The level of unemployment in Croatia is falling to record lows, which might sound like a bit of good news for the domestic economy for once, but it isn’t. The reason for the drop in unemployment in Croatia is the country’s increasing need to rely on retirees: from shop assistants to doctors in surgeries.
As Poslovni Dnevnik writes on the 24th of February, 2020, with 345,000 registered unemployed people back at the end of 2013, the unemployment rate in Croatia dropped to just 128,000 at the end of 2019, writes Dalibor Dobric for DW.
While on the surface this may seem like a huge improvement, it’s actually a complete and utter disaster. Back in 2017, much was written about how Croatia should be afraid of a falling unemployment rate because it is being caused by mass emigration. In three years, the situation has worsened. Although the Croatian economy has been recovering and growing since 2015, the number of employees has increased from an average of 1,391 million in 2015 to just 1,518 million in January 2020, as was recently published by the Central Bureau of Statistics. That’s a mere 127,000 more employed people. The fall in the rate of unemployment in Croatia is thus much greater than the increase in the number of employed or retired people, which means that the labour market is emptying, and fast.
Even though emigration from Croatia has slowed somewhat, there are still tens of thousands of people leaving per year. Immigration and seasonal foreign labour cannot make up for that. According to official data from the CBS, 39,515 inhabitants emigrated from Croatia in 2018, which is less than in 2017 when 47,352 emigrated according to official statistics, says Dr. Sc. Iva Tomic from the Zagreb Institute of Economics. However, what needs to be emphasised is that this wave of emigration is dominated by younger age groups, that is, almost half of Croatian emigrants are between the ages of 20 and 40, while one fifth is under the age of 20.
A third of those of working age aren’t even looking for work
The rate of working population is also decreasing. According to Eurostat, as stated by Dr. Sc. Iva Tomic, in the third quarter of 2019, the ”activity rate” for the age group 20-64 was only 71.4 percent.
In other words, “this means that in the age group between 20 and 64, almost 30 percent of people were economically inactive, and that they neither worked nor sought work,” says Dr. Tomic.
On the other hand, Eurostat also stated that “Croatia, Bulgaria and Latvia are most dependent on international remittances among EU member states”, emphasising that the share of transfers, ie, the money that emigrants send to relatives back home in Croatia, makes up a far larger part of Croatia’s GDP than Bulgaria and Latvia (6.3 percent versus 3.6 percent). Dr. Tomic points out that Croatia even saw a surplus due to remittances from abroad.
”Compared to 730 million euros in annual inflows of private transfers from abroad in 2009, their amount in 2015 more than doubled to 1.545 million euros. In 2017, the amount increased slightly to 1,668 million euros annually, and in 2018 to 1,743 million euros. As relatively young working-age people tend to leave Croatia, macroeconomically speaking, this is a significant loss of human capital for the current and future decades,” says Marijana Ivanov PhD from the Faculty of Economics and Business in Zagreb.
No investments or technological innovation…
”People living abroad send money to family members in Croatia, which has positive effects on current GDP through spending growth, or on the financing of the state budget through VAT revenues. However, in both cases the contribution would be much higher if their total income were acquired in Croatia through work for an employer or owing to independent business activities. The adverse effects of emigration are reflected in the financing of the health system and the first pillar from which pensions are paid to existing retirees. It’s common knowledge that part of the people who have left, either directly or indirectly (through family members), continue to use the services of the Croatian health care system, and they either participate in the financing of the health system either slightly or not at all,” warned Dr. Ivanov.
She also pointed out that the increasing labour shortage in many industries is limiting the use of existing production and service capacities, which demotivates and creates an unfavourable environment for new investments, including the necessary technological innovations to increase the productivity of the overall economy.
There is a downside to salary increases…
Her colleague from the Faculty of Economics, mag. Sc. Kresimir Ivanda, who said in an earlier interview with DW that while reducing the number of workers means a rise in wages in some sectors, this increase has its downside because it reduces competitiveness.
“A rise in wages in agriculture, for tangerine and berry pickers and the like would have a negative impact on already poorly competitive domestic agriculture, which is struggling to cope with the low prices of foreign products.”
In addition, he noted the lower unemployment in Croatia and that the fight to retain workers by raising wages is only possible for those companies that do good or excellent business. “Such companies are mostly located in the more developed parts of Croatia, which would mean that those parts of the country from which most people leave will also not experience a higher wage increase. This means an even greater difference in the development of regions within Croatia,” Ivanda said.
Croatia is the land of the retired…
”In going abroad, many people have, from a personal perspective, increased the value of their own human capital as measured by the amount of current and future income. From this point of view, and assuming that some people will sooner or later return to their homes and receive foreign pensions, Croatia’s long-term socio-economic picture can be improved in part because foreign pensions will provide many with a higher standard of living than most working today in Croatia,” says Dr. Ivanov.
“It’s also not an impossible long-term scenario in which Croatia becomes an attractive location for retirees of Croatian origin from Germany, Ireland or from other EU member states. However, from today’s perspective, it would be far better if Croatia were an economically attractive location for the employment of young people and the settlement of young families from other EU member states and also from other European countries outside the EU,” he said.
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