyears after qualification. One school estimated employnent orgraduates in their specializationi ranged from less than 10% to 100%.

b) Early specialization. Required early specialization contributes tohigh dropout (25%) among first- and second-year apprentice trainees,who are ill prepared to make career decisions, have difficulty inassimilating the training and in adjusting to the adult workenvironment.

c) Inflexible programs. The standard requirement for a three-yearapprenticeship for most NVTL qualifications is questionable. SomeOECD countries have varying lengths of apprenticeship and areexperimenting with competency rather than duration-based programs.As new legislation loosens linkages between wages, employment andcertification, there will be a greater demand for training which ismore flexible in duration and content.

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d) Narrow specializations. A high proportion of practical trainingoccurs in enterprises. Apprentices often have too narrow training,limiting their future productivity and occupational mobility. A lackof workshops, outdated equipment and overcrowding exacerbates theproblem.

74. Vocational secondary schools have three main problems:

a) ftloyMent. There are no data to monitor the employment of vocationalsecondary school graduates and no systematic follow-up of employersto evaluate the quality of graduates.

b) Program conflicts. The tradeoff between academic and practicaltraining needs to be recognized to prevent overcrowding.

c) Cost-effectiveness. Although approximately one third of thegraduates from vocational schools enroll in colleges anduniversities, no conclusive evidence indicates these graduates dobetter than gymnasium school graduates. To the contrary, moregymnasium secondary school graduates complete five-year universityprograms, and gymnasium school education is less expensive and mayprovide better quality general education.

Adult Training

75. Adult training should provide long-term pre-service or initialqualification training, as well as short-term continuing education and retrainingfor a broad range of workers. The existing system faces difficulties inproviding needed services as economic restructuring cot.tinues. Increasingnumbers of adults will have to take long-term training to obtain newqualifications because their job no longer exists, or short-term retraining asthe content of their job changes.

76. Hungarian institutions have considerable physical and staff potentialfor adult training. This potential can be fulfilled by: a) increasing theinvolvement of existing institutions in adult training, as opposed to creatingnew institutions; b) increasing retraining assistance; c) increasing flexibilityin delivery of training programs; d) providing broader services such asemployment counselling and job search assistance; e) supporting use ofenterprises for training; and f) emphasizing the development and provision ofemployment services in conjunction with training (Box III-4). Specific problemsassociated with adult training follow.

Adult Pre-service Training

77. Adults need local low-cost, comprehensive, pre-service training.This training should a) increase occupational and geographic mobility; and b)not necessarily be linked to current or past employment. There are currentlyseveral limited avenues for pre-service training and qualification/certificationfor adults over 25 years of age.

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78. School-based evening and correspondence courses. These courses leadto initial NVTL qualification. They are based on secondary level syllabi andare regulated by the MOE and sectoral ministries. Training is primarilytheoretical and intended for those who have practical skills and/or occupationalexperience. Approximately 40,000 adults were enrolled in these courses in1987/88. Enrollment has been dropping over the last several years, perhaps dueto wage compression and a perceived lack of benefit in taking the courses.

79. Non-school-based training. This training is supervised by sectoralministries and can lead to NVTL or Company Vocational Training List (CVTL)qualifications. In 1985/86, 123,000 adults obtained vocational and semiskilledqualifications, of which approximatelvy 50 were completed in Budapest. Seventypercent of the expenses weAe paid by employers and 25X jointly by employers andparticipants.

BOX III-2: ISSUES IN ADULT TRAINING FOR AN EMERGING MAE T ECNONY

1. NVTL and CVTL apprentice training is often out of reach of:.unemployed adults without related work experience.

2. Access to training for adults.in different regions of the country.varies considerably.

3. Because techniques for monitoring labor demand are inadequate, theadult training offered does not match employment opportunities ingiven sectors.

4. Participants must pay for the courses.(except adults under 25completing their first qualification). Financial support isusually only available if a participant.qualifies for.assistancefrom the EF (para. 59), or is subsidized by an employer..

5. Enrolling in school-based programs may be difficult because theyare not competency based or open-entry/exit (i.e., allowing aperson to enter and exit at different times in the year andprogress at different rates).

6. The need for flexible and comprehensive pre-service training foradults will increase as the economy changes, technology affectsthe type of skills required, and displaced workers need new skillsto qualify for different occupations. Time-based TV1Th/CVTLcertification will become less important as linkages.betweencertification and wages loosen.

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Adult Continuing ddMcation and Retraining

80. The majority of this type of training is short-term and occurs inenterprises outside the school system. Certification, if given, is provided. bythe sector ministries, using NVTL and CVTL procedures (Annex III, Table 4).Overall, about 8X of the work force enroll in continuing training, though theratio varies widely from county to county with the greatest concentration inBudapest. Larger participation is found in OECD countries. For example, it isestimated that in the USA, 20X of the adult population over 25 years of age isenrolled annually in classes leading to a certificate or diploma.12 Employersorganize at least half of the vocational qualification courses and one third ofcontinuing education programs and pay the majority of costs.

81. State-supported retraining programs are administered by the MOL.Sectoral ministries determine the vocations to be taught in agreement with theMOE and the MOL. The MOL is responsible for organizing and carrying out anyvocational education regarded as retraining, but must do so in cooperation withthe NOE and sectoral ministries. This type of training can be delivered byprivate organizations and/or educational institutions.

82. There is some divergence of opinion regarding the availability ofadult pre-service and retraining in Hungary, perhaps due to overlappingrespunsibilities between ministries.121 Bank mission observations confirm thatopportunities for long-term pre-service and short-term retraining for adultsare limited, particularly for workers who wish to change occupations or areunemployed. In reforming adult retraining, three principles must be considered:

a) Education and training is becoming a lifelong process. Adults musthave ready opportunity to upgrade their skills periodically. Thiscalls for coordination between pre-service and retraining programs.

b) Retraining is not always the most cost-effective method for assistingdisplaced workers' return to employment.

c) Adult retraining programs must be flexible with regard to entry andspeed of progression, must take into account existing skills andmust cater to the academic and individual needs of adults.

I0/ Adults in the Changing Work Place, American Vocational Association,Washington, DC, 1985.

"1/ One study states that technical vocational training can be organized inevening or correspondence courses and provides data on existing programs.Yet, another report states that there is no evening correspondence trainingfor skilled workers, but that every vocation can be learned in adulthood,although not always in school-type education. A third report indicates thatthere are hardly any training institutions which provide evening orcorrespondence training in skills; changes in vocation initiated by theindividual are extremely restricted, and the training system is petrified andexpensive, due in part to monopoly positions held by some ministerial traininginstitutions and exacerbated by limited certification opportunities.

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Internal and External Efficiengy of the Trainn Sytaem

83. Better data are needed to assess the internal efficiency and cost-effectiveness, and the external efficiency and cost-benefit of trainingprograms. The obse.vations below are based on limited data. The informationbase must be improved to make a more detailed analysis.

Internal Efficiencl

84. In 1987, National budgetary expenditure per student was about 23,900forints (US$510) for apprentice schools, 20,360 (US$430) for gymnasia and 27,690(US$590) for vocational secondary schools.WV The data do not reflect allexpenditures, nor do they include local government contributions and enterpriseexpenditures on apprentice training.-i Unit national budget expenditure onHungarian vocational schools exceed gymnasium schools by approximately 351 andapprentice schools by 181. Similar comparisons between vocational and gymnasiumschools show for the USA 33X, Ireland 201 and France 151. In the school year1990/1991, the local government received central budgetary support of 39,000forints for each secondary school student. However, the local governmentdetermines allocation to different types of schools, and data on differentprograms are not aggregated at the national level.

85. Student/teacher ratios in Hungarian apprentice, vocational secondaryand gymnasium schools are similar, between 12 and 15 to 1, and are comparableto ratios in OECD countries. But, Hungarian figures may not include full-timetechnical support staff in workshops. The drop-out rate in apprentice schoolsapproaches a high 251 during the first two years. Average class size in adultretraining and continuing education is approximately 20, but no data areavailable on teaching loads.

86. The above data indicate that, with the exception of the apprenticeschools, the training system may be operating in a reasonably cost-effectivemanner. However, better data on internal efficiency are needed given thechanging labor market, the need for new capital investments, doubts aboutexternal efficiency and the overall need for reform. Surveys in other countriesshow wide cost differences between training modes. Hungarian studies shouldinclude an analysis of the major determinants of training costs including: a)class size and teaching method; b) teacher costs; c) length of training; d)extent of wastage and dropout; e) scale of operation; f) recurrent and capitalinstitutional costs; and g) trainee costs.

87. The overall financing of adult training also needs review to ensuresupport for the recommended changes (para. 103). This review should identifyalternative approaches to apportion costs between the state and local government,individual and enterprises depending on: a) training objectives, b) the clientele

12/ 1987 Statistical Yearbook, Hungarian Central Statistical Office,Budapest.

3/ Comparison with other countries is difficult because expenditures arehighly dependent on personnel costs.

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and c) the primary recipient of training benefits. The analysis must addressquestions of equity and availability of training to displaced workers.

External Efficiency

88. Indicators of external efficiency are incomplete. Little systematicfollow-up of graduates of institutional training or their employers has beendone for several years. The young age of most apprentices, combined with theconcerns that training is too sector and enterprise specific, raises questionsabout the end result of training. Data on the effectiveness of apprenticeprograms are not encouraging. Curriculum revision is currently a long and time-consuming process and can adversely affect the external efficiency ofinstitutional training programs. Regular follow-up studies of graduates andtheir employers and a national system of job analysis should be established.

Administration

89. Education policy and regulation are the responsibility of theMinistry of Education and Culture (MOE). Public education, including vocationaland technical training, is administered through 19 County Councils plus theCapital. Training is financed by a combination of state and local funds. CountyCouncils receive state budget funds, which they allocate for local services,including education. A Vocational Secondary Training Fund has been establishedthrough a payroll tax (1.5X of wage expenses - 1X in Agriculture), which providesadditional state resources. Councils supplement state funding with local funds.

90. Vocational training, with the exception of retraining (para. 81) andspecialized forms of company based training (para. 79), is under the centralmanagement of the MOE. The NOE, in collaboration with sector ministries suchas Labor, is responsible for the specialized content of school-based training.Sector ministries have had the primary responsibility to determine the vocationstaught, regulate the content, publish educational materials, regulateexaminations, and control supervision of training. The intent is to ensure thatthe content of vocational courses is "appropriate" and to promote close liaisonwith sectoral enterprises. County and city councils directly administer thetraining schools.

91. This administrative system is a product of a centrally plannedeconomy where ministries controlled enterprise production and employment. Thesystem is mature, has provided sufficient skilled workers for state enterprisesand in the past has generally served Hungary well. However, the administrativestructure is inappropriate for a market economy (BOX 111-3).

92. In addition, further consideration may need to be given to the roleof the private sector in training. Although enterprises, the main providers ofadult retraining programs, and emerging private industries are unlikely toprovide substantive training for their workers during industrial restructuring,their medium-term role must be clearly encouraged. Private training institutionsappear to have no serious regulatory or legal restrictions. However, it is notclear how such private providers of training programs fit into the overallframework of training.

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B0X III-3: DRAWBACKS OF THE CURRENT ADMINISTRATIVE STRUCTURE

1. As enterprises become free to set their production and employmentobjectives, sector ministries will not be in position to control andadvise on manpower requirements.

2. Program development work (i.e., job analysis and certification) iscurrently undertaken by staff in different ministries who may lackspecialized training and/or knowledge of the occupations they arereviewing. This results in uneven program quality betwee., sectorsa..nd inappropriate program conitent and certification. particularly asministerial conurol over enterprises declines.

3. Sectoral ministries sometimes monopolize training programs forspecific occupations, although most occupations are found in manysectors.

4. The cumbersome multiministry program development and approval processhas made it difficult for schools to respond quickly to changingenterprise needs (e.g.' 18 months were needed fo'r one school to

.-obtain a negative decision on a computer repair program)?.

5. ...Curricula.are based on traditional time-based syllabi, rather than;.flenible/modular training which can be quickly altered to meet 'newneeds. The.present system cannot easily develop-and deliverflexible, short-term upgrading and retraining f£or adults.

6. Spe.ciaized apprenticeptraining in public secondary education makesi...t£ difficult to introduce flexibility::in length and timing of..programs. .For this reason, many countries have moved management of

.thb type o ta tr nig o ide te public s hool yst

7, Legislati on.vocational trainingtrain ingraining is primarilyregulatory. It. does. not provide a framework or incentivis to improve-the overaLl. quality of the training syscem (i,e,, job analysis

;:... odulaoxr training curricula, staff-development, competiti.ve..deelopment of new model programs by local institutions such asentrepreneurship training and computer repair trAining).

B. Training for Skilled Workers and Technicians: Recommendations

93. Experiences of OECD countries in adjusting to rapid economic changesare discussed in Annex III. Based on the analysis of such cases, the mostappropriate system for Hungary's evolving training needs is as follows:

a) It must adapt an integrated academic and general vocational programin secondary schools combined with outside specialized training for

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adults (i.e., the schooling model for youth and adult training (AnnexIII Fig.l and para. 4); and

b) It must allocate full responsibility for administration of youtheducation and training to the MOE (Annex III. para. 8) and createa National Training Council (NTC) for administration of adulttraining (Annex III para. 9 to 11).

Adaptation of the Schooling Model for Youth and Adult Training

94. An integrated academic and general vocational program in secondaryschools would be combined with specialized training for adults outside thesecondary education system. This would involve: (a) revising the existingvocational secondary school program; (b) allowing virtually all primary schoolgraduates to enter either the gymnasium or vocational secondary schools; and (c)removing specialized apprentice training from the public secondary school systemand placing it under the control of the NTC.

95. Primary school graduates would enter gymnasium or vocationalsecondary programs providing general education, or general education plus entry-level skills for related occupations. Revisions to the vocational secondaryschool curriculum would include: (a) provision of more general education,language training, occupational exploration at the lower secondary level (gradesnine and ten); and (b) replacement of specialized vocational training with broadskill courses (e.g., selected from the 36 core vocational programs in the NVTL)at the upper secondary level (grades 11 and 12). This would provide ten yearsof general education common to gymnasium and vocational students (eight primaryand two lower secondary), delay occupational training until grade 11, and provideopportunities for entry to specialized vocational and apprentice training (atthe end of grade ten for secondary school dropouts, or at the end of secondaryschool). The revisions would follow a pattern already being tested in severalmodel technical/vocational secondary schools (para. 71), except that a varietyof vocational programs would be offered in each school as opposed to the one ortwo programs in the model schools. The schools would be administered by the MOEin cooperation with local county councils (para. 89). Students under the ageof 16 would be phased out of apprentice training as the services of theseinstitutions are expanded to serve the needs of adults (para. 97).

96. FLncia' Implications of Youth Training Reforms. The Ministry ofEducation and Culture is currently preparing detailed cost estimates for theproposed changes in the secondary education system as part of the proposed PY91Human Resources Project. A rough estimate, however, can be made assuming thatgymnasium and vocational secondary schools need to expand their capacity by about3O,000. This will Increase recurrent costs by about one billion forint (US$15million) per year, since the unit operating cost to the state budget forgymnasium/vocational secondary schools is higher than that for apprenticeship

h/ Te current annual intake of the apprenticeship schools after primaryschools at age 14 is approximately 70,000. However, the number of primaryschool graduates will decline by 40,000 between 1990 and 1996 owing to adeclining demographic trend.

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schools.11 Most of the capital investments will be for equipment in secondaryvocational schools because: a) there is excess gymnasium capacity; and b)apprentice training facilities can be converted to gymnasium and/or vocationalsecondary schools. Equipment costs to upgrade the approximately 400 existingvocational secondary schools will be in the range US$40 million (US$10,000 perworkshop, 10 workshops per school). Costs to equip additional training placesfor up to 15,000 students per year (half of those diverted from apprenticetraining) would be in the range of US$45 million (1500 workshops/laboratories,US$30,000 each).

97. Adult training. This would be provided through regional trainingcenters and by restructured programs in existing institutions. Adults as wellas youth who elect to leave school at age 16, or who have completed secondaryschool, could attend regional adult training centers providing specializedtraining equivalent to NVTL certification. Some of the existing 284 apprenticeschools currently offering NVTL training would be converted to regional adulttraining, while others would be converted to vocational secondary schools.During the conversion to adult training, the scope of services provided atexisting apprentice schools would be broadened to include: a) short- and long-term train'ng as well as apprentice training; b) customized training servicesfor new businesses and the MOL; c) small business training and assistance; d)general education; and e) related employment and counseling services.

98. Adult regional training centers would have the followingcharacteristics: a) they would be located to allow adults to commute to day andevening classes; b) they could start satellite operations as needed; c) theywould be open to all adults over 16 years of age regardless of educationalbackground and would provide needy adults with minimum academic qualifications;d) they would allow entry/exit on a weekly or monthly basis, as opposed to oncea year, for the majority of programs; and e) they would deliver training on amodular basis to give adults credit for previous skills, to account for differentlearning rates and to facilitate retraining. Regional centers would be managedby a local board under NTC policies (para. 102).

99. Financial Implications of Adult Training Reforms. The Go'?ernmenthas established a National Training Council (para 103) to oversee a network ofadult regional training centers. Capital and recurrent costs will be sharedbetween state and local governments as well as the private sector andindividuals, some of whom will be have to pay a portion of their training costs.State budget funds would partially come from the existing vocational trainingfund/levy. Centers are expected to provide an average of 800 training placesapiece in up to 20 locations. The initial phase of development to be financedby the proposed FY91 Human Resources Project includes nine centers. State budgetexpenditures for facilities are expected to be limited to renovation, sinceexisting buildings for apprenticeship, local government, party and stateenterprise training will be used. Capital equipment investments will be in the

s/ The difference in the unit recurrent cost to the state was approximately12,000 ft per student year in 1990. The total incremental recurrent cost ofone billion ft was calculated based on the assumption that additional 30,000students will need to spend an average of three years in secondary schools.

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range of US$30 million (20 Centers, US$1.5 million apiece). Recurrent costs willbe in the range of one billion FT -- US$15 million per year (20 centers, capacity800 apiece, 60,000 ft per student per year). Approximately one third to one halfof recurrent costs will be provided from State b"tdget funds.

Administration of Youth Trainina and Adult Trainin

100. In conjunction with the local councils, the MOE is responsible foradministration of youth training in secondary vocational schools (Annex IIIpara. 8). The MOE is responsible for academic subjects, while the MOL has chargeof the vocational curricula. The current role of sectoral ministries in programdevelopment and approval has been reduced and alternatives identified for gainingadvice from ministries and enterprises (i.e., through job analysis, fromoccupational advisory committees at the national and local levels, etc.). Hiringand remuneration policies for vocational teachers should now be developed toensure the employment of qualified individuals. Incentives should be providedto encourage competitive and decentralized development of products and services.Liaison would be established with the NTC (see below) and adult training centersto promote articulation between youth and adult training programs (e.g., advancedplacement in adult programs based on completion of youth training).

101. An autonomous, parastatal National Training Council has beenestablished to administer adult training. The NTC is attached to the MOL foradministrative purposes. It comprises representatives of government, stateenterprises, private enterprises, labor and professional associations. The NTCwill emphasize decentralized development of regional adult training programsoperated by local councils, possibly under the general supervision of CountyCouncils.

102. The NTC will define broad policy on accreditation and operation ofall adult training. It will support development of guidelines and materials andprovision of related technical assistance to training institutions. The NTC willprovide overall guidance by: a) giving recurrent grants, based on the number offull time equivalent trainees, to accredited local institutions which meet itsguidelines related to students, program, staff, and facilities; b) funding newprogram development on a competitive basis; and c) funding development andoperation of system-wide support services on a competitive basis (i.e., jobanalysis, modular curriculum development, staff development and certification).

103. Local Councils will be established to govern the operation ofRegional Adult Training Centers (para. 97) within policy guidelines establishedby the NTC. Local councils will have representation similar to the NTC (AnnexIII). Local councils will take responsibility for defining policy for majoraspects of training center operations including, but not limited to, clientgroups to be served, staff qualifications and hiring policies, program definitionand approval, budget development and approval, and administrative operatingprocedures. Local councils will have authority to operate programs that do notmeet national standards for reimbursement (i.e., general interest courses) withthe understanding that costs will have to be borne by participants or otherlocal sources of revenue.

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104, Multiple sources of funding should be used to support regional adulttraining centers including state budget funds allocated by the NTC, local funds,individual user fees and training contracted by enterprises. Sources of fundsfor the NTC could include a training levy incorporating the Vocational SecondaryTraining Fund (para. 89), the State (regular subsidies and special policyinitiatives), sale of services (e.g., the development of special trainingprograms for industry, and sale of products (training manuals, books andmaterials). Adult training centers administered by the NTC could also be primaryproviders of retraining funded by the MOL on a contract basis,

BOX III-4: RECOMMENDATIONS TO STRENGTHEN TRAINING FOR THE TASSITION

1. Allow institutions to initiate retraining programs based upon localdemand, with-mini*al ministerial review. Provide oompetitive fundingto support new model programs. Assure quality control by.NTC job.analyses and skill testing systems.

:2..: Revise the eligibility criteria for retraning' to. reach kore low -income workers. The-turrent criteri, in the 1908Councl of.:-..Ministersf.becree ot Retraininig coVer o4 y.unemployed workers.-Broadening the criteri:a would encourage.worker occXpational mobilityand would inrease. income of :workers below,.or nea.r,the poverty

!- line;. .:.. .i.

- :3..r.::evelop more flexible modular prograMs basid upon on-site :j.ob-.analysis. ,he programs should allow for open ent xit, recognizeexisting skil:s and levels of motivationand bB appropriate or

l in... :.onlteln:*t :and:.methnod s of trai nX.: -

4. Assis .entrt i eas.shoud develop anS. r rprise-spoc trnie se.ia,-especially for small and medim en rie se u t

:5.5: :Offer. eployient ertvices (e.g.o job search ao.d placement, personal-an odat.o :cons.eling, small .b.Uness as9ia{ance), via trininginatirutionsj to help 'orkers cope with ecnmi and social chanes.

.:~~~~~~~~~~"ki . :. . 0 ,..T' -. h: .. ,. ;: .. .. :. .:;~~~~~~~t . : .::-. ,,. : :_,.,,:: . : ,,,, , , , .,,

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IV. HIGHER EDUCATIOI AND PROFESSIONAL TRAINING

105. Hungarian scientists and academics have often earned a worldwidereputation for the quality of their work. Higher education in Hungary is builton a rich and diverse tradition of scholarship, and Hungarian scholars arewelcomed in the premier universities around the world. Hungarian highereducation followed the Central European model prior to the Second World War, buta Soviet-style system was superimposed after 1945. There is widespread agreementin Hungary that the structure and financing of higher education need reform, andthat higher education is falling behind Western European counterparts in qualityof education and research, relevance, and capacity to provide the servicesdemanded by a markeL. economy.

106. The same debate is apparent in OECD countries. A 1988 OECD report!'Vdiscusses similar issues of quality and relevance. Public spending on highereducation in OECD countries declined from 1.34% to 1.21% of GDP between the mid-1970s and early 1980s. The report notes that despite rising enrollments, realcapital outlays on equipment and teaching facilities declined sharply in manycountries, with the notable exception of Japan. Thus, Hungary is not alone inconfronting issues of costs. financing, quality and efficiency in highereducation. However, the debate is particularly urgent in Hungarv, as thechanging economic structure is placing new demands on higher education at a timeof severe resource constraints. The country faces more serious issues than mostOECD countries: the need for far-reaching structural reform to improveflexibility, quality and efficiency, and the shortage of money, particularlyforeign exchange, to modernize scientific and technical teaching and researchlaboratories. MajoL issues facing t'ne subsector follow.

A. The Hither Education System in Hungary

Structure

107. Undergraduate higher education. Hungary has a two-tiered systemwhich includes a five-year university program and a three- or four-year collegeprogram. Universities and colleges are on the whole specialized into subsectorssuch as economics, agriculture, medicine and technology.ilI At the college level,even greater specialization is apparent, e. g., in electronics. While somecolleges feed into the universities, most colleges constitute a separateprogram. In recent years a little over 50% of undergraduate enrollment has beenin the university programs and a little below 50% in the colleges (Annex IV,Table 13-1). In contrast to the long-standing university traditions, the collegeprograms were established in the early 1960s in response to a need for an

16/ New Technologies in the 1990s. OECD, 1988.

17/ Some diversification is taking place. For example, the former Universityof Heavy Industry has added faculties of law and political science, andeconomics, and has changed its name to "University of Miskolc." Thedemand for places in these faculties is higher than in the "traditionU"faculties of mining engineering, metallurgy, and mechanical engineering,no doubt reflecting economic trends and private sector opportunities.

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intermediate form of postsecondary training at the level of senior 'technician.uDue to a more prestigious tradition and the higher qualifications of universityfaculty, the university diploma is more highly regarded than the college diploma.However, there is a need for a shorter cycle of university studies (para. 139).

108. Postgraduate education. This is confined to a small number ofstudents who wish to pursue academic or research careers. The postgraduatesystem is complex: students study for a hierarchy of postgraduate degrees, whichare in ascending order, University Doctor (awarded by the university), Candidateof Science of the Hungarian Academy of Sciences (HAS) (equivalent to a Ph.D.)and Doctor of Science of the HAS. About 200 Ph.D.s are awarded each year,against a demand of about 1000 (HAS estimate). Ph.D.s are awarded mainly on thebasis of research, and postgraduate courses are relatively undeveloped. Doctoralprograms are undertaken in the universities and research institutes of the HAS.The university diploma corresponds to the master's degree of many Westernuniversities, and foreign students completing the five-year program are sometimesawarded the M.Sc. degree.

