Federica De Pace
Oliver Roehn
OECD Economic Surveys: Croatia 2026
Abstract
Croatia’s population is shrinking while ageing rapidly with adverse consequences for public finances and economic growth. To prepare for an ageing society, pension, health and long-term care, as well as further labour market and migration reforms are needed to extend working lives, bring more people into the labour force, improve the health of the ageing population, and enhance the efficiency of public spending. Further tightening early retirement options and increasing the retirement age would prolong working lives and help improve pension adequacy in a sustainable way. Improving health outcomes in a cost-effective way requires strengthening preventive care, addressing staff shortages, and rationalising the hospital network. This would also help free resources to expand the underfunded formal long-term care system. Reforms are needed to encourage older people and individuals with disabilities to remain in work. Vocational education reform would help address youth skills gaps, while expanding affordable high-quality early childhood education and care would support employment of women with young children. Encouraging return migration and improving the system for attracting foreign workers can help ease labour and skill shortages.
Croatia’s population is shrinking while ageing rapidly. In 2024, 3.9 million people lived in Croatia, about 1 million people less than in 1992. The population is expected to further shrink to 3.2 million people by 2050 according to UN World Population Prospects (UN, 2024[1]), a steeper projected decline than in most OECD countries (Figure 4.1). The working age population will decline even faster by about 25%, from 2.2 million in 2024 to 1.7 million in 2050 (Figure 4.1, Panel B). The loss of population has been particularly pronounced in central and eastern regions, while it has been lower in Zagreb and the coastal counties in the south. Besides shrinking, the population is ageing rapidly. The old-age dependency ratio is projected to increase from around 40% in 2024 to 59% in 2050 (Figure 4.1, Panel C). Increasing life expectancy and low fertility rates are driving population ageing. The fertility rate, at around 1.5 children per women in 2023, is below the replacement rate but close to the OECD average and slightly above the EU average of 1.4.
Source: United Nations, Department of Economic and Social Affairs, Population Division (2024).
High emigration has been a major driver of the population decline. Croatia has experienced several large emigration waves, notably in the 1990s related to the War of Independence and again in the period between 2013 and 2017. The latter is related to Croatia’s EU accession in 2013, after which Croatians were allowed to move freely to other EU countries, and which coincided with the peak of the labour market crisis following the global financial crisis. Over the last decade, immigration flows have been rising, exceeding emigration flows in 2022, 2023 and 2024 for the first time in 15 years. This reflects in part changes in immigration policy that facilitated the immigration and employment of third-country nationals. These third-country nationals have traditionally come from Bosnia and Herzegovina, Serbia and other Western Balkan countries. More recently, there has also been a significant increase in immigration from Asia, notably from Nepal, Bangladesh, India, and the Philippines (OECD, 2025[2]).
Note: Net migration includes statistical adjustment.
Source: Eurostat.
The United Nations (UN) and Eurostat produce population projections for Croatia. Overall Eurostat’s projections are somewhat more benign than UN projections in terms of fertility and mortality rate assumptions. However, the major difference for Croatia arises from the net migration assumptions. In particular the UN assumes a slightly negative migration balance of around 1000 people per year over the period 2024-2050. In contrast, the latest Eurostat projections assume a positive net migration balance of about 3000 people per year over the period 2024-2050. As a result, according to Eurostat the decline of the working age population is somewhat smaller between 2024 and 2050, at 20%, compared to decline of 25% projected by the UN. The old-age dependency ratio increase is also somewhat less steep from 40.1% in 2024 to 56% in 2050.
Demographic challenges are expected to have adverse effects on potential growth. The shrinking and ageing population are projected to be a drag on the growth potential of the economy. Employment is overall below the OECD average and particularly low among the young and the old, low-educated workers, and people with disability. Overall, the potential growth rate of the economy is projected to decline from over 4% in 2024 to 0.3% in 2070 (Figure 4.3).
A recent pension reform will improve pension adequacy but add to ageing-related spending pressures. The latest EU Ageing Report 2024 (EC, 2024[3]) estimates that spending related to pensions, health and long-term care will increase only moderately, by 0.6 percentage points of GDP over the period 2022-2070, compared with an EU average of 1.6 percentage points of GDP (Figure 4.4). As explained in detail in the sections below, this largely reflects a fall in the in the expenditures for disability pensions, which are currently very high due to a large number of war veterans. However, high old-age poverty (Figure 4.5) and low pension adequacy are important concerns, and the projections assume a further decline of pension benefits relative to wages in the future. In response, in June 2025, the parliament adopted a pension reform with a main aim to increase pension adequacy (Box 4.3). According to preliminary estimates by the Ministry of Ministry of Labour, Pension System, Family and Social Policy, the pension reform will lead to additional pension costs of around one percentage point of GDP by 2040. Moreover, as discussed below, spending will likely have to increase more significantly than projected to enhance access to and quality of long-term care.
Decomposition of potential GDP growth, % points
Source: OECD Economic Outlook 118 Long-Term database.
Change in government expenditure between 2022 and 2070, in percentage points of GDP
Source: European Commission (2024), 2024 Ageing Report. The projections do not include the pension reform adopted in June 2025.
This chapter discusses policy options to mitigate the adverse impacts of Croatia’s demographic challenges. Promoting healthy ageing, extending working lives, boosting labour market participation of underutilised groups, facilitating immigration and improving spending efficiency are all key to continue to improve living standards and ensure fiscal sustainability. The chapter discusses policy options along three policy dimensions: the pension system, health/long-term care, and the labour market.
