One of the economies most affected by emigration – Portugal – has recently adopted significant measures to turn the country into a tax haven for youth, offering up to a decade of tax relief for young people. All young individuals aged 18 to 35 who earn up to 28,000 euros gross in their first year are completely exempt from income tax, with the relief gradually decreasing over ten years. The value of the relief, amounting to 525 million euros or 0.25 percent of GDP, significantly exceeds the value of active employment policies in Croatia, which stands at 163 million euros (0.18 percent of GDP). Portugal also provides tax incentives to companies that raise salaries in permanent contracts.
The aforementioned ‘raises’ are recognized up to 200 percent of their value for corporate tax purposes. Portugal is not the only country strengthening financial incentives for youth to stop the emigration of young people. As early as 2019, Poland drastically reduced income tax for those under 26 years of age. Italy has a tax reduction program for youth, returnees, and the self-employed of up to 50 percent, and similar incentives are offered by Austria. The tax wars to retain youth in the domestic market and attract young people from neighboring countries continue, and Croatia must follow the trends and programs of EU member states. Croatia, on the other hand, has recently significantly shortened the possibility of exemption from paying health contributions to just one year and has moved in the opposite direction.
The relief is primarily utilized by employers in high value-added sectors (ICT, engineering professions, medicine) or in structurally important branches (logistics, construction, transport, tourism, hospitality, and vocational professions). It increases the share of young employees in companies. Retaining employees in this age group is an important lever for accelerating the development of the entire market and raising standards in society. Despite the decline in the youth unemployment rate to 11.9 percent in 2024, as the most commonly used official statement from state institutions for loosening this measure, it is still nearly three times higher than the average unemployment rate in Croatia and continuously above the EU average (11.4 percent in 2024). Additionally, a far more realistic indicator is the employment rate of young people aged 15 to 29 (43 percent), where, moreover, the gap in the employment rate compared to the EU average, particularly the most successful EU member states, has been increasing in recent years. The youth employment rate in Croatia is lower than in Portugal (46 percent), which has opted for stronger incentives for youth.
Inclusion of Youth in the Labor Market is Key to Competitiveness
Only in the age group of 15 to 29 years is the employment rate (43.1 percent) below the pre-pandemic level of 2019. Youth employability significantly positively correlates with their involvement in active and higher quality (non)formal education, which requires the development of dual education. Its main goal is the comprehensive acquisition of skills, especially in the segment of young qualified labor. The main motivation for companies to engage in the dual education system is to discover talent and train employees at a high level.
Dual education is not limited to vocational education and training of employees but also applies to higher education. It is the best way to align educational outcomes with labor market needs amid the increasing share of highly educated individuals in the inactive population. The growth of the share of highly educated individuals in the inactive population, coupled with demographic collapse and the fact that as a society we are not competitive in introducing more than one percent of highly educated individuals among all foreign workers, presents a new problem for the competitiveness of the economy.
Therefore, the absence of serious labor relief, especially for middle and higher wages, and further tax ‘encouragement’ of rent-seeking motivates highly educated individuals to migrate from the labor market to ‘inactivity.’ Almost 30 percent of enrollment quotas at higher education institutions remain unfilled year after year, confirming the misalignment of educational programs with the labor market, and employers notice that students and pupils in educational institutions do not receive adequate education for 21st-century jobs. Instead of a constructive discussion about a more modern and focused education aligned with labor market needs, union demands for exempting teachers from the evaluation system and increasing salaries are strengthening.
Limiting the relief for employing young employees increases the real danger that employers will prefer to hire experienced individuals for the same cost rather than inexperienced youth, which can lead to greater inactivity among young people. Furthermore, the increase in the cost of hiring and retaining young people due to additional contributions for health insurance slows down the growth of their salaries, while, contrary to intention, without comprehensive reform of the health sector, it will not contribute to increasing the efficiency of the health system. The emigration of young people and their reduced activity in the labor market further increase dependence on the import of foreign labor, thereby increasing the challenges related to their integration into society and the workplace.
Teacher Evaluation is Key to Modern Education
Meanwhile, HUP emphasizes that union demands are strengthening not only regarding further salary increases but also for exempting teachers from evaluation, which raises questions about the misalignment of educational programs when participants become inactive. By the way, teachers’ salaries have increased significantly by 85.6 percent or 32.9 percent in real terms from 2016 to today, also above the average of all employees in the domestic economy.
Moreover, OECD data shows that the starting real gross salaries of secondary school teachers in Croatia were 18 percent below the OECD average, but thanks to strong salary increases specific to Croatia, this difference has significantly narrowed. As of 2022, Croatian secondary school teachers were initially better paid than their colleagues in more developed countries such as Japan, Israel, the Czech Republic, Poland, and the Baltic states, where educational systems regularly achieve higher educational results in surveys like PISA tests.
HUP believes that Croatia should strive to increase teachers’ salaries but with a smaller number of employees – in line with the decline in the number of students. Over the last ten years, the number of students in primary schools has decreased by 6.5 percent and by as much as 18.8 percent in secondary schools. At the same time, the number of employees in the education system has increased by a high 18 percent. HUP strongly supports teacher evaluation because the concept of evaluation is necessary to increase the quality of work in any area of the economy, at the level of any private enterprise, including the education system. Initiatives against evaluating work quality and against the possibility of rewarding someone based on results are a regressive concept from the time of socialism and egalitarianism, which we believe is no longer a choice of our society.
If we do not continuously implement the evaluation of the performance of the main actors who train new generations with the necessary knowledge and skills for the labor market, a key question arises – who will be responsible for the decline in the quality of education? Moreover, for the quality of the education system, a more objective system of student evaluation is also important, which would provide real feedback on students’ achievements. We are faced with an unrealistic inflation of honors students in primary school, which is revealed by objective tests such as PISA tests, National exams, or State Matura exams.
Youth play a key role in the structural changes that the Croatian industry is undergoing, transforming from traditional sectors to industries with higher added value. Their inclusion in work processes is of great importance for this transformation and the growth of competitiveness. Industry is a labor-intensive activity, and due to the vigorous increase in the ‘minimum wage’ in recent years, which puts pressure on wage growth at all levels of job complexity, labor costs have risen above the level of productivity. The potential loss of incentives for youth could push some sectors (e.g., metal, wood, textile industries) into serious financial trouble with net losses.