109. Adult higher education. There is also little provision for adulthigher education, either for mature students wishing to reenter university laterin life to earn a qualification or for persons wishing to upgrade a particularskill. For various reasons, no doubt including the lack of wage and monetaryincentives for skills improvement, and the involvement of many workers in thesecond economy, participation in evening classes and correspondence courses fellfrom about 44,000 in 1977 to less than 28,500 in 1989 (Annex II, Table 1).

National Administration

110. All the universities and colleges are supervised by designatedgovernment ministries. Up to the mid-1980s, institutions had little choice overthe use of state funds: set amounts were allocated to finely defined expenditurecategories. Enrollment targets were determined by supervising ministries, andfixed amounts of staff wage funds were granted, leaving little capacity forpersonnel decisions by individual institutions. Also, the introduction of newcurricula was subject to ministerial supervision.

111. The content of "supervision' has changed considerably in recentyears, and there have been efforts to grant greater autonomy to individualinstitutions. For instance, finely defined wage brackets for staff have beenreplaced by largely nonbinding minimum wage restrictions. Although comprehensivedata on wage levels could not be obtained, interviews with individualinstitutions revealed a real rise in wage levels for the teaching staff in 1989,which would have at least partially compensated for the traditionally low anddeclining real wages in higher education (Annex IV. Tables 19 and 20).Institutions are relatively freer to make expenditure decisions across variouscategories without having to consult supervising ministries. However, decisionmaking mechanisms and financial management capabilities need to be improvedgreatly if higher education systems are to exploit the delegated responsibilitiesnominally granted to them.

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112. As in other sectors, further decentralization of authority anddecision making would be desirable. But this process needs to be linked tomeasures to improve the efficiency and quality of publicly funded highereducation.

113. Supervising responsibilities of higher education institutions areallocated to several different ministries by sector. The agriculturaluniversities and colleges are supervised by the Ministry of Agriculture and Food(MOAG). Medical universities and colleges fall under the Ministry of SocialWelfare (MOW), while the main bulk of higher education institutions are super-vised by the MOE. Differences in the level of autonomy between institutionsunder different ministries are not clear. The vertical structure of admini-strative control with different ministries at the apex divides the highereducation sector into subsets, presents a major obstacle in formulating cohesivepolicies, and impedes the introduction of interdisciplinary teaching and researchwhich crosses administrative boundaries.

114. The Ministry of Finance is in charge of state investments andsubsidies for recurrent expenditures. In principle, institutions are allowedto transfer funds from investment to recurrent expenditure and vice versa.However, administrative procedures for making such transfers are highly complexand rarely exploited.

115. With the emergence of private higher education institutions inHungary, it is important to make provisions for the supervision and statesupport for such institutions.

B. Finance. Costs and Efficiency

116. Hungary has a sophisticated financial data base for higher educationinstitutions. For instance, each institution submits a highly detailed recordof annual performance to its supervising ministry (Annex IV, Tables 5.1 and5.2). Since many institutions undertake activities that are not strictly relatedto higher education (e.g., clinical services by medical universities), amethodology has been established to isolate expenditures related to highereducation from the total institutional expenditures for some aggregate data.However, the multiplicity of supervising ministries and recent changes in thereporting system make aggregation a complex procedure. As a consequence,considerable variations in definitions and coverage were found in financial datasupplied by relevant authorities. For instance, only recurrent expenditures datawere supplied by the Financial Data Planning Institute (Annex IV. Table 2), andthese do not contain information on medical universities. Also, the MOE had tocontact all other supervising ministries to determine the overall subsidies givento higher education institutions.

117. Thus, despite detailed data reporting, the present system does notyield useful sectorwide information with ease. It is recommended that thereporting and aggregating system be remedied to allow policy makers quick andreliable access to relevant financial data over the whole sector of highereducation, without increasing reporting burdens or financial restrictions uponinstitutions.

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118. The MOE compiles highly accurate and detailed statistics coveringhigher education institutions on enrollment and staffing. It would be bothpossible and desirable for the MOE to play a similar role for financial data.This is particularly important since the MOE plans to introduce normativefinancing in the near future. Establishing the institutional framework forfinancial analysis is a critical step towards sectoral reform.

Educational Exoenditure

119. In 1986, total educational expenditure in Hungary as a percentageof GDP was 5.0%, which compares favorably with 4.5X in Germany or 6.11 inAustria. Total expenditure in higher education was 0.71 of GDP, compared with0.961 in Germany and 1.16X in Austria. The proportion of investment was arespectable 151 against the range of 3.51 in France and 121 in Germany (AnnexIV, Table 1).

120. Since GDP is much lower in Hungary, however, the unit recurrent costper student is correspondingly lower (US$2010 in 1986) compared with other OECDcountries. The unit recurrent cost has been on the rise in US dollar terms,and was about US$2800 in 1989.

121. Universities as well as ministries comp>-in of a notable decline infunding in the past two to three years. However, til financial plight of highereducation institutions is difficult to demonstrate t irough financial data, mainlybecause of significant changes in taxation and w ,Q levels that have pushed upexpenditure levels. For instance, a real growth or 291 in recurrent expendituresin 1988 was caused largely by: a) increased wage payments to compensate forthe newly introduced VAT and personal taxes (Payments were made in gross termsfor the first time.); b) increased wage levels; and c) increased food supportlevels. Since detailed financial data prior to 1988 use a different reportingframework, the effect of such changes cannot be seen at disaggregated levels.Recurrent expenditures (including social security payments) declined by nearly31 in 1989 in real terms. In addition, there has been a moderate increase inenrollment of regular students (31, 81 and 1X in academic years 1987/8 to 1989/90respectively (Annex II, Table 1), and unit recurrent expenditure per student haddeclined in real terms in 1989. Investment has fluctuated in recent years,marking a 281 real growth (1987) followed by a 51 (1988) and a 131 rise (1989)(Annex II, Table 2).

Categories of Expenditures

122. There are five main categories of expenditures in higher educationinstitutions: a) staff wages and social security; b) student support; (c)educational materials; d) investment expenditures; and e) maintenance andutilities. Staff wages and social security, as well as student support, arealmost automatically supported by the central state budget. Higher educationinstitutions under MOE spent about 401 of their total expenditures in staffwages and social security, 121 for educational materials, 51 to 61 for

* 38 -

investmentI/ and about 9% for maintenance and utilities (Annex IV, Table 4-1).Though it was not possible to obtain disaggregated data for student support,about 40X of students received some form of financial support in 1988 (Annex IV,Table 8).

123. In 1989, universities and colleges under NOE experienced realexpenditure growth of 24X and 4X respectively (Annex IV, Table 4-1). ForBudapest Technical University, one of the largest technical universities, thetotal expenditure rose by over 302 in real terms between 1988 and 1989 (AnnexII, Table 5.1 and 5.2). Unfortunately, these figures include all institutionalexpenditures whether or not related to higher education, and therefore cannotbe compared directly with aggregate expenditures (para. 104). However, sharesof expenditure categories reveal an interesting trend. Shares of most categoriessuch as staff wages, investment and maintenance or utilities seemed to havedeclined in 1989. The item that has increased dramatically is social securityand other payments to government, an expected change since the social securitylevy was raised from 10 to 432 in 1988. Host universities express concern thatstringent budgetary conditions are depleting funds for educational materials suchas books and journals.

124. The share of investment to total expenditure for all higher educationwas about 142 between 1986 and 1989 (Annex II, Table 2) and compares favorablyto other OECD countries (Annex IV, Table 1-1). However, curriculum developmentdemanded by the economic change in Hungary and obsolescence of equipment maynecessitate considerable investment in the near future. The tight budget andforeign reserve conditions are likely to make such investment doubly difficult,since much of the equipment needs to be imported (para. 136).

Financinm of Higher Education

125. There are four main sources of funding for higher educationinstitutions: a) central budgetary support; b) project-based financing fromfoundations and other public sources; c) contract research and other profit-oriented activities; and (d) operational incomes including hostels and fees.

126. Central budgetary supRort. This comprises annual funding bysupervising ministries for general operational purposes. Central BudgetarySupport constituted 61X of total revenue for higher education institutions in1988 (Annex IV, Table 2). It is interesting to note that the level of statecontribution was only 562 of total revenue for universities but constituted asmuch as 742 for colleges under KOE (Annex IV, Table 4-2) in 1989, marking realgrowth of 62 and 5X respectively. Such growth may appear surprising given theprevalent view that the higher education budget has been cut severely. However,the main cause was the increase in the social security levy (paras. 121 and 123).There have also been increases in state support for wages, materials andmaintenance to adjust for inflation. However, such increases were in the rangeof 6X to 10 in nominal terms and would not have contributed to real growth.

18. This is an underestimate, since the investment supported by the NationalPlanning Office is not included.

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127. Proiect-based financing. Public sources such as foundations andfunds support individual projects. The state budget supports nationaldevelopment projects. Other main, sources include: a) the Higher EducationDevelopment Fund (FFA) established by the MOE to support curriculum development(para. 140); b) the Hungarian Research Fund (OTKA) (paras. 140 and 166); and c)the various ministries. In 1989, universities and colleges under MOE earned 121and 5X respectively of their total revenues (Annex IV, Table 4-2) throughfoundations and funds. Though comparable time-series data prior to 1988 do notexist, interviews with universities revealed that this revenue item has becomeincreasingly important in recent years. Universities and colleges under MOEearned 341 and 106% more in real terms in 1989 than in 1988. Notwithstandingsuch a spectacular increase, some institutions expressed concern about futureprospects, since many state-funded projects come to an end in 1990, and thestringent budgetary condition may lead to a decline in funds.

128. Profit-oriented research and other activities. Many institutionsundertake contract research, consulting and production activities for enter-prises. Earnings from such sources are considered profit oriented and aresubject to taxation. Since cultural activities benefit from a preferential taxstatus, universities are subject to lower tax rates than normal productiveenterprises, though the same as that for profit-oriented research institutes inenterprises. Since cost accounting for educational institutions makes itpossible to assign loosely defined costs to such activities, there may be greatertax breaks in actual terms. In 1989, universities and colleges under MOEreceived 161 and 91 of their respective revenues from such activities (Annex IV,Table 4-2). Real growth for the same year was 101 and -51 respectively. Giventhe adverse economic conditions, the prospect of enterprises funding researchand other activities in higher education may not be bright.

129. Operational income from hostel and fees. Finally, there are earningsfrom hostel fees and other miscellaneous fees directly related to education.Hostel rents for students are subsidized by institutions, and hostels accommodatenearly 501 of students (Annex IV, Table 8). Fees in the usual sense of the wordare not charged to regular students, but there are fees, e.g., penalty fees totake exams a second time. However, revenues from such sources are ratherinsignificant as they constituted only 11 and 3X of total revenues for univers-ities and colleges under MOE in 1989 (Annex IV, Table 4-2). There has been adisturbing decline in this financial source: both universities and collegesexperienced a real decline of about 201 in 1989.

130. Two types of variabilities in financing dominate among differentinstitutions. First, institutions supervised by different ministries receivedifferential levels of state support. Unit costs range from 62,000 forint perstudent for faculties of law and 112,000 forint for technical universities underthe MOE to 169,000 forint for agricultural education under the MOAG (Annex IV,Table 9). It is unlikely that this represents a real difference in the actualcosts of providing high quality education in these disciplines. Instead itappears to represent a much more generous funding provision by the MOAG comparedwith the MOE or the MOW. Interestingly, the unit costs of higher education forartists is almost 30X higher than that for engineers. These data suggest thata detailed analysis of the costs of higher education would be highly useful.A study should be made of the running costs of different institutions to identify

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the reasons for major variations, introducing efficiency measures whereappropriate, and establishing funding norms for different programs. The studyshould also examine means of improving university finances, including fees,contract work and charging for student accommodation.

131. Second, the ability to raise income through contract research mayvary among faculties. For instance, technical universities dominated byengineering faculties may have greater proportions of profit-oriented revenuesthan universities with strong arts faculties. Although strictly comparablefinancial data on individual institutions could not be obtained, among foursample universities, two technical universities and an agricultural universitywere found to have much greater proportions of total revenue coming from profit-oriented activities than the science and arts university. The order was reversedfor project-based financing from foundations and funds, with the science and artsuniversity marking the largest proportion.

Internal Efficiency

132. Student-teacher ratios are quite low in many faculties, and thereare disparities between universities. For example, the various faculties ofletters have a student-teacher ratio of only 4.9:1, compared with a ratio of8.1:1 at the University of Economics. Ratios for university education inscience, engineering and agriculture are 5.4:1, 4.2:1 and 5.4:1 (Annex IV, Table12). Although a student-teacher ratio should ideally be calculated with fulltime equivalent (FTE) figures and is only a crude measure to be complemented withdata such as staff-student contact hours, a quick review will identify whereefficiency gains could be made. The mission certainly gained the impression thatstaffing ratios are sometimes generous: at one college visited, three instructorsand one technician were teaching a class of 25 first-year undergraduateelectronics students. The overall ratio has been about 4.4:1 with a slightupward trend (Annex II, Table 1). In one of the univers'ties visited, a moderateincrease in teaching staff (5.4X) was accompanied by a corresponding decreasein nonteaching staff (-2%) in 1988 with the deepest cut in the number ofmaintenance technicians (Annex IV, Table 16).

133. In comparison with Hungary, student-teacher ratios in the UK are farless generous. Within universities, a ratio of 10:1 is the general norm. Inpolytechnics, the average student-teacher ratio is 13:1.

134. The small size and outmoded facilities of many institutions alsoincrease unit costs. One college visited had an enrollment of 1200 spread overthree campuses. The buildings were inadequate, and it was difficult to sharefacilities. Of the 82 higher education institutes with full-time students, ¶.7(33X) had enrollments of less than 300, and only five (6X) had student nu-'.sgreater than 2500 (Annex IV, Table 10). By contrast, Austria has 18 ma.jorinstitutions of higher education (12 universities, plus six arts hochschulen).Within these, the lowest enrollment -- in a mining institute -- is over 1500,and the largest -- at Vienna University -- over 50,000.

135. One reason for the proliferation of small institutes in Hungary hasbeen the legitimate desire for equity among regions. In 1950, only 92 ofstudents could be found outside the major academic can 'rs of Budapest, Debrecen,

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Pecs and Szeged. By 1987, this ratio had increased to 34X. However, the smallsize and specialized nature of many institutions have serious consequences forcosts and efficiency:

a) The need to duplicate expensive central services such as main framecomputers, equipment maintenance, central administration, languageteaching and libraries cauases diseconomies of scale.

b) The requirement for proportionately more generous administrativeand faculty staffing causes diseconomies and duplication in staffuse.

c) Introducing interdisciplinary programs is difficult and costly in,e.g., engineering and business studies because few institutionspossess the necessary human, physical and financial resources. Largemultidisciplinary institutions have much greater flexibility inintroducing new programs and deploying staff without increasing unitcosts.

136. A critical problem facing science and technical faculties is theshortage of foreign exchange to buy equipment and books. This is undoubtedlyhaving an effect on teaching quality, as many university laboratories andlibraries are outmoded. Regional computer centers and other equipment sharingschemes are being gradually introduced to improve the cost-effectiveness ofexpensive scientific investments. The poor quality of telecommunications makesthe establishment of on-line links difficult. OTKA (para 140) is developing 11regional equipment centers, and this process of sharing costly equipment, databases, etc., needs to be evaluated and, if successful, accelerated. Models ofsharing equipment between institutions in other countries could be studied. Anexample is the Computer Board for Universities in the UK. The Board channelsgovernment finance to regional computer facilities at major universities, withfacilities which would be too costly for individual universities. Otheruniversities and research institutes have access to the equipment on a time- andcost-sharing basis.

C. Content. Duration and Ouality.

137. Although the quantitative distribution of higher education is fairlyequitable throughout the country, the qualitative distribution may not be soeven. Thirty-three percent of the institutions, 80X of the research institutes,50X of staff and 75X of research fellows are concentrated in the Budapest area.It appears that quality remains concentrated on the elite institutions, whichpresumably are able to attract the best staff, better resources, more researchcontracts, etc. In this respect, the equity of distribution may not havebenefited the deprived regions particularly. Given the small size of thecountry, regional concentration, with adequate student hostel accommodation, maybe more cost-effective and equitable in the long run.

138. Without much deeper research, it would be impossible to compareaccurately the quality of Hungarian higher education with that of neighbors inEastern and Western Europe. However, our discussions revealed a widespread

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concern about quality, which was expressed at government levels, within theuniversities and by employers. These concerns can be summarized as follows: a)the need to change the structure and content of higher education programs; b)the need for substantial investments to modernize teaching and researchfacilities, particularly in science and technology; c) the need for greateremphasis on interdisciplinary programs, such as languages and business educationfor engineers; d) the need to introduce a whole range of "t-ow" subjects inmanagement, accounting, human relations, etc., which will be increasingly neededin the market economy; e) a greater emphasis on adult education and retrainingand f) a concern about the quality of academic steff (Box IV).

139. To overcome some of these problems, a number of Hungarianinstitutions, including the University of Economics, the Agricultural Universityin Keszthely, and the Chemical University in Veszprem, have begun to experimentwith reforms. These institutions have introduced a 3+2 program of universitystudies, which allows students an option of a three-year program leading to ageneral diploma and a five-year program of more specialized studies. Studentsopt for the three or five-year program at the end of their second year, basedon aptitude and preference. The relationship of the three-year universityprograms to the three-year college programs, especially when they coveressentially the same field, is unclear and should be examined. The Universityof Economics has also just introduced an undergraduate program in businessstudies, which is the first in Eastern Europe, and the Budapest TechnicalUniversity, primarily an engineering university, has created a Faculty of Naturaland Social Sciences. Institutions are gearing up to provide advanced trainingin priority areas such as management education and foreign languages, in someinstances through joint ventures with enterprises and cooperatives.

140. To encourage innovation and quality in higher education, in 1988 theGovernment created a competitive Higher Education Development Fund under the MOEto operate between 1989 and 1991.1/ Priority is being given to efforts toimprove the quality and content of programs, including the development ofpostgraduate training, management training and advanced specialized training,collaboration with foreign institutions, and regional and interinstitutionalcooperation. A similar fund (The Hungarian Research Fund -- OTKA) has existedsince 1985 to stimulate high quality basic research (para. 166).

D. Participation in Higher Education

141. Participation in higher education is low by OECD standards. About15X of the age cohort are enrolled in all forms of higher education, includingevening and correspondence courses compared with Yugoslavia (192), Greece (26%),Spain (30%), and Austria (29X) (Annex IV, Table 1). Because places inuniversities and colleges are limited, a highly competitive secondary schoolexamination restricts entry. At the same time, there is a wide-spread view inHungary that demand for higher education is relatively low, because of the small,or even negative, wage differentials existing between professional staff andskilled workers. However, data suggest that in some specialties demand is quite

§!/The scope and duration of this fund will be expanded with assistance fromthe FY91 Human Resources Project.

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BOX IV-1: DRAWBACKS OF THE CURRENT HIGHER EDUCATIONAL SYSTEM

1. An inadequate 2reparation for Jobs. Many university graduatej in

market economies work outside their field. For example, an

electronic engineer may be recruited into export marketing where

language and business skills are as vital as knowledge of

electronics, The same process can be expected to develop in Hungary.

But the five-year professional diploma does not necessarily provide

mu'.tidisciplinary study.

2. A lack of agerial training, As the industrial sector grapples

with the transition to a market economy, the need for well-trained

managers will rise rapidly. Hungarian universities are short of

faculty with relevant fields of expertise, and the universtities'

rigid structure is not conducive to creation of new programs.

3. A lengthy program of academic studies. For many students, a shorter

program would be more cost-effective and would probably better suit

their skills.

4, A.lack of short training to upgrade skills, The.lengthy diploma

.programs, which are not modular in content, do not meet the needs of

mature students and. employees whose skills require upgrading.

5.-, A lack of interdisciplinary Dronrams. The specialized and tragmented

.nature of the universities and colleges make the intr6duction of

t'hese program difficult, e.specially if they mix social. sciences and

...engineering, or ctoss ministerial. supervision boundaries (para. 109).

A.: kl.ack of diversified interniediate oroErams. The role of theaoleges i dig ntermediathigher education is'not well

.defined;: either for the new fifth year of secondary Vocational

ttraining (pata. .71b) or the new three-year progsams in.some

vnirarsities. The threeyear. programs of colleges and universities

.could. be diversified in content and duration to offer a much wider

range of tosteoondary eaducttioi a nd training, adult educatibn, etc.Thstse progras couldpr ovide the most oost-effeettve vehicle to

expand participatlon in higher education (pare. 139).

7A a dreaa' r Postgraduate

: s tud y is geaoed. AWOst entirely t academicAt.rest a.nt does nt.

cat..:er .to a ced protessioial or short-term trazinir -

high. The ratio of applicants to entrants is over 4:1 in the faculties of

letters, and nearly 4:1 for economics (Annex IV, Table 12). Technical subjects

are less popular, perhaps because in these areas wage differentials have been

most compressed. A further reason for low demand in some fields, such as mining

and heavy engineering, is undoubtedly a slackening of the labor market. This

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hitwhlights the urgent need to introduce greater flexibility into the system sothat new programs can be developed to meet emerging demands for high level staff.

142. With such a low participation ratio, it is perhaps surprising thatthe proportion of higher educated persons in the economically active populationis relatively large compared with analog countries. In 1981, about 10% ofHungarian workers had received higher education, compared with 12X in the UK andW. Germany, and only 5.5% in Austria (Annex IV, Table 18). One reason advancedis rhat once a student has been granted admission in Hungary, graduation isrelatively easy by comparison with other countries. However, a more plausibleexplanation is that in other countries higher education has expanded rapidly inrecent years, wlhereas in Hungary it has remained static.

143. The proportion of regular students studying technological subjects(22%) and agriculture (10%) is quite high by comparison with Western Europeancountries. What is striking is the low proportion of students in science (6%)and economic related areas (8%) (Annex IV, Table 13). Although such data needto be treated with caution, they suggest strongly the need for some reorientaLionof Hungarian higher education towards the basic sciences and socialasciences/economics/business studies.

144. The demographic bulge now working its way through secondary schoolingwill increase pressure on university places in the coming years 'Annex I, Table2). In planning for exransion it will be necessary to take ir o account bothlabor market changes and short- and long-term demographic chan es. These mayproduce, at least in the short term, contradictory signals. Despite theincreased numbers of young people of university age, a significant rise infrictional unewployment could lower demand for higher education in areas mostaffected (e.g., heavy engineering), while at the same time increasing demand forgeneralized programs which offer the graduate wide labor market flexibility.Expansion of higher education will need to be carefully planned to take intoaccount the short-term increase in student numbers, and the relative decline bythe mid-1990s. The colleges co d play a significant role in providingrelatively low-cost intermediate higher education in areas such as businessstudies.

E A Strategy for Reform

145. Basic features of reforms under ..onsideration in Hungary include:

a) structural reforms, including the integration of specializedinstitutions (Box IV-1) located in Budapest and other major townsinto comprehensive uriversities, and the integration between thedifferent levels of higi.er education;

b) financial reforms in higher education, which need to go hand in handwith increased institutional autonomy (Options under discussion andimplementation include unified central funding, normative financing,encouragement of funding from foundations, incentives to establishprivate institutions, direct budgetary support for students, studentloans, increased earnings from contract work and company sponsorship.

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There is a growing consensus about the need for normative financingfor all higher education institutions);

c) reforms to increase student participation by measures such asintroduction of modular programs and expanding the "3+2" program inthe universities (para. 139), and selectively increasing capacityin high priority areas such as electronics, informatics,biotechnology, social sciences, business education and foreignlanguages and

d) reforms to enhance cooperation between research institutes anduniversities in the provision of postgraduate education and researchtraining.

P. Hiher Education and Professional Trainina: Recommendations

146. The reforms, if implemented, would make an encouraging start inensuring the viability of higher education in Hungary in the 1990s. TheGovernment should now focus on elaborating the critical elements of the reformplan:

a) Administration. Two separate issues need to be addressed. First,a more integrated system of administration for the entire highereducation system should be implemented urgently. While theparticipation of sector ministries may be important for improvingthe relevance of education, fragmentation is detrimental toaddressing sectorwide issues effectively. The possibility of privatehigher education institutions must be considered carefully, andchanges in the administrative structure must be made to allow forsuch prospects. Second, the recent move towards granting greaterautonomy to individual institutions must be reinforced to promotebottom-up innovation for curriculum development and qualityimprovement.

b) Regional centers and university integration. Detailed time-boundplans should be prepared in view of recent developments onintegrating institutions in Budapest, Debrecen, Szeged and Pecs intocomprehensive universities. The plans should indicate costs andstaffing of the proposed integration. Whereas we strongly endorsethe concept, the difficulties of integrating previously independentinstitutions should not be underestimated. Foreign technicalassistance should assist implementation.

c) Finajncig. A number of alternatives should be considered, including:a) establishing funding norms for student-teacher ratios, full timeequivalent students, teaching hours, laboratory space, etc.; b)comparing the pros and cons of shifting part of the budgetary supportfrom direct support to the institutions to support to students inthe form of grants and scholarships to encourage institutionalautonomy and competition; c) developing a tax system which encouragesprivate donations and the establishment of private institutions; d)introducing user charges and e) increasing the share of central

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budgetary support which is distributed through competitive funds(paras. 127 and 140), to encourage institutional attainment of broadpolicy goals such as the development of regional centers, andimproved efficiency and quality. By making a proportion of thesefunds available in hard currency for equipment, foreign travel, etc.,it may be possible to stimulate the development of centers ofexcellence in priority areas. To do this, efficiency and qualitycriteria against which institutions can compete must be developed.To ensure international standards, foreign experts could be invitedto sit on the adjudicating panels.

Similar debates about financing of higher education are taking placein Western European countries. For example, in the UK, public fundsfor universities are funneled through an autonomous body, theUniversity Funding Council (UPC). The UK Government intends to moveaway from provision of block grants to universities. Instead, theUFC would contract with the universities to provide an agreed levelof education services. The change is being introduced to encourageinstitutions to be enterprising in attracting contracts from othersources, particularly the private sector, and to lessen reliance onpublic funding; to sharpen accountability for the use of publicfunds and to strengthen the commitment of institutions to thedelivery of education services for which they are contracted.