Poverty rate (50% of the national median disposable income), population aged 65 years and over, 2023 or latest available year, %
Source: OECD Income Distribution Database (IDD).
Croatia operates a three-tier pension system, which consists of a pay-as-you-go public pension scheme, created in its current form in 1998, as well as a mandatory and a voluntary private funded scheme, both introduced in 2002 (see Box 4.2). The public pension scheme is broad in coverage, providing old-age, disability and survivors’ pensions to both employees and the self-employed. The pension system has undergone a number of reforms in recent years, with the latest reform approved by parliament in June 2025 (Box 4.3).
The expected fall in expenditure on disability pensions mitigates future pension expenditure growth. Public pension expenditure, at 10.3% of GDP in 2024, is comparable to other EU countries (EU average of 11.6% of GDP). According to the latest EU Ageing report (EC, 2024[3]), which does not take into account the 2024/25 reforms, public pension expenditure is projected to moderately fall until 2070 (Figure 4.6). This is entirely due to a substantial decline in spending on disability pensions by around 1 percentage point over the period 2024-2070. This is largely because the number of war veterans with disability pensions will gradually decline and a new system for acquiring disability pensions, which aimed to make medical assessment rules stricter and improved voluntary occupational rehabilitation, was introduced in 2014. In contrast, the rising old-age dependency ratio is set to increase expenditure on old-age pensions until the mid-2030s before slightly declining. Other factors that help mitigate pension expenditure include the increase in the statutory retirement age of women (from 63.5 years in 2024 to 65 years in 2030), pension valorisation and indexation below wage growth, the growing importance of the second private pension pillar and a declining share of pensioners from special schemes with more favourable pensions.
The Croatian pension system is based on three pillars: A public pay-as-you-go scheme (pillar I), a mandatory private fully-funded scheme (pillar II), and a voluntary private fully-funded scheme (pillar III). The public scheme was created in its current form through a comprehensive reform of Croatia’s previous public scheme in 1998. The mandatory and the voluntary private funded schemes were introduced in 2002.
The first pillar is mandatory for all employees and the self-employed, and provides old age, disability and survivors pensions. It is a point system in which workers earn pension points based on their individual earnings for each year of contributions. The minimum contributory period for old-age pension for both genders is 15 years. The statutory retirement age is 65 years for men and 63 years and 6 months for women (in 2024), with women’s retirement age currently increasing by three months each year to reach 65 years in 2030. Workers with long contribution records of at least 41 years can retire from age 60 without penalty. Early retirement is permitted five years before the statutory retirement age for workers who have contributed for at least 35 years, in which case a penalty of 0.2% per month applies.
The first pillar also provides pensions to a large number (19) of special regimes, which permit people with a special societal or professional status to receive pensions at more favourable conditions. In January 2025, 15.5% of all pensioners benefited from such rules, the most important group being war veterans.
In 2021, the National Benefit for the Elderly, a non-contributory income-tested cash benefit, was introduced. The benefit is available to those above the age of 65 years who lack the 15-year insurance period required for entitlement to an old-age pension. There were 17 849 recipients of the national benefit for the elderly in January 2025, with the benefit amounting to EUR 154.5.
The second pillar is a fully-funded defined contribution scheme, which is mandatory for all employees and self-employed persons born in 1962 and after. In October 2024, the total number of members of mandatory pension funds was around 2.3 million and net assets of mandatory pension funds were around EUR 22.7 billion (26% of GDP). In 2011, older cohorts (those born between 1953 and 1962) were given the opportunity to opt out of the two-pillar pension and transfer their savings to the first pillar. This was seen as a transitory measure as the system was not fully matured and most individuals in the second pillar had not contributed sufficiently long to receive a higher pension than that offered by the first pillar. Since 2019, all cohorts (also those born after 1962) are allowed to opt out of the second pillar at retirement. At the end of 2024, around 35% of the retiring two-pillar participants decided to receive combined two-pillar pensions, while all others chose to receive benefits from the first pillar only.
The third pillar, is a voluntary private, fully-funded, defined contribution pension system. In this scheme, payment of pensions is possible from the age of 55 without other qualifying conditions. In October 2024, around 16% of the working population participated in this pillar and net assets stood at EUR 1.38 billion (0.2% of GDP). The government supports the voluntary pension savings through supplementary payments or tax incentives for employers if they contribute for their employees.
The public pension system runs a major deficit, as the ratio of contributors to pensioners is very low (Figure 4.7). According to data from the EU Ageing report, the public pension deficit is set to reach 4.4% of GDP in 2025 before it gradually improves. The pension reform adopted in June 2025 (Box 4.3 and below), which mainly aims to improve pension adequacy, is set to increase the deficit further. Pension contribution rates, at 20% of gross salaries, are comparable to the OECD average of 18.8% in 2024 (OECD, 2025[4]). In 2023, there were over 1.23 million pensioners but only 1.65 million contributors, a dependency ratio of 74%. In the EU, only Romania and Lithuania have a higher dependency ratio (EU average 56%). As a consequence, Croatia finances around 40% of its pension expenditures from the central government budget.
Croatia carried out a major reform of the pension system in 2018, which took effect in January 2019 but was partly reversed under strong public pressure. The reform aimed to improve the system’s financial sustainability, notably by extending people’s working lives. It also aimed to increase adequacy. Key elements included: an increase in the retirement age by two years, to 67 years by 2033 for both women and men, and by one year, to 61, for workers with long qualifying periods; an increase by two years in the age permitting early retirement, to 62; higher penalties for early retirement and larger rewards for postponed retirement; a six-month credit to mothers’ contribution record for each child born or adopted; and a more generous indexation rule for the public pension scheme. Following public protests, Croatia revoked the most controversial parts of the reform in October 2019, reversing the increases in the normal retirement age, the retirement age for workers with long qualifying periods, and the age threshold for early retirement.
