HUP: By 2030, one in four workers in Croatia could be a foreigner, wage growth far above inflation

More than 200,000 foreign workers will be employed in Croatia in 2024, and by 2030, one in four workers in Croatia could be from abroad, estimates the Croatian Employers’ Association in its weekly bulletin ‘Focus of the Week’.

In the first ten months of this year, 39 percent more work permits for residence and work were issued than last year, totaling 147,301, of which two-thirds are for work in construction and tourism, employers say.

They state that estimates indicate that between 80,000 and 100,000 foreign workers are currently employed in Croatia, which represents between five and six percent of the total workforce this year.

They assert that given the solid economic growth and continuous tension in the labor market, it is expected that the total number of work permits next year will exceed 200,000 (this year between 170,000 and 175,000), and the total number of foreign workers could reach 400,000 to 500,000 by 2030, assuming GDP growth of about two and a half percent over the next seven years.

In that case, foreign workers would make up a quarter of the total workforce in Croatia.

Employers remind of the Croatian National Bank’s analyses referring to demographic projections, according to which the population of working age (25-64 years) could decrease by an additional 400,000 over the next 20 years.

HUP’s analyses show that the employment of foreign workers can be facilitated by expanding the list of deficit occupations for which a labor market test is not required, as well as extending the duration of residence and work permits from one to two or three years and from six to nine months for seasonal workers.

Simplification of Work Permit Issuance

HUP advocates for the simplification of certain administrative procedures in the issuance of work permits. It recommends removing the obligation for foreign workers extending their residence and work permits to provide double fingerprinting, considering that this obligation is also questionable from the perspective of the EU Visa Code.

A significant improvement would also be if police stations digitalized the process of delivering decisions on residence and work permits, and it would be beneficial to reduce the retroactive payment of health insurance to HZZO for the last 12 months during which foreign workers were not present in Croatia, employers say.

Finally, since foreign workers are seeking residence and work permits instead of the EU Blue Card, which has extended the family reunification deadline by up to a year, they believe that the issuance of the Blue Card should be expedited by strengthening the capacities of police stations and police administrations, i.e., the Ministry of the Interior itself.

Worker Earnings Will Increase by 15 to 18 Percent

In HUP’s publication signed by chief economist Hrvoje Stojić, it is stated that worker earnings will increase by between 15 and 18 percent this year.

Namely, as noted, the domestic labor market is expected to maintain solid economic activity towards the end of this year, especially regarding personal consumption.

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Hrvoje Stojić

photo Ratko Mavar

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Moreover, the demand for workers remains high, significant support within the National Recovery and Resilience Plan for skills improvement and retraining encourages the migration of employees to growing sectors of the domestic economy, and the pressure on wage growth combined with falling inflation supports the recovery of real wages, i.e., purchasing power.

Thus, HUP expects an average employment growth of 2.5 percent this year, with a certain slowdown in growth to 1.5 percent in 2024, which, thanks to solid economic activity, remains significantly above the average employment growth in the EU of one percent this year and only 0.4 percent next year.

This year, HUP expects gross wages, i.e., total employee earnings, to grow between 15 and 18 percent, significantly above the expected inflation rate of 7.5 percent, with an increasingly pronounced role of wage growth in the public sector.

Additionally, a 2.7 percent increase in employment is expected due to stronger immigration and stronger economic activity.

Following the forecast of nominal gross wage growth in 2024 of 8.5 percent, and considering the possibility of average growth of non-taxable earnings significantly above 20 percent, total employee earnings could exceed 12 percent, HUP states.

Despite elevated inflation above the euro area average, Croatia will achieve its second consecutive year of strong real gross wage growth in 2024, and total earnings in 2024 will strongly increase in real terms for the third consecutive year, according to HUP.

However, they warn that alongside the labor shortage and intensified competition in the EU single market and lower inflation, the real wage growth in Croatia in 2024 largely reflects the explosion of wage mass in the budget of 32 percent and a record increase in the minimum wage of 20 percent compared to EU member states.

They also state that it is therefore not surprising that strong real wage growth, along with accelerated convergence of low service prices around 30 percent below the EU average, keeps inflation above the euro area average in the coming years, raising the risk of a wage and retail price spiral.

Therefore, they consider productivity growth to be the main prerequisite for sustainable wage growth and its convergence towards the EU average.