Another relevant example is the system of normative funding of highereducation adopted by Finland in 1988. All of the incremental fundsbeyond a certain base level are granted to institutions accordingto norms and criteria of efficiency. If such a system, withappropriate modifications, were adopted in Hungarian highereducation, significant leverage could be achieved in moving thesystem towards greater efficiency and innovation without penalizinginstitutions by reducing current levels of funding.

d) Language and management training. Developing English, German andother foreign language training is especially urgent. Languagetraining is a key factor in tapping the technical, marketing andmanagerial know-how of Western Europe and exporting in areas ofHungarian comparative advantage. To this end, the new languageprograms should be practically oriented and stress functional fluencyas opposed to an academic scholarly approach. While managementtraining can be supplied from many private sector sources, newcourses in practical management tools -- accounting, finance,marketing and administration -- need to be developed in colleges anduniversities. Extensive collaboration with foreign specialistinstitutions will be needed to bridge the knowledge gap in Hungary.

e) Content. The ongoing initiatives to develop modular curricula andshorter undergraduate programs should be expanded and accelerated.A plan should be developed for a particular institution orinstitutions to experiment with and evaluate curriculum reform overa specified period. In particular, attention should be paid toharmonizing as much as possible the three-year programs offered by

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the colleges and universities in the same fields. However, a majoreffort is also needed to identify and develop new programs,particularly in multidisciplinary subjects and in high technology.

f) Expansion of undergraduate education. How to expand undergraduateeducation in the most cost-effective way needs to be resolvedurgently. Fundamental to this is the relative emphasis among: a)three-year college programs; b) three-year university programs, andc) five-year diploma programs. Ono way of approaching this is tohave institutions submit competitive proposals (Box IV-1).

g) Cost recovery. Experiment with improved resource mobilization byintroducing elements of cost-recovery (e.g., hostel and libraryfees).

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BOX IV-2: WAYS TO STRENGTHEN HIGHER EDUCATION AND PROFESSIONAL TRAINING

1. Integrate administration for the entire higher education system formore effective solutions to sectorwide issues. The administrativestructure should allow for the creation of private foundationalhigher education institutions.

2. Prepare plans to integrate institutions in Budapest, Debrecen, Szegedand Pecas into comprehensive universities.

3. Grant institutions greater autonomy in decision making to promotehigher quality education and bottom-up innovative curriculumdevelopment.

4. Increase competitive funds to encourage institutions to attain broadpolicy goals. Reserve a portion of competitive funds in hardcurrency to support purchase of equipment, foreign travel and thedevelopment of centers of excellence in priority areas.

5. Establish funding norms for student-teacher ratios, full timeequivalent students, teaching hours, laboratory space, etc.

.6.6 Weigh pros and'cons of shifting part of the budgetary support toinstitutions to,support to students in the form of grants andscholarships to encourage institutional autonomy and competition.

.77. . Develop tax'and other incentives to encourage private donations andthe ereation of.private foundational institutions.

8. Introduce' user charges..

9.Dev-elop pj actidal foreign.language and management training andincrease <ollaboration with foreign specialists to bridge the

, knowled 'egap and t.o stimulate export trade.

10. E*xand and accelerate the development of modular curricula, shortundeOrgraduuate programs, and multidisciplinary and high'-tech courses..:".Exp.and undergraduate.education cost-effectively, e.g.. by havinginstitution's submit'competitive proposals. A fundamentalconsideration is the relative emphasis among three- or four-year-college programs, three-year university progrmxs, five-year diplomaprograms andd two-to-three-year postgraduate programs.

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V. SCIENTIFIC AND TECHNOLOGIAL RESrARCII'

147. Hungary has built up an impressive level of scientific and technologicaldevelopment by dint of hard work, especially for a small country with relativelylow per capita income. According to official statistics, Hungary spent 2.7X ofGDP for research and development in 1988 and employed 1X of its active laborforce in a research institute. The best of Hungarian research in science andtechnology still has a worldwide reputation for high quality, and the graduatesof Hungarian universities are welcomed by employers and graduate schools all overthe world. Well-trained, low-cost technical manpower is one of the majorattractions behind the current boomlet in foreign investment. As a promise ofthings to come, pharmaceuticals based on Hungarian research and development haveattained sales in Japan of over US$100 million.

148. However, these accomplishments coexist with serious obsolescence.Scientific and technological development has been limited by the lack of demandfor improved technology from Hungarian industry throughout the post-World WarII period. Ready CMEA markets for relatively low-quality products and heavyprotection of industries from foreign and domestic competition, and from thethreat of bankruptcy, resulted in obsolete products, shoddy production methods,outdated infrastructure and public services, technological stagnation on the shopfloor and environmental degradation.

149. Hungary faces a major challenge in science and technology. The recentsevere economic decline in Eastern Europe -- particularly in the Soviet Union,which was a major market for Hungarian exports -- has left Hungarian industrywith manufacturing capacity for which there is little market, and a managerialcorps unaccustomed to operating in a market economy, to dealing with up-to-datetechnology or to addressing the needs of competitive world markets. The resultingcrisis requires Hungary to rethink its science and technology strategy.

150. The immediate task is to preserve Hungary's scientific and technologicalcapability, to modernize it, to manage it efficiently, and to link it to teachingand to commercial activity in such a way as to support the emergence of Hungaryinto Europe and into international markets.

151. The discussion here focuses on organization, staffing and financing issueswhich relate to the education, training and deployment of research workers inuniversities, research institutes and enterprises.W Other important andpressing issues of broader science and technology policy are outside the scopeof this review and are best addressed in the context of overall industrial

20/ As with higher education, analysis of scientific and technological researchis at times made difficult: a) by the compartmentalization of data betweenfunding agencies and research institutes and b) by the absence ofdisaggregated data related to specific subsectors or disciplines.

21/ The human resource issues affecting science and technological research havemuch in common with those in higher education, particularly those concerningpostgraduate education and training.

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policy. The FY88 Technology Development Project31 has touched on some of thesepolicy issues and supports the establishment of institutions providing technicalservices related to standards and quality control, two critical aspects ofindustry technology development. However, an early stage science and technologypolicy review, from the industrial policy perspective, is highly desirable.

A. Human Resources and Organization for Scientific and TechnologicalResear,ch

152. The best of Hungarian research in science and technology still has aworldwide reputation for high quality. Top Hungarian scientists can hold theirown with the best scientists anywhere. The productivity of Hungarian scientistsis very creditable, especially considering tne difficult conditions under whichthey often work.

153. At the same time, scientific research in Hungary in many fields isgenerally 10 to 15 years behind the cutting edge of research elsewhere. Itsuffers from isolation and lack of equipment, in part from lack of money and inpart because of past COCON restrictions. These restrictions were particularlyburdensome in informatics. They have affected not only the quality of researchinstrumentation, but also the information links with foreign researchers via theuniversally used uBitnet" network of electronic mail. Graduate education inscience and technology suffers from the same problems as research: shortages ofequipment and isolation from the latest developments abroad.

154. Hungary invests a much higher proportion of resources in indigenousresearch and development than does the typical country at its level of per capitaincome. According to official statistics, Hungary spent 2.71 of GDP on researchand development in 1987 (Annex V, Table 7), which places it on a par with themajor market economies (USA, Japan and the Federal Republic of Germany) and aheadof countries such as Prance (2.3X) and the 'UK (2.3%). This contrasts with theusual pattern, in which the proportion of GNP allocated to research anddevelopment rises markedly with increasing per capita income. The proportionsfor Greece (GNP/capita $4020) and Portugal (GNP/capita $2830), e. g., are 0.31and 0.52 respectively (Annex V, Table 14). On the other hand, Korea (GNP/capita$2690) and Israel (GNP/capita $6800), where science and technology is a muchmore critical element of development, spend 1.8X and 3.71.

155. Hungary boasts 20.5 scientists and engineers per 10,000 inhabitants, aboutthe same as Finland, the Netherlands or the Federal Republic of Germany.Hungarian research laboratories employ the full time equivalent of 47,000research workers (almost 1% of the active population), of whom over 22,000 arescientists and engineers (Annex V, Table 1). According to the HAS, there were21,400 full time equivalent scientists and engineers in 1989, of whom 281 workin institutes, 40X in companies, and 251 in institutions of higher learning(Annex V, Table 2). The productivity of Hungarian researchers is shown by theirr4latively high output: eight books and 102 articles for every 100 full timeequivalent researcher in 1987 (Annex V, Table 6).

xI Loan 2966-HU

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156. Perhaps the best models for Hungary among countries of roughly comparableper capita income are Korea, Israel and Ireland. In particular, the Israelieconomy is a special case that presents instructive comparisons and contrasts.As in Hungary, Israel has a long tradition of world-class basic research, andinvests relatively little in the purchase of foreign technology. However, alarge proportion of Israel's industrial sector consists of "high-tech" exportfirms. Most firms' market is the USA, and many benefit from the closeconnections between the two countries. This path for Hungary will be successfulonly with careful attention to the development of export markets in Europe andelsewhere.

157. Although Hungary's resource allocation for research and development appearshigh proportionately, its economic impact is inescapably limited. Hungary isa small country, whose GNP is roughly that of Israel or Ireland and one thirdto one fourth that of Austria, Denmark and Finland. It spends about US$50 percapita on research and development -- about the same as Ireland, a country witha much higher per capita income (Annex V, Table 13). Even so, the value of R&Dequipment per Hungarian researcher is only about one quarter the Western Europeanaverage and one third that available in Austria and Finland, in rough proportionto these countries' per capita income.3U

158. On the other hand, Hungary spends only 7X of its gross expenditure on R&Don royalty payments for foreign technology. For example, the proportion ofroyalties to indigenous R&D spending in Hungary is one half or less that ofAustria or Finland. This is a much greater degree of self-reliance than can beafforded by a small country whose total R&D expenditure was only about US$700million in 1987. Indeed, a World Bank analysis suggests that Hungary should bespending about four times as much as it does on foreign licenses.t'

159. With the opening of the Hungarian economy, the rate of importation offoreign technology is likely to increase rapidly. Hungary is likely to proveattractive to foreign investors, especially from Japan and from Europeancountries with historic ties to the country, as an entry point to EasternEuropean markets and as a source of low-cost labor and relatively sophisticatedtechnical skills. This foreign investment will bring with it an influx offoreign technology which should rapidly improve the technological level ofHungarian manufacturing, increasing its competitiveness on world markets and itscapacity to commercialize the results of successful Hungarian research.

160. Hungary thus faces the major challenge of taking advantage of its hard-won capabilities in science and technology so as to integrate local and importedtechnology. Its objective should be both to master imported technology and todevelop new products based on local innovations.

/' K.O. Donner and L. Pal, eds., Science and Technology Policies in Finlandand Hungary: A Comparative Study (Budapest: Akademiai Kiado, 1985).

'-n' World Bank Staff Appraisal Report, Technology Development Prolect (7191-HU, May 1988), Annex 2-1.

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161. Hungarian science and technology is emerging from the rigid structureimposed after World War II, whereby applied research was carried out inenterprises, basic research in the HAS, and education in the universities, withlittle interchange among the three. There in much evidence of interchangebetween, for example, the universities and the HAS. Even so, the barriers amongthese three institutions are still much too high. What is more, researchers inthe HAS institutes still enjoy superior equipment, working conditions and levelof professional recognition relative to their counterparts In tha universities.A major innovation has been the establishment of the Hungarian Research Fund(OTKA), which awards grants to projects of basic research based on the merit ofthe individual proposal, as opposed to block grants to an institution or adepartment.

162. The segaration between 2ostgraduate education and research. The need toreestablish close connections between teaching and research is one of the mostpressing priorities in Hungarian science. The physical and organizationalseparation of HAS and other research institutes from the universities means thata significant proportion of the country's scarce high-level research talent isdivorced from the education and training of the next generation of researchers.This is inefficient in terms of human resource use and deleterious to the qualityof basic research (since Ph.D. students are often highly productive researchers)and university education. Indeed, the most important short-term justificationfor Hungarian basic research, which, in 1987 was allocated a substantialproportion (12X) of the overall R&D budget (Annex V, Table 9), lies in itscritical role in supporting undergraduate and graduate teaching.

163. For this reason, HAS institutions and research staff, as the strongest andbest-funded research institutions in the country, need to be more closelyinvolved in higher education, particularly at the postgraduate level. In thelonger run, the basic research capabilities of the universities need to berebuilt. This will require a broad-based effort to overcome the present weaknessof the university system. It will also require a conscientious effort to insurethat the HAS research institutes share with the universities the resources theypresently enjoy, especially as the universities' broader problems of overstaffingand underenrollment are overcome. A somewhat similar problem in the FederalRepublic of Germany was resolved through the good offices of a prestigious, high-level advisory commission, a device which might also prove useful in Hungary.

164. The funding of research and development. Some 65X of research in the HAS,and a very large proportion of university research, is now funded throughgovernment and enterprise contracts. Of the total operating budget of theBudapest Technical University, 301 is derived from contract research. Of thebudget of the Central Institute for Chemistry, 801 is funded by contract.

165. This relatively high proportion of earned income is evidence of admirablyclose linkage of HAS and university research with enterprises and agriculture.However, this linkage is not always determined by economic requirements. Thedependence on contracts also demonstrates the fragility of the funding mechanism.For example, the value of contract research at the University of Hiskolc droppedby 371 in nominal terms between 1987 and 1988. Moreover, a significantproportion of university contract research is in fact routine testing and qualityassurance work which enterprises find convenient to subcontract. This is a poor

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use of resources, because it is unlikely to be a cost-effective use of expensiveteaching and research equipment, and because it biases the university's teachingand research effort towards routine tasks which could be more effectivelyperformed by the enterprise itself, or by specialized testing centers.Universities should not have to depend on technical services to industry fortheir ordinary operating expenses.

166. The need for increased emphasis on basic research was recognized in 1985with the creation of OTKA. With a budget of Ft 4 billion for five years, OTKAdisposed of ?.5X of the total Hungarian R&D budget and made it possible torestore the proportion of basic research in the overall national R&D budget to12X. In 1986, OTKA approved 761 out of 1926 proposals, while 503 proposals outof 1314 were approved in 1987 and 1988 (Annex V, Table 15).

167. In addition, OTKA is funding eleven instrumentation centers to provideHungarian researchers in various institutions with access to sophisticatedinstruments that are too expensive for any single investigator, as well as acomputer network linking the various Hungarian technical institutes andlibraries. (OTKA also provides a small amount of indirect support to Hungary'sunderfunded universities in the form of informal overhead charges levied byuniversities on grantees using their facilities.) Of the total OTKA budget, halfsupports project proposals from individual investigators, about 301 financesinstrumentation and informatics infrastructure, and about 20X finances elevencenters of pooled major scientific equipment. The OTKA system of peer reviewof grant applications has earned a good overall reputation within the countryfor fairness and efficiency although further improvement could be made.

168. Brain Drain and Gray Hair. The Hungarian scientific community is"graying." From 1972 to 87, e. g., there was a decline in the population ofHungarian researchers with ages up to 29 from 22.51 to 12.81, and an increasein those between 50 and 59 from 10.0 to 18.81 (Annex V, Table 4 asld Fig. 1).By 1985, the average age of Hungarians holding the D.Sc. degree was 53, whilethe average age of those holding the Candidate of Science degree (a sort ofadvanced Ph.D.) was 48. The career of Hungarian scientists is further hamperedby an unnecessarily cumbersome structure of postgraduate degrees (para. 108),and by limited career mobility among Hungarian research institutions.

169. Many Hungarian scientists and engineers are leaving the country, whileothers are preparing the way to leave but are waiting to see whether conditionsimprove. According to a Hungarian News Agency (MTI) report quoted in theFinancial Times of October 31, 1989, 121 of Hungarian scientific researchers takeup work outside Hungary each year, and of these, one quarter do not return withinfive years. Hungarian scientists are emigrating in part because of the betteropportunities in other countries, in part for lack of opportunity (especiallyfor younger Hungarian scientists), and in part for fear of what may happen toHungarian science in the difficult economic times ahead. The Government isendeavoring to stem the outflow and recently gave HAS researchers partialprotection from the salary cuts that have affected all government employees.(In 1991, a 201 increase in HAS salaries is planned. However, this is likely torepresent a decline in real terms.)

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170. Opportunities for younger scientists to obtain research and travel grantsindependent of their senior colleagues is essential. Some researchers,especially those in the 35 to 45 year age group, are also in need of languagetraining, without which they face careers of increasing isolation from worldtrends in science and technology. Of Hungarian scientists, 30X (including onehalf of those working in enterprises) did not have a working knowledge of aforeign language in 1987. Training in research management is also needed.

171. Fragmentation of the Research Effort. Since difficult economic times areprobably in store, it is doubtful that the total spending devoted to researchand development will increase in the next decade at a faster rate than GNP. Thismeans that the country will need to concentrate on a small number of researchfields in which it can achieve a critical mass of expertise and equipment.

172. The Hungarian research effort (including nonscientific research) is nowbeing carried out in the 36 research institutes of the HAS, 925 universityfaculties, 16 research institutes attached to faculties, and 252 R&D facilitiesattached to enterprises (including 16 R&D institutes now being operated asenterprises). Some Hungarian research institutes are clearly of high qualityand possess the critical mass of human and physical resources needed to be cost-effective. These institutes have impressive records in research, technicalservice to clients and commercialization of innovative industrial technology.

173. However, the sheer number of R&D facilities and the small size of theresearch community in Hungary suggests that some R&D facilities lack the criticalmass of researchers needed for intellectual and financial viability (Annex V,Table 16). It may be necessary to phase out some of these research units inorder to improve overall efficiency. Although direct comparisons with othercountries need to be treatod with caution, this proliferation of research unitsof subcritical size is strikingly similar to that of Austria, where a 1988 OECDreview recommended that the Government "encourage the merging of R&D institutionsan: the formation of flexible R&D units capable of reaching the critical massmeasured by the criteria of international research."

174. On the other hand, a few oversized institutes may begin to show some ofthe problems of hypertrophy identified with the "bureaucratic dinosaurs' of theSoviet scientific establishment. Such institutes may benefit from down-sizingor more decentralized administration.

175. In addition, the ever-increasirg zosts of scientific research require anurgent effort to consolidate and share research, library and computingfacilities, etc. (perhaps in regional centers), to insure their effective use,and to establish or reinforce, through appropriate mechanisms, centers ofexcellence in a limited number of fields. This is already government policy.Eleven priority fields have been identified for equipment funding, includingbiotechnology and electronics. Proposals for new investments in scientific andtechnological infrastructure should be carefully designed to fit userrequirements.

176. Institutional Framework for Policy and Research Manamement. The failureof Hungary's old system of all-embracing quantitative physical planning, whichcontrolled everything from manufacturing production to student enrollment, has

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left behind a legacy of widespread aversion to planning of any kind, or even tosystematic thinking about the future. This reluctance to plan is reinforced byrapid changes in all Hungarian institutions. However, the challenges facingHungarian science and technology leave no choice but to set priorities in lightof likely developments, retaining the flexibility to adapt to changingcircumstances.

177. The science policy committee of the Hungarian Council of Ministers wasdissolved in 1988, leaving no policy institution formally charged with globaloversight of scientific and technological development. To fill this criticalgap, the Government has established a Science Policy Committee (SPC) chaired bythe Minister without Portfolio. Members include the President of the HAS, theChairman of the State Office of Technology Development (OMFB), and the Ministersof Finance and Education. The SPC will advise the Government on science policyand oversee the principal agencies implementing science policy and undertakingbasic research and applied R&D. The SPC is assisted by a Council for SciencePolicy (CSP) chaired by the Minister without Portfolio, which acts as thetechnical working group for the SPC. The CSP's membership includes seniorofficials of the HAS, OTKA, OMFB, the line ministries and invited experts. TheSPC and the CSP are supported by a science policy secretariat.

B. The Commercial Exnloitation of Research

178. Commercial Exploitat&on og Basic Research. As core funding dwindled duringthe 1970s and 1980s, each HAS research institute was forced to develop newsources of income, a task to which they devoted commendable entrepreneurialingenuity. Several of these institutes have had considerable success in earninga high proportion of their budget from contract research, licensing oftechnology, the custom manufacture of specialized products and, most recently,from the commercialization of new products based on research.

179. For example, some 40X of Hungary's production of improved varieties ofwheat seed is the product of an HAS Agricultural Research Laboratory, while theHAS Central Physics Research Institute (KFKI) employs over 2000 people as aresult of its various lines of commercial production. In high-tech fields, theHAS Biological Research Institute in Szeged has already formed a shareholdercompany to market its research.

180. Despite this commercial success, the HAS institutes regard these ancillaryactivities as diversions from their main function of basic research and wouldstrongly prefer to increase the proportion of basic research in their overallportfolio of activities. On the other hand, given the financial stringency whichthese institutes will almost certainly continue to face, commercial activitieswill be essential sources of outside income for some time to come.

181. The restructuring of the Hungarian economy will change the environment inwhich these commercial activities take place. It will increase the ability ofHungarian industry to manufacture research-based products, making it easier tocommercialize the products of HAS research. It will also s-ubject the HAS andits products to severe competition from foreign products and sources of technicalservices.

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182. For this reason, if basic research at the HAS institutes is to continuenear its present level, it is essential to recruit staff specialized in suchtechno-economic and commercial skills as market studies, licensing, and financingand launching enterprises based on new technology. It may also be advisable forHAS to set up a new organization, analogous to the French ANVAR, to assist withthe commercialization of technology.W

183. Technolomv transfer. The opening of the Hungarian economy to foreigninvestment will bring with it a desirable influx -- indeed, if things go well,a flood -- of foreign technology. A substantial investment in training,technical services and research will be needed if this imported technology isto be adapted to Hungarian conditions and mastered by Hungarian managers andengineers. In the long run, these investments (referred to as "technologicaleffort" in the technology policy literature) are the responsibility of Hungarianindustry. In the short run, they are likely to require encouragement and supportfrom the public sector. Indeed, much of what is designated "research" in suchinstitutions as the Korea Advanced Institute of Science and Technology is in factadaptive research needed to support this process of technological absorption andmastery.

184. The institutes of the HAS visited by the mission are concerned mainly withindigenous research and the commercialization of the products of that research,rather than the adaptation and mastery of imported technology. To be sure, basicresearch is an important underpinning for technology transfer. It serves as awindow on the world of advanced technology, makes it possible to address localproblems (e.g., in environment), and ensures a cadre of graduates well trainedin the latest developments in science and technology. However, as Hungary isexpected to import more foreign technology in the near future, the role ofinstitutes in its adaptation may become increasingly important.

185. HAS institutes are not staffed to carry out such essential, but relativelyprosaic, activities as technology diffusion, market intelligence, feasibilitystudies, technological information services, quality and quality control,engineering, and adaptive research, except when forced to do so to keepthemselves financially viable. To the extent that these do not take place withinenterprises, according to current Hungarian policy, these functions are to bethe province of "research and development" enterprises, whose formation isencouraged by new provisions of the Hungarian tax code.

The French organization ANVAR began as an attempt to promote andfacilitate the licensing of technologies developed in the extensivenetwork of laboratories of the National Scientific Research Center(CNRS) and, to a lesser extent, of the universities, reflecting theirpredominant share in the French national research budget. As part ofthe general effort of the French government in 1981 to provide greatersupport to industrial technology, ANVAR expanded its role to includeequity investments in newly launched companies based on technologiesdeveloped with public moneys, and even to sharing the expense oflaunching new, technology-based products on export markets.

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186. These functions have already been the subject of World Bank studies inconnection with the Technology Development Project and are analogous to thoseof the Fraunhofer Society in Germany or of the TNO in the Netherlands.5' Theyare essential to the technological development of Hungarian industry in its newrelationship to world and especially to European markets.

C. Scientific and Technolotical Research: Recommendations

187. To rebuild competitiveness, the Government should address the followingimportant issues:

a) Linking Research. Education. and Commercialization. New basicresearch funds should give priority to proposals that link basicresearch and undergraduate and graduate education. Strengtheningthe capability of research institutions to market their researchservices and to commercialize the technology they develop is alsoimportant. As the broader problems of overstaffing andunderenrollment are resolved, universities should expand theirresearch capacity.

b) Formin& a Strategic Plan for the Hungarian Academy of Sciences. Theactivities of the HAS should be refocused: first, as a learnedsociety concerned with the health of the Hungarian scientificcommunity, with the recognition of the accomplishments of its mostdistinguished members, with the promotion of research and researchcollaboration, and with the provision of impartial scientific adviceto policy makers; and second, as a society analogous to the MaxPlanck Society in Germany, for the administration of the HAS researchinstitutes.

The HAS should develop a strategic plan to ratlunalize the structureof the institutes it manages, to focus their activities on amanageable number of objectives, to increase their efficiency in theuse of human and financial resources, to facilitate multidisciplinaryand collaborative research, and to set in motion a long-termrationalization of their relations with the universities. This planwill require a thorough review of the structure and function of theHAS institutes, a difficult and complex, blit essential, task. Itmust be carried out by a process which is credible to the generalpublic and maintains the respect of the scientific community. Itmust also be carried out with sufficient speed to minimizeuncertainty and demoralization in the staff of the affectedinstitutes.

'/ The Fraunhofer Institute is an autonomous, government-supported networkof 22 institutes with an annual budget of US$200 million, which provideresearch and technical services, including technological and marketinformation services, to German small and medium industry. The TNO is alarge group of government-funded industrial research laboratories in theNetherlands.

* 58 -

For this review, each HAS institute should formulate its ownstrategic plan, including provisions for strengthening its capabilityfor marketing and commercialization of research results and research-related technical services, and for gradually turning over productionactivities to commercial firms under suitable business arrangements.The institutes should be given a good deal of leeway in raising fundsto support implementation of these plans. (This recommendation ispresumably equally applicable to many of the HAS-run institutesoutside the national sciences.)

