With the latest pre-election salary increase in public and state administration, the share of expenditures for general government salaries increased from 11.5 percent of GDP in 2023 to 13 percent in 2024. According to the latest estimate from DG ECFIN (Directorate-General for Economic and Financial Affairs of the European Commission), this places us at the very top of EU countries in terms of budget expenditures for salaries, just behind Denmark.
In this indicator, we have surpassed significantly wealthier countries such as Finland, Belgium, France, and Sweden, and have further distanced ourselves from the European average for general government salary expenditures, which stands at 10 percent of GDP.
In her analysis, based on data from the Croatian Bureau of Statistics and the Croatian Pension Insurance Institute, considering only categories O, P, and Q as the public sector (public administration and defense, education, health, and social services) and without normalization for educational structure, the Executive Director of Economic Research at Privredna banka Zagreb, Ivana Jović, states that salaries in the public sector have increased an incredible 33.2 percent year-on-year, while during the same period, net salaries in the private sector increased by 11.9 percent year-on-year. This has further deepened the wage gap between the public and private sectors, which was thoroughly analyzed by the World Bank in the 2021 Public Finance Review.
– High expenditures for salaries in the public sector reflect both a high level of employment in the public sector and high salaries. Croatia employs more workers in providing essential public services (public administration, education, health, and social care) than would be expected given the size of the labor market and income levels. Croatia also has one of the highest average labor costs in the public sector relative to GDP among Central and Eastern European countries – states the report.
Average Hourly Wage 25 Percent Higher
It further states that in 2018, private companies employed 64.1 percent of workers but also paid more than four-fifths of the bottom 40 percent of wages. The majority of high-wage workers (defined as the top 40 percent of earners in the country) come from the public sector (either the core public sector or public enterprises), even though the public sector employed just over one-third of all employees. The average hourly wage was about 25 percent higher in the public sector than in the private sector in 2018, but when differences in education, experience, gender, and region are taken into account, the average wage in the public sector was still six percent higher than in the private sector.
The difference, or gap, between public and private sector wages decreased from 2008 to 2018, by about one percentage point per year, but in 2020 and 2021, wages in the public sector rose more strongly than in the private sector. With the latest increases, this gap has further deepened. In the aforementioned World Bank analysis, regarding wages, the private sector only outperformed the public sector in the category of ‘highest paid’. According to that analysis, employees in the public sector with the highest salaries would earn more in the private sector, but the remaining 85−90 percent of employees in the public sector would, on average, earn less if they worked in the private sector.
