Major Domestic Exporters: Easy for Engineers, But Where Are the Welders and Locksmiths?

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The crisis among blue-collar workers in Croatia and at the European Union level is becoming increasingly pronounced, with serious consequences for economic growth and stability. The lack of qualified labor in sectors such as construction, manufacturing, and logistics leads to increased labor costs and limits business operations, all of which affects domestic manufacturers and exporters.

According to the latest data from the European Commission, the Croatian economy recorded a GDP growth of 2.8 percent in 2023, while the Croatian Employers’ Association (HUP) forecasts a growth of 3.5 percent for 2024, thanks to strong household consumption and investment growth. However, despite positive macroeconomic indicators, the labor market remains extremely tight.

It is true that the current unemployment rate in Croatia stands at a historically low 5.3 percent according to data for May 2024. Compared to last month, when it was 5.4 percent, there has clearly been a decrease. Compared to the same period last year, when the unemployment rate was 6.1 percent, a decline of 13.11 percent has been recorded, but these figures are improving due to a significant influx of workers from outside the EU.

– Like all manufacturing companies in Croatia (but not only manufacturing), we are facing challenges in attracting and retaining employees due to the labor shortage in the labor market. In addition to the uncompetitiveness of wages compared to more developed EU members, the primary problems are the lack of the working-age population and the mismatch of the education system with market needs – said Mira Pavić, Executive Director of Human Resources at AD Plastik, for Lider.

Good Workers Are Stolen by Seasonal Jobs

Of course, this situation is not specific only to Croatia, which has only recently begun to rely on foreign workers. The entire EU is facing a serious labor shortage in blue-collar sectors. According to a report from The Conference Board, the record labor shortage is expected to continue until 2030. Baby boomers are retiring, the working-age population is growing too slowly, and there is also an increase in the disability rate among the workforce.

Both at the EU level and in Croatia, employers are raising wages, providing endless benefits for employees, and improving working conditions to attract people. This has led to faster wage growth for blue-collar workers compared to white-collar workers, which is good, as it reduces wage inequality and improves satisfaction. On the other hand, for employers, this means higher operational costs and challenges in maintaining profitability, especially when good workers are ‘stolen’ by seasonal jobs that presumably offer somewhat better financial conditions.

– It is hardest to find people in production. For example, this is the year we begin serial production of a larger number of projects, and in Zagreb, our needs for production workers are growing, which is quite a challenge for us. There is not enough such personnel on the market, and we are increasingly forced to turn to workers from third countries who do not make a significant cost difference but bring stability to the business.

Croatia’s excessive focus on tourism creates additional challenges in the labor market because blue-collar workers often leave their jobs during the season, jeopardizing business continuity during the tourist season. It is understandable that nowadays people choose jobs where they can earn more money in a short time, but at the same time, manufacturing companies need continuity and stability to remain competitive in the challenging global market – explained Pavić.

The law of supply and demand applies in the labor market, and the increasing competition from domestic and international companies makes it difficult to attract and retain the best workers. It is well known that one of the main characteristics of the labor market in Croatia is the gradual reduction of the workforce, which occurs as a result of negative demographic trends and emigration. Young and educated people are leaving for more developed countries, mainly EU countries that have a better standard, higher wages, and offer greater advancement opportunities. Recently, low-skilled workers are also leaving in search of better pay. All of this is, of course, partially reflected in employment at Končar, the largest domestic net exporter.

Easy for Engineers, But How to Find a Welder?

– From the perspective of the entire Končar Group, we need personnel who will successfully follow the increasingly intense socio-economic development and the trends of green energy transition and digital transformation, i.e., a new era of broader technological development of industry, markets, and society as a whole. This primarily represents those functions that are focused on sustainable development and ESG standards. It is already evident now, and in the future, it will certainly be even more pronounced, the increase in demand for personnel who possess advanced ICT knowledge and skills, which will be a direct consequence of the need for new jobs in the segment of artificial intelligence development and supervision, as well as in a whole range of economic areas – says Damir Sertić, Director of the Human Resources Sector at Končar.

All of the above is confirmed by recent reports from the consulting firm McKinsey & Company, which state that jobs requiring a high level of education and specific skills will continue to grow. They particularly highlight the importance of STEM professionals at Končar, with an emphasis on engineers in high-tech fields such as mechanical engineering, electrical engineering, information sciences, and others. Interestingly, they also point out that the demand for personnel with medium and low skills will decline.

On the other hand, as companies like Končar grow in production, it is expected that there will be increasing demands for additional welders, locksmiths, electricians, maintenance and repair specialists for industrial machines and equipment, workers responsible for monitoring and maintaining quality standards in production, and generally people with specific skills needed for various production processes, and such people are increasingly difficult to find in the domestic labor market, which is supported by the number of job postings on the MojPosao portal where employers most often seek such employees.

For this reason, AD Plastik is already employing slightly more than 40 foreign workers from neighboring countries and the Philippines, and due to business sustainability, plans to hire as many workers from the Philippines in the near future. Končar has found itself in a similar situation.

– We employ foreign workers through agencies, but still not in large numbers. We are most lacking locksmiths and welders. When we need a larger number of new employees in these or similar professions in a short time, we turn to agencies for the provision of foreign workers. The challenge with this is that agency workers, who are often Filipinos, do not come with the necessary certificates and sufficiently developed specific skills and knowledge. Therefore, upon their arrival at Končar, we test them – they undergo a check that includes handling equipment under the professional supervision of our foremen, after which we assess whether it makes sense to continue with training or not. If we notice that there is potential for development, they complete training that usually lasts a month. Of course, our goal is to maintain the quality of work and products at a high level, for which we are globally recognized – adds Sertić.

Tax Relief and Education That Follows Trends

The problem of labor shortages across the country, especially in manufacturing organizations, can be solved by adequately adjusting the education system to the needs of businesses, incentivizing the retraining of currently unemployed individuals, and providing incentives to export-oriented companies, says Pavić from AD Plastik.

– Wages should be tax-relieved so that employees have higher incomes, while companies remain competitive in the European market. Otherwise, we will very quickly face the fact that we will no longer have domestic workers, and thus no long-term stability of the health and pension system – she added.

The necessity of adapting the labor market to the green and digital transition has never been more strongly emphasized with new forms of work and ensuring the necessary workforce for the economy in transition. From Končar’s perspective, artificial intelligence engineers, fintech engineers, automation specialists, and experts in cybersecurity, application and software development, renewable energy, and digital transformation are some of the professions for which there will be even greater demand in the future.

– It is evident that a large number of these professions are already filling job postings on employment platforms, but broader application, and consequently the growth in demand for such professions, is yet to come. Therefore, in collaboration with the academic community, we must continue to create a scientific-professional framework for monitoring, but also for setting new technological trends through the education of new generations precisely in the aforementioned directions. Solving the problem involves the cooperation of all stakeholders to enable the workforce in Croatia to acquire new skills and knowledge that will be in demand in the future. Additionally, it is important to encourage adaptable work arrangements and support the migration of the workforce as needed, to ensure long-term solutions to the problem and sustainable economic development – concludes Sertić.