It may be advisable for HAS to set up a new organization, analogousto the French ANVAR, to assist with the commercialization oftechnology (footnote 25). HAS institutes should also consider theextent to which it is appropriate for them to become involved inproviding technical services connected with the importatitn andmastery of imported technology by Hungarian industry.

c) The Hungarian Scientific Research Fund (OTIA). OTKA was establishedby a decree of the Council of Ministers on December 3, 1990 andreplaces a similarly named research fund which has been managed since1985 by the HAS to support basic scientific research. The lessonslearned in administering the fund have been incorporated in thedesign of the new OTKA. These include the need for autonomy indecision making, and for clear and transparent funding rulesincluding a well established application procedure, feedback toapplicants and peer review. Accordingly, the President of OTKA hasbeen appointed by the Minister without Portfolio and reports to theCSP. A nine-member governing council comprises representatives ofthe HAS, universities and the Ministries of Education, Agricultureand Welfare (which includes hospitals and medical universities).Reporting to the president of OTKA are three expert committees innatural sciences, life sciences and social sciences, withchairpersons elected by the relevant professional communities. Theexpert committees will delegate the review process to suitablyqualified peer reviewers in Hungary and abroad. OTKA's budget in1991 is projected at about FT 2 billion. The peer groups, includingforeign experts, would ensure fairness and up-to-date familiaritywith research trends. The committees would be guided by a clear setof published criteria that favor granting awards to proposals whichlink basic research and undergraduate or graduate teaching andencourage the development of young investigators.

Legislation will be introduced in Parliament in 1991 which willdefine the role of the CSP, describe the functions of OMFB, definethe role of the HAS as an autonomous institution dedicated to thepromotion of high-quality science, ensure the autonomy of theuniversities, promote increased collaboration between institutionsof higher education and the HAS in postgraduate education andresearch, and reform the scientific degree system so thatuniversities a-nd the HAS, rather than a separate organization, willaward postgraduate degrees.

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d) Infrastructure. Proposals for support to infrastructure throughOTKA grants should be reviewed by a committee in which prospectiveusers are well represented. The purpose of this review is to insurethat user requirements are adequately met, and that the proposaldeserves support In preference to individual research projects thatthe same funds might finance. Proposals for support ofinfrastructure (computer networks, instrumentation centers, etc.)should include a usage plan, drawn up in collaboration with theprospective users, to insure that the equipment and service will bewidely available to researchers and students. If a substantialamount of the costs are expected to be recovered by user fees orother direct income, the proposal should include market studies andcash flow projections.

e) Brain Drain and Gray Hair The Hungarian Government should draw upa clear personnel policy statement that protects scientists andengineers in universities and research institutes against drasticloss of income in case of severe inflation or other economicdifficulty. The HAS and the Government should provide fellowshipsand other opportunities to encourage young scientists and engineersto take up a career in research. They should also ensure thatyounger researchers assume responsibility for research projects andfacilitate their access to travel funds, language training, andother essential supports to active researrh. Regular trainingcourses in research management should also be instituted. (Otherrecommendations regarding the structure of higher education are inrelevant Section V of this report.)

f) Institutional Structure for Science Polics. The new Government hascharged the Science Policy Committee and its Council for SciencePolicy with formal responsibility for global policy of scientificand technological development. The office's responsibility shouldencompass human resources, research, and the scientific andtechnological elements of broader issues such as economic policy,industrial competitiveness and environment. Such policy should bemade with the full collaboration of the scientific and technologicalcommunity, and with the broader Hungarian public.

This body might first appoint a high-level commission, broadlyrepresentative of the Hungcrian scientific community, to makestrategic recommendations regarding how best to reestablish stronglinks between research and undergraduate teaching, and to rebuildthe basic research capabilities of Hungarian universities.

While the requirements of Hungarian industry for technical servicesand research to support imported technology is outside the scope ofthis review, policy makers should scrutinize these requirements andgive high priority to implementing necessary measures.

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BOX V: SUMMARY OF RECOMMENDATIONS TO STRENGTHENSCIENTIFIC AND TECHNOLOGICAL RESEARCH

1. Fund proposals that link basir research and higher education.

2. Improve the capability of institutions to expand research, to markettechnical research services and to commercialize research andtechnology.

3. Restructure HAS as a scientific society that promotesmultidisciplinary collaborative research and advises policy makersand administrators in the HAS institutes.

:4. Make OTKA a permanent autonomous fund to support basic research.Invite foreign experts to join peer review groups granting awards toensure fairness and knowledge of up-to-date research.

...Include prospective infrastructure users in review committees toinsure that.computer networks and instrument centers meet the needsof researchers and students.

6. Draw up a personnel policy that protects scientists and engineers.against loss of income during economically difficult times to prevent.brain drain. Provide fellowships to encourage young scientists andengineers to go into research, and provide funds for travel and foreignlanguage and research management training to develop young researchers.

7. : Make the newly establishled Science Polioy Co-' tte a.nd its Council forScience Policy responsible for scientific and technological development,.including human resources, research, and the scientific andtechnological elements of economic policy, industrial competitiveness.and environment.

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POPULATION. EMPLOYMENT AND WAGES

A. POPULATIONB. EKPLOYKENTC. WAGESD. POSSIBLE UNEMPLOYMENT SCENARIOS ARISING FROM REDUCED OVERMANNING IN

LIST OF TABLES

1. Economies in Transition: Structural Adjustment in OECD countries2. Population by Sex and Age Group3. Comprehensive Fertility Indicators of Hungary, 1880-19804. Distribution of Active Earners as per the Branches of the National

Economy5. Educational Backgrounds of the Labor Force6. Monthly Basic Wages, per Capita Labor Costs to Employers, and Actval

Earnings by Occupation7. Staff of Public Employment Services per Thousand of Working Age

Population (15-64)8. Educational Achievement by Sex for Population of Age 18 and Above.9. Possible Scenarios of Unemployment in Hungary10. Employment by Sector (1985)

FIG-S

Figure 1-1: Changes in the Total Fertility Rate, 1950-2020Figure 1-2: Changes in the Average Life Expectancy at Birth, 1950-2020Figure 2: Highest Completed Educational Level of the Population Aged 15

years and Older

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AM=

POPULATION. EMPLOYMENT AND WAGES

1. This annex presents technical descriptions and statistics relevant to thelabor market issues discussed in the main text.

A. POPULATION

2. Hungary's population in 1987 was estimated at 10.6 million people in a landarea of about 93 thousand square kilometers. Hungary is thus roughly comparablein size to neighboring Austria with a population of 7.6 million in an area of84 thousand 5 -uare kilometers. Hungary is not as densely populated as some othersmall European countries, such as Belgium (9.9 million in an area of 31 thousandsquare kilometers) or Netherlands (14.7 million in an area of 37 thousand squarekilometers).

3. Hungary's demographic situation is characterized by the following fourtrends:

a) A slight decline in population since 1980;b) A demographic bulge superimposed upon the overall decline owing to

an increase in the birth rate in the early 1970s;c) The ageing of the population, i.e., an increase in the percentage

of the population 60 years of age and over;d) Limited internal migration of the population which translates into

limited geographical mobility of the labor force.

Table 2 shows population by sex and age group in 1988.

4. The rate of population growth was 0.4X during the period 1965-1980 andshowed a decline of -O.lX from 1980 to 1987. Demographic trends result from acomplex interaction of many factors, and it is difficult to attribute a giventrend to particular factors. However, sluggish growth is likely to be the resultof declining fertility, a trend typical of Eastern European socialist countriesin the post-World War II period as shown in Table 3. A small post-World War II'baby boom" can also be seen, as in many other countries. However, the declinein fertility set in during the 1950s. By 1960 the birth rate was 14.7 perthousand compared to 23.0 per thousand in 1954.

5. The decline in fertility was a source of concern for the authorities inthe early 1970s, and a set of social and population policy measures wasintroduced to arrest this trend. Financial assistance was directed to familieswith children in the form of family and child care allowances. The familyallowance is part of the social insurance scheme which applies to anyone who isemployed. The child care allowance is for economically active mothers withchildren up to 3 years of age. Generous maternity benefits, pregnancyconfinement benefits and leave with pay to care for sick children are alsoavailable to encourage fertility among working mothers. Housing eligibilityrules were also modified to give preference to those with children and to youngcouples.

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6. In addition to declining fertility, Hungary has experienced a risingmortality rate which is now greater than the birth rate (14 per 1000 formortality versus 12 per 1000 for births). Age specific mortality rates revealsome worrisome characteristics. Infant mortality remains high (19 per 1000 livebirths), although declining. Mortality rates have increased for males over 15,especially for the 30-59 age group. This is generally attributed to lifestylefactors such as stress and diet and may also have to do with deprivations thisgroup experienced during and after the World War II period. Women in the 30-59 age group are also beginning to show a similar increase in the mortality rate.

7. The demographic bulge in the early 1970s derives partly from the fertilitypromotion policies and partly because of the greater number of women of childbearing age from the baby boom of the early 1950s. Tightening of policies onabortions may have had an impact. However, such a recovery in fertility wasshort-lived, and it began to decline again by 1980. The resulting demographicbulge is concentrated now in the secondary school age groups and will soon beentering higher education or the labor market. After this bulge passes throughthe higher education system, the total population in that age group will declineagain. However, this may not translate directly to the fall in enrollment,since the enrollment ratio may be expanded.

8. There is growing concern in the government that lower fertility andconsequent ageing of the population will result in a greater burden upon thesocial insurance system in Hungary. The retirement age is currently 60 for menand 55 for women. The percentage of the population at age or over 60 has risenfrom around 121 in 1970 to about 18X in 1987. There has been some discussionabout raising the retirement age for men and women by 5 years. A recentlongitudinal survey of married women indicates that this would not be a popularidea. A well-known Hungarian demographer, Paul Demeny, suggested a scheme inwhich pension income is linked partly with the current contribution of anindividual's children to the social insurance fund. This partly encouragesfertility increases, or may arrest the fertility decline, and helps the financialsolvency. However, conslderation of policy measures to deal with ageing of thepopulation and its consequences are outside the scope of this review.

9. Internal migration is also a policy concern, especially with respect tohousing policy. The Hungarian Central Statistical Office (CSO) has reasonabledata on this and can incorporate this into their population projections. On thebasis of 1985 data, 90X of permanent migrations are within the same county, while5X are directed towards Budapest. For temporary migrations or changes ofdwelling, 501 are within the same county and 201 are directed towards Budapest.Such data implies that there would be 4 to 6 permanent, and 2 to 4 temporarychanges of dwelling for the average inhabitant during the course of his/herlifetime. The implications of this for labor mobility and housing problemsshould be looked into more closely.

10. Figure 1 shows population projections and live birth projections preparedby the Demographic Research Institute of CSO. These projections have low, mediumand high scenarios which are based on a combination of assumptions with respectto fertility, mortality and migration. The medium and high scenarios are basedupon an effective population policy continuing in force while the low scenario

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assumes the absence or lack of effectiveness of such policies. The ageing ofthe population is likely to continue and the demographic bulge of the early 1970swill work through the system. When the young women of the demographic bulge arein their child bearing ages, there is the possibility of a 'demographic echo'depending upon their fertility.

B. EMPLOYMENT

11. Unemployment was not an officially recognized concept for Hungaryideologically or statistically. The labor force was not perceived to consistof employed and unemployed individuals as in Western market economies. Thelabor participation rate or the economic activity rate was then the same as theemployment-population ratio. Statistical conventions are in the process ofchange, as a result of the change in economic orientation.

12. One of the striking features about Hungary's labor force is the high femaleparticipation rates and the contribution this has made to Hungary's labor forcegrowth. The female crude activity ratio was 40.71 in 1987 compared to 51.31 formen. Rising female participation rates are typical of Western Europeancountries. However, it is more pronounced in the East European countries, mainlybecause of social policies that promote maternity, child care and familyaliowance benefits. Given Hungary's sluggish population growth since World WarII, the total labor force would have declined had it not been for increasedfemale labor force participation.

13. In Hungary, policies to promote fertility were also designed to raisefemale labor force participation. The child care allowance with generouseligibility stretched to three years is an example of this. There is also anextensive network of pre-school day care facilities and after-school supervisios,of young children in primary schools. While the initial impact of such policieswas to advance the birth of the first child of younger women, they have alsoaccelerated the employment of younger women. However, as mentioned before, thefertility of younger women has declined back to the lower levels, and there isno longer a large reserve of female labor force to draw upon. Thus, Hungaryfaces the prospect of declining or slowly growing labor force over the long run.This implies that economic growth will have to come from rising productivity dueto increased and more efficient investments in both physical and humancapital.

14. The sectoral pattern of employment has followed the evolution of thesectoral shares of GDP. After World War II, and especially in the late 19509and early 1960s, Hungary embarked on an intensive strategy of industrialization.Table 4 gives a detailed breakdown of the sectoral composition of employmentduring the post-World War I1 period (1949-1987). Reflecting Hungary'stransformation from a largely agricultural economy to an industrial one; theshare of employment in agriculture dropped from 541 to 191 during this period;that of industry rose from 221 to 401 and that of services from 241 to 4.0%.Without detailed forecast of sectoral GDP growth, it is difficult to estimatefuture sectoral employment. However, it is likely that primary agriculture willrelease more labor to agro-processing, other industries and services.

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15. The education and training level of the labor force has lncreaseddramatically during the post World War II period as shown in figure 2. This hasbeen especially true since the 1960s. As explained in Annex II, the educationreform in the early 1960s was designed to meet the needs of Hungary'sindustrialization strategy. Table 5 shows the educational attainment of thelabor force by occupation.

C. WAGES

16. Since the New Economic Mechanism (1968), which was a major economic reformaimed at reducing central control and increasing flexibility and efficiency,wages were determined both through enterprise level decisions as well as bycentral regulations. The central supervisory authorities determined wagebrackets taking into account qualification requirements; importance of the workor sector; and the physical difficulty or poor conditions of the work. Theenterprise could set the pay level for individual employees within the relevantbrackets. Thus, enterprises in Hungary had more leeway than those in othercentrally planned economies to set individual wages. During the first yearsfollowing the NEK, when the economy responded positively, this system of wagedetermination was a great improvement over the previous rigid system. However,the reform momentum slowed down and bureaucratic rigidities precluded furtherliberalization in the labor market as in other sectors of the economy.

17. There were other irregularities related to the labor market. For example,the labor market, as most other markets in centrally planned economies, was proneto exhibit shortages as in the "economics of shortage" model developed by theHungarian economist Janos Kornai. Also, wages and salaries in Hungary are ineffect 'net wages and salaries' since only about 601 of personal familyconsumption is financed out of wages, the remainder coming from public subsidiesand enterprise provided goods and services. Labor costs to enterprises aresubsidized by the state, and therefore the relative price of labor isartificially low, while capital and materials are relatively expensive. Todiscourage enterprises in such an environment from granting inflationary wageincreases, a wage tax was levied on the incremental portions of the enterprises'wage bill. These regulations often merely gave rise to bureaucratic bargainingwhere large monopolies that characterize Hungary's economy were at advantage.It was partly due to these difficulties that the authorities concluded wage andlabor reform required nothing short of a total economic reform which aimed atdeveloping a competitive market economy.

18. Wages in Hungary still show patterns typical of a socialist economydominated by state ownership and central direction. Wage and incmedifferentials are much smaller in Hungary than in Western European economies.This is partly shown by Table 6 which gives wages by sectors. However, suchtables do not account for differences in the occupational and skill compositionof employment in different sectors, factors which would have to be included ina more micro-level statistical analysis of wages.

19. Income distribution, taking into account non-wage income sources inaddition to wage income, is probably more equitable in Hungary than in WesternEurope. However, there is some evidence that recent changes in the labor marketmay have lead to increasing income inequality. For instance, an increased income

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from second economy activities may prove less equitable given that they are notequally available to all workers. Increased access to private property incomewithin the expanding private sector may also have a similar effect. Studies byHungarian economists on income distribution appear to support the recent risein income inequality. However, some of them conclude that the complete reformnow being envisioned may in fact be preferable to the earlier piecemealapproaches which resulted in anomalous "innovations" by enterprises. Forinstance, enterprises began to tolerate the formation of inter-enterprisebusiness partnerships (VGMK) among their core workers, and let them earn extraincome to compensate for the low wages,-I

20. It is important for policy purposes to: a) monitor wage and income trendsvery carefully during the transition period; and b) to conduct studies of thepast few years prior to the transition period. Policymakers need to have abetter idea of the lower income groups that may be adversely affected by theeconomic reforms and be able to formulate more targeted social safety netmeasures to keep them from falling below minimal standards. New statisticaldatabases and methodologies will need to be established in order to address theseissues.

!! Falus-Szikra, K., Wage and Income Disparities Between the First andSecond Economies in Hunga=y. Acta Oeconomica 36. Budapest, 1986.

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ANNE I. TABLE 1. ECONONIES IN TRANSITIO: STRUCTURAL ADJUSTMENT IN OECDCOU1TRIES (PARIS, 1989, OECD)

Growth and labor market perfozrcnceAverage annual growth rates

GDP UQLO1MZUT LABOR FORCE UNRDPLOYMItN RATE

1973-83 1983-88 1973-83 1983-88 1973-83 1983-88 1973 1983 1988

United States 1.8 4.0 1.7 2.7 2.2 1.8 4.9 9.6 5.5Canada 3.0 4.5 2.1 2.9 2.8 2.0 5.5 11.9 7.8

Japan 3.6 4.5 0.9 1.0 1.0 0.9 1.3 2.7 2.5

France 2.3 2.2 0.1 -0.1 0.8 0.3 2.7 8.4 10.3Germany 1.6 2.6 -0.6 0.6 0.1 0.6 1.0 8.2 7.9Italy 2.2 3.2 0.7 0.6 1.1 1.1 5.9 9.2 11.1United Kingdom 1.0 3.5 -0.5 1.7 0.4 1.1 2.1 11.2 8.5

Austria 2.4 2.0 0.1 0.5 0.4 0.5 0.9 3.7 3.7Belgium 1.8 2.1 -0.4 0.5 0.7 0. 2.3 12.9 10.5Denmark 1.5 2.1 0.1 1.5 1.1 1.2 1.0 10.4 8.5Finland 2.8 3.4 0.5 0.4 0.9 0.2 2.5 5.4 4.7Ireland 2.5 1.4 0.5 -0.7 1.5 -0.1 5.7 14,0 16.6Netherlands 1.9 2.3 -0.4 1.1 1.0 0.5 3.1 15.0 12.5

Norway 3.9 3.3 1.6 1.7 1.8 1.6 1.6 3.4 3.1Portugal 2.6 2.9 2.1 0.8 2.7 0.5 2.2 7.9 6.5Spain 1.9 3.6 -1.4 1.1 0.4 1.4 2.2 18.2 19.5Sweden 1.5 2.4 0.8 0.7 0.9 0.4 2.0 2.9 1.7Switzerland 0.3 2.7 -0.4 0.9 -0.3 0.9 0. 0.8 0.7

AuastraUa 2.1 4.2 0.8 3.1 1.6 2.5 2.3 9.9 7.4New Zealand 0.9 1.8 1.1 0.8 1.6 0.8 0.2 5.4 5.3

Total OECD 2.1 4.2 0.7 1.6 1.3 1.2 3.5 8.9 7.4OCD Europe 1/ 1.8 4.2 0. 0.9 0.8 0.8 3.5 10.4 10.3Of which:Lcw unemployment countries / 2.1 2.8 0.4 0.8 0.6 0.7 1.3 3.1 2.6

Sigh unemployment countries A/ 1.7 2.8 -0.2 0.8 0.7 0.8 2.7 10.6 10.6Low unemployment countries i/ 2.2 4.1 1.4 2.0 1.8 1.4 3.4 7.2 4.6

N 0 T 1: Percentage changes (or rates) for groupa of countries are the percentage changes (or the ratioa) ofthe aggregate series for the group, GDP aggregates are expressed in US dollars at constant exchangerates.

I/ Excluding Greece, Turkey, Yugoslavia.J/ Austria, Finland, Norway, Sweden, SwitzerlandI/ Germany, France, United Kingdom, Italy, Belgiaum, Denmark, Netherlands, Portugal. SpainO Countries listed in (2) above plus United States, Jpan and Canada

SOURCES: OECD, Economic Outlook, Historical Statistics, 1960-1987, Estimates for 1988 are from Outlook 44(Dec eabr 1988).

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AM=EK I. TABLE 2. WpOWIA=TI BY SE= AND AGE GROMP(JamUaKy 1988)

AGE GROUP MALE FEMALE TOTAL

0-4 318,823 305,369 624,1925-9 378,915 360,083 738,998

10-14 446,976 423,092 870,06815-19 378,946 357,375 736,321

20-24 338,591 318,730 657,32125-29 345,307 332,579 677,886

30-34 457,472 443,593 901,06535-39 410,319 407,204 817,523

40-44 351,449 354,923 706,37245-49 318,071 341,892 659,963

50-54 287,980 327,903 615,88355-59 292,574 340,302 632,876

60-64 265,412 331,577 596,98965-69 199,774 280,181 479,955

70-74 126,392 191,703 318,09575-79 118,370 199,559 317,929

80-84 55,202 109,406 164,60885-89 20,576 47,810 68,386

90- 5,115 14,815 19,930

Total 5,116,264 5,488,096 10,604,360

Source: Central Statistical Office

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ANE I. TABLE 3 COMPRHENSIVE ERTILITY INICATORS F HUNGARY, 1880-1980

YEAR LIVE BIRTHS TOTAL AVERAGE REPRODUCTION AVERAGE NO. AVERAGE NO. OFFERTILITI [a] PARITY (a) RATE OF CHILDREN CHILDREN BORN tg]

PER THOUSAND PER THOUSAND ---- OF DECEA8ED ----------------POPULATION 15-49 YEAR GROS HET MARRIED OF OF MARRIED

OLD WOW WcN lb) UMRRIED WOe4a AGEDWOMEN 50-59

1880(dl 44.4 1701900141 39.7 154 5.32 4.37 2.59 1.45 3.621920 31.4 117 3.80 1.83 1.13 5.111940 20.0 70 2.89 1.19 0.97 4.311950 20.9 77.4 2.57 2.51 1.24 1.07 2.59 3.331954 23.0 88.3 2.97 2.50 1.43 1.311960 14.7 58.9 2.02 2.18 0.96 0.91 2.32 2.901962 12.9 52.5 1.80 2.15 0.87 -0.81 2.29 2.801970 14.7 56.6 1.96 1.88 0.95 0.91 2.65 2.01 2.421973 15.0 58.2 1.95 1.86 0.94 0.91 2.51 2.00 2.391974 17.8 69.6 2.30 1.89 1.12 1.07 2.52 1.95 2.321975 18.4 72.8 2.38 1.87 1.16 1.11 2.47 1.94 2.301976 17.5 69.9 2.26 1.84 1.10 1.06 2.42 1.94 2.281977 16.7 67.3 2.17 1.84 1.06 1.02 2.42 1.94 2.261978 15.8 64.1 2.08 1.82 1.01 0.98 2.42 1.94 2.241979 15.0 61.3 2.02 1.81 0.99 0.98 2.39 1.94 2.231980 13.9 57.6 1.92 1.82 0.94 0.91 2.34 1.89 2.14

N 0 T _: [a] On basis of the yearly calendar live birth rate.(bl From a marriase duration of 20 years or longer.tc] Population census data until 1973; data of the continuous registration of the population for

1974-80.tdl In the territory of Hungary prior to 1920.

SOURCES: Valentina and Bodrova (eds) Working Women in Socialist Countries : A Fertility Connection (ILO, Geneva:1985)

ANNEX I. TABLE 4. DISTRIBUTION OF ACTIVE w.ARNZRS AS PER THE BRANCHES OF THENATIONAL ECONOMY

BRANCB OF THE 1949 1960 1970 1980 1987NATIONAL ECONOY ---------- THOUSAND PEOPLEE ----------- PERCNT

1. Industry 792.9 1328.6 1813.2 1724.6 1526.2 31.2

2. Building industry 91.1 289.1 370.0 413.0 341.5 7.0

3. Agr±culture and 2195.5 1831.0 1216.9 940.1 942.7 16.3forestry

4. Transportation, 180.5 308.5 363.1 412.5 404,3 8.3post, telecom.

5. Trade 214.8 297.7 394.7 495.6 514.2 10.5

8. Water management 4.4 10.8 59.1 76.6 79.2 1.6

7. Personal and eco- 144.4 117.5 137.8 199.3 228.9 4.7services /a

8. Health, social 152.7 268.8 382.4 540.7 610.8 12.5and cultural serv.

9. Communal, administra- 308.2 306.8 382.4 540.7 610.8 12.5tive and other services

T 0 T A L 4084.9 4759.6 4988.7 5068.0 4885.2 100.0

N 0 T E:SJ Together with other material activities.

