Labor Market and Social Policy in Croatia: Challenges and Solutions

written by: Tin Štorek

A functional labor market and effective social policy are the foundations of every modern and just society and are among the key factors for economic growth and development. Quality employment, access to education, protection of vulnerable groups, and the fight against poverty are essential elements of social cohesion, economic growth, and stability. In the context of the European Union, the European Pillar of Social Rights defines common goals and standards that serve as a framework for member states to guide policies towards a more inclusive and resilient society. Therefore, the situation in Croatia is analyzed in the context of the implementation of the European Pillar of Social Rights, using the latest findings from the European Commission.

The European Pillar of Social Rights serves as a crucial framework for ensuring social justice, equality, and decent living and working conditions in the EU. Croatia actively participates in its implementation but continues to face numerous challenges—particularly in the areas of the labor market, education, and social protection—that slow progress towards the goals set for 2030.

In 2023, the employment rate in Croatia was 70.7 percent, which is still below the European Union average of 75.3 percent. The employment rate for women was 66.8 percent (EU: 70.2 percent), for older persons 51.7 percent (EU: 63.9 percent), and for individuals with lower qualifications only 39.2 percent, compared to 69 percent for those with secondary education and 86.6 percent for higher education. Particularly concerning is the employment gap between persons with and without disabilities—39.2 percentage points—almost double the EU average. Young people who are neither employed nor involved in education or training (NEET population) make up 11.8 percent of youth in Croatia, while the EU average is lower. At the same time, the share of completely inactive youth is increasing, raising the risk of long-term marginalization. Croatia is also facing a serious labor shortage. In the construction sector, 60 percent of employers report a shortage (EU: 28 percent), in industry 39 percent (EU: 22 percent), and in services 37 percent (EU: 30 percent). In response, the number of work permits for workers from outside the EU has doubled since 2020, alongside parallel labor market reforms and attempts to transition from informal to formal work. The education system is undergoing modernization, but work-based learning remains limited. Only 23.3 percent of adults participated in education in 2022 (EU: 39.5 percent), while the target for 2030 is set at 55 percent. In the area of early childhood education, the share of children under three years in formal care fell from 33.3 percent (2021) to 29.6 percent (2023), while the EU average is 35.9 percent.

In the fight against poverty, the impact of social transfers in Croatia was 20.9 percent in 2023, while the EU average in 2022 was 35 percent. For child poverty, the impact is 33.2 percent, indicating their limited effectiveness. The replacement rate of pensions in Croatia is 36 percent, compared to the EU average of 58 percent, contributing to the risk of poverty among older persons (34.8 percent). For comparison, the share of the working-age population at the same risk is 14.5 percent, and the total population is 20.7 percent, which is below the EU average of 21.6 percent. Special attention is required for the long-term care system, which is marked by low investment—only 0.5 percent of GDP (EU: 1.7 percent), institutionalization, and a lack of staff. The most vulnerable are older individuals in rural areas with low pensions, who often lack access to even basic services. The process of deinstitutionalization is slow, and alternative care models are still poorly developed.

Despite numerous challenges, Croatia has strong financial instruments from EU funds such as ESF+, ERDF, and RRP. Their effective use, along with political will and coordination, is crucial for implementing reforms. Experiences from similar countries show that with a strategic approach, it is possible to overcome structural weaknesses and build a fairer and more inclusive society.

Estonia has particularly excelled in the area of lifelong learning. It has introduced a system of individual learning accounts that allows adults to use up to 2,500 euros in support over a three-year period for attending accredited education programs. The program is aimed at the unemployed, those at risk of job loss, individuals over 50 years old, and those without modern qualifications. A key advantage of the system is flexibility—users independently choose educational programs, and the costs are fully covered by the Estonian public employment service. The system also includes paid leave and tax incentives for employers and individuals, is fully digitalized, and tailored to labor market needs, resulting in a significant increase in adult participation in learning and better employment outcomes for vulnerable groups.

Denmark has introduced an innovative measure in the fight against long-term unemployment, whereby unemployed individuals who engage in education in shortage occupations receive 110 percent of their previous benefit. The measure is primarily aimed at individuals over 30 years old without valid qualifications and has proven to be extremely effective—9 out of 10 participants cited the increased benefit as the main motivator for participation. The results speak for themselves: program participants had up to 30 percent higher chances of employment compared to other unemployed individuals, positively impacting the adaptation of the labor market to the needs of employers.

In other member states, we also find inspiring approaches. Slovenia has reduced poverty by expanding social transfers and strengthening local long-term care services, thereby increasing the social inclusion of older persons. The Czech Republic has reduced the share of the NEET population and ensured a low youth unemployment rate through a strong vocational system and mandatory work-based learning, while a stable pension system has mitigated the risk of poverty among older individuals. Slovakia has responded to labor market challenges by establishing local social service centers and introducing incentives for employers who hire the long-term unemployed and persons with disabilities.

Croatia is implementing measures such as vouchers for adult education, employment and self-employment support, and reforms in vocational education and the social protection system. Although they are funded through EU funds (ESF+, RRP), their effectiveness is often limited by structural weaknesses, the seasonal nature of the economy, and poor coordination among institutions. Countries like Denmark and Estonia demonstrate how targeted investments in education and employment can yield concrete results. Denmark offers greater financial support to unemployed individuals who pursue further education, while Estonia utilizes vouchers for lifelong learning tailored to the labor market. Such practices can serve as inspiration for Croatia, with adjustments to local conditions. To achieve the goals of the European Pillar of Social Rights, Croatia must continue with reforms that will reduce inequalities, improve access to education and employment, and ensure social security for all citizens.