The record increase in wage mass and net wages of general government employees is unfortunately not linked to the reform of public administration, the growth of productivity in the public sector and state administration, or targeted rewards for the highest quality employees, writes Hrvoje Stojić, chief economist of the Croatian Employers’ Association, in this week’s economic analysis. Without reforming the state administration, a stronger wage increase in the public sector compared to the private sector (below 10 percent) will certainly not have a positive effect on curbing inflation.
According to projections from the European Commission, Croatia is this year a convincing record holder for the increase in the wage mass of general government by as much as 1.5 percentage points to 13 percent of GDP, surpassing significantly more developed countries such as Finland, Belgium, France, and Sweden, and moving to second place on the EU list behind Denmark. Wage expenditures at the general government level are now even 3 percentage points higher than the EU average (10.2 percent of GDP). At the same time, on the IMD competitiveness ranking, Croatia has stagnated slightly below the ‘distant’ 50th place in terms of the efficiency of the public sector in recent years, with respondents rating the tax policy and business regulation the worst.
Wages are Growing Faster than Productivity
Although members of the HUP last year raised employee earnings on average by 15-20 percent, also significantly above the inflation rate, there is a significant difference when the private sector does this based on productivity and results and when the large state (about 50 percent of GDP) does the same without specific criteria, thereby affecting labor costs in the rest of the economy, especially through indexation to the ‘minimum wage’ in labor-intensive sectors such as tourism, trade, or construction.