SOURCE: Ministry of Labor

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ANNE I. TABLE 5. EDUCATIONAL O S O- LABOR FORCE IN HNGARY

PRIMAY SCHOOL FINISHED

SECONDARY SECONDARY EDUCATIONALMAIN GROUPS OF TOTAL 6 - 7 8 PROFE8- SCHOOL INSTITUTEEDUCATION LE SH ---------------- SIONAL OF HIGHEST

6 OADES GRADES SCHOOL GLADE

1970 ~~~PERCgNTAGEPhysical occupationsSkilled laborers 100.0 3,8 21.7 39.0 27,4 7.9 0.ZSemi-skilled laborers 100.0 16. 1 38.5 41.0 1.0 2.5 0.1Unskilled laborers 100.0 23.5 43.4 30.6 1.2 1.0 0.1Helping fam, members ofthe working members ofagricultural co-oper. 100.0 21.4 52.7 25,4 0.3 0,2 0.0

SUBTOTAL 100.0 14.4 34.7 36.5 10.1 3.8 0.1

Intellect. occupations 100.0 0.6 5.0 27?5 1.6 45.1 20.2Self-employed and theirhelping fam, members 100.0 20.2 47.0 23.3 2.7 3.5 3.3

TOTOL 100.0 11.2 27.9 34.1 7.8 13.9 5.1

Physical occupationsSkilled laborers 100.0 0.9 7.0 31.4 45.3 15.1 0.3Semi-skilled laborers 100.0 8.1 24.1 55.4 6.4 5.8 0.2Unskilled laborers 100.0 17.3 30.9 45.0 4.9 1.8 0.1Helping fam. members ofthe working members ofagricultural co-oper. 100.0 17.2 50.0 31.0 1.1 0.7 0.0

SUBTOTAL 100.0 6.6 18.3 43,2 22.6 9.1 0.2

Intellect, occupations 100.0 0.2 1.5 18.0 4.0 49,7 26.6Self-employed and theirhelping famn members 100.0 11.4 30.6 31.7 14.5 9.3 2.5

TOTAL 100.0 4.8 13.7 35.4 16.9 21.1 8.1

1 9 8 4Physical occupationsSkilled laborers 100.0 0.5 3.6 29.9 48.4 17.3 0.3Semi-skilled laborers 100,0 6.1 15.5 61.7 1(0.3 6.2 0.2Unskilled laborers 100.0 12.8 20.8 55.6 8.6 2.1 0.1Helping fem, members ofthe working members ofagricultural co-oper. 100.0 8.- 33.2 53.7 2.0 2.7

SUBTOTAL 100.0 4,4 10.7 45.8 28.0 10.9 0.2

Intellect, occupations 100.0 0.1 0.5 13.1 4.8 51.1 30.4Self-employed and theirhelping fam. membera 100.0 4.7 11.8 31.3 26,1 20.9 5.2

TOTAL 100.0 3.0 7.5 35.0 20.7 23.9 9.9

SOURCE. Ministry of Labor

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ANNE I. TABLEg 6. MONTHLY BASIC WAUES. PER CAITA LABOR COSTS TO EM ERS. MDACTUAL EARNINGS BX OCCUPATION

DENaUNATION AVERAGE AVERAGE INCOME AVERAGE INCOH¢ IBAIC SALARY (8TANDARDIZED) O (ACI/ AL) _LEVEL SELATIVE LEVEL RELA$TVE L$VEL RELAM IVEHUF I/ SIZE (t) EUF /S8IZE S() HWF SIZE tX)

Unskilled laborers 3238 100.0 4371 100.0 4711 100.0Semi-skilled laborrer 3755 116.0 5273 120.8 5839 123.0Skilled laborers 4620 142.7 6400 148.5 7097 150.6All manual laborers 4151 128.3 5816 133.1 6370 135.4

Management clerks 5687 175.6 7081 162.0 7197 152.8Administrativo clerks 4298 1Z2.7 5116 117.0 5193 110.2All clerks 5208 160.8 6403 146.5 6508 138.1

Production manasers 6155 190.1 8394 192.0 9316 197.7Kid-level managers in enterprises 8638 268.8 12389 283,4 12442 264.1Mid-level mnagers iXn cooperatives 7328 226.3 9853 225.4 9812 210.4

All mid-level managers 8490 262.2 12102 276.9 12156 258.0Top executives in enterprises 12993 395.1 20702 473.6 20756 440.6Top executives in cooperatives 10608 327.6 17110 391.4 17125 363.5All top executives 12346 381.3 19967 456.8 20013 424.8All clerks and mid-level managers 5733 177.1 7391 169.1 7676 162.9

N 0 T E 8;1/ Labor costs to employers.V/ Actual earnings including various benefits, profit premia *tc.g/ HUF- Hungarian forint.

SOURCE: Ministry of Labor

ANNE I. TABXLE 7. STAF OF PUBLIC EPLOYMEN SERVICES PR THOUSAND OF WORKINAGE POPULATION 15-64)

Country Employment Employment Total Incl.Offices Offices Plus Unemployment

Network and BenefitProgramme Adminie6rationManagement

38;Fedn 1 1.4 1.4United Kingdom 0.9 1.3 1.3Germany 0.6 0.9 1.3Denmark 0.6 0.8 --Norway 0.6 0.8 0.9Finland 0.6 n.8 -_Australia 0.5 0.8 1.1Selsium -- 0,8 --Netherlands 0.4 0.5 1.4Canada 0.3 0.7 1.2Austria 0.3 0.5 0.7Switzerland 0.3 0.3 0.4France 0.2 0.5 0.9New Zealand 0.2 0.4 0.9Spain 0.2 -- --Portugal 0.2 0.3 0.3Ireland 0.1 0.4 1.2Greece 0.1 0.4Turkey -- 0.1 0.1Hungary 1/ 0.03 -- --

N 0 T E: I/ Sourc: Ministry of Labor

SORCE: Peter Scoerer. A Review of National Lgbor Market Policis in OECM Countries, A paper presented at theWorld Bank Seminau on Economic Adjustmant and Social Dimensions. 1990.

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ANNEX I. TABLE 8. EDUCATIONAL ACHIEVEMENT AY SEX FOR POPULATIQN OF AGE 18 ANIDABOVE

PERCENTAGE OF POPULATION PERCENTAGE OF POPULATIONWITH SECONDARY SCHOOL EDUCATION I/ WITH HIGHER EDUCATION DIPLCNASTOTAL MEN wow TOTAL MEN OMOEN

1970 15.9 18.2 13.9 4.3 6.5 2.41980 23.4 24.4 22.4 6.5 8.6 4.61984 26.9 27.3 26.6 7.9 10.1 5.9of which

18-19 36.3 29.1 44.420-24 40.5 34.2 47.425-29 38.8 32.0 45.6 11.3 10.0 13.430-39 40.9 35.7 46.1 11.8 12.4 11.140-54 25.9 27.5 24.4 8.4 11.4 5.755-59 17.2 22.7 12.5 5.9 9.5 2.860- 10.3 15.6 8.5 3.3 6.4 1.2

I/ Does not include apprenticeship school graduates.

SOURCE: Ministry of Labor

D. POSSIBLE UNEMPLOYMENT SCENARIOS ARXSING PROM REDUCED OVERWANNIG

21. The objective of this exercise is to present two scenarios of possibleunemploymen- arising from economic reforms in Hungary, to demonstrate that evena modest estimate of hidden unemployment due to overmanning surfacing in the nexttwo years can easily lead to an unemployment rate of above 5X.

22. Total unemployment in the second quarter of 1990 was estimated to be 21of the total labor force, which is assumed to remain stationary at 5 million.

23. The cumulative effect of structural adjustment policies on unemploymentwas calculated using the labor force distribution by sector and estimated levelsof hidden unemployment in each sector. In the low scenario, 251, 12.51 and 12.51hidden unemployment in industry, agriculture and services respectively were used,these being the commonly quoted figures in Hungary. In the high scenario, 401,201 and 20X were assumed.

24. To obtain the flow figures, it was assumed that structural adjustment willbe complete within two years, i.e., an economic scenario with a tough andthorough economic reform. Thus, it was assumed that the incidence ofunemployment will be distributed over two years starting the third quarter of1990, with a slow start, a peak and tailing off towards the end of the secondyear.

25. A fixed probability of finding a job in a given period, which is areciprocal of the average duration of unemployment was assumed for ect'.& cenario.The average unemployment durations of 4 months and 9 months were assumed for thelow and high scenarios respectively.

26. The total number of school leavers joining the labor force was estimatedas a sum of 30X of primary school leavers, 100% of apprentice school leavers,601 of secondary school leavers, and 1001 of tertiary education leavers.

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AHM= I. TABLE 9. POSSIBLE SOMIOS 01 IN EUNGARY (000 S1

| LOW HIGHQuarter | FLOW STOCK PERCENT FLOW STOCK PERCENT

1990 2 I 100 100 2.0X 100 100 2.0X3 I 45 70 1.4X 72 139 2.814 I 90 108 2.21 144 236 4,7X

1991 1 I 135 162 3.2X 216 374 7.512 320 360 7.01 428 677 13.213 I 180 270 5.3X 288 739 14.414 j 135 203 3.9X,I/ 216 709 13.81

1992 1 I 90 141 2.71XI/ 144 617 12.012 I 45 80 1.6X]/ 72 483 9.413 I 140 160 3.0XJ/ 140 462 8.814 I 0 40 0.81.I/ 0 308 5.81I/

N 0 T E S:]/ Low scenario: Average Unemployment Duration - 4 months, total stock

of hidden unemployment - 900,00021 High scenario: Average Unemployment Duration - 9 months, total stock

of hidden UE - 1,440,000]/ The effect of frictional unemployment is not taken into account in thesescenarios.

AEM= I. TABLE 10. ENPWYNENT BY SECTOR (1985)(thousand persons)SECTOR MALE FEMALE TOTAL

Industry 851.2 688.3 1539.5Construction 290.7 65.7 356.4Transport, Post and Telecom. 289.4 106.7 396.1Trade 178.1 330.7 508.8Water Management 59.2 19 78.2Others (including services) 380.7 618.1 998.8Agriculture 616.4 418.7 1035.1

Total 2665.7 2247.2 4912.9

Source: Central Statistics Office

- 74 .

CHANGES II THE TOTAL FURTILITY RATZ, 1950-2020 E9DL1

year

CHANGES IN THE AVERAGE LIFE EXPECTANCY AT BIRTHl, 1950-2020

' Year ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ e

SOURCE: - __i O _ _198

7 - _ - L- -.

Sk ^--"-A1- - '-'-|~~4"

'17~ _ II P~-_ . _ _,

CH_ E IN TH AVEAG LIF EXPCTNC AT BIRTH, 1950-2020.

Year~~

SOURICE: Central Statistical Office (1988)

-75 eu* uL

Highest Completed Educational Level of the PopulationAged 15 Years and Older

Source: J. Tr S g PNort gof E

70-

30 1

10-

I. Is 19, 19 Ii0 loni

Source: J. Timar, Strategic Planning of Education (1987)

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AMII

THE EDUCATION SXST= IN HU=NOAP

LIST OF TABLES

1. Enrollment and Teaching Staff in Education2. Expenditure of Educational Institutions3. Budgetary Expenditure per Student

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NEun II

THE EDUCATION SYSTEM IN HUNGARY

1. This annex gives an overview of the education system in Hungary tosupplement discussions of the secondary and higher education in the main text.

2. Primary school has eight grades, for which the normal age range is 6 to13. The first four grades are taught by single class teachers w'thout subjectspecification. Grades 4 to 8 are equivalent of a lower secondary or a middleschool with subject specific teachers (e.g., mathematics or science). Educationis compulsory up to grade 8 or age 14, and about 95 of the pupils go on tosecondary level education.

3. Secondary education consists of three distinct components.

a) Grammar school (also called gymnasium) is an academic secondaryschool whose historical origins are the Latin grammar schoolsassociated with medieval universities. Around 251 of eighth gradeprimary school graduates proceed to grammar schools. This is a four-year program which prepares students for university study. About40 to 50X of the pupils who pass the general certificate of secondaryeducation (GCSE) exam at the end of the cycle go on to university.

b) Vocational secondary school offers technical as well as generaleducation. Students acquire a Certificate of Vocational SecondaryEducation (CVSE), which is equivalent to GCSE and a skilled worker'scertificate, and allows them to continue on to higher education, orenter employment. About 251 of the eighth grade primary pupilscontinue into the vocational secondary schools and about 201 ofvocational secondary graduates go on to university, mainly in thethree-year colleges (see below) in a field related to theirvocational specialization.

c) Apprentice schools offer very specialized vocational training inwith enterprises and some theory, practical and general educationinstruction offered by the schools. The program typically takesthree years to complete. However, the graduates from apprenticeschools do not receive the GCSE or the CVSE, and they cannot proceeddirectly to university. They do, however, receive a nationallyrecognized vocational certification. Most enter the labor force uponcompletion of training, but they can pursue the GCSE qualificationprogram on an evening or correspondence basis (see Figure 2 for timetrends in enrollment of the 14 year old population in these threestreams of secondary education).

4. An optional fifth year has recently been added to the vocational secondaryschool program which qualifies a student for a technician's job. Also, grammarschool pupils who do not proceed to university can enroll at vocational secondaryschools or in an c.prentice program to obtain a skill certification, which takesonly 12 to 18 months since they do not repeat the general education courses.

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As mentioned before, an apprentice school graduate can also acquire a GCSEthrough a special program, and then can apply to the university.

5. Thus the system has some flexibility in principle, but practicalconstraints prevent this from occurring as much as it should. See the main textfor discussion of these issues, especially as it relates to access of young andolder adults to education and training once they have begun their workingcareers. Serious systemic problems with respect to curricula, delivery andaadministration of secondary level vocational training are addressed in therecommendations of this paper.

6. Administrative responsibility for education and training is shared betweenthe Ministry of Education (MOE) at the national level and the county councilson the local level. MOE is responsible for curriculum and standards andallocates money from the state budget to the various sectors of education andtraining. The county councils maintain and operate school facilities and dealwith community issues based upon the block grant- received through the MOEallocation. MOE must collaborate with other sectoral ministries and with theWages and Labor Office (WLO) with respect to vocational training curriculum andstandards.

7. Higher education is a two-tier system, the first level being referred toas college and awarding a college diploma after a three-year program of study.The second level is the five-year university program which awards a universitydiploma. The two tiers are generally independent of each other with relativelyfew students entering the fourth year of a university program after completingthree years of college. The college program in engineering, for example, wasstarted in the early 1960s and conceived of as producing practical productionengineers without the deep theoretical foundation of university engineers.However, a few universities have started some optional three-year programs.

8. With respect to admissions to higher education, students finishingsecondary school must pass university/college entrance exams in addition to theirgeneral certificate of secondary school exam. The graduates of vocationalrocondary schools tend to perform better in practical subjects initially, butthe secondary grammar school graduates tend to catch up. Because of their bettertheoretical preparation, it is mostly the secondary grammar school graduates whocontinue on to complete the five-year university diploma.

9. The system of post-graduate education which produces Ph.D. levelspecialists is complicated due to some advanced degrees being awarded by theuniversities and others for research work done through the Hungarian Academy ofSciences. The degrees of Candidate of Science (C.Sc.) and Doctor of Science(D.Sc.) are awarded for research work done beyond the university diploma level,the C.Sc. being somewhat more advanced than the Ph.D. in the United States andthus more like a post-doctorate program. The D.Sc. is more advanced than theC.Sc., requiring substantial research articles or books to be published. Duringthese stages of graduate study, researchers are usually under the supervisionof senior professors, and it thus takes some years before they can initiate theirirdependent research ventures. After the introduction of the Soviet model ofhigher education and research, the universities lost the right to award higherdegrees, but thiD was restored in part in the 1960s. The universities were then

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given the right to award Doctorate of University (D. Univ) degree based uponadvanced course work beyond the university diploma level and some research.However, this does not carry the prestige of either the C.Sc. or D.Sc. The HASand the universities are discussing ways of simplifying this system of highereducation degrees.

a

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ANNEX II. TABLE 1. M E= AND CHING STAFF IN EDUCATION

1983/4 1984/5 1985/6 1986/7 1987/8 1988/9 1989/90

I. P R I M A R YNumber of Institutions 3,546 3,539 3,546 3,540 3,540 3,526 3,527Enrollment 1,269,899 1,286,648 1,297,818 1,299,455 1,277,257 1,242,672 1,183,573

Growth 1.32X 0.872 0.132 -1.71X -2.712 -4.76ZTeaching Staff 83,498 86,367 86,066 89,611 90,925 90,620 90;602

Growth 3.44S -0.35 4.12X 1.47X -0.342 -0.022Student-Teacher Ratio 15.21 14.90 15.08 14.50 14.05 13.71 13.06

II. S E C O N D A R YII-1. Secondary SchoolsNumber of Institutions 545 553 561 587 608 645 675Enrollment 225,308 232,342 236,104 236,881 239,768 248,337 273,511

Growth 3.122 1.622 0.332 1.222 3.572 10.14XTeaching Staff 18,889 17,466 17,8S9 18,527 19,184 20,084 21,425

Growth 3.42U 2.48X 3.512 3.55 4.692 6.682Student-Teacher Ratio 13.34 13.30 13.19 12.79 12.50 12.36 12.77

11-2. Apprenticeship Schools /Number of Institutions 269 270 274 278 284 294 299Enrollment 174,810 178,044 176,380 175,228 177,191 186,796 201,702

Growth 1.852 -0.93X -0.652 1.12X 5.422 7.982Teaching Staff 11,090 11,397 11,505 11,591 11,651 11,745 12,044

Growth 2.77X 0.05S 0.75X 0.52Z 0.811 2.552Student-Teacher Ratio 15.76 1S.62 15.33 15.12 15.21 15.90 18.75

XIT. 8 I G 8 E RNumber of Institutions 58 58 58 54 54 58 57Enrollment (regular students) 62,944 63,217 64,190 64,855 66,697 71,689 72,381

(gvenxng students) 6,539 6,119 6,203 6,040 5,851 5,540 5,255(correspondent students) 30,382 30,650 28,951 27,610 26,477 25,812 23,187

Evening and Correap. Sub-total 36,921 36,769 35,154 33,650 32,328 31,352 28,442Total Students 09,865 99,986 99,344 98,505 99,025 103,041 100,823

Growth of regular students 0.4X 1.52 1.02 2.82 7.52 1.02Growth of all students 0.12 -0.6X -0.82 0.52

Teaching Staff 14,452 14,545 14,850 15,111 15,302 16,242 16,319Growth 0.62 2.12 1.86 1.32 6.12 0.52

Student-Teacher Ratio 4.36 4.35 4.32 4.29 4.36 4.41 4.44Student-Teacher Ratio I/ 5.06 5.04 4.98 4.91 4.94 4.95 4.92

N 0 T E 8:

1/ Excludes typing, stenograhy, and health care trainingt Using full time quivslent CFTE) figures. TE Is defined as: Regular Students + 1/2.5(Evening Students)

+ 1/4(Correpondant Students)

SOURCE: Ministry of Education and Culture

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ANNEX II. TABLE 2. EXPENDITM OF EDUCATIONAL STITUTIONS (FOIlNT NILLION; CURRENT PRICES)

1985 1986 19S7 1988 1989 1090ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL PLA

Education Total &9,365 54,264 59.855 - - -Recurrent expenditure 43,177 45,595 49,547 63,043 86,890 -

Of which financed by state budget 2. 37,188 39,189 42,141 54,325 72,763 -Investment 6,188 8,669 10,308 - - -

As Z of GDP *.78X 4.98X 4.88X - - -

Real Growth - 3.65X 2.07X - - -

Primary Education Total 20,942 22,178 24,100 28,973 - -Rocurrent Expenditure 18,225 19,069 20,537 25,324 - -Of whioh financed by state budget I/ 16,089 16,905 18,222 22,782 35,025 -

Investment 2,717 3,109 3,563 3,649 32,393 -As X of GDP 2.03X 2.01. 1.97X 2.052 - -Real Growth - -0.08X 0.512 -0.522 - -

Secondary Education Total 10,877 13,050 14,427 17,238 -Recurrent Expenditure 9,160 9,684 10,496 13,499 19,504 -Of which financed by state budget 1/ 8,368 8,882 9,588 12,443 18,239 -

Investment 1,697 3,366 3,931 3,739 - -An X of GDP 1.05l 1.20X 1.186 1.22X - -

Real Growth - 12 96X 2.56X 0.332 - -

Higher Education 6,145 7,025 7,988 12,057 14,542 17,050Recurrent Expenditure 5,566 5,971 6,562 10,468 12,464 14,350of which financed by central budget I/ 4,973 5,238 5,735 9,854 11,805 14,080

Investment 879 1,051 1,426 1,589 2,078 2,500of which finaneod by central budget 3/ 650 800 1,100 1,250 1,700 2,100

As X of GDP 0.622 0.652 0.652 0.852 0.862 0.85SAs 2 of Total Public Spending I/ 1.022 0.98X 1.01 1.36X 1.4X32 1.568Recurrent Exp per Reg. Student (thousand ft) 87 92 98 146 172 -

(US$) 1,726 2,010 2,095 2,896 2,832 -Real Growth in Recurrent Exfpenditure - 1.242 1.232 29.301 -2.801 0.052Real Growth in St.te subsidy for rec. exp. - -0.642 0.91X 39.27X -2.20X 2.22XReal Growth In Investment - 13.22Z 28.29X 5.322 12.692 5.002Real Growth in State Subsidy for Investment - 16.54X 30.012 7.412 17.202 7.S22

Enrollment in HE (regular students) 64,190 64,855 66,697 71,689 72,381 -(evening students) 6,203 6,040 5,851 5,540 5,255 -

(correspondent students) 28,951 27,610 26,147 25,812 28,187 -

Subtotal of evening and correspondent students 35,1514 33,650 32,298 31,352 28,.42 -

Grand total of all students enrolled 99,344 98,505 98,995 103,041 100,823 -

N 0 T E 5:

2/ Budget from Ministry of Finance/ Budget from National Plannaig Office

3/ Total puble spending includes all expenditures by public institutions, social security, interest ndproduction and price subsidy payments.

/ All figures correspond to expenditures strictly related to higbhr education activities. Sincemany bigher education institutions undertake activities outside higher education, figures sbown here resmaller then those given for total expenditures by blhger *dueation institutions.

SOMUCE: Ministry of Finance, Naticnal PlanniAg Office, Ministry of Education

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ANNEX III TAm 3. EUDOETARY EXPENDITURE PER STUDENT (Ft.

1985 1986 1987

Kindergartens 15,919 17,049 18,706Primary Schools 13,055 13,542 14,629Secondary EducationGrammar Schools 17,339 18,189 20,357Vocational Secondary 24,576 25,597 27,686Apprentice 21,448 22,609 23.909Higher Education 78,013 82,447 89,447

N 0 T E: Calculated per student of day section.

SOURCE: Central Statistical Office

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TRAINING FOR SKILLED WORFRS AND TECHNICIANS

LIST OF T3E

1. Summary Data on Secondary Education Institutions2. Secondary Level Schools - Apprentice Schools3. Adult Vocational Training - Number of Courses by Sector4. Adult Vocational Training - Completion by the Type of

Education and Country5. Retraining Support by Sector, January - June 19886. Number of Persons Employed by Sector and Staff-Groups, 1987

FIg-

Figure 1. Alteniative Models for Delivery Training

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TRAINING FOR SKILLED VORKERS AND TECHNICIANS

1. In considering options for reform, several critical questions need to beaddressed: a) At what initial age should general and specialized training beavailable? b) How can the training be provided most effectively to both youthand adults? c) What degree of specialization should be included in the trainingfor different clients? and d) What type of national administration can bestsupport the system?

eiao Yo-¶th and Adlt Trainin Sstems.

2. A recent OECD report has reviewed how its member countries are coping withexpansion and diversification of education and training. There are severalgeneral trends. Young people are prolonging their studies longer after the endof compulsory education (16 years of age in most OECD countries) and the contentof this extended education is changing. There is a move toward a morecomprehensiv. lower-secondary (grades nine and ten) education and the gradualphasing out of specialized vocational programs at this level. Proportions ofenrollment in secondary vocational and technical education are increasing butshifting to the upper secondary level (grades 11 to 12), which is becoming themain transition stage to employment or further specialized training. Enrollmentsin specialized vocational and apprentice training have stagnated or declined atthe secondary level and there is a blurring of boundaries between secondary aneLhigher education.

3. In many OECD countries, demand from, and participation by, adults in post-secondary education is significantly increasing. The reasons include increasedleisure, greater unemployment, increased opportunities and need for careerchanges in mid-life, and the obsolescence of knowledge and skills brought aboutby accelerated technological and social changes.t The USA, followed byAustralia, Denmark and Sweden stand out as countries that are rather good atgetting people back to school. For example, over the past 25 years the numberof non-university colleges in the USA has doubled. Sweden has a system ofmunicipal courses for adults where full-time participation has increased withthe hell, of special grants made available to students.

4. Out of these trends, three broad models of organizing training can beidentified. These can serve as points of departure for initiating reform ofthe Hungarian training system. The major elements are depicted in Fig. 1 andinclude:

a) A schooling model which aims at integrating academic and generalvocational training within the formal systems; favoring schooling

1/ Education and Training after BaRsic Schooling, OECD, Paris 1985.

Education in a Modern Sociery, OECD, Paris, 1985.

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on a full-time basis for the majority of the age group (e.g., Japan,USA, Sweden, Belgium and Finland). The majority of Xoutb completeten years of general education, including occupational exploration,plus several years of academic or general vocational educationleading to secondary school certification. At the end of this periodyouths continue to higher education, obtain adult training or enterthe labor market. These youth education/training systems are usuallyadministered by Ministries of Education, with the assistance ofenterprises in establishing vocational training standards. MAulttraining includes both institutional and enterprise (apprentice)based components which are available for adults over 16 years of age,including youth who drop out of public school after grade ten. Adulttraining systems are often administered by a separate part of theMinistry or, in many cases, by an autonomous board comprised ofrepresentatives from enterprises, government and labor. Theschooling model could address several current problems in theHungarian training systems (para. ?) including the earlyspecialization, lack of general skills, flexibility of programdevelopment/approval for specialized training, and availability oftraining for those who do not have employment.

b) A dual model characterized by the presence of a strong apprenticeshipsector organized and administered separately from the full-timesecondary schools, but considered as an integral part of the formalsystem of education and training (e.g., Austria, Germany,Switzerland). This approach could address the problem of flexibilityfor program development/approval for specialized training, if thistraining was managed by a separate board outside the formal educationsystem, but may not overcome other problems (i.e., the earlyspecialization, lack of general education or the unavailability ofspecialized training for those who may not have employment).

c) A mixed model whose main feature is the greater importance assignedto specialized training outside the formal education system (e.g.,-UK). This approach could address problems in the training systemsin a fashion similar to the previously discussed schooling model.However, it may exacerbate other problems, e. g., the issue of tooclose a relationship between enterprises and training which limitstrainee experience and skills.

