Market Talk: Economic Challenges Shake a Tight Labor Market for Recruiters

BBJ: What is the current state of the job market, and how has it affected the recruitment industry?

Domenico Marra: The job market in Hungary has experienced a steady growth trajectory since 2019, primarily due to increased economic growth and multinational investments. While the outlook for the job market in Hungary is optimistic, it remains crucial for employers and staffing agencies to remain flexible and adaptable to any unforeseen changes that may arise.

Zsolt Beck: This year brought a significant change in the Hungarian job market. After the shock of the energy crisis, the economy had started to recover by the end of last year, but one thing can be seen very clearly: there is a general labor force shortage in almost every segment. Parallel to this, due to cost-cutting policies, our clients have reduced recruitment costs, meaning they are trying to solve their recruitment needs themselves first.

György Palásti: Our labor market survey found that the upcoming year poses challenges for business leaders and human resources managers as they must focus on high inflation, increasing employee wage demands, the economic slowdown, and low turnover rates while retaining the best talent. Most companies may succeed in this by raising wages in line with employee expectations. Companies that can increase real wages will likely face fewer turnover issues than those that do not or only marginally increase salaries.

Tammy Nagy-Stellini: Companies are keener to get market insights, salary benchmarks, and any information to enable them to make smart decisions. In the uncertain economic climate, most companies choose cautious planning. Employee retention is the top priority for employers; companies would rather increase salaries further than let valuable experts go.

Domenico Marra, cluster sales director Adriatic and Hungary, Adecco

Gabriella Ruff: The recruitment market is still highly competitive, and companies continue to struggle to find qualified candidates in a tight job market. This leads to the fact that companies may need to offer more competitive compensation packages and benefits to attract top candidates.

Tamás Fehér: The job market is back to its pre-pandemic status; there is fierce competition for special talents and for finding a workforce in volume. Unemployment has not changed remarkably; however, it is quite clear that SMEs are more affected by energy prices and wage inflation than large corporations and therefore struggle more to keep their employees.

Sándor Baja: Some 34% of companies are hiring, as they are looking to increase the number of employees, compared to 89% last year, according to our most recent HR Trends 2023 B2B comprehensive survey with the participation of 246 companies from various industries.

Zsolt Beck, executive director and owner, Beck & Partners International HR

BBJ: What industries or job sectors currently demand the most new hires, and why?

DM: Various industries and job sectors in Hungary are experiencing high demand for new hires. This is due to the recent return of employees from working abroad during the COVID-19 pandemic. To meet this demand, employers seek candidates with experience in these areas and/or knowledge of foreign languages.

ZsB: There is demand in the production segment due to the trend of bringing back production to the European Union. Also, the IT industry is still thriving; the new trends from the United States have not yet been felt here.

GyP: Despite the current economic situation, the majority of companies, around 60-70%, are planning to expand their workforce by 1% to 10%, regardless of their current size. Despite the challenging economic forecasts, most companies remain confident in the stability of their operations, likely due to their resilience in overcoming the challenges posed by the pandemic.

TN-S: Hungary is still a highly preferred destination for investors. This is particularly true for large multinational companies that establish new shared services centers in Hungary every year and outsource their functions here. Besides, engineering and manufacturing companies are planning to bring long-term investments to Hungary, providing stable work opportunities in the country. Technology enterprises also find Hungary a good choice when opening a new office or development hub.

SB: The evergreen IT, business services, and many industrial manufacturing companies are still expanding. The reason: Many new greenfield investments and the migration of functions to CEE can be seen from the “Western” EU, the United States, and Asia. The costs are still lower versus the West, and Asian investors want to get into the EU market.

György Palásti, country manager, Gi Group Holding in Hungary

BBJ: How has the COVID-19 pandemic affected recruitment practices and the types of positions being filled?

DM: Many organizations have turned their attention to temporary roles. Additionally, remote work options have become increasingly popular among both employers and job seekers. There has been an increase in demand for technical support personnel, especially within the technology sector and for medical staff, such as doctors, nurses, and other healthcare workers.

ZsB: The only significant change we can observe is that there is usually a need for personal interviews at the end of the process, but interviews on online platforms are becoming increasingly popular. There is also a change on the candidate’s side, with a strong preference for remote work.

GyP: In terms of recruitment tools, the majority of companies try to utilize almost all available means. Given the current challenging labor market and the projected expansion plans for 2023, we do not anticipate any changes in this regard at the moment.

TN-S: We can see various changes. For example, face-to-face interviews have increasingly been replaced by online ones. Companies are more open to fully remote working setups in positions where a personal presence is not required, which opens up the candidate pool location-wise. We can also see that some companies in the tech industry are attempting to implement a “return to office” policy.

Tammy Nagy-Stellini, managing director, Hays Hungary

GR: Now, all prescreening is online, which is very practical for job seekers, as they do not have to take time off if they want to participate in an interview. It is also making the process much quicker: You can schedule an online screening on the same day or the day after, while three years ago, the timeframe to arrange a personal interview was one week on average. Candidates are a bit more hesitant to change jobs due to uncertainty.

