Croatia’s Employment Situation Causes Raised Eyebrows

Lauren Simmonds

Croatia’s employment situation is as paradoxical as other parts of life here, with so many out of work, and so many potential employers desperate for staff…

As Ana Blaskovic/Poslovni Dnevnik writes on the 9th of October, 2018, the combination of the longest recession in Europe, followed by a somewhat modest recovery, has resulted in a strong wave of emigration.

Although Croatia’s decision to join the European Union, take on the bloc’s freedom of movement policy and drop the barriers to foreign labour markets triggered a wave of migration as was the norm in most EU member states, the huge wave of 230,000 Croatian citizens (and counting) who have left the country from 2013, the year of the country’s accession to the political-economic bloc, to today, has also severely deteriorated the power of the domestic labour market.

The registered unemployment rate dropped from 19.4 percent at the end of 2014, to 8.5 percent in August this year, which is what analysts are referring to as ”natural unemployment” for Croatia. In any case, this would be an indicator which anyone coming from a political angle would readily praise, if the data on employment wasn’t casting the real situation in a completely different light. Employment did indeed grow together with the recovery of gross domestic product, and then, since October last year, things started to go downhill.

Of the 4.2 million citizens who lived in Croatia according to the 2011 census, according to data from the Central Bureau of Statistics, at the end of August this year, 1.57 million of them were among the working population, but when students and retirees are taken away from these calculations, it turns out that around one million working-age people are out of the country’s labour market, and it would appear that these people aren’t even actively searching for a job.

In Croatia, only 57 percent of the working-age population actually works, and only Greece has worse indicators, while for example, the percentages in the Czech Republic and Estonia are around 72 percent. It is a fairly indicative category of people aged between 55 and 64, in which the employment rate is only 40 percent.

This figure, experts explain, is an indicator of structural labour market problems, but also of the fact that there are unused labour force reserves. In spite of the peak tourist season, which for several years now has recorded the growth of overnight stays and arrivals of people in general, the number of employees per month has decreased by 0.3 percent when compared to July. The Economic Research Institute of Zagreb highlighted the fact that the index of vacancies grew by 24.4 percent in September compared to last year, and by 29.4 percent in the first nine months when compared to the average recorded for the first three quarters of 2017.

Despite the increase in the number of ads, seasonally adjusted figures point to a 2.8 percent decline in the demand for work on a monthly basis. Those who work will earn 6206 kuna for their work on average, a drop compared to the average net salary in July, which was 8420 kuna gross. Looked at nominally, this situation is 1.1 percent lower than it was back in June, and just how much of a role the average salary plays is a defective indicator because it is subjective.

The highest average salary of 8539 hrk is earned by employees in the ICT sector, receiving income far above the national average since the sector mainly employs very highly educated professionals.

The salary level is followed by financial activities and insurance with a typical monthly wage of 8539 kuna, but in this sector, wages have stagnated somewhat as a result of the slowdown in credit demand and the relocation of banking businesses, which is usually a process which lasts several years. In the electricity and gas supply sector, net wages reach 7905 kuna, while in mining and quarrying they’re around 7227 kuna per month.

Typical salaries in public administration stand at 7013 kuna. Following are professional, scientific and technical activities where the average salary increased by more than 6 percent a year, to 7058 kuna.

Emigration abroad will likely come to a standstill when domestic wages are equal (or at least close) with those earned by other Europeans. On the other hand, employers and economists warn that the level of pay is high compared to the real productivity of domestic labour. Naturally, tens of thousands of Croatia’s citizens have rationally decided to take advantage of the wide open doors the markets of far more prosperous European Union member states and seek employment abroad. In addition to a higher salary, one attractive factor which draws people and often pops up in various surveys on the matter is the typical practice of foreign employers offering fixed contracts for a certain period of time.

In just five years, the share of temporary employees rose from 14 percent to more than 22 percent in 2016, and by the end of 2017, it was slightly lowered back down to 20.6 percent. According to the latest analysis by Eurostat, in the EU, 27 million employees aged 15-64 years were employed on temporary contracts in 2017, accounting for 14.3 percent of total employment, while in Eurozone countries, the proportion is slightly higher, standing at 16 percent. In Romania and Lithuania, temporary work contracts make up less than two percent of the total number of employed people, and in other Baltic countries, as well as in Bulgaria and Malta, the figure is far below the EU average, at less than five percent.

Croatia is undoubtedly in dire need of much more labour market flexibility. The country’s concerning shortage of workers has, in a fairly short time, become a burning economic problem and a media headline fixture, coupled with demographic issues, this is a real threat to the economy and to Croatia’s society in the future.

According to demographic projections, Croatia’s numbers will fall to 3.7 million inhabitants by 2050, and by 2070, it will be only 3.4 million, among which the number of those over the age of 65 will continue to significantly increase. For the labour market, this means a decline in the working-age population and an increase in the number of dependents, which increases the pressure on the sustainability of the pension system and the health system, as well as the social system as a whole.

Alternatives to these existential issues do exist but are not all sunshine and flowers, the Governor of the Croatian National Bank, Boris Vujčić, warned. For example, one of the means to try to gain control over the situation would potentially be to actively seek a lower level of economic activity tailored to the country’s ongoing shortage of workers. At Croatia’s current GDP growth rates, which are at the level at which Austria has been for 26 years, such a scenario would be absolutely disastrous and extremely difficult to come back from or remedy, another solution could be to encourage a stronger inflow of foreign labour.

The situation in which millions of people are unemployed and can’t even be bothered to seek work is a proverbial luxury that Croatia simply can’t afford to keep pandering to, and it acts as a fairly clear signal to political elites that the current economic climate needs to be repaired before it’s too late.


Click here for the original article by Ana Blaskovic for Poslovni Dnevnik


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