Prime Minister Mateša Threatened Employers with Locks in 1996 Due to Illegal Work

During the parliamentary question time on September 18, 1996, SDP representative Marin Jurjević asked Prime Minister Zlatko Mateša for an explanation regarding half of the unemployed who are not actually unemployed. The question was prompted by the claim of Deputy Prime Minister Borislav Škegro that half of the unemployed are actually working illegally, which drew significant attention in Croatia at the time.

Mateša responded that the Government relies on its own research and surveys and stated that a large number of people indeed work outside legal channels. He then announced a decisive response from the state: ‘There will be drastic inspections and even closures of companies due to illegal work.’

What Happened to That Threat?

What happened to that threat? A review of publicly available data and media reports does not reveal the company closures that the Government had announced.

On the contrary, a few years later, inspectors themselves sought new powers for the temporary closure of companies employing undeclared workers. Chief State Inspector Branko Jordanić proposed in 2003 precisely the measure of temporary closure of companies for 30 to 60 days due to illegal work.

Illegal Work as a Criminal Offense?

Mateša’s statement was not an isolated political outburst. A particular problem in this context was illegal work in healthcare. The relevant minister Hebrang announced an ‘aggressive fight against the black healthcare market,’ and it was even proposed that illegal work be classified as a criminal offense.

In 1996, Croatia considered illegal work one of the main problems of the labor market. Six months before Mateša’s parliamentary statement, the Government had already announced a significant increase in labor inspections and the hiring of as many as 300 new inspectors, claiming that the state was losing significant tax and contribution revenues due to illegal work. At that time, there was a public debate about the scale of the gray economy and the actual number of unemployed.

Share of the Gray Zone in GDP

Estimates of the share of the gray economy in Croatia have varied significantly for decades, depending on the methodology. As late as the end of the 1990s and the beginning of the 2000s, some studies spoke of a very wide range, from about 10 to 30 percent of GDP. In a country with more than a quarter of a million registered unemployed, the authorities were then convinced that some people were receiving benefits or were recorded as unemployed while actually working undeclared.

Even today, there is no unified estimate. Some macroeconomic models still place the gray economy close to 30 percent of GDP, while narrower studies focusing only on undeclared work provide significantly lower values. The OECD states that undeclared work accounted for about 13.5 percent of the gross added value of the private sector in 2019, less than in 2013.

The problem of illegal work today looks different than it did 30 years ago. Back then, it was suspected that the unemployed were working illegally to receive state aid and ‘under-the-table’ wages. Today, the state fears that employers, due to a chronic labor shortage, are hiring workers outside regulations or paying part of their wages outside official channels.

Shame List for Small Employers

Since 2023, Croatia has a special Law on Combating Undeclared Work, and since this summer, penalties have been further tightened. For the first and second established cases, the employer is required to register the worker and make a monetary payment, while in the third and every subsequent case within three years, a ban on conducting activities follows. The business premises can be immediately sealed, and the ban lasts at least 30 days.

In addition, the Ministry of Labor publishes a list of employers where undeclared work has been established, a kind of ‘shame list.’ After rectifying irregularities and settling prescribed obligations, some employers can be removed from the list, so after the last revision, only a small group of violators remained on it. Among the 213 companies and craftsmen who remained on the list in September, there is not a single entrepreneur with revenues exceeding 10 million euros or with more than sixty employees.

Illegal work has not disappeared, but it has dramatically changed. Croatia, which in 1996 feared falsely unemployed individuals, today faces a chronic labor shortage. For this reason, Mateša’s threat of locks today sounds like a reminder of a completely different time.