Pension reforms in 2023/24 have mostly focused on increasing incentives to work longer and enhancing pension adequacy, including:
The bonification for a deferred pension was increased from 0.34% to 0.45% per month, up to a maximum of 5 years of deferment (effective from 1 January 2023).
The minimum pension was increased (from 100% to 103% of the pension value multiplied by the number of years of contribution) (effective from 1 January 2023).
For pensioners with benefits from the first and second pillar, the basic pension supplement (a factor applied to the average pension point value) was increased from 20.25% to 27%. This equalised the pension supplement between pensioners that receive a pension from the first pillar only and pensioners receiving a pension from both pillars (from 1 January 2024).
Several changes have been made to the second and third pillar pensions, including: the option to receive a share of the pension payments as a lump-sum at the beginning of the pension contract has been increased (from 15% to 20%), pension fund investment restrictions have been eased so that funds can invest in a larger set of assets (e.g., real estate, unlisted firms), pension fund fees have been reduced (effective from 1 January 2024).
In June 2025 the parliament adopted a pension reform. Main elements include:
The requirement of a minimum contribution period of 35 years to benefit from the bonus for deferred retirement will be abolished as will be the cap to receive the bonus for only 5 years.
Pensioners who take up work after turning 65 will be allowed to work full-time while receiving 50% of their pension.
The additional credited pension insurance period for mothers will be increased from 6 to 12 months per child.
The valorisation and indexation of pensions will be increased: pensions will be adjusted according to wage and price growth in the proportion 85:15, where the higher weight is given to the index that grows faster (from 75:25 before).
The minimum pension will be increased (from 103% to 106% of the pension value multiplied by the number of years of contribution).
Introduction of an annual pension supplement.
The disability pensions will be increased from 80% to 90% of an old-age pension.
Note: The figure does not include the effects of the 2025 pension reform.
Source: European Commission (2024), 2024 Ageing Report.
Public pension deficit, public pension contributions minus gross public pension expenditures, % of GDP
Source: European Commission (2024), 2024 Ageing Report; Croatian Ministry of Labour, Pension System, Family and Social Policy.
Average pensions of the current generation of pensioners are low, mainly due to short contribution periods. In 2024, according to Eurostat, the expected duration of working life was only 34.8 years compared to 37.2 years on average in the EU (Figure 4.8). Short working lives are partly due to the War of Independence, the deep labour market crisis following the global financial crisis, relatively high rates of informality but also still relatively generous early retirement options and pathways into disability in the past. As a result, pension contribution periods are short. The average pension contribution period was around 32 years in 2024 compared to over 36 years on average in the EU. Only around 24% of pensioners in the old-age pension had contribution periods of 40 or more years, whereas 35% had 30 or less contribution years in June 2025. The average old-age pension was around EUR 636 in June 2025, which corresponds to 43.8% of the average net wage. According to Eurostat data, the gross median pension income of 65‑74 year-olds amounted to only about 35% of gross median earnings from work of 55-64 year-olds in 2024, much lower than on average among EU countries (60%). This helps explain why the relative poverty among older people is almost twice as high as on average in the OECD (Figure 4.5).
Expected duration of working life, years, 2024
Note: The indicator on duration of working life is an estimation of the number of years a person, currently aged 15 years, is expected to be in the labour force (i.e. to be employed or unemployed) throughout his or her life.
Source: Eurostat.
The future adequacy of pensions for pensioners with a full career is somewhat lower than on average in OECD countries, but will increase with the 2025 pension reform. According to simulations from the OECD pension model, which does not take into account the 2025 pension reform, a person entering the labour market in 2024 at age 22, working at average earnings throughout their career, and retiring at the earliest possible age without penalty (63 years in this case) is entitled to a pension corresponding to 50.5% of their previous net earnings (Figure 4.9). The simulations therefore imply a full career with around 41 years of contributions for Croatia. This net replacement rate is below the OECD average (63.2%), but above those in many OECD countries including Lithuania, Estonia, Poland, Japan, Korea, Ireland and New Zealand. Low-wage workers in Croatia receive higher relative pensions, with the net replacement rate of a person having worked at 50% of average earnings reaching 65.1% (OECD average 75.4%). For high‑wage workers, the net replacement rate is 47.7% (OECD average 52.9%). The 2025 pension reform will increase future replacement rates. For instance, OECD pension model simulations suggest that the more generous valorisation of the pension point will increase the net replacement rate of an average wage earner to 51.8% (Table 4.2).
Enhancing pension adequacy is a key goal of the 2025 pension reform but this will come at a fiscal cost. In June 2025, parliament approved a reform that focuses on increasing pension benefits. Elements include for example a more generous valorisation and indexation of pensions, a higher minimum pension and the introduction of an annual pension supplement (see Box 4.3). To prolong working lives the reform further eases conditions to receive a bonification for a deferred pension and liberalises conditions to combine work and pension receipt. While the reform is expected to increase pension adequacy, it will increase pension expenditures and the pension deficit in the medium- to long-term (Table 4.1).
Net pension replacement rates as a percentage of previous earnings, 2024
Note: Net replacement rates give the theoretical future entitlements of a person entering the labour market in 2024 at age 22 and retiring at the earliest possible age without penalty. They assume that all legislated changes to the pension system have been implemented. The data for Croatia include legislation in 2024. The figure does not include the effects of the 2025 pension reform.
