The labour supply of older workers in Hungary

Scharle ÁgotaMinistry of Finance, HungaryDepartment of Economic Policy

Activity rates drop after age 45

0

20

40

60

80

10015

–19

20–2

4

25–2

9

30–3

4

35–3

9

40–4

4

45–4

9

50–5

4

55–5

9

60–6

4

age group, years

activ

ity ra

te, %

men women

This is very low compared to EU, even CEE levels

01020

30405060

7080

Hun

gary

Ned

erld

s

Slov

ak R

Pola

nd

Cze

ch R

EU25

EU15

Latv

ia

Ger

man

y

Swed

en

activ

ity r

ate

for 5

5-64

, % 1999 2003

An experiment: increase activity rates for men aged 45-54 and 55-64

65

67

69

71

73

75

77

79

81

83

85

1998

1999

2000

2001

2002

2003

2004

activ

ity ra

te, %

adding 55-64adding 45-54actual: aged 15-64

And it is threatening the balance of the Pension Fund

0

4

8

12

16

20

24

1999 2000 2001 2002 2003

total expenses, % of GDP

tax financed, % of totalexpenses (right scale)

Activity would need to increase by 12 % points to balance PF

1150000

1175000

1200000

1225000

1250000

1275000

1300000

1325000

0 2 4 6 8 10 12 14 16 18 20 22 24

increase in activity rate of 45-64, % point

Pens

ion

Fund

reve

nues

and

ex

pens

es in

200

3 (m

illio

n H

uf)

Pension F expenses

Revenues from Soical Sec.

Reasons behind low activity rates in old age

• Low qualifications• High unemployment• Pension receipt• Attitudes

Disability pension receipt has hardly declined since transition schock

0

2

4

6

8

10

12

14

16

18

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

in %

of p

opul

atio

n ag

ed 4

0-59

, %

total (below pensionable age)new claimsnew recipients

Possible solutions

• Increase statutory retirement age (62->65)

• Tighten eligibility for disability pension• Premium for later retirement• Integrate taxes and social support• Subsidies for low wage employment and

old age workers• Minimum wage legislation