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 Education in Hungary 2006  >  Chapter 1: The socio-economic environment of education

Márton Medgyesi

Chapter 1
The socio-economic environment of education

1.1. Economic development

Hungary joined the European Union on 1 May 2004. Before accession, Hungary's economic development had already been closely linked to that of the old EU member states. After accession, the Hungarian economic policy goals were suited to the EU macroeconomic policy guidelines and the Maastricht convergence criteria. The growth that had started in the second half of the nineties continued in the first half of this decade, although the GDP growth was between three and four percent in the years after 2000 as opposed to above 5% between 1997–2000. Since 2001 Hungarian economic growth has been a stable two percent above the EU's average growth rate. This performance may help Hungary catch up with the EU's level of development: while the 1998 per capita GDP was 50.7% of the average of the EU of the 25, in 2004 it reached 60.1%.

Chart 1.1. GDP and per capita income of households in Hungary 1991–2004 (previous year=100%)

Source: CSO Stadat data base
Note: Values below 100% indicate economic recession and those above 100% indicate growth. Hungary has rather a long way to go to meet the employment goals of the EU set by the Lisbon Agenda. Compared to other EU member states and OECD countries, the Hungarian labour market is characterized by a low employment rate, high rate of economic inactivity, and low unemployment rate. With a 56.8% rate of employment in the age group 15–64 in 2004 Hungary only preceded Poland and Malta from among the EU member states. The average employment rate of the EU in the same year was 63.3%. In the fourth quarter of 2005 the rate of economic activity of the 15-74-year-old population was 54.7%, the rate of employment was 50.7%, and the unemployment rate was 7.3%. Low employment rates are particularly conspicuous among those with low levels of educational attainment, women and the elderly. With an employment rate of 37% for those with a low educational attainment (ISCED 1 and 2) Hungary is one of the poorest performers among the OECD countries. Conversely, employment rates among those with secondary and higher education does not fall behind the general OECD levels.

Chart 1.2. Employment rate by educational attainment of the 25-64-year-old population in OECD countries, 2003 (%)

Source: Education at a Glance, 2005

Poor employment rate among those with low levels of educational attainment are due to the concomitant effect of several factors. Labour economic research reveals that the shortfall is not a consequence of the demography of the Hungarian workforce, nor of the relatively high wages of those with low levels of education, but is rather related to the generally low level of knowledge and competencies of the groups with a low educational attainment. Foreign direct investment creating new jobs has brought a level of technology that creates no demand for a labour force with low educational attainment. On the other hand, industries that could absorb workforce with lower educational attainment are missing in Hungary.

Another important indicator of changes in employment is the rate of youth unemployment. In the 15–24 years age group unemployment rate rose from 11.3% in 2001 to 19.4% in 2005. This is related to the difficulties of transition from education to the labour market, but another reason is that as a result of the expansion of education it is generally the low-achiever students that choose to enter the labour market.

Table 1.1. Youth unemployment

Year 15–19-years old 20–24-years old 15–24-years old
'000
persons
Unemployment rate (%) '000
persons
Unemployment rate (%) '000
persons
Unemployment rate (%)
2000 18.4 25.5 50.3 10.7 68.7 12.7
2001 13.2 22.4 41.9 9.7 55.1 11.3
2002 11.7 27.1 44.8 11.1 56.5 12.6
2003 11.8 32.2 43.1 11.5 54.9 13.4
2004 12.0 34.9 43.9 13.4 55.9 15.5
2005 12.4 37.8 54.5 17.5 66.9 19.4

Source: Labour force survey 2005.

1.2. Income

Based on indices of inequality and poverty applied in social policy in the EU Hungary scores below the EU average in terms of both inequality of income1 and poverty2. In 2005 inequality of income was somewhat lower than in 2003, about reaching the levels in the second half of the 1990s. In 2005 poverty rate was 12%, also similar to the value in the late 1990s. The income position of individuals shows a close correlation with the demography and labour market position of households. For example average income of households with no employed members of active age is only 60% of the national mean income. In households where the head of household is a graduate of tertiary education, the income per individual is 60-80% above the national mean income and is significantly higher than the income of households where the head has taken the secondary school final examination.

The most unfavourable income position is experienced in the age group 16–24, where the poverty rate is 17%. Poverty rates above the average 12% are also found among children below 15, 15% of whom live below the poverty threshold. The past five years have brought no significant change in the rate of the poor among the total population.

Chart 1.3. The rate of people living in poverty by age group, 2000, 2003 and 2005

Source: Gábos–Szívós, 2006
Note: Individuals living in poverty are those who live from incomes below 60% of the median equalized income per individual in conformity with OECD Equivalence Scale 2.

Regional differences in income are closely related to the labour market situation of regions concerned. The income of people living in the most developed region is 20-30% above the average. Those who live in Budapest have an income that has exceeded the average by 35-40% whereas at the opposite end, the income of village dwellers has been about 25% below the average over the past ten years. The survey of the Romani people that was carried out in 2003 reveals that 56% of Roma households belong to the deciles of population with the lowest level of income, and four-fifths live below the poverty line.

1.3. Education and public finances

Only minor changes took place in the functional structure of public spending during the period reported. About 7-8% of Hungary's GDP was spent on state functions (such as general public services, defence and law enforcement). Spending on welfare functions (housing, health care, education and social protection) increased from 26% in 2000 by five percentage points in 2004. The largest item within welfare spending is social protection, which has been around 15% of the GDP in recent years. Spending on education was 4.8% of the GDP in 2000, 5.3% in 2002 and 6.4% in 2004. This ranks Hungary in the midfield of the OECD countries.