Source: OECD, Pensions at a Glance 2025 and OECD pensions model www.oecd.org/els/public-pensions/.
In % of GDP, additional costs relative to baseline
Source: Croatian Ministry of Labour, Pension System, Family and Social Policy.
4.2.1. Improving pension adequacy in a sustainable way
Extending working lives and hence contribution periods should be the key policy priority to improve pension adequacy sustainably. Given the currently low average contributions periods, extending careers to accrue additional pension rights is a crucial avenue to ensure adequate pension levels, especially as life expectancy increases. Labour market, health and skills policies are important levers to extend working lives and are discussed in other sections of the chapter. In addition, there remains scope for Croatia to promote longer working lives through adjustments to its pension system. The government has taken various steps in this direction, notably by raising the statutory retirement age for women, liberalising conditions to combine work and pension receipt, and increasing the bonus paid for deferred retirement. Despite the political challenges, further tightening early retirement options and increasing the retirement age would ensure adequate pensions while maintaining the sustainability of the public pension system. Building consensus among all stakeholders and social partners around the need to increase the retirement age and tighten early retirement pathways will be important given the experiences with the 2018 pension reform (see Box 4.3).
OECD research suggests that increasing the statutory retirement age and tightening early retirement options can significantly lift the average age of labour market exit and increase employment rates of older workers (Turner and Morgavi, 2020[5]; Morgavi, 2024[6]). For example, cross country estimations in (Morgavi, 2024[6]) suggest that a one year increase in the normal and minimum retirement ages lead to an increase of the employment rate of workers aged 55-74 by 1.8 percentage points and increases the average age of labour market exit by 4.3 months. The results also show that the employment effect of raising the normal retirement age is much smaller if the minimum retirement age remains unchanged. Single country studies using micro data often find an even larger effects. For example, (Fodor, Roehn and Hwang, 2022[7]) find for the Slovak Republic that increasing both the statutory and minimum retirement age by one year would increase the average labour market exit age by 7 months.
Without further policy changes the expected duration of retirement is set to increase markedly. The statutory retirement age, at 65 years for men and 63 years and 9 months for women in 2025, is close to the OECD average. The statutory retirement age for women will further increase by three months each year to reach 65 years in 2030. Many OECD countries are set to increase their retirement ages in the future (OECD, 2025[4]). Given longer life expectancy, the expected duration of retirement is set to increase significantly. Croatian men who entered the labour market in 2022 at the age of 22 years and who retire at the earliest possible age without penalties, are projected to spend 5.2 years longer in retirement than those who retired in 2022. This is longer than the average expected increase for men in the EU (4.2 years) or the OECD (4.1 years). For Croatian women, the projected increase amounts to 4.1 years, compared to 3.3 and 3.6 years for the EU and OECD, respectively (Figure 4.10).
Difference between the normal retirement age for a person who enters the labour force at age 22 and life expectancy at age 65, years
Source: OECD (2024), Strengthening the Hungarian Pension System and OECD calculations.
Linking the statutory retirement age to changes in life expectancy can increase pension adequacy while reducing pension expenditure. For example, increasing the statutory retirement age 1:1 with gains in life expectancy would bring significant fiscal savings via longer contribution periods and shorter periods of pension payment, estimated to be around 1.3 percentage points of GDP by 2070 (Figure 4.11). However, such a link would leave the time in retirement for someone retiring at the normal retirement age relatively short. A more politically acceptable solution may be to transmit two-thirds of gains in life expectancy to the retirement age, which would broadly keep the share spent in retirement relative to the time spend working constant across generations, thus contributing to intergenerational fairness. One in four OECD countries now link retirement ages to life expectancy. In Finland, the Netherlands, Portugal and Sweden the statutory retirement age increases by two-thirds of the change in life expectancy. In Croatia, such a link could be established from 2030, once the retirement age of men and women are equalized at the age of 65. As a result, the statutory retirement age would increase to 67 years by 2049 and to 69 years by 2072. The longer resulting contribution periods lead to significantly higher replacement rates. Simulations based on the OECD pension model, that also assume that the minimum years of contributions to receive an early pension without a penalty (see below) are also increased with life expectancy, suggest that replacement rates would increase by more than 10% for an average earner.
Net replacement rates
Note: For a person entering the labour market in 2024 at age 22 and retiring at the earliest possible date without penalties. The simulations of linking the retirement age to life expectancy assume that the minimum years of contributions to receive an early pension without a penalty are also increased with life expectancy.
Source: OECD Pension Model.
Change in public pension spending over 2022-70, deviation from baseline projection due to linking retirement age to life expectancy, % pts of GDP
Source: European Commission (2024), 2024 Ageing Report.
Tightening early retirement options should be a priority. There are two main early retirement pathways. First, workers with long contribution records of at least 41 years can retire at the age of 60 years without penalties. In mid-2025, around 5% of all pensioners had retired under this scheme. The authorities should raise the age condition and contribution period condition in line with future increases in the statutory retirement age. Second, early retirement is permitted up to five years before the statutory retirement age with penalties, for workers who have contributed for at least 35 years. In mid-2025, around 17% of all pensioners had retired under this scheme (down from over 45% in 2013). Allowing some flexibility around the retirement age is welfare improving as individuals have different preferences regarding higher pension benefits or longer retirement periods. However, for the early retirement option not to lead to additional expenditures, it should be actuarially neutral. The current penalty of 2.4% should be raised to 3.3-3.6% per year of early retirement, which the Ministry of Labour, Pension System, Family and Social Policy estimates to be the actuarily neutral rate. Moreover, allowing early retirement five years before the normal retirement age is a long period compared to many OECD countries, where early retirement is often possible two or three years ahead of the normal retirement age (Figure 4.12, (OECD, 2025[4])). The period could therefore be shortened.
