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- While wages are rising in other sectors, in IT wages are stagnating
- Domestic IT companies struggle to maintain competitiveness in the market
- However, wages in IT are still significantly higher than the average wage in Croatia
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Although average wages in the information and communication sector are among the highest in Croatia, a real decline in average wages in this sector was observed from February 2023 to February 2024. According to the latest data from the Croatian Bureau of Statistics, the average net wage in February 2024 in the IT sector was €1,634 net (€2,356 gross), which is an increase of three percent net and 1.5 percent gross compared to February 2023 when the average net wage was €1,587. However, taking into account the inflation rate, which was 4.1 percent during the same period, this represents a real decline in average wages in IT.
It is also interesting to note that during the mentioned period, the IT sector recorded the lowest annual wage growth rate compared to all other sectors in Croatia, even though it is considered the most dynamic, despite the current crisis in the global IT scene. On the other hand, the number of employees in the information and communication sector increased during the observed period – in February 2023, there were 57,880 employees, while in February 2024, there were 58,854 employees in IT. Thus, despite the increase in the number of employees, IT in Croatia does not experience a proportional increase in wages.
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Decline in Demand
Although the increase in GDP per capita and the number of internet users creates greater demand for work in the IT sector, wage increases do not necessarily follow this trend, explains Hrvoje Serdarušić, a specialist in finance for small and medium-sized enterprises, referring to the study ‘Analysis of Labor Demand in the ICT Sector: EU Countries and Turkey’ published in 2023.
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—– The study highlights that Croatia, along with most other countries covered by the research, shows a positive trend in employment within the ICT sector. However, wage increases remain inversely proportional to the growth of companies. This suggests a high sensitivity to wages in a sector that has low flexibility in factor substitution. This may indicate, which should be further investigated, potential pressures within the sector to maintain operational efficiency and reduce costs, including wages, in order to remain competitive in an increasingly saturated market. Also, from my experience and information from the market, it is evident that there is also a decline in demand, and such companies often work for foreign clients – says Serdarušić.
He also notes that high taxation of wages in Croatia, as well as the possibility for employees to easily change tax residency, may encourage talents to seek opportunities in jurisdictions with more favorable tax conditions, which, warns Serdarušić, further pressures wages within the local market.
IT is Not Failing, It Has Just Slowed
All of the above is the result of disruptions in the global IT market that began in the summer of 2022 and fully manifested here at the end of 2022, primarily in the spring of 2023, believes Tajana Barančić, president of the Supervisory Board of the Association of Independent Software Exporters (CISEx). After record revenue growth in IT globally during the coronavirus pandemic, the world has now, says Barančić,’returned to normal’, and the deflation of the bubble has led to a slowdown in hiring and slower wage growth.
– The number of employees in the IT sector continues to grow in 2023, as revenues at the sector level are also increasing, but these are much lower growth rates than we are used to – says Barančić, noting that the IT industry is not failing, it has just slowed.
Unlike the revenue growth of 26 percent in 2022, Barančić expects that the final business results for 2023 will show an IT sector revenue growth of about 10 percent. The employment rate was also lower in 2023, considering that, as Barančić states, companies ‘filled up’ with people during 2022, expecting a continuation of strong demand and jobs, which ultimately did not happen.
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—– Wages in the IT sector have also risen significantly in previous years and are still significantly higher than the average wage in Croatia. Due to much lower demand for employees, it is logical that wages are rising more slowly; we can practically say that they have stagnated at the sector level over the past year, and the slight wage growth that has occurred in the last 12 months is primarily the result of aligning wages with the increase in the senior level of employees rather than a frontal wage increase like we see in the public sector.
In February 2023, the average net wage paid in the IT sector was 59 percent higher than the average net wage in Croatia, while in February 2024, it was 43 percent higher than the national average, which clearly indicates wage stagnation in IT alongside a strong wage growth in other sectors. Personally, I expect that this difference will further decrease this year, meaning that wages in the IT sector will not significantly increase this year, nor will the number of new jobs in the sector – explains Barančić, who describes this situation as a ‘market correction’, albeit more intense due to the rapid development of artificial intelligence, which also affects the balance of power in the sector.
However, a sort of ‘normalization’ of the situation is expected by Barančić only next year.
– However, I think we will not see the growth rates we observed in 2021 and 2022 anytime soon – concludes Barančić.
Are the Highest Paid Leaving?
Maintaining wage growth in unfavorable global macroeconomic conditions can certainly be considered a success for both employers and employees, believes Hrvoje Josip Balen, a member of the Management Board of Algebra.
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—– Looking at the overall statistics, the information and communication sector, after financial activities and insurance activities, offers the most competitive wages to employees. However, the fact is that these companies must compete with global competition in retaining talent and the best people. For further wage and employment growth, which would ensure an environment for the retention of young, talented people, it is essential to move towards further relief of wages, as proposed by professional associations such as HUP ICT. This would help us compete with other EU member states that aggressively attract talent from all over the world, including Croatia, through various tax and other benefits – emphasizes Balen.
Barančić, on the other hand, says that we are not losing our highest-paid people, at least not in greater numbers than usual. However, many with high earnings in IT who work remotely for foreign companies influence the mentioned statistics, billing them through their own companies or crafts where they are the sole owners and directors, paying themselves minimal wages that ultimately enter the wage averages.