1.4. Demographic trends

The decline of Hungary's population that started in 1981 has also continued in recent years. According to the 2001 census, the population of Hungary was 10,198 thousand, about half a million less than the figure of twenty years earlier. By 2005 the population dropped to 10,077 thousand. The age pyramid of the Hungarian population is among the most irregular ones in Europe. On 1st January 2005, due to the extremely low number of live births in the preceding years the size of the 0-4-year-old population was smaller than the next age groups of five-year increments up to the age group 60-64. There are major differences in the size of the various generations.

Chart 1.4. Size of generations in 2004 and estimated size in 2010 (thousands)

Source: Sugár, 2005

The large numbers of demographic cohorts born between 1974 and 1980 are past higher education age, at the same time the size of subsequent generations is gradually decreasing. The size of pre-school age groups is even below the current school age populations. In the next five years the numbers of birth cohorts entering primary education will fall short of one hundred thousand. The demographic forecast for school age generations up to 2010 indicates the biggest decline in the lower secondary phase of general school. The size of school age population in villages is above the national average in the 5–9 and 10–14-year-old groups. Conversely, their numbers are below the average in towns and cities, and in particular in the capital Budapest. The 15–19-year-old population is largest in the county seats and cities with county status rather than in rural areas, and less in Budapest and the villages.

According to the 2003 Roma survey, the rate of Roma children in the population entering school education in 2008-2009 is expected to be around 15%.

1.4.1. Educational attainment of the population

Since the turn of the millennium there has been little change in the rank of EU member states in terms of educational attainment. In the 25 member states the proportion of 20-24-year-olds who have attained at least upper secondary education qualification (vocational or secondary school final examination) has been around 76-77% in recent years. In Hungary, in 2004 at least 84% of young people had attained at least upper secondary education qualification. In Hungary, 75% of the 25-64-year-old population has attained at least upper secondary education. In this respect Hungary has been ranked mid-field for the past three years.

Table 1.2. Population that has attained at least upper secondary education (2004) percentage by age group

Source: Education at a Glance, 2006

It is to be noted that there has been an ongoing debate regarding the ISCED classification of short (two- or three-year) vocational programmes provided by vocational training schools. Some of the experts do not consider this type of education as upper secondary educational attainment because of the shorter duration of education and also due to the fact that the knowledge and competencies acquired in this type of education is not up to the quality of European upper secondary education, as has been shown in international comparison.

Despite the increasingly favourable breakdown of the Hungarian population's educational attainment there are trends to show a reproduction of low levels of education. Even today, despite a substantial expansion in secondary education about one-fifth of each generation by birth year leaves education with only general school certificate or, at best, vocational training school qualifications, i.e. low educational attainment that is barely convertible in the labour market. Most of the vocational training that does not rely on secondary school final examination provides training that is hard to make use of in the labour market. Apparently the reserves of the expansion of secondary education are petering out.

1.5. Socio-economic impacts of educational attainment

The wage premium of higher educational qualifications has rapidly increased. In 2002 the wages of graduates exceeded that of individuals with general school certificate by 150%. However, while employment of a qualified labour force increased in the second half of the 1990s and notwithstanding the gradually rising supply of qualified labour force, the returns from education continued to ascend.

Chart 1.5. Wage premium of educational attainment compared to those who finished general school, 1989-2002 (%)

Source: Kézdi, 2004

The labour market position of groups with different educational attainment is determined by two major processes. Due to a large extent to foreign direct investment, new jobs were typically created by medium-sized and large companies applying advanced technologies. Consequently, the structure of demand for labour shifted in favour of workforce having higher qualifications and capable of operating these new technologies. In the 1990s changes in labour demand resulted in a massive expansion in secondary and tertiary education, which boosted the supply of labour holding degrees or secondary school final examination. According to some evaluations, the mounting discharge of graduates and secondary school leavers has been far too excessive and caused a shortage of skilled workers besides increasing the difficulties of young career starter graduates in finding jobs. However, these conclusions have not been supported by the findings of labour market research. Compared to the mid-nineties, the unemployment figures of graduates declined rather than grew, even in the career starter age groups (generally by 2-3%). Probing into the employment data of fresh graduates reveals an increase in employment rates even in professions where the output of graduates has recently been the largest (e.g. engineers, economists, layers, computer scientists). This can be attributed to the fact that employers tended to upgrade their qualification requirements and hired graduates for positions that had formerly been filled by staff with secondary school qualifications. Conversely, unemployment has not been rising in groups with secondary school leaving certificate as they now have access to jobs where the required educational attainment used to be below secondary school leaving certificate. Increasing demands for more advanced qualifications from the employment side have been typical for the entire hierarchy of jobs, and resulted in a substantial deterioration of labour market opportunities for those with low educational attainment.

Social impacts of educational attainment

Hungarian surveys of children's decisions regarding further studies point out the significant effect of parents' educational attainment to children's willingness to seek further education. Children of parents with higher educational attainment are more likely to continue their studies than those with lower levels of education.

Educational attainment contributes to a more active civic awareness. The number of electoral age citizens who take an interest in politics is much higher among groups with higher educational attainment than among those who only completed general school. Different forms of political expression are also clearly more frequent among groups with higher educational attainment. Willingness for social cooperation likewise increases with education, which is marked by the fact that more educated persons are keener to participate voluntarily in civic associations to achieve a common goal. For example, trade union, leisure association or other associative membership patterns clearly show a greater involvement by individuals with higher educational attainment, a correlation that prevails irrespective of the level of income. As regards the general level of trust, the findings indicate that graduates and secondary school leaving certificate holders have a higher level of trust in both higher and lower income groups compared to those who do not possess a secondary school leaving certificate.

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