Early retirement ages for a man, current and future refer to retiring 2024 and entering the labour market in 2024, respectively
Source: OECD (2025), Pensions at a Glance 2025: OECD and G20 Indicators, OECD Publishing, Paris, https://doi.org/10.1787/e40274c1-en; and own calculations.
Further increases in the minimum pension should proceed with caution to avoid unintended labour market consequences. As in most OECD countries, Croatia’s public pension scheme is redistributive, which reflects a relatively generous non-means-tested minimum pension. The payment level depends on a person’s qualifying years. The minimum pension was increased several times in recent years (see Box 4.3). Under current rules, a person with an average income during their working life of less than 81.1% of the average wage receives the minimum pension. The number of pensioners who receive a minimum pension has increased substantially in recent years, to 274 653 pensioners (26.5% of all pensioners) in June 2025. The average minimum pension amounted to EUR 410.71, which equalled 28.3% of the net average wage or 64.6% of the average old-age pension payment. Raising the minimum pension faster than the average pension may increase incentives to under-declare work income, especially for self-employed workers who generally benefit from a high degree of discretion in setting the contribution base.
Efforts to encourage work after reaching retirement age are welcome. Under current rules, it is possible to defer retirement beyond the statutory retirement age with a bonus of 5.4% per year (4.08% until 2023). As this bonus is more generous than what is implied by actuarial neutrality, this system adds to the pension deficit. Given the low current average years of contribution at retirement, such a bonus appears understandable. However, future reforms should aim to tighten pathways to early retirement and set the penalty for early retirement and the bonus for deferred pension at actuarily neutral levels, which would also improve pension sustainability. The 2025 reforms abolished the 5-year limit as well as the condition of 35 years of contributions to receive the bonus. These steps are welcome and in line with international practice. Moreover, retirees can work up to half of full-time hours without pension suspension. The 2025 reform in addition allows full-time employment after the age of 65 while receiving half of the pension.
The more generous valorisation and indexation of pensions as part of the 2025 reform will improve pension adequacy (Table 4.2) but at the cost of significantly deteriorating pension sustainability (Table 4.1). Before the reform, both the uprating of the pension point value and the indexation of pensions in payment were done according to a 70:30 combination of wage and price inflation, with the larger weight given to the indicator that increases more, which is generally wage growth. The 2025 pension reform adjusted the formula to 85:15. An alternative would be to decouple the uprating of the pension point value from the indexation of pensions in payment. The majority of OECD countries uprate past earnings with average wage growth to determine the first pension, while indexing pensions in payment to price inflation (OECD, 2025[4]). Uprating the pension point value exclusively with wage growth, while indexing pension in payment to inflation would increase the first pension, but slow the growth of pensions during the payment period. Such a reform could be designed in a cost-neutral way compared to the current situation. The advantage for the pension system would be lower exposure to the risk of growing longevity, which is particularly important if the pension age is not linked to life expectancy (World Bank, 2019[8]). Another alternative could be to base the valorisation and indexation on changes in the contribution base (or a proxy like the total wage bill), which closely relates to the internal rate of return in a pay-as-you-go system and hence ensures pension sustainability. Such mechanisms are in place in Estonia and Lithuania. Japan automatically adjusts pension benefits to the number of contributors.
The new annual pension supplement is designed to increase incentives to lengthen contribution periods but may not be well targeted to alleviate old-age poverty. The government introduced an annual pension supplement for all pensioner as part of the 2025 pension reform. The amount is the product of the number of full years of contributions and a value set for one year of contribution, to be determined by the government each year. This raises incentives to contribute for longer periods. However, it is unlikely to alleviate old-age poverty, which is largely due to short contribution periods of the current generation of pensioners. A more targeted approach would be to restrict the annual pension supplement to current pensioners and make the annual pension supplement payout conditional on pension income, with higher supplements to lower pensions. Incentives to increase pension contribution periods of future pensioners should be strengthened by tightening pathways to early retirement and increasing the statutory retirement age as discussed above.
Eligibility to special pension regimes should be reduced. Currently the pension system includes 19 categories of retirees whose pensions are granted and/or determined under more favourable conditions, which includes options to retire early without penalties and/or higher pension benefits. In January 2025, there were a total of 189 778 pension recipients under special regulations, representing 15.5% of all pensioners. War veterans are the largest category, but other groups include police, firefighters and military personnel, members of Parliament, Constitutional Court judges, workers in some hazardous jobs (e.g., mining) and members of the Croatian Academy of Sciences and Arts. The number of pension recipients under special regulations is expected to remain high until 2030 at 15.3% before dropping significantly to around 3.5% by 2050. This is largely due to the falling numbers of war veterans in the pension system. The justifications for these special regimes should be reviewed with a presumption to close them unless there are clear reasons for an exception. This would increase fairness while creating room to increase pensions for everyone. Many OECD countries have tightened access to special pension provisions including for hazardous or arduous jobs (OECD, 2023[9]). For example, Ireland removed the lower retirement age for police officers, soldiers and firefighters in 1995, and Lithuania eliminated the special provisions for most occupations also in 1995. In Norway the early retirement scheme for public-sector workers was aligned with the private-sector scheme.