TF: It created a whole set of new requirements that candidates expect to have met by their future employees. Working from home is a key phenomenon, but employers have to think differently now in terms of social interaction or training. For recruiters, it is a new challenge to educate our clients that the pre-pandemic motivators are simply not enough anymore.

SB: As a result of COVID, we have 1% of our job interviews offline at Randstad; the rest went online out of 20,000 interviews per year.

Gabriella Ruff, managing partner, Karrier Hungária

BBJ: How have changes to the simplified Kata taxation system affected your business in terms of talent in the labor market?

DM: After the changes in the law affecting Kata (the Itemized Tax Liability of Small Taxpayers) in 2022, roughly 20% of the 450,000 taxpayers remained in the system. It can already be said that the majority, 80%, have switched to another form of taxation, most to flat taxation. Therefore, we can say there was no significant impact on recruitment agencies’ business. However, based on our observations, there is a tangible impact of the Kata regulation change in the IT industry. Those IT sector entrepreneurs who used Kata to invoice companies directly for their services became more open to working for these larger corporations as employees.

ZsB: Generally, it creates an effect on above-inflation salary increases and contributes to the overall labor force shortage. The good news is that the rate of salary increases has slowed in the recent one or two months. However, it has also played a role in price increases, particularly in the service sector.

TN-S: Kata was a massively popular form of taxation for entrepreneurs and small businesses in Hungary. At Hays, we experienced the results of this change firsthand when IT freelancers now had to choose another taxation form. However, the changes to Kata have not significantly affected the labor market. What we experience is that being a freelancer has never been more popular than now, especially in the technology sector. Employers in Hungary intend to hire more freelancers for their technology projects. A few employers decided to lay off their freelancers or freeze their hiring projects because of the uncertain economic situation. The majority, however, did not take this step. The key trend shows that more companies rely on IT contractors for fixed-term projects. And they do so for various reasons.

Tamás Fehér, country managing director, ManpowerGroup

GR: We expected a high rise in applicants appearing on the job market, but we have not experienced a big change. Probably, most of those entrepreneurs affected found other taxation options.

TF: Those entrepreneurs losing the Kata form were forced to find other solutions quickly, and they did. Despite the expectations that many thousands would appear in the labor market as regular job seekers, we experienced that they chose other forms of taxation and simply increased their pay rates to compensate for their losses. They could do so, as wage inflation has been quite remarkable over the last 12 months.

BBJ: What are some benefits of using a recruitment agency for employers and job seekers, and how do those benefits compare to other staffing solutions?

DM: Employers have access to a broader talent pool, save time on vetting potential candidates, save money on the recruitment process, and tap into the expertise and industry knowledge of recruiters. Job seekers have access to a wide range of job opportunities, receive guidance and support relating to their job-hunting process, enjoy high levels of confidentiality during the job search, and tap into the vast network of industry professionals held by recruiters.

ZsB: Frankly, headhunting is becoming vital for all types of positions. Those that could have been filled through simple advertisements now need more intensive ad campaigns, and even then, the results are uncertain. Headhunting is necessary; it is challenging for a company to manage in-house as it requires significant, dedicated effort.

Sándor Baja, managing director Czech, Hungary, Romania, Randstad Hungary Kft.

GyP: Recruitment agencies provide access to a wider talent pool, including passive candidates who may not be actively job hunting. They can save employers time and effort by handling administrative tasks and charging fees based on successful placements, reducing upfront costs. Recruitment agencies provide valuable services to both employers and job seekers, making them a worthwhile option for staffing needs.

TN-S: As passive candidates dominate most segments of the labor market, the importance of recruitment agencies is growing. Recruitment agencies have the expertise, resources, and technology to identify and source suitable candidates on the market more quickly. But the true value of recruitment agencies is in being a strategic partner in the long run, being specialized in industries, and having advanced recruitment tools and technology. A good recruitment agency will not only fill a position but help the employer plan ahead and look at the organization as a whole.

GR: An employment agency can accelerate the recruitment process and can also reach those candidates who are not actively looking for a job; they have a larger pool of qualified candidates. Agencies also have a vast network they can contact if it is a difficult role to be filled. Job seekers can build a trusting partnership with their recruitment consultants and get advice on doing a job interview or writing a CV.

TF: As recruitment is our core business, we continuously invest in developing new approaches to finding the best talent, while we are also there to consult on the latest trends that our clients should follow not just to attract but also to retain their workforce.

Our Market Talk Panel

• Domenico Marra, cluster sales director Adriatic and Hungary, Adecco

• Zsolt Beck, executive director and owner, Beck & Partners International HR

• György Palásti, country manager, Gi Group Holding in Hungary

• Tammy Nagy-Stellini, managing director, Hays Hungary

• Gabriella Ruff, managing partner, Karrier Hungária

• Tamás Fehér, country managing director, ManpowerGroup

• Sándor Baja, managing director Czech, Hungary, Romania, Randstad Hungary Kft.

This article was first published in the Budapest Business Journal print issue of April 21, 2023.