Special Problems in Trainina Displaced Adults

5. The special problems encountered in the retraining of unemployed,disadvantaged and displaced workers have been identified in many internationalstudies. Lengthy unemployment creates social needs that go beyond theresponsibility of individual enterprises. Public intervention, including sizablepublic training programs, are usually required to meet these needs.W OEGVcountry experience of provision of retraining assistance to workers displacedby structural change reveals the following:

6/ Positive Adiustment in Mannower and Social Policies, OECD, Paris, 1984.

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a) Displaced workers often lack knowledge of their eligibility forretraining or types of retraining available.

b) Participation in retraining has generally been less than anticipated.Workers who view their displacement as permanent are more likely toenroll. Certain groups tend not to enroll, including the older, theless educated, and female workers. In short, programs tend toretrain those workers with the most likelihood of reemployment.

c) Participation has generally been higher in small isolated towns.

d) Participation has generally been higher when enhanced by incomesubsidy programs in addition to unemployment, and when subsidieshave been provided to firms to conduct retraining programs for theirworkers (if the firms are knowledgeable and experienced in providingtraining).

e) Retraining programs should be complemented by counseling.

f) Workers tend to prefer industrial or on-the-job training to classroomtraining.

g) Singling out segments of the unemployed population and declaringthen to be eligible for special retraining assistance has createdproblems of equity. Retrained workers may obtain reemployment atthe expense of other unemployed workers in the community who wereineligible to participate in the program.

6. Adult retraining should also be compared with other programs which may bemore cost effective in assisting adults in changing Jobs and/or returning to thelabor market after becoming redur.dant. A review of the effectiveness ofretraining programs for displaced workers in OECD countries showed mixed results.The review indicated that job-seeking assistance was very cost-effective.-J Ingeneral, job-seeking assistance and counseling should be provided to unemployedworkers before retraining is initiated. This assistance can serve two functions.First, it may eliminate the need for retraining if a client finds an appropriatejob. Second, it can assist the client in selecting an appropriate retrainingprogram.

Administration of Trainina Systems

7. In considering administrative reform, several key questions need to beaddressed: a) What structure will allow institutions to respond quickly andflexibly to changing skill requirements in local enterprises? b) ilhat structurewill promote institution building and development of support services fortraining? c) What structure will promote access of adults to training? d) Howwould these alterations affect existing financing arrangements? Based oninternational experience, the following administrative options merit

4/ Positive Adlustment in Nanpower and Social Policies, OECD, Paris, 1984.

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conisideration in the Hungarian context. The options include allocation ofadministration of youth and adult training to one ministry, as opposed to thecurront multiple ministry approach, and the use of a National Training Councilto administer adult training.

S§igle M$nistrv Administration

8. Administration of youth and adult training can Fe simplified by allocatingmajor responsibility to one ministry and removing sectoral ministries from aformal role in administering training institutions. This approach is usedsuccessfully in several countries (i.e., France, selected states in the UnitedStates). Its success is highly dependent on three factors: a) the degree towhich the ministry and training institutions maintain strong links withenterprises to ensure that training program content reflects current occupationalrequirements; b) the flexibility which training institutions have to rapidlychange progrdm, staffing, and facilities to meet changing labor market conditionsand clientele, and c) the degree of autonomy which training institutions,particularly those delivering adult training, have to adapt programs to localconditions. The single ministry approach can strengthen linkages between generaland vocational education, which is an important consideration for youth training.But, it has been difficult to apply successfully in the adult trainingenvironment. This is due to failure to allow local training institutions therequired level of flexibility and autonomy, particularly in countries with ahistory of strong central control over academic education and training.

Wational Training Councils

9. National Training Councils (NTC) are being used to administer trainingprograms, particularly at the adult level. These Councils overcome some of theproblems inherent in government bureaucracies and are established as autonomousagencies, parastatals and sometimes as public corporations attached toministries. They provide varying levels and quantities of specialized adulttraining in response to changing employment demand in a number of countries(e.g., Singapore, UK, several States in the USA, Korea, Nigeria, and Jordan).The Councils play five key roles: a) policy formulation and planning, linked toeconomic policy and planning; b) monitoring of training costs and outcomes; c)provision of professional and technical support for program/curriculumdevelopment and teacher training; d) management of testing and certificationsystems; and e) management of reform through budgetary control and use ofincentives.

10. The Councils comprise representatives from the productive sector,government and labor. They have achieved relatively high levels of externaland internal efficiency, when supported by stable financing, good management,institutional autonomy and strong linkages with employers. If not constitutedcorrectly, the Councils can become isolated from other training programs,inhibiting occupational mobility, and develop into inefficient and unresponsivebureaucracies, particularly when guaranteed full funding through employerlevy/tax systems.

11. Establishment of such a Board would address key Hungarian administrativeproblems, provide a single focal point for training support services, increase

- 88 -

the access of adults to training and could provide a framework for cost-effective decentralized training. Implementation of this alternative wouldrequire new legislation and would be tied to reform of the training deliverysystem. It may be palatable to sectoral ministries, create a better climate forflexibility and local initiative, whila maintaining broad policy and qualitycontrol throughout the system.

12. In summar, the alternatives and options for design and administration ofthe training system address current problems in different ways and requiredifferent degrees of reorganization and levels of state support. The finaldelivery and administrative alternatives selected must address the need to: a)provide more general and technology education to youth; b) delay specializedyouth vocational training; c) increase adult access to comprehensive pre-servicetraining that is not necessarily based on current employmert and skills; d)upgrade and expand existing vocational technical training workshops; e) increasethe flexibility and responsiveness of the training system; f) create a balancein linkages between enterprises and vocational training which promotes practicalwork experience during training, without making training so enterprise specificthat worker mobility is limited; and g) identify alternate financing optionsfor vocational training, including using private schools and initiating user feesfor those who can afford to pay.

- 89 -

ANNEX III. TABIL 1. SUARY DATA ON SECONDARY EDUCATION INSTITUTIONS

SECONDARY SCHOOLS E2cCDARY-LZVEL SCHOOL IAP8ZDTICE9HIP)

GAMM A TECH. S-YA TYPING A TEC. HELTHSCHOOL GRAMHR SEC. VOC. VOC. TECH- STENOa. VOC. CARE COIZDYEAR SCOOL SCHOOL SCHOL NIcuh 'OTAL RAINING TRAINI TRIING TOTAL TOTAL

No. of Schools1983/84 174 83 287 1 545 S8 280 23 350 6S919.4/85 175 84 293 1 553 S8 270 25 353 9061985/86 179 81 300 1 561 38 274 24 356 9171986/87 IS6 82 318 1 587 57 278 24 359 04O1987/88 1S0 85 332 1 608 Se 284 25 363 9731988/89 195 86 363 1 645 58 294 24 376 1.0211989/00 204 89 381 1 675 63 299 29 391 1,090

No. of Tutors1983/84 7,409 n/a 9,480 n/a 16,889 242 11,090 403 11,735 28,6241984/85 7,709 n/a 9,757 n/a 17,466 2S0 11,397 399 12,046 29,5121985/86 7,923 n/a 9,976 n/a 17,899 238 11,505 385 12,128 30,0251986/87 8,286 n/a 10,241 n/a 18,527 253 11,591 383 12,227 30,7541987/88 8,648 n/a 10,538 n/W 19,184 258 11,651 404 12,313 31,4971988/89 9,103 n/& 10,981 n/a 20,084 288 11,745 434 12,467 32,551198l/9) 9,656 n/a 11,769 n/a 21,423 303 12,044 504 12,851 34,278

No. of Students1j83/84 101,230 n/& 123,971 107 225,308 7,638 174,810 5,501 187,949 413,2571984/85 104,534 n/a 127,680 126 232,342 7,705 178,044 5,548 191,297 423,6391985/86 105,794 n/a 130,155 155 236,104 7,751 176,380 5,491 189,622 425,7261086/87 105,194 a/a 131,517 170 238,881 7,744 175,228 5,279 l88,251 425,1321987/88 105,976 n/a 133,618 174 239,768 7,378 177,191 5,414 189,98S 429,7511988/89 108,440 n/a 139,897 n/a 248,337 7,343 186,796 5,645 199,784 448,1211989/90 118,317 n/a 157,194 n/a 273,511 6,794 201,702 8,531 215,027 488,538

Student-Teacher Ratio1983/84 13.86 n/a 13.08 n/a 13.34 31.56 15.76 13.65 16.02 14.441984/85 13.52 n/a 13.09 n/a 13.30 30.82 15.62 13.90 15.88 14.351985/86 13.35 n/a 13.05 n/a 13.19 32.84 15.3St 14.26 15.64 14.181986/87 12.70 n/a 12.84 n/a 12.79 30.61 15.12 13.78 15.40 13.621987/88 12.26 n/a 12.68 n/a 12.50 28.60 15.21 13.40 15.43 13.641988/89 11.91 n/a 12.74 n/a 12.38 25.50 15.90 13.01 16.03 13.771989/90 12.05 n/a 13.36 n/a 12.77 22.42 16.75 12.96 16.73 14.25

SOURCE: FMinitry of Education and Culture

0 90

ANNEX III. TABLE 2. SECONDAY LEVEL SCHOOLS Ap TICE SCHOLS I/

A. Locotion of Prtatloal Trainin

NUMBER OF STUDENTS PERCEIAGEz

SCHOOL PLNT PL-NT NON---ROUP TOTAL SCHOOL PlANT AT PLAST NOR-YEAR/GRADE TRAINING TAINING WOMK AND OTHlER TRANIGO TRAIaINNG W GROUF 6

SHOPS SHOP PLACE TRAINING SHOPS SHOPS PLCE OT0 TOTL

I. 17,861 39,642 10,424 9,120 77,247 23.1X 51.6X 13.5X 11.82 100lII. 6,780 29,178 12,155 11,567 59,680 11.4X 46.91 20.4X 19.42 1002III. 3,043 11,235 13,542 22,049 49,869 6.12 22.S1 27.22 44.22 1002

Total 27,884 80,255 36.121 42.736 186,796 14.82 43.02 19.32 22.92 1OOX

S. Number of Students b! Sector and Grade

I . II. III. I . II. III.MAIN GROUPS OF THE ----- ;;~; --------------------- -------------------------NATIONAL ECONOMtY NUMBER OF STUDENTS TOTAL PERCENTAGE OF STUDENTS TOTAL

BY YEAR/XRADE BY YEAR/GRADE

Industry 44,624 34,044 28,684 107,352 57.82 57,01 57.52 57.52Construction Industry 8,697 6,577 5,717 20,991 11.32 11.02 11.52 11.22Agriculture and Food Industry 6,948 5,039 4,299 16,286 9.02 8.42 8.62 8.72Serving Industry 3,260 2,769 1,601 7,720 4.22 4.62 3.42 4.12Trade and Catering 13,323 10,977 0,2682 33,562 17.22 11.42 18.62 18.02Transp=rtation and Telecomm. 395 274 216 885 0.5X 0.52 0.4S 0.52

Total 77,247 59,680 49,869 186,796 100.02 100.0S 100.02 100.02

N 0 T E: I/ Excluaes typing, stenography and health care training.

SOURCE: Ministry of Education and Culture

AEX III. TABLE 3. ADULT VOCATIONAL TRA.INING

Number of Courses by Sector, 1985/86

QUALIFICA- PZRCEN- OUT OF TOTALTION AND FURTHER TAGS (2)

NC. VOCATIONAL LINE SENI-SKILLED TRAINING TOTAL OF TOTAL BLUE-COLAR WHITE-COLAR

NuMBER OF COURSES

1. Industry 1,434 2,294 3,728 24.00 3,077 6512. Construction 271 670 941 6.06 831 1103. Agriculture and Forestry 178 327 505 3.25 346 1594. Water Management 28 13 41 0.26 27 145. Land-Survey 4 10 14 0.09 0 146. Transport 354 308 662 4.26 556 1067. Communication 199 113 312 2.01 166 1468. Commerce, Catering 628 268 896 5.77 388 5089. Material Transport,

Packaging Technology 706 86 792 5.10 791 110. Sconomics, Accountancy,

Administration 451 501 952 6.13 95211. Computer Sciences 197 757 954 8.14 92 86212. Law, Judiciary 350 1,Ss4 1,894 12.19 663 1,23113. Education, Culture 352 1,432 1,794 11.55 7 1,77714. Health 178 613 791 5.09 55 73415. Others 165 1,051 1,256 8.09 991 265

Total 5,495 9,987 15,532 100.00 7,900 7,530

SOURCE: Ministry of Culture and Education, Ministry of Labor

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ANME III. TABLE 4. ADULT VOCATIONAL TRAINING

Completion by the Type of Education and Country, 1985/86

VOCATIORAL FURTIEP ALL COURSES FPRMCOINTY, TmmN MID SEMI- CONTINUOUS TOTAL THE TOTAL

SKILLZD TRAININ D _ _ __ _ _ G_ _ _ _ __ _ _ _

QUALIFICATION NUMBER X BLUE-COLLAR WHITE-COLLAR

NUMBER OF THOSE COMPLETED COURSES

Budapest 62,882 121,219 184,101 46.30 74,898 109,203Batanya County 4,935 8,570 13.505 3.40 9,776 3,729Bacs-Kishun Count 1,236 7,046 8.282 2.08 2,618 5,664Bakes-County 4,877 6,647 11,524 2.90 8,175 3,349Borsod-Abauj-Zamplen County 10,287 25.466 35,753 8.99 18,817 16,936Csouirad-County 3,041 8,699 11,740 2.95 6,060 5,680Fejer County 3,216 9,601 12,817 3.22 6,467 9,350Gyor-Sopron County 4,514 9,972 14,486 3.64 8,195 6,291Hajdu-Bibar County 2,664 8,634 11,298 2.84 6,720 4,578Hoven County 1,931 5,111 7,042 1.77 5,188 1,854Kmaran County 6,282 16,233 22,515 5.66 7,731 14,784Rograd County 887 4,267 5,154 1.30 3,833 1,321Pest County 1,326 3,300 4,626 1.16 1,059 3,567Samogy County 1,997 4,577 8,574 1.65 3,903 2,671Saaboles-Ssatmar County 2,256 7,077 9,333 2.35 4,377 4,956Bzolnok County 2,206 8,070 10,276 2.58 7,551 2,725Tolma County 846 4,613 5,459 1.37 2,587 2,872va County 3,214 4,163 7,377 1.86 5,236 2,141Vesxprem County 3,012 7,272 10,284 2.59 7,905 2,379Zala County 1,668 3,808 5,476 1.38 3,372 2,104

Total 123,277 274,345 397,622 100.0 194,468 203,154

SOURCE: Ministry of Education and Culture. Ministry of Labor

A1NE III. TABLE 5. RETRAINING SUPPORT BY SECTOR

January - June 1988

ECMNuCIC SECTOR NUMBER OF THOSE PARTICIPATING IN RETRAINING RETRAINI SUPPORT

NUMBER X FORINI8 X

Industry 84 3669 51.21 19,233,233 51.9XConstruction Industry 6 242 3.4X 1,696,681 4.6XAgriulturt and 43 1616 22.51 8,964,279 24.2X

ForestryTransport, Postal Services 6 260 3.61 2,125,845 5.71

and ConmireiationComgerce 14 1091 15.21 4,603,888 12.41Water Managment 1 160 2.21 273,026 0.71Non-mat*riel 3 130 1.81 183,894 0.51Branches

Totel 157 7168 100.01 37,080,846 100.01

SOURCE: Ministry of Culture and Education, Ministry of Labor

- 92 -

AM= III. TABLE 6. NUMMER OF PER0oNs EmPLoyEF By SRCTOaAD STAFF-GROUPS. 1987 (' 000

PIRSO WITH TOTALBRANCH OF THE NATION"L KtaL INTRLLCTUAL PE80RS

EWOaf WORES PROFSIOKI ZHPLOU

Industry 1,123.0 312.8 1,435.8 31.62ConstruSctin Industry 220.3 76.9 297.2 6.51Asricultur 5689.1 124.1 813.2 17.91Forestry 42.2 9.3 51.5 1.1XTransport 227.0 72.7 299.7 6.6XPost and Teleiication 43.5 32.9 76.4 1.72Trade 285.3 156.4 441.7 9.72Water Works and Supply 62.2 17.4 79.6 1.72Other Material Activity 29.7 18.5 48.2 1.l1Ion-eteriel Activity 417.5 589.6 1,007.1 22.11

Of Which: Personal &Econowic services 100.1 71.5 171.7

Total 3,139.8 1,410.6 4,550.4 1001

SOURCE: Hungarian Central statistical Office

- 93 -

FIGURE 1ALTERNATIVE MODELS FOR DELIVERING TRAINING

CLIENT EDUCATION LEVEL ADMINISTRATION

PRIMARY SECONDARY POST-SECONDARY1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

A. SCHOOLING MODEL

BASIC ACADEMI1C COLLEGE

YOUTH - > AND MOEED. GEN. VOC. UNIVERSITY

i II SPEC. VOC. NATIONAL

ADULTS -------------------__--__-___-_-__> TRAININGAPPRENTICE BOARD

B. DUAL MODL

YOMT---- lASI MDO ........ > C AND MOEI - ~~~~UNIVERSITY

NATIONAL

ADULTS --------------- > APPRENTICE TRAININGI I''l -''BOARD

C. IM MODEL

BASIC ACADEMIC COLLEGE

YOUTH >----> AND MOEED. GEN. VOC. UNIVERSITY

SPEC. VOC. NTERPRISES

ADULTS -------------------- ___ ---------- _> ANDAPPRENTICE II NATIONAL

I IL 'I TRAININGBOARD

- 94 -

HIGHER EDUCATION AND PROFESSIONAL TRAINING

LIST OF TABLES

1.1 Comparative Data on Education (1986)1.2 Gross Enrollment Ratios - Tertiary Education1.3 Distribution of Students by Field for Selected Countries2. Revenues and Expenditures of Higher Education Institutions3.1 1989 Expenditure Plan for Higher Education3.2 1989 Revenue Plan for Higher Education4.1 Expendit1ure for Universities and Colleges under MOE4.2 Revenue for Universities and Colleges under MOE5.1 Expenditure for Budapest Technical University5.2 Revenue for Budapest Technical University6. State Subsidy to Higher Educ. Institutions for Recurrent Expenses7. Real Growth in Planned State Subsidy for Recurrent Expenditures8. Student Support in Higher Education9. Costs in Higher Education by Faculty10. Distribution of Higher Education Institute by Size11. Admission, Application and Enrollment in Higher Education12. Student Enrollment, Admission and Applications by Faculty13.1 Student Enrollment by Field in Higher Education13.2 Growth of Student Enrollment by Field14. Total Number of Staff in Higher Education15. Number of Teaching Staff in Higher Education (1987-88)16. Teaching and non-teaching Staff in University of Miskolc17. Student Enrollment by Region18. Comparative Data on Number of Students per 100,000 of Population in Higher

Education19. Wages of Teaching Staff in Higher Education20. Wages in Higher Education Compared to Others

- 95 -

ANNEX IV. TABLE 1. COMPARATIVE DATA ON EDUCATION (1986 data unlessotherwise specified)

TOTAL EXPEND. TOTAL EXPEND. CAPITAL EXP. AS CURRENT EXP. AS UNIT RECURRENT COSTIN EDUCATION IN HIGHER EDUC. X OF TOTAL BE 2 OF TOTAL HE IN HEAS 2 OF GDP AS 2 OF GDP EXPENDITURE EXPENDITURE (US$/STUDENT)

AUSTRIA 6.06X 1.16S 10.92X 8S.086 5,317GERMANY, P.R 4.47X 0.96% 12.03Y 87.97X 4,766FINLAND 5.722 1.052 5.30X 94.70X 5.295FRANCE 5.842 0.712 vJ 3.532 V 96.472 I/ 3,728HUNGARY 4.98X 0.652 14.9B2 85.04X 2,010JAPAN 5.11X NA NA NA 8,518NETHERLANDS 6.80X 1.742 I/ 10.092 1/ 89.91X I/ 4,659 1/SWEDEN 7.38X NA NA NA 6,130

N OT E: E / 1985 data.aI 1984 data.

SOURCE: UNESCO, Ministry of Education and Culture, Hungary.

ANNEX IV. TABLE 1-2. GROSS ENOLlMENT RATIOS TERTIARY EDUCATION(1987 OR LATEST) /

cOED COUNTIES O/ MF M P

Awstrelia 28.8 28.8 28.8 (t86)Austria 29.4 31.3 27.4Belgium 32.7 33.8 83.5Canada 58.2 53.1 63.5Denmark 29.6 29.1 30.2Finland 37.8 36.7 38.5France 30.9 29.7 32.0Germany P.R. 30.1 34.2 25.6 ('86)Greece 26.2 25.9 26.5 ('85)Iceland 21.2 22.6 23.4 (t86)Ireland 24.2 27.0 21.4 ('85)Italy 24.3 25.4 23.2 ('86)Japan 28.3 35.0 21.4Netherlands 31.3 35.7 26.8 ('86)New Zealand 36.4 37.1 35.6Norway 35.3 34.1 36.7Portugal 12.0 11.0 13.1 ('85)Spain 30.0 29.5 30.3 ('86)Sweden 31.2 28.8 33.7Switzerland 23.7 31.7 15.4United Kingdom 22.3 NA NAUnited States 59.6 55.5 63.7 (t86)

Simple average: 31.1

Eastern European Countries:

Bulgaria *2.6 19.6 25.8Czechoslovakia 18.2 18.2 14.0Hungary I/ 15.2 13.8 16.7Poland 17.8 15.3 20.4Romania 9.8 NA NAYugoslavia 18.6 19.1 18.0

Simple aVerage: 16.7

N 0 T E :. I/ As X of the age group populatlon for 20-24.V Itcludes evening and correpondence students.I/ All OECD countries except Luxembourg and Turkey.

SOURCE: Unesco Statistical Ysarbook 1989

- 96 -

AM= IV. TABLE 1-3. DISRIUTINLI.TUD S FIELD FOR SELECTED CO TRE

COUNY TUCNCAL AMC. C 8mIcs LW aL8 8sICIRX Hui TEACUS ARTS OTHIIS TOTALSCItici TRAINING

U1llum 14.6 2.0 30.5 5.6 17.3 8.2 6.1 12.3 1.8 1.6 100.0lulsaria 35.3 5.6 15.1 2.1 12.4 7.9 10.7 6.3 2.6 0.0 100.0Casahoslovakla 43.2 9.4 12.1 2.8 7.4 3.3 2.6 18.0 1.2 0.0 100.0D_maurk 15.4 2.4 16.4 Z.9 16.2 6.9 14.9 17.2 3.5 3.2 100.0Um 17.6 0.9 20.4 2.8 15.6 12.7 10.2 7.6 4.3 7.7 100.0Greece 18.6 4.7 23.8 9.6 12.4 9.6 '3.9 6.4 1.0 0.0 100.0Netherlands 16.4 3.7 22.8 7.3 10.5 3.7 8.9 18.4 5.1 3.2 100.0Yugoslavia 30.3 7.2 19.1 10.8 8.7 4.6 7.7 9.6 1.1 0.9 100.0Ianeary 21.4 5.7 11.1 5.8 9.0 2.4 2.5 40.1 1.1 0.9 100.0West OGema 19.9 2.9 21.6 5.6 14.2 11.5 13.4 6.1 3.2 1.6 100.0Norwa 14.7 1.2 26.2 5.3 11.5 6.2 9.3 14.8 1.2 7.5 100.0Italy 13.7 3.3 19.0 14.7 19.5 10.1 13.7 3.3 1.1 1.6 100.0Poztusal 19.9 3.2 1868 10.7 9.9 4.8 15,1 12.2 1.4 4.0 100.0Romania 62.4 4.4 10.3 1.5 11.8 3.9 5.1 0.6 0.0 100.0Spain 12.9 1.5 17.0 15.0 11.0 9.7 14.4 13.0 1.2 4.3 1-10.0Switserland 19.7 2.2 27.4 6.3 9.3 10.7 14.4 5.0 3.0 0.0 100.0Soviet Union 42.9 8.6 12.8 2.0 7.4 7.1 18.4 0.8 0.0 100.0

8WORC: inAstry of Education and Culture

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ANEEX IV. TABLE 2. REVENUES AND PEDITURES OF HIGHSER EDU=INSTITUTIONS (Ft. e000Q, V

1966 1969ACTUAI../A/ O XWOTaL PLHARED / X O TAL

BIGE EDUCATION TOTAL J/Revnue 15,373,471 12,497,435

State Subsidy 9.429,170 611 9,771,354 76XOther ;/ 5,944,301 391 2,726,081 221

zxpnditure 13,834,876 12,504,453Wages 4,389,883 321 4.573,309 371Other 9,444,993 681 7,931,144 631

UNIVERSITY EDUCATIONRevenu 11,864,484 9,189,960

State Subsidy 6,946,475 59x 6,948,322 761other 4 918,009 411 2,241,638 241

Expenditure 10,5448,35 9,189,960Wages 3,192,639 30X 3,296,327 361Other 7,352,196 701 5,893,633 64X

COLLE EDUCATIONRevenue 3,399,628 3,227,856

State Subsidy 2.482,478 731 2,823,032 871Other 917,150 271 404,826 13X

EXpenditure 3,198,332 3,227,858Wages 1,170,871 371 1,243,650 39XOther 2,027,461 63X 1,984,208 61X

POSTGADUAE IRAIIINGRevenue 87,625 52,788

State Subsidy 217 OX 0 OXOther 87,408 100X 59,768 100X

Expenditure 74,948 50,788Wasts 16,652 22X 19,619 33ZOther 58,296 78X 40,169 671

POSTRWEUATE SPECIALIST TRAINMINRevenue 21,734 26,847

State Subsidy 0 OX 0 0OOther 21,734 100X 26,847 100X

xpnditur 16,761 28,847Wae.8 9,721 56x 13,713 511Other 7,040 421 13,134 401

I/ Excludes all revenues/exenditures for investant as detemine byNotional PIsnniza Office. Include af expenditures ude by hiphreducation ismtitutions, such as kindrgarten, primer secondayeduation, reseach nd ports.

J Includes all highe education institutions except medical eniversities.If Actual figures include project/research rvenues from state-flnanced

foundations/funds. Planned fisue do not.J/ Planned figures do not include r eveues for project-based, profit-oriented

activities, and therefore re systematic undrestimetes.

SOURCE: Pinsnnial Data Processing Institute

- 98 -

ANEX IV. TABLE 3-1. 1989 EXPENDITURE PL FOR HIGHER EUCATION ('000 Ft.)

ECPENDSIURE UNIVERSITY COLLEGE POST GRAD. POST GRAD. TOTALEDUCATION MDUCATION TRAINING SPECIALIST

Inventory purchases 877,340 215,464 137 1,572 1,094,513Wage fund 3,298,327 1,243,650 13,713 19,619 4,573,309Material-type expenditure 1/ 551,381 1S5,140 1,410 7,843 715,774Wage-bype expenditure AI 1,054,622 525,439 825 77 1,580,963maintenance and utilities t/ 1,194,167 441,148 1,208 8,322 1,844,845Social security and other payments to govt. 1,455,113 499,626 5,540 4,821 1,965,100biaor repair (reconstruction) 11,250 0 0 0 11,250Income tax 21,739 121 0 0 21,880Reserves of Institutions 201,990 27,660 559 940 231,149Repayment of credits for recurrent expenses (bonds) 3,045 0 0 0 3,045Funds transferred for recurrent expenses 8,448 184 0 0 8,632Total Recurrent Expenditure 8,673,422 3,108,432 23,392 43,194 11,850,440National investment 40,760 19,450 0 0 60,210Nenagement investment 2,124 0 0 0 2,124Total Development Expenditure 42,884 19,450 0 0 62,334VAT on purchased products end services 4/ 298,958 68,467 598 1,454 369,477VAT payments V/ 81,433 6,867 10 140 88,450Expenditur. of residual funds of current year 91,263 24,642 2,847 15,000 133,752Total Expenditure 9,189,960 3,227,858 26,847 59,788 12,504,453

N 0 T E 8:Includes travel, books, stationary orders, cleaning and commcunication expenses

j/ Inoludes representation, student support (scholarships, food subsidy and social support).l Includes rent, water heating expenses, service fees paid out, and other maintenance services.

1/ Includes all VAT payments for services mnd products purchased by the institutions (e.g. for rentpaid under 3).

A/ Includes VAT payment for services provided by the institutions.

SOURCE: Financial Data Processing Institute

ANE IV. TABLE 3-2. 1989 REEME N FOR BIG= EDUCATION ('000 Ft.)

REVENUE UNIVERSITY COLLEGE POST GRAD. POS RAD. TOTALEDUCATION EDUCATION TRAInING SPECIALIsT

Operational income (bostel, exam fees for repeaters) 146,489 135,043 0 0 281,532Other earned income (profit-oriented roesarch, sale 1,774,905 225,892 23,990 44,618 2,069,405Total Own Income 1,921,394 360,935 23,990 44,618 2,350,937Budgetary subsidy revenue 8,948,322 2,823,032 0 0 9,771,354Instltutional subsidy tor development (revenue) 7,018 0 0 0 7,018Revenues and subsidies total 8,876,734 3,183,967 23,990 44,618 12,129,309VAT on Invoiced goods and servies 118,339 7,783 10 140 126,272VAT rebotes 88,340 5,761 0 30 94,137Project-based tinenoing fram foundations/funds 15,278 1,640 0 0 16,918Fundb transferred temporarily 0 3,765 0 0 3,765Vso of residual funds from previous year (rwvenue) 91,263 24,942 2,847 15,000 134,052Total Revenue 9,189,960 3,227,858 26,847 59,788 12,504,453

SOURCE: Finuncial Data PrceossiAg Institute

- 99 -

AINEX IV. TABIL 4-1. EXPENDITURE FOR UNI RSITIES AND COLLEGES UDER('000 Ft.)

UVIERSITIES_ __LLK-3I

EXPENDITURE ACTUAL X OF ACTUAL X OF ACTUAL 1 OF A L OFTOTAL EXPEND. TOTAL EXPMND. TOTAL EXPEJD. TOTAL EXPEND.

Inventory purchasre 414,866 6.052 526,455 5.072 233,130 8.03X 267,902 7.785Wage fund 2,175,505 31.742 2,720,355 26.182 1,073,862 37.00X 1,206,370 32.581Material-type expenditure J/ 521,712 7.511 712,474 5.866 148,217 5.112 166,300 4.492Was*-type expenditure Zt 1,002,995 14.64X 1,264,415 12.172 511,912 17.642 596,156 10.102Maintenance and utilities A/ 783,734 11.442 932,568 8.98S 347,231 11.97X 339,722 0.172Social security and other

payments to sovt.. 339,957 4.962 1,085,300 10.452 131,733 4.542 470,083 12.692Major repair (reconsttuction) 723,493 10.562 713,845 6.872 95,425 3.292 135,C22 3.652Income tax 16,079 0.23X 13,053 0.13S 9,426 0.322 0,827 0.242Repayment of credits for

recurrent exp. (bonds) 3,045 0.042 92,682 0.892 0 O.00X 0 0.002Funds transferred for recurrent

expenses 64,689 0.942 667,688 6.432 11,994 0.412 21,805 0.592Total Recurrent Expenditure 6,046,075 88.222 8,728,635 84.02X 2,562,730 88.31X 3,232,286 87.28XNational investment 315,201 4.602 557,441 5.371 94,064 3.242 126,863 3.48%Management investment 28,134 0.41X 568658 0.55X t06 0.022 1,224 0.032Initial purchase of consumable

items 1,135 0.02X 1,746 0.02X 8,949 0.242 722 0.022Non-investment development

expenditure 15,844 0.232 34,358 0.33X 9,584 0,332 47,277 1.282Funds transferred for

development §/ 66,001 0.962 19,119 0.18X 11,568 0.402 9,252 0.252Total Development Expenditure 426,315 6.22X 669,322 6.442 122,771 4.232 187,338 5.082VAT on purchased products

and services k/ 336,062 4.90X 501,858 4.83X 108,460 3.742 135,069 3.671VAT payments I/ 42,610 0.62X 81,512 0.78S 16,882 0.57X 23,710 0.642Compensations, temporary

funds transfer 2,108 0.03X 408,215 3.931 91,292 3.152 123,935 3.352Total Expenditure 6,853,170 100.002 10,389,542 100.00X 2,901,935 100.002 3,703,238 100,002

Real Growth 23,768 4.18X

N 0 T A 8:1/ Includes travel, books, stationary orders, cleening and cacunnication expensesV Includes representation, student support (sobolarships, food subsidy and social support),3/ Includes rent, water heating expenses, servlce fees paid out, and other maintenance services.i/ Includes all VAT payments for services and products purchased by the institutions (e.g. for rent paid

under 3).O Includes VAT payment for services provided by the institutionsV) Funds transferred to enterprises supervised by councils.

SOURCE: Ministry of Education and Culture

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ANNE IV. TABLE 4-2. RfEVENUE FOR UNIVESITIES ANi COLEs ME MOR('000 Ft.)

URIVER31TICS COuzou1

UWmDDTUU ACTUAL x or ACUL X Of ACTUAL X of OaL I orTOTAL UIUD. TOTAL u(2M. TOTAL ZPD. TOTAL XEMD.

Oprational income (hostel,exim fees for rspsaters) 92,187 1.18S 00,883 0.812 130,597 4.22X 122,256 3.122

0th.s e*aod incao.(profit-orientedreseaorh, $01#.) 1,338,372 17.08X 1,703,843 16.072 295,188 9.54X 341,810 6.732

Total Own Incoe 1,428,559 18.25X 1,884,725 16.88X 425,780 13.768 464,058 11.85XBudgetary subsidy revenue 4,808,082 61.43X 6,232,565 55.82S 2,255,8e0 72.941 2.899,719 74.062w venus end subsidies total 6,236,641 79.692 8,117,291 72.70X 2,682,640 86.70X 3,363,785 65.91XRevenues tom operation

lomn (bonds) 0 0.00O 89,637 0.802 0 0.002 0 0.002VAT on invoiced goods and

sorviess 52,279 0.672 73,978 0.562 19,403 0.632 28,774 0.732VAT rebates 12,560 0.16% 111,474 1.002 5.079 0.19X 10,538 0.272Project-based financing from

foundations/funds 835.536 10.68X 1,375,704 12.32Z 72,523 2.34X 183,219 4.68%Fud transferred tor devlopmt 60.842 0.786 97,924 0.88X 44,533 1.442 36,019 0.922Funds transferred t ararily 1,259 0.02X 350,326 3.142 100,919 3.262 152,044 3.882use of residual funds from

previous year (revenue) 260,074 3.32X 601,670 5.392 79.848 2.582 75A.: 1.93XUse of interest and other funds 367,257 4.692 347,534 3.112 88,483 2,86X 55.517 1.672Total Revenue 7,826,446 100.OOX 11,165,536 100.002 3,094,328 100.002 3.915,581 100.00l

Real Growth 16.465 3.30X

8SOS: Hinistry ot Education and Culture

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AN= IV. TABLE 5-1. EXNDITURE FOR 'A-ST TECHNICAL UNIVESITY ('000 Ft.)

Inventory purchases 139,431 6.352 175,793 4.971Wage fund 602.554 27.472 764,792 22.20XMaterial-type expenditure 1/ 156,831 7.15X 247,161 6.992Waga-type expendituro O/ 308.001 17.69S 450,299 12.74XMaintenance and utilities V 248,211 11.325 321,275 9.09XSocial aecurity and other payments to govt. 125,679 5.731 347,795 9.84XMajor repair (reconstruction) 118,001 5.382 140,459 3.972Income tax 10,553 0.48X 8,792 0.25XFunde transferred for recurrent expenses 45,676 2.08X 517,926 14.65XTotal Recurrent Expenditure 1,834,937 63.661 2,994,312 84.722National ivestment 206,695 9.422 293,433 8.30XManagement investmnt 859 0.042 16,100 0.462Non-investment deeloypment expenditure 5,000 0.23X 5.000 0.142Total Development Expenditure 212,554 9.692 314,533 8.902VAT on purchased products and services &/ 115,271 5.26X 174,970 4.95ZVAT payments i/ 29,924 1.362 50,416 1.432Compensations, temporary funds transfer 714 0.03o 277 0.012Total Expenditure 2,193,400 100.00X 3,534,508 100.00X

Real Growth 31.552

N 0 T E S:1/ Includes travel, books, stationary orders, lelaning nd eocnmilation xpnJsesai Includes representation, student support (scholarahipa, food subsidy and social support).

/ Includes rent, water heating expensos, service foes paid out, and other menintenance services.4f Includes all VAT payments for services and products purobased by the lnstitutions (e.g for rent

paid under 3).V/ Includes VAT payment for serviOes provided by the institutions.

SOURCE: Ministry of Education and Culture

ANNU IV. TABLE 5-2. REVE FOR BUDAPEST TECHNICAL UNIVERSI ('000 IT.)

PZVZNE A= zl£ x Or TomA ACU= X OF TOTAL

operational incom (hostel, exam fees for repeaters) 12,666 0.72x 20,467 0.55XOther earned income (profit-oriented research, sales) 924,934 30.402 1,082,175 26.682Budgetary subsidy revenue 1,090,176 40.182 1,505,702 40.16BVAT on invoiced goods and services 32,996 1.22X 42,486 1.132VAT rebates 0 0.002 51,286 1.37XProject-based financing from foundations/funds 40,142 15.04X 534,416 14.262Funds transferred temporarily 614 0.032 0 0.002Use of residual funds from previous year (revenue) 114,777 4.232 305,278 8.152Use of interest and other funds 221,688 8.182 205,322 5.48XTotal Revenue 2,713,395 100.00X 3,747,156 100.00O

Real Growth 12.74Z

BOURCE: Ministry of Education and Culture

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ANNEX IV. TABLE 6. STATE SUBSIDY TO HIGHER EDUCATION INSTITUTIONS PORRECURRENT EXPENSES (Ft. million) v

.~~~~~~~~~ I ..

Plan Plan Elan Plan Actual Plan Actual Pl'n Actual Plan

Universities of Arts Under MOE 1,157 1,251 1,405 1,493 1,604 1,790 2,670 2,363 3,309 3,211ELTE 489 533 557 620 659 733 993 965 1,341 1,346XLTE 184 198 219 244 255 286 345 368 466 476JATE 168 198 233 234 270 299 420 400 509 549JPTE 149 16S 184 196 203 225 363 265 361 393MIOE 147 157 162 199 217 246 549 326 632 448Technological Univ. Under MOE 999 1,098 1,180 1,266 1,271 1,447 1,731 1,909 2,358 2,538EME 640 700 740 802 798 925 1,090 1,217 1,506 1,647Ilme 250 280 303 318 325 358 441 484 581 629W E 109 118 137 146 148 165 200 208 271 262

All Universities Under MOE 2,155 2,349 2,585 2,759 2,875 3,237 4,401 4,272 5,667 5,748As X of Tot, Subsidy for Higbhr Ed. - - - - 27.62 27.4X 29.72 24.4X 28.0t 27.86

Total Higher Educ. Under M5E - 4,023 4,409 4,670 4,938 5,494 7,065 7,296 9,133 10,007As X of To. Subsidy for Higher Ed. - - - - 47.3S 46.62 47.72 41.72 45.22 48.32

Total Higher Educ. Under Min. of Ag. - 1,279 1,384 1,354 1,394 1,674 2,186 2,255 3,221 3,003As 2 of Tot. Subsidy for Higher Ed. - - 13.42 14.22 14.82 12.92 15.92 14.52Total Higher Education Z/ - - - - 10,430 11,793 14,804 17,511 20,216 20,697MemoGDP Deflator (1961 forints) 1.17 1.23 1.31 1.42 1.42 1.75 1.75 2.14 2.14 2.50

N 0 T E:Includes subsidies for all activities by higher education institutions including kindergartens, primaryand secondary schools, research, sports facillties etc.

I/ Includes central state subsidy from other ministries, e.g. Min, of Health to Medical Universities.

SOURCE. Ministry of Education and Culture, Ministry of Agriculture

ANNEX IV. TABLE 7. REAL GROWTH CENTRAL STATE SUBSIDY FOR RECURRENTEXPENDXTURS i/

Plan Plan Plan Plan Actual Plan Actual Plan

Universities of Arts Under MOE 2.52 5.92 -2.15 -2.82 34.92 7.86 1.2X 16.42ELTE 3.32 3.92 -2.72 -4,2X2 2.12 9.72 10.32 17.12KLTE 2.02 4.3X 2.72 -4.92 9.62 4.92 10.32 11.02JATE -0.22 11.02 -7.42 3,62 26.12 9.12 -1.12 17.72JPTE 5.02 5.22 -1.82 -6,92 44.72 3.22 -18.72 18.52mKm 1.32 9.42 0,8X 0.2Z 105.22 86.2 -6.12 17.22

Technological Univ. Under MOE 4.22 1.42 -1.lX -7.32 10.42 7.72 11.22 13.92BME 3.72 -0.3X -01 -6.52 10.72 7.42 12.82 15.92NME 6.21 2.12 -3.32 -8.82 10.12 10.52 7.52 11.42W E 2,62 9.52 -1.82 -8.52 d.4X 3.02 10.86 8.12

All Universities Under MOE 3.32 3.82 -1.62 -4.92 24.12 7.72 5.12 15.32Total Higher Ed. Under MCP - 3.42 -2.42 -4.62 16.02 86.4 5.52 17.52Total Higher Ed. Under Mn. of Ag. - 2.12 -9.82 0,22 27.12 10.02 20.32 14.12Total Higher Education / - - - - 15.02 21.22 11.52 1.32

N O T E 5:I/ Includes subsidies for all activities by higher education institutions including kindergartens, primary

and secondary schools, research, sports facilities, etc.V Includes central state subsidy from other ministries, e.g., Kln. of Health to Medical Universities.

SOURCE: Ministry of Education and Culture, Ministry of Agriculture

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ANNEX IV. TABLE 8 STUDENT SUPPORT IN HIGHER EDUCATIOIQ(BeneficLaries as X of Total Students)

1983/4 1984/5 1985/6 1986/7 "987/8 1988/9 1989/90

Social Support 85.22 63.9X 88.6X 85.51 84.25 88.3X 83.81Regular Financial Support - - - 52.9X 48.8X 40.82 -Average Receipt (ft/yr) - - - t009 995 963 -

General Scholarsbip - - - 43.2 44.68 45.2X -Average Amount (ft/yr) - - - 6S1 701 770 -

Society Scholarship 12.02 11.9X 11.31 11.41 11.12 10.9X 9.91

Subsidized Canteen 64.21 62.71 63.42 84.41 68.72 77.32 75.2X

University/College 48.42 48.52 47.62 48.71 46.22 47.02 48.0XHostels

Ratio of Students from 37.82 37.21 35.42 35.51 34.92 - -Blue-collar Families

SOURCE: Ministry of Education and Culture

ANNEX IV. TABLE 9. CO§TS IN HIGHER EDUCATION BY FACULTY IN 1987 ('000 Ft.)

INSTITUTE TEACHING COLLEGE STUDENT'S SCHOLARSHIP TOTAL UNIT TEACHING UNIT TRAINING(A) CANTEEN AND GRANT (B) COST y COST A/

FACULTY OF SCIENCES 387,834 33,154 4,265 55,985 481,248 94 117FACULTY OF LETTERS 218,803 29,893 3.705 51,538 303,939 57 80FAUTY OF IAW 96,503 28,394 4,528 36,713 166,138 36 62UNIV. OF ECONOICHI 158,201 40,299 2,927 32,647 234,074 58 85CmLLEGE OF ECONOMICS 138,753 23,065 2,588 42,119 206,525 42 63ECONOMICS 296,054 63,364 5,515 74,766 440,599 49 73TECHNICAL UNIVERSITIES 741,094 75.303 16,235 106,839 939,471 88 112TECHNICAL COLIEGES 453,414 ?1,302 11,859 91,771 628,346 68 94TENICAL 1,194,508 146,605 28,094 198,610 1,587,817 79 104MEDICAL UNIVE8ITIES 536,468 60,086 6,299 102,571 705,424 71 94MEDICAL COLLEGES 35,472 6,794 3,592 18,865 64,723 32 59oEDICAL 571,940 66,880 9,891 121,436 770,147 66 89

ARCULTURAL UNIVERSITIES 554,050 70,241 9,701 70,288 704,280 131 166AGRICULTURAL COLIEGES 317,135 38,438 15,183 39,740 410,496 136 176AGRICULTURAL 871,185 108,679 24,884 110,028 1,114,776 132 169TEACHE TRAINING 358,141 61,807 10,584 158,347 588,879 34 55TEACHER AND NURSERY NURSE 241,205 44,638 19,393 98,704 403,940 36 60EDUCATION OF ARTISTS 137,671 7,033 1,379 18,055 164,138 114 135OT1RS 104,284 19,871 1,292 14,877 140,324 83 112TOTAL 4,479,028 610,328 113,530 939,059 6,141,945 67 92

N 0 T B S:.ai Teaching cost (-A) divided by no. of regular students (table 12). There wore minor discrepancies with

figures given by ME./ Total cost (-B) divided by no. of regular students (table 12). There were minor discrepancies with

figures given by MOE.

SOURCE: Ministry oZ Education and Culture

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AN=EX IV. TABE 10, DISTIBUIO OF HBY 8IZEF

NUMSU OF STUDENT -300 301-500 501-1000 1001-2500 2500- TOTAL

AUTONO =US INSTITUTES 6 14 16 13 5 542 11X 282 302 242 24x 100X

INDEPENDENT FACULTIES 21 6 1 0 0 28x 751 212 42 0o 0o 100X

TOTAL 27 20 17 13 5 82x 833 242 212 16X 82 1002

Source: Ministry of Education and Culture

AME IV. TABLE 11. AD1ISSION. APLCATION. AM ENOLLNT IN HIGHEEDUCATION

1983/4 1984/5 1985/6 1986/7 1987/8 1988/9 1989/90

Total 1st Year Students 17,821 18,319 18,792 18,812 18,984 20,486 20,204Domestic Students l/. - - 17,536 18,043Applications 2/. - - - - 43,884 46,084 -Aplic/Admission W/. - - - 250.25x 255.41X -

As X of ThoseGraduating frm 37.12 36.92 36.2x 33.7x 30.32 35.72 36.22Secondary Schools

students Enrolled as I ofAge group Population 9.82 9.92 9.92 9.62 9.61 9.72 10.0218-22

N 0 T E S:

3/ Excludes foreign students (757 in 1987) end repeaters (663 In 1987).1/ abch student filed only one application In 1987/8, while multiple appUlations were

permitted in 1988/9.AV Application/Admission ratios are different from MOE published data since the latter are

based on "planned admission.

SOURCE: Ministry of Education end Culture

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AUDI IV. TABLE 12. SDT 0 T , A8 ION APLI XTI8 BY FAC

NUMBER OF STUDENTS1987/88

EVENING-=REGULAR COURSE CORRE8P. TOTAL RATIO ADIUSSION APPLC. RATIO

FACULTY OF SCIENCES 4108 301 686 5097 5.1S 948 1928 203XFACULTY OF LETTERS 3819 424 1509 5852 5.9S 737 3129 4252FACULTY OF LAW 2695 472 1194 4381 4.42 505 la" 3362UNIV. OF ECONICS 2743 937 1033 4713 4.8S 5a0 1481 2642COLLEGE OF ECOtH4ICS 3271 1409 1925 5605 6.72 1070 3987 3732

ECMNCIICS TOTAL: 6014 2346 2958 11318 11.42 1630 5468 3352TsCHNICAL UNIV. 8401 105 1724 10230 10.32 1855 2996 1622TECHNICAL COLLEGE 6655 406 3185 10246 10.3X 2140 4098 11X

TECHNICAL TOTAL: 15058 511 4909 20476 20.72 3995 7092 1782MEDICAL UNIV. 7505 0 0 7505 7.62 1210 3434 2842MEDICAL COLLEGE 1105 0 549 1654 1.72 420 925 2202

MEDICAL TOTAL: 8610 0 549 9159 9.22 1630 43S9 2672A(ICULTURAL UNIV. 4243 0 1069 5312 5.42 895 2117 2372ARMICULTURAL COLLEGE 2337 0 866 3203 3.22 600 1427 2382

AGICULTURAL TOTAL: 6580 0 1935 8515 8.62 1495 3544 2372TEACHER TRAINING 10687 821 5570 17058 17.2X 2752 8515 3092TEACMU AND NURSERY NURSE 6686 615 5639 12940 13.12 2255 5181 2302EDUCATION OF ARTISTS 1212 80 85 1377 1.42 261 2595 9942OTNERS 1250 281 1341 2872 2.92 325 1250 3852

TOTAL 66697 5851 26477 99025 100.02 16533 44757 2712

N 0 T E 8:1/ Admission target figures are those determined by NOR, and are not necessarily equal to

actual admission figure.3I Regular students/total full-time teaching staff.

SOURCE: Ministry of Education and Culture

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ANNPX IV. TABLE 13- 1. STUENT ENROLLIENT AX FIELD IN HIGHER EDUCATION /

1083/4 1984/5 1985/6 1986/7 1987/8 1988/9 1989/00

UNIVERSITIES 33,906 33,839 33,892 34,253 35,680 37,040 38,144X of Total 53.91 55.41 54.61 54.51 53.5, 51.7X 54.6XLaw 2,508 2,568 2,633 2,655 2,695 2,776 2,874

4.01 4.21 4.21 4.21 4.01 3.91 4.11Humanities 3,258 3,318 3,557 3,598 3,819 4,097 4,369

5.21 5.41 5.71 5.71 5.7Z 5.7Z 8.3XNatural Science. 3,653 3,687 3,671 3,848 4,108 4,228 4,485

5.81 8.01 5.91 6.11 6.2X 5.91 6.41Economics 2,600 2,549 2,585 2,619 2,743 2,939 3,066

4.11 4.21 4.21 4.21 4.11 4.11 4.41Teachers Training 1,540 1,502 1.490 1,479 1,617 1,684 1,696

2.41 2.51 2.41 2.41 2.41 2.31 2.41Engineering 8,442 8,377 8,176 8,167 8,401 8,666 8,770

13.41 13.71 13.21 13.11 12.61 12.11 12.61Agriculture & Vet. 4,228 4,251 4,358 4,347 4,792 4,912 5,132

6.71 7.01 7.01 6.9S 7.21 6.91 7.41Medicine 7,679 7,587 7,422 7,522 7,505 7,736 7,752

12.21 12.41 12.01 12.01 11.31 10.8X 11.11

COLLEGE 29,038 27,276 28,152 28,470 28,818 32,270 31,65746.11 44.61 45.41 45.41 43.21 45.0X 45.41

Engineering 6,760 6,643 6,655 6,671 6,655 6,569 6,50310.71 10.91 10.71 10.61 10.01 9.2% 9.3X

A8riculture 1,950 1,864 1,854 2,190 1,889 1,855 1,7953.11 3.01 3.0X 3.51 2.8X 2.61 2.61

Medicine 1,036 1,020 1,044 1,030 1,105 1,168 1,2351.61 1.71 1.71 1.61 1.71 1.61 1.81

Economics 2,117 2,102 2,146 2,123 2,205 2,352 2,5803.41 3.41 3.51 3.41 3.3X 3.31 3.71

Others 17,175 17,749 18,599 18,588 19,169 22,678 22,12427.31 29.01 30.01 29.61 28.71 31.68 31.71

Total 62,944 61,115 62,044 62,732 66,697 71,689 69,801100,01 100.01 100.01 100.0O 96.71 i 96.71 100.01

B 0 T E :1J/ Regular students only.LI Some discrepancies were found in total figures.

SOURCE: Ministry of Education and Culture

ANN IV. TABLE 13-2. GROVTH OF STUDENT ENROLLMENT BY FIELD

1984/5 1985/6 1986/7 1967/8 1988/9 1989/90

UNIVERSITES -0.21 0.21 1.11 4.21 3.86 3.01Law 2.41 2.51 0.81 1.51 3.01 3.51Humanities 1.91 7.21 1.1l 6,21 7.3X 6.61Natural Sciences 0.91 -0.41 4.81 6.81 2.91 6.1XEconomics -2.01 1.41 1.31 4.71 7.11 4.31Teachers Training -2.51 -0.81 -0.71 9.3X 4.11 0.71Engineering -0.8 X -2.41 0.11 2.61 3.2X 1.21Agriculture & Vet. 0.51 2.51 -0.3X 10.21 2.51 4.51Medicine -1.21 -2.21 1.3X -0.21 3.11 0.21

cOLEGE8 -6.11 3.2 1.21 1.21 12.01 -1.91Engineering -1.71 0.21 0.21 -0.21 -1.31 -1.O0Agriculture -4.41 -0.5X 18.11 -13.71 -1.81 -3.21Medicine -1.51 2.41 -1.31 7.31 5.71 5.71Economics -0.7X 2.11 -1.1l 3.98 6.71 9.71

Total -2.91 1.51 1.1 6.31 7.51 -2.61

SOURCE: Ministry of Education end Culture

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AN=EX IV. TABLE 14. TOTA NUMBER OF STAFF IN HIME EDUCATION I/

1988 1989Plan0 ed Actual Planned

Higher Education Total a/ 40,027 37,774 40,368

Univorsities 28,723 26,905 29,036Colleges 11,213 10,780 11,241

Postgraduate Training 56 61 56

Postgraduate Specialist Training 35 28 35

N O T E S:J. Includes aU non-teaehing staff.&/ Includes all highet education institutions,

SOURCE: Financial Data Processing Institute

ANE IV. TABLE 15. NUMBER OF TACHING STAFF IN HIGHER EDUCATION 11987-88)

PROFESSOR ASST. FIRST DEMQN- LANGUAGE SPORTS COLLEGE TOTAL PART-TIME TOTALPROF. ASST. STRAT0RS INSTRUCT. INSTRUCT. INSTRUCT. FULL-TIME TEACHERS

FACULTY OF SCIENCES 117 I3 412 so 36 0 0 916 36 952FACULTY OF LETTERS 103 2>7 382 178 114 37 12 1,061 127 1,188FACULTY OF LAW 42 58 88 54 14 4 0 260 86 346UNIV. OF ECONOMICs 45 136 196 102 8 11 0 499 82 581cOLLEGS OF CNOMFICS 41 104 203 94 0 15 5 462 51 513CONOMICS 86 240 399 196 9 26 5 961 133 1,094

TECHNICAL UNIVERSITIES 179 429 1,097 254 174 36 8 2,177 256 2,433TECHNICAL COLLEGES 124 287 575 134 95 37 26 1,280 81 1,361TECHNICAL 303 716 1,672 386 289 73 38 3,457 337 3,794MEDICAL UNIVERITITES 233 263 765 1,432 45 18 8 2,764 83 2,847MEDICAL COLLZGES 9 11 50 14 14 4 5 107 20 127MEDICAL 242 274 815 1,448 59 22 13 2,871 103 2,974AGRIC. UNIVERSITIES 157 187 395 118 58 22 8 945 37 982AGRICULTURAL COLLEGES 59 94 186 54 36 21 14 464 16 480AGRICULTURAL 216 281 581 172 94 43 22 1,409 53 1,462TEACHER TRAINING 99 293 599 323 69 26 13 1,422 121 1,543TEAC44 AND NURSUT NURSE 89 197 423 142 10 2 1 864 29 893EDUCATIONFO ARSTS 72 114 129 50 16 5 3 389 251 640OTHERS 41 64 128 38 44 15 37 367 49 418TOTAL 1,410 2,727 5,628 3,083 734 253 142 13,977 1,325 15,302

SOURCE: Ministry of Education and Culture

- 108 -

ANNEX IV. TABLE 16. TEACHING AND NON-TRACHING STRF IUNIVERSITY OF NISKOLC

1887 1988 1988 S Increase2 of Total in 1988-89

Teaching Staff 515 5A3 35.8X 5.41Protessor 41 4Z 2.8X 2.41Associate Professor S0 97 6.42 7.86Assist. Prof. 263 279 18.4X 8.1XEntry Level Teaching Staff 73 79 5.22 8.22Others (Language, PE *tc.) 48 A6 3.02 -4.22

Research Staff 25 23 1.52 -8.02Ron-Teaching Staff 968 949 62.62 -2.01Facwlty Administretion 150 158 10.42 5.32Paculty Techniciaen 272 276 18.22 1.52Central Administration 191 205 13.52 7.93Contral Technicians 283 238 15.72 -15.91Librarian 72 72 4.82 0.0O

Total 1508 1515 100.02 0.52

N O T E: J/ December figures.

Soures: University of Miskolc.

ANNEX IV. TABLE 17. STUD=ENT UN BY REGION v

TEMR BUDAPEST DEBESECEN, OTIER TOTALPM8 & 8ZOGE

1950/51 24112 5090 29S9 3220174.90 15.82 0.32 100.01

1960/61 24616 11525 8444 4458555.21 25.8S 18.92 10O.O0

19070n1 40909 17475 22330 8071450.72 21.72 27.72 100.02

1080/81 48757 21886 30523 10116648.22 21.6X 30.2X 100.02

1987/88 42488 22617 33920 9902542.92 22.82 34.32 100.02

N 0 T U S:I/ Evening ad correspondence students included.

SOCUC: Ministry of Education and Culture

- 109 -

ARN IV. TABLE 18. CONPARATIVE DATA ON NUMBER OF STUDENTS IN HIGHER IDUCATION(Number per 100,000 population)

C%WUTRY ACDEF1C STUDENT8 NEW YEAR ALL MRKXIG I/YEAR GRADUATES GRADUATES GRADUATES

Austria 1985/6 2293 140 1985 3146 5500Belstmu 1985/6 2499 548 1981 7318 1520(.Bulgaria 1986/7 1220 182 1983 - 7360Csechoslo7akia 1986/7 1088 217 1880 3820 3/ 7317Denmerk 1984/5 3/ 2241 372 1983 7592 3/ 12881United Kingdom 1984/5 3/ 1783 489 1981 7234 12269Finland 1985/6 2607 S44 1985 6596 10205France 198S/5 2285 - 1982 4980 d/ 8813Greece 1983/4 1508 256 1961 3383 7474Netherlands 1984/S / 2706 421 1985 - 16157Yugoslavia 1986/7 1503 214 1961 4209 -Poland 1986/7 893 160 1966 4370 7859Hungary 1986/7 927 233 1984 5512 9907East Germany 1986/7 791 136 1986 - 6729West Germany 1986/7 3/ 2598 369 1982 8289 12187Norway 198S/5 2259 - 1980 8362 15671Italy 1984/5 3/ 2074 159 1981 2671 -Portugal 196*/S / 1110 177 1981 2640 4389Romnia 1986/7 689 134 1977 2840 4884Spain 1984/5 2167 221 1981 4007 10678Switzerland 1985/6 1728 159 1980 - -U8SR 1986/7 1817 300 1987 7384 -

N 0 T E 8:1/ Per 100,000 of working populatlon. For Bulgaria. East Germany and

Czechoslovakia, per 100,000 of population.3 1983 data.I/ 1981 data.lJ 1980 data.

SOURCE: Ministry of Education and Culture

ANE IV. TABLE 19. WAGES OF TEACHING STAFF IN HIHER EDUCATION

I9o 7 1 9 8 8 BEAL GROWTEiO8 ESGROSS UT T GROS FET

UniversitiesProfzsor 14910 12673 20580 13140 19.3X -10.4XAssistant Professor 10755 93OM 13438 9707 8.01 -10.3ZFirst AssLstant 8433 7*21 9894 7866 1.4X -8.31Demonstrator 8706 6102 7889 8380 -0.92 -9,61

CofllSSProfessor 12039 10474 15682 10870 12.62 -10.31Assistant Professor 9913 8723 1Z230 9043 6.71 -10.4First Assistant 7793 6936 9045 7194 0.4X -10.3xDemonstrator 6054 5570 6854 5796 -2.1X -10.01

SOURCE: Ministry of Education and Culture

- 110 -

ANNEX IV. TABLE 20. WAGES IN HIGHER EDUCATION COMPARED TO OTHERS

1980 1985 Nominal growth

Higher EduastionProtofeora 5589 6932 -9.71Employ.m 3310 4393 -3.41

EducationTeachers 4157 5871 2,8anployee. 2639 3735 3.0X

IndustryWhite collar 4768 7461 13.92Blue Collar 3952 5808 7.0

NationwideWhite collar 4728 6951 7.01Blue Collar 3792 5446 4.51

SOURCJ: RGnistry of Education and Culture

ANNEX -

SCIENTIFIC AND TECHNOLOGICAL RESEARCH

LIST OF TABLES

1. Number of Employees in Research and Development (1984-87)2. Distribution of Scientists and Engineers engaged in R&D in 1989,3. Number of Research Institutes, Scientists and Engineers by Supervising

Authority.4. Percentage Distribution of Scientific Researchers by Age.5. Number of Researchers holding Scientific Degree in 19876. Publications of R&D staff by Field (1987)7. R&D Expenditures8. Financial Sources for Research & Development9. R&D Expenditures by Type of Activities10. Distribution of the Central Technology Development Fund (CTDF).11. Allocation of the Hungarian Research Fund (OTKA) by Supervising Ministry

of R&D Institutes.12. Number of Scientists per 10,000 Inhabitants for Selected Countries13. Per Capita R&D Expenditure for Selected Countries14. R&D expenditure as % of GNP in selected countries15. Submitted and Approved Applications for OTKA16. Size Distribution of HAS-run Research Institutes in the Natural Sciences

- 112 -

ANNEX V. ?AIX 1. NpMMER OF EPLOYEES in RASEARCH AND BEVELOPHEN? (Full TiM.Equivalent)

1984 1985 1986 1987

Total No. of Employees 49,360 48,745 49,148 47,227Scientists and Engineers 22,518 22,479 22,974 22,284

SOURCE: Scientific Research and Development in 1987, CentralStatistical Office, Budapest 1989

AMEX V. TAUZ 2. DI9MUM= OF SCAMS AND EIMES ENGAGE I R&D IN 1989

ACTUAL NO. OFSCIENTISTS FULL TIME EQUIV. X OF& ENGINEERS TOTAL

HAS Research Inst. 3,277 2,773 12.9XNon HAS Research Inst. 4,110 3,262 15.2XHigher Edu. Research Units 13,991 5,251 24.5XEnterprise Research Units 11,157 8,504 39.71Other Research Units 2,733 1,637 7.61

35,268 21,427 100.01

SOURCE: Hunzgarian Academy of Sciences

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AN V. TABLE 3. NUMBER OF RESEARCH INSTITUTES. SCIENTISTS AND ENGIER MSUPERVISING ATHORITY (198i) DY

R&D SCI. & R&D UNITS SCI. & OTHER SCI. 8 HE SCIENT. TOTAL WC. 8INST. NGIN. iN ENGIN. RSEAEBRCH NGIN. RESEARCH ENGINEERS RESEWCO 11IN.

(FTE)I/ ENTElRPR. (TE) I/ UNITS (FTE) 1/ UNITS A/ (CTE) 1/ UNITS (l) 1/

Min, of Industry 11 1,537 166 7,800 0 0 0 0 177 9,337min. of Agriculture 10 650 29 614 6 252 198 709 243 2,225min, of Arohitecture 1 126 32 740 1 20 0 0 34 685Min. of Transportation 1 109 4 166 2 14 0 0 7 259Hungarian Post 0 0 1 116 0 0 0 0 1 115Min, of Ev, 8 Water

Kanagnent 1 170 1 13 3 37 0 0 5 220Nat'l Cau. for Tech.

Dev. 1 288 0 0 2 97 0 0 3 385Nin, of Education 2 47 0 0 39 603 531 2,819 572 3,469min, of Health 0 0 1 7 15 380 169 1,111 185 1,408Hungarian Acadev

of Science 36 2,817 0 0 2 17 0 0 38 2,834Min. of Trade 0 0 0 0 1 22 8 15 9 37'fn. of Finance 0 0 0 0 1 24 0 0 1 24Mn. of Foreign

Affairs 0 0 0 0 1 16 0 0 1 18Council of Kinisters 0 0 0 0 1 50 0 0 1 50Rat. Planing Office 0 0 0 0 1 50 0 0 1 50Central Stat. Office 1 22 1 113 1 17 0 03 3 152Central gol. Office 2 401 0 0 0 0 0 2 401Ministry of Labor 0 0 0 0 2 51 0 t 2 51touth ad Sport Office 0 0 0 0 0 0 9 35 9 35Nat. L-Saf.ty &

Labor lup 1 52 0 0 0 0 0 0 1 52Rat. Council of

Trade Unioas 1 18 0 0 0 0 0 0 1 16nat. Union of

Cooperative 1 20 0 0 0 0 0 0 1 20Nat. Council of

Ind. Coop. 0 0 3 119 0 0 0 0 3 119

Total 68 6,257 238 9,688 78 1,650 915 4,689 1,300 22,284

V 0 T E 8:1/ Converted to full tie equivalent.;f There ar acme discrepancies between figures given htere and data given by State Office for Technical

Devlopmnt (OWFB)l Research units in higher education

SORE Scientific Research and Development In 1987. Central Statistical Office, Budapest 1989

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ANNEX V. TABLE 4. =FMPMNTE DISTRIBUTION OF SCIENTIFIC RESEARCHERS BY AGE(1972-198Q)

YEAR/AGE -29 30-39 40-49 50-59 60- TOTAL

Year1972 22.5 35.4 29.0 10.0 3.1 1001977 21.2 38.1 25.1 13.5 2.8 1001982 16.0 37.6 25.2 18.7 2.7 1001987 12.8 34.4 30.4 18.8 2.9 100

Location (1987)R&D Institutes 12.6 33.9 30.4 19.8 2.7 100Universities 9.9 33.7 31.0 19.7 3.5 100R&D Units in Enterprises 15.9 35.6 29.5 17.2 2.3 100Others 12.4 33.4 31.8 18.4 2.9 100

SOUJRCE: Hungarian Academy of Sciences

PERCENTAGE OF SCIENTISTSI* amA ON" a

0

-29 30-39 40-49 50-59 60-

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ANNEM V. TABLE S. NUMBER OP RESEARCHERS HOLDING SCIENTIFIC DEgREEIN 987

INSTITUTE ORDIARY OR DOCTOR OF CADIDATE TOTALCOREPONDENT SCIENCESMEMBER OF THEACADEWf

R&D Institute 59 225 1038 '322HE Research Unit 104 686 2698 3488Enterp. Research Unit 3 45 268 316Other Research Units 9 65 363 457

Sub-Total 175 1041 4367 5583

Not on R&D basis orRetired 67 365 2933 3385

Total 242 1426 7300 6968

SOURCE: Scientific Research and Dvlaopmt 1987, Cen-LzalStatistical Office, Budapest 1989

ANNEX V. TABLE 6. PUPLICATIONS OF R&D STAFF BY FIELD IN 1987

DIVISION OF LEARNING BOOKS IN JOtURL ARTICLE BOOKS IN ARTICLES IN MTICLIHUNGAlIA IN HUNGARIAN FOREIGN ACADEMCAL PUBLISHE IN

L FPILES IN POR. INTEIO LLANGUAE JOURNIS

Natural Sciences 120 1,281 80 745 2,074Technical Sciences 206 2,574 55 328 844Medical Sciences 194 1,772 61 339 1,407Agric. Sciences 126 2,059 30 279 503Social Sciences 655 5,880 120 865 920Total 1,301 13,566 365 2,556 5,748

Per 100 (FTE) 6.1 63.3 1.7 11.9 26.8Researchers 1J

N 0 T E:1/ FTE: full time equivalent.

SOURCE: Scientific Research and Development 1987, Central Statistical Bureau, Budapest 1989

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ANNEX V. TABLE 7. R&D EXPENDIT S

TOTAL FEDUCEDEXPENDITURE REAL 2OF GDP(BILLION FT.) GROWTH

1981 19.40 2.491982 21.60 5.7X 2,541983 20.70 -11.0X 2.301984 23.00 7.4X 2.351985 24.40 0.61 2.361986 27.80 7.51 2.551987 32.'0 7.7X 2.65

N 0 T I 8:,/ Includes all OTKA and enterprise funds allocated and

spent by institutions outside the statistical base. Alsoincludes training scholarships and degree related awards.

at Excludes expenditures on ancillary activities such asproduction, services and social services.

SOURCE: State Office for Technical Development (OMFB)

ANNE V. TABLE 8. FINANCIAL SOURCES FOR RESEARCH & DEVELOPIME(Billion Ft.)

1986 1987 X OF REALTOTAL GROWTH

ENTERPRISE RE8OURCFS ANDCENTRAL TECHNICAL DEVELOP---ENT FUND 22.2 25.7 79.31 6.8XSTATE BUDGET 4.7 5,2 15.91 1.5XOTHER STATE FUNDS 0.6 1.2 3.71 84.81

OF WHICH OTKA 0,5 1.41FOREIGN soURCES 0.2 0.3 1.1X 59.0X

TOTAL 27.8 32.5 100.01 7.61

N 0 T E:"Reduced" figures. Excludes non-R&D expenditures made byinstitutes, eg. production, services and welfare.

SOURCE: State Office for Techn.cal Development (OMFB)

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ANNEX V. TABLE 9. R&D EXPENDITR1=8 BY TYPE OP ACTIVITIEi

RECURRENT INVESMZN RZDUCED I/EXPENDSTURES X in Billien Pt X EZXE1DITURES Iin Billion Ft OF TOTAL OF TOTAL in BllUn Ft OF SOTAL

in 19---

h SIC RESEARCH 2.2 11.1 0.4 13.0 2.7 0.5APPLIED RESEARCH 6.2 30.7 1.1 36.0 7.3 26.1TOTAL SCI. R3S. 8.4 41.8 1.5 40.9 10.0 3/ 36.1 V/EXPER.DEVELOPM. 11.7 58.2 1.5 50.1 17.8 3/ 03.9 3/GRAND TOTAL 20.2 100.0 3.0 100.0 27.S 100.0

in 1987

BW8C RESEARCH 2.7 12.1 0.6 12.7 3.3 10.0APLIED RESEARCH 6.7 30.4 1.7 34.9 8.3 25.7TOTAL SCI. RES. 9.3 42.5 2.3 47.6 11.7 O/ 36.1 /EXPER.DEVELOPM. 12.6 57.5 2.5 52.4 20.8 I/ 63. 9 V/GRAND TOTAL 22.0 100.0 4.7 100.0 32.5 100.0

N O T E S/ Excludes dl expenditures that are associated with non-RPD activities.

3/ Including also training-scholarships end degree-related awards, but it in believed that theseconstitute only small proportions.

I/ Includes all allocatiens freo nterprises nd the Central Technoloa lelopment Fund. Since ceinstitutions outside the normal definition of R&D receive suh funds, these figures do not correspondstrictly to xpenditures of R&D institutions.

SOURCE: State Office for Technical Deelopennt (CM).

ANNEX V. TABLE 10. DISTRIBUT1O_ OF THE CENTRAL TECHNOILOGY DEVEOPME FUND(Current Price, Million Ft.)

1 9r6-80 lS181-85 los 1987 1S88! of X of I of I of X of

Amount Total Amount Total Amount Total Amout Total Amount Total

Ministry of Industry V/ 8,928 42.01 11,119 39.7n 2,738 41.62 2,972 41.62 3,196.6 37.0XMinistry of Agriculture 1,716 8.1X 1.794 6.41 790 12.01 857 12.01 921.3 10.71Ministry of Architecture 1,977 9.31 1,615 5.86 335 5.11 365 5.1S 404.5 4.71Ministry of Transportation 595 2.8S 713 2.51 132 2.0X 143 2.0S 199.7 2.31Hungarian Post 3/ 46 0.71 50 0.71 57.6 0.71Office for Water Management 84 0.41 166 0.61 39 0.61 43 0.6S 161.4 1.92State Office for Tech. Dev. 7,016 33.01 8,689 31.01 2,034 30.91 2,206 30.91 3,852.6 42.31Ministry of Education V/ 23 0.1SMinistry of Defence 37 0.21Ministry of Justice 10 0.051OTKA SOO 2.42 1,071 3.82 132 2.02 143 2.01Ministry of Health 69 0.31 56 0.21 34 0.5X 36 0.51 45.6 0.51Hungarian Academy of Science 41 0.61 45 0.61Office for Nuclear Research 97 0.61 40 0.6%Committee on Sei. Policy (Reserves) 2,802 10.01 224 3.41 243 3.41Subsidies for Universit .s 300 1.41Ministry of Trade 43.1 0.52Ministry of Env. & Water Man.

Total, 21,255 100.02 28,025 100.02 6,582 100.01 7,145 100.01 8,639.3 100.01

N 0 T E S:J/ Aggregat data of the Ministries of Heavy Indust4y, Ulght Industry end Metallurgical- end Machine Industry3/ Data of Hungarian Post between 1976-1985 included In data of Ministry of TransportationO Aggregated data of the Ministry of Culture nd the Ministry of Education until 1080W/ Data for the Central Research Developoent Fund (OWA) between 1076-1985h The total does not match with the figure given In the source, 8662.4.

S0URCEt Between 1078-87 RCSD (OWl)i 1988 Technical Financing R+D, July 1089

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ANNEX V. TABLE 11. ALLOCATION OF THE HUGARIAN RESEARCH FMD (OTKA) BYSUPERVISING MINISTRY OF R&D INSTITUTES (ApprovedSubsidies 1986-88) (Million Ft)

1986 1s86 1987 1987 1986 1988X 2 X

Ministry of Industry 16 4.95X 24 4.16S 6 1.51XMinistry of Agriculture 22 6.812 54 9.361 47 11.84XMinistry of Architecture 7 2.17X 9 1.56X 3 0.768Ministry of Education 51 15.792 151 26.172 121 30.482Ministry of Health 28 8.67S 68 11.792 48 12.09XHungarian Aoademy of Science 179 55.42S 244 42.292 170 42.822Central Geological Institute 7 2.17X 8 1.39X 2 0.502Ministry of Env. & Water Management a 0.932 6 1.042 0.00XOthers: 10 3.10X 13 2.252 0.00X

Total 323 100.002 577 100.00X 397 ;/ 100.002

N 0 T E S:)j/ The figure given in the source is 404.

SOURCE: Scientific Research and Development; Central Statistical Office 1989

ANNEX V. TABLE 12. KUMBER OF SCIENTISTSPER 10.000 INHABITANTSFOR SELECTED COUNTRIES (1982)

German Dem.Rep. 72.4 ('81)Soviet Union 53.0Bulgaria 47.0Japan 39.4Czechoslovakia 31.1United States * 30.3 *Poldnd 21.8F.R.Germany 20.8Hungary 20.5Finland 19.7 ('81)The NetherLands 19.7 ('81)Noxway 18.8Italy 9.1Ireland 8.9

SOURCE: Research and development in Hungary, 1Q89* Incmplete coverage of data.

ANNEX V. TABLE 13. PER CAPITA R+D EXPENDITUREFOR SELECTED COUNTRtIES

COUNTRIES R+D/CAPITA

USA $379Japan $257F.R.Germany $272France 8223U.K. $218Finland $134Italy $94Ireland $45Spain $31Portu6al** $17Hungary $50

SOURCE: Research and Development in H""gary, 1989(Original Source: OECD)

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ANNEX V. TABLE 14. EXPENDITURE FOR R&D INSELECTED COUNTRIES

COUNTRY YEAR AS x OF GNP

Hungary 1981 2.51984 2.41987 2.7 *

United States 1980 2.41983 2.61986 2.8 *

Japan 1981 2.41984 2.61986 2.8 *

F.R.Germany 1981 2.51983 2.51985 2.7 *

France 1979 1.81986 2.3 *

United Kingdom 1986 2.3 *

Israel 1983 3.7 *

Korea, Rep. of 1986 1.8 *

Norway 1980 1.3 *1984 1.61987 1.9 *

Finland 1981 1.21985 1.51987 1.8

Austria 1981 1.21985 1.3

Greece 1986 0.3

Portugal 1986 0.5

SOURCE: Scientific Research and Development in 1987,Central Statistical Bureau, 1989

* SOURCE: Unesco Statistical Yearbook 1989

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ANNEX V. TABLE 15. SUBMITTED AND APPROVED APPLICATIONS OF OTKA

NUMBER OF NUMBER NUMBER OF NUMBEPAPPLICATIONS APPROVED APPLICATIONS APPROVED

1986 1986 1987-88 1/ 1987-88

Total Number 1926.0 761.0 1314.0 503.0Total Subsidy (Billion Ft) 8.1 2.1 3.3 0.4

of which:Running Costs 6.1 1.6 3.3 0.4Investment 0.4Infrastructure Development 2.0 1/ 0.1

N 0 T E S:1/ Time period of subsidy: 1988-91. Further 0.8 billion Ft. was approved for

establishment of Instrument Centers between 1988-91.2/ Investment and Infrastructure Development together.

SOURCE: Scientific Research and Development in 1987, Central Statistical Office,Budapest 1989.

ANNEX. V. TABLE 16. SIZE DISTRIBUTION OF HAS-RUN RESEARCH INSTITUTES INNATURAL SCIENCES

No. of Scientists <25 25-50 50-100 100-500 >500& Engineers

Number of Institutes 3 8 6 3 1

SOURCE: Humgarian Academy of Science 1988