4.2.2. Strengthening the role of second-pillar pensions
A mandatory fully-funded defined contribution private pension pillar was established in 2002 to diversify pension savings, but the system has not yet had a significant impact on pension adequacy. Participation in the second pillar is mandatory for all employees and the self-employed born from 1963, while people born between 1953 and 1962 could voluntarily join the second pillar. People who are insured in both pillars split the total contribution rate of 20% between the public PAYGO pillar (15%) and the private pillar (5%). In October 2011, the government allowed individuals at retirement age who were voluntarily enrolled in the private scheme the option to transfer their accumulated assets from the second to the first pillar and receive pensions as if they had contributed to the first pillar throughout their career. As a result, 99% of individuals made use of this option in 2011. Since 2019, also cohorts born in 1963 and later were allowed to opt out of the second pillar at retirement. While the number of people who opt out of the second pillar pension has declined, still 65% of individuals opted to receive their pension from the first pillar only at the end of 2024.
Several recent reforms aim to make the two-pillar pensions more financially attractive, which is welcome. Most importantly, from 2024 the pension supplement (a factor applied to the average pension point value) was equalised at 27% between the mono-pillar and two-pillar pensions (Box 4.3). While this has a fiscal cost, it corrects a structural imbalance that was an important reason why benefits in two-pillar pensions have been systematically lower than for mono-pillar pensions. In addition, to increase the returns from investments in the second pillar, pension funds are allowed to invest in more asset classes (e.g., real estate, unlisted firms) and investment limits for existing asset classes were adjusted. For example, the maximum investment limits for equity investment were raised, while the minimum investment limits for government bonds were lowered. The adoption of the Euro in 2023 has significantly increased the pension funds’ ability to invest in a geographically broader range of assets without the need to hedge for currency exposure. Finally, fees for the pension funds have been further lowered.
A clear timeline should be set to phase out the possibility to opt-out of the two-pillar pension system. The opt‑out option runs counter to the aim of the second pillar to create complementary income and instead creates competition between the pillars. Reforms increasing the generosity of the public PAYGO system, such as the 2025 reforms, make mono-pillar pensions more attractive. Additionally, the opt-out option undermines confidence in the second pillar and creates administrative costs when assets are transferred between the systems. It also introduces significant expenditure uncertainties for the public pension system. With the equalisation of the pension supplement between the mono- and two-pillar pensions, a key reason for the relative underperformance of the two-pillar pension has been removed. The authorities should therefore set a target date or a target level of assets accumulated at retirement by individuals, to phase out the possibility to opt-out of the second pillar.
There is scope to further improve the diversification and returns of private pension funds. Over the past decade, annual real returns of assets managed by pension funds have averaged 2.5%, similar to OECD countries (OECD, 2024[10]). Individuals can choose from three pension fund categories with different risk profiles, with Category A carrying the highest risk. Similar to many OECD countries, pension funds often invest more cautiously than regulations allow. For instance, Category A funds may invest up to 70% in equities, but currently only invest around 30%. The government should consider removing the minimum annual return guarantee, which may discourage riskier investments that could boost long-term returns. The guarantee is defined as the weighted average return of all mandatory pension funds by a category in a 3-year period minus 12%, 6% and 3% for Categories A, B and C, respectively. Although the guarantee has never been triggered and is not strict, it may lead to overly conservative strategies and herding among fund managers (Matek and Galic, 2017[11]), as they can reduce the risk of activation of the guarantee by aligning their portfolios with competitors. The authorities should also review whether required minimum investments in sovereign bonds limit diversification and further adjust these rules if needed.
The role of default life-cycle-based investment strategies could be strengthened. These strategies let younger participants invest more in risky assets for higher expected long-term returns, while gradually reducing risk as retirement approaches to protect savings (OECD, 2024[12]). Offering such strategies by default can help those unwilling or unable to choose pension products obtain higher pension income. In Croatia, pension management companies cannot offer true life-cycle funds. Instead, those that do not choose are placed in category A funds (the most risky) and then moved to Category B (medium-risk) funds after 15 years. This rather abrupt shift could be improved with a smoother, gradual reduction in risk (the so-called glidepath), which can lead to better investment outcomes. In the medium-term, the authorities should consider liberalising investment options, so that pension funds can offer life-cycle investment products. As an intermediate step, pension funds could be allowed to mix the different fund categories. Many OECD countries require life-cycle investment strategies as defaults, including Chile, Colombia, Israel, Lithuania, Mexico, Poland, the Slovak Republic, Slovenia and Sweden. Chile and Colombia are in the process of implementing target date funds (funds that gradually rebalance assets as a person gets closer to retirement). In Australia, Canada and the United States, providers can choose between a diversified/balanced fund or a life-cycle investment strategy as the default.
Note: In Collective Investment Schemes (CIS) financial institutions (e.g., pension funds) invest funds for the benefit of small investors but the break-down into equities, bills and bonds, cash and deposits and other assets is not available.
Source: OECD (2025), Pension Markets in Focus 2025, OECD Publishing, Paris, https://doi.org/10.1787/b095d0a0-en.
More flexibility could be introduced in the pay-out phase while ensuring careful design and adequate information. At retirement, pension assets are transferred from pension management companies to one of two pension insurance companies, which provide lifetime annuities. If the first pillar pension exceeds a minimum threshold, individuals can take 20% (from 15% until 2024) of their savings in the second pillar as a lump sum. While this adds flexibility and may increase the second pillar’s appeal, it may reduce its role in supplementing retirement income. Hence, further increases of the lump sum should be carefully evaluated. Until 2024, only inflation-protected annuities were allowed. Now, non-inflation-protected annuities are also allowed, which is a positive change as inflation protection is costly and may limit market competition. It may also be less necessary since the first pillar pension is already partly indexed to inflation. A more efficient way to address inflation risk could be annuities that rise at a fixed rate (OECD, 2024[12]). The authorities could also consider allowing lifetime non-guaranteed pension income products, which are already allowed for the third pillar and may offer higher average payouts than fully guaranteed annuities. If more pay-out flexibility is introduced, it is important to give clear, personalised information on how different options affect future income. The newly developed MyPension platform, which provides individualised information about future pension benefits and a pension calculator, could add information on different pay-out options. For example, Sweden’s Minpension tool allows users to assess the impact of different pay-out options (OECD, 2024[12]).
Efforts to strengthen financial literacy should continue. Boosting financial education is important to strengthen the ability to manage private pension savings. Recent assessments suggest that the level of financial literacy among adults in Croatia continues to improve and has caught up to the average level in OECD countries (OECD, 2023[13]), although it is lower in rural areas (OECD, 2022[14]). Croatia is currently implementing the National Strategic Framework for Consumer Financial Literacy for the years 2021 to 2026, on the basis of which annual action plans are developed. Activities of public, private and NGO stakeholders are co-ordinated through the Operation Working Group, led by the Ministry of Finance. The Croatian Financial Services Supervisory Agency (HANFA) develops numerous educational programmes targeted at different population groups, including training on pensions. Financial literacy activities are regularly monitored to ensure that relevant target groups and specific sectors are covered as planned in the action plan. Nevertheless, more rigorous evaluation methods could be used to assess the effectiveness of the programmes.
4.3.1. Population ageing intensifies pressures on the healthcare system
Despite improvements, health outcomes in Croatia remain below the OECD average. Life expectancy at birth increased steadily by two years between 2010 (76.7) and 2019 (78.6). However, this progress was reversed during the COVID-19 pandemic, and in 2024 it remained nearly three years below the OECD average (Figure 4.14). Older Croatians face greater health challenges compared to OECD countries. Self-perceived health among older adults is poor: approximately 30% of adults over 65, and 40% among those in the lowest income quintile, rate their health as poor or very poor, which is higher than the OECD average (Figure 4.15, panel A). In addition, 60% of the over-65 population faces some or severe limitations in their daily activities, which is more than the EU average (Figure 4.15, panel B).
Life expectancy at birth, years, 2024 or latest available year
Source: OECD Health Statistics.
Adults aged 65 and over, 2024 or latest available year
Source: Eurostat.
The healthcare system overall ensures high affordability of healthcare, but regional disparities in physical access to care persist. Public financing accounts for most health spending, with out-of-pocket payments at just 9.4%—a much lower share than the OECD average of 18.9% in 2023 (OECD, 2025[15]). The compulsory health insurance scheme, managed by the Croatian Health Insurance Fund (HZZO), is complemented by voluntary insurance covering co-payments, held by over three-quarters of the population (OECD, Forthcoming[16]). Around 10% of the population, including low-income households and children, are exempt from such co-payments, and their contributions are financed from the state budget. As a result, in 2024 only 0.2% of the population reports unmet needs due to cost, below the 0.8% EU-OECD average. However, healthcare facilities and personnel are concentrated in urban areas, while rural regions and islands face severe shortages. Consequently, in 2024, 0.7% of Croatians report unmet medical needs due to travel distance—seven times the EU27 average (Eurostat, 2024[17]).
Overall spending on healthcare is lower than in many OECD countries, but there is room to improve spending efficiency (Figure 4.16). Measuring efficiency is complex, but Croatia performs relatively well compared to countries with similar or higher total health spending. For instance, life expectancy at birth exceeds that of Latvia and Lithuania, despite comparable or lower expenditure in percentage of GDP. However, countries like Costa Rica and Ireland achieve significantly higher life expectancies with similar or even lower spending in percentage of GDP (Figure 4.16). As discuss below, strengthening prevention, primary care and improving the quality and efficiency of hospital care are key to improve efficiency of the system.
Source: OECD Health Statistics.
Prolonging healthy lives is key to mitigate the adverse effects of population ageing. Increased longevity, without an improvement in health status, leads to increased demand for healthcare services over a longer period of the lifetime and places greater pressure on healthcare expenditure. According to the 2024 EU Ageing Report, healthcare expenditure will rise by 11% (equal to 0.7 percentage points of GDP) between 2022 and 2070 due to ageing pressures alone (EC, 2024[3]). Additional fiscal pressure will arise from a growing older population requiring long-term care. Keeping people healthy throughout their lives would improve well-being, reduce demand for health and long-term care services, and prevent people from leaving the workforce prematurely due to poor health.
This section discusses some policy options to raise health outcomes while containing pressures on healthcare spending. These include investing in preventive healthcare, reinforcing primary care and enhancing the efficiency of the hospital sector. Gaining efficiency in healthcare spending would leave space to shift more resources to the currently underfunded long-term care sector.
4.3.2. Strengthening prevention and promoting healthier lifestyles
Behavioural risk factors are high in Croatia. Smoking, obesity and unhealthy diets, explain 44% of all deaths, a higher share than the EU average (39%) (OECD/EOHSP, 2023[18]). Tobacco and alcohol consumption are high among both adults and adolescents (Figure 4.17, panel A, B). More than one fifth of adults are obese, and childhood overweight and obesity rates are rapidly increasing (Figure 4.17, panel C).
Higher taxation can help reduce tobacco and alcohol consumption and promote healthy diets. Despite recent increases, the average retail selling price per 20-pack cigarette in 2025 was among the lowest in Europe (Figure 4.18). Further tax increases are needed, as research suggests that such taxes can effectively reduce consumption and deter new users, especially the young, with a 10% price increase estimated to decrease demand by 10.7% (University of Split, 2018[19]). At the same time, efforts to avoid illegal imports of tobacco products at lower prices from neighbouring non-EU countries should continue. Moreover, alcohol excise duties are fixed per unit of alcohol and not linked to price, weakening their impact over time, and lower rates benefit small local breweries while wine remains tax-exempt. Alcohol taxes should be regularly adjusted for inflation or wage growth to remain effective (OECD, 2021[20]) and, in line with WHO recommendations (WHO, 2023[21]), excise duties should apply to all alcoholic beverages. Similarly, the tax on sugar-sweetened beverages, based on sugar content, should be regularly adjusted for inflation or wage growth (Csákvári et al., 2023[22]; Dogbe et al., 2024[23]).
Note: for panel C, obesity is based on the WHO definition.
Source: OECD Health Statistics; Health Behaviour in School-aged Children study (2023), https://data-browser.hbsc.org.
Restrictions on consumption of tobacco and nicotine products need to be tightened. In 2023, more people were exposed to smoking in public spaces in Croatia (86%) than in other EU27 countries (72%), with significant health risks from second-hand smoking (Eurobarometer, 2024[24]). Smoking is banned in restaurants but there are exemptions for small bars and larger premises with ventilated smoking rooms and terraces, which makes the legislation weaker than in many OECD countries (Smoke Free Partnership, 2024[25]). In July 2025, the authorities introduced several significant regulatory changes aimed at restricting tobacco use, including banning the sale of nicotine pouches to persons under 18, expanding smoke-free environments to public areas like playgrounds, amusement parks, public swimming pools, restaurant terraces and public transport. This is welcome as it would not only reduce health-risks from second-hand smoking but also promote behavioural change by increasing social disapproval of smoking. Stricter regulation of alcohol advertising is also needed, as Croatia is one of only two European countries with no restrictions on wine and beer ads on national television (OECD, 2021[20]). Research shows a clear association between alcohol advertising and increased consumption, particularly among young people (Sargent and Babor, 2020[26]; OECD, 2021[20]).
Cigarette retail price, average retail selling price per 20-pack, as of July 1, 2025, Euros
Source: Tax Foundation Europe, https://taxfoundation.org/data/all/eu/cigarette-taxes-europe/.
Colorectal cancer screening remains low, and despite relatively high screening rates for breast and cervical cancer, significant income-related disparities persist. In 2023, 26% of the eligible population was screened for colorectal cancer, much lower than the EU average of 42%. In addition, in 2019, 74.1% of eligible women in the highest income quintile were screened for cervical cancer compared to 48.2% in the lowest income quintile, a large difference compared to the EU average (67.5 % and 49.8%, respectively) (OECD/EOHSP, 2023[18]). Similarly, for breast cancer, in 2019, 77% of high-income women were screened, compared to just 44% of low-income women (European Cancer Inequalities Registry, 2025[27]).
Cancer screening programmes need to be stepped up through more intensive and targeted outreach. Strategies such as sending advance notifications and regular reminders alongside invitation letters could significantly increase participation in colorectal cancer screening programmes (Larsen et al., 2022[28]; Gruner et al., 2021[29]). In addition, expanding the use of mobile units and involving pharmacists more actively can help address socio-economic and geographical barrier to access. Mobile breast cancer screening units are already used to reach remote and underserved areas – a welcome approach supported by evidence from other OECD countries, such as France (De Mil et al., 2019[30]). In addition, pharmacists can play a greater role in screening efforts, as they are among the most accessible healthcare providers, along with GPs and nurses, and have close communication with patients. Examples include France and Spain where pharmacies help distribute colorectal screening tests and provide information about the correct method of collection and delivery of the sample, which has improved screening coverage and early colorectal cancer detection (OECD, 2024[31]). Lastly, scaling up media campaigns and information leaflets is also key to raise awareness.
Financial resources allocated to prevention are higher than the OECD average (Figure 4.19). In 2024, the government scaled up its national preventive health examination programme for individuals aged 40 and above, and several cancer screening programmes are currently being piloted. Other initiatives include the 2024–2027 Action Plan for Obesity Prevention - promoting physical activity, healthier eating habits, and support for individuals living with obesity -, the Healthy Living programme, which promotes health awareness in schools and workplaces, and various measures to support mental health. These initiatives are welcome and should be sustained through adequate and stable funding. Research highlights the strong economic case for such investments. In the UK for the example, the return on investment in primary prevention has been estimated to be GBP 14 for every GBP spent (McAdams, 2023[32]). Across the OECD, returns to prevention policies have been estimated to be over five times higher than their cost (OECD, 2019[33]).
Preventive care expenditure, % of GDP, 2024 or latest available year
Source: OECD Health Statistics.
4.3.3. Strengthening primary care through better workforce planning and incentives
Despite improvements over the past two decades, the number of general practitioners (GPs) and nurses is still relatively low compared to OECD countries (Figure 4.20). In contrast, the density of specialists, at 3.1 per 1 000 population, is higher than the OECD average of 2.5. GPs are also unevenly distributed across the country, with the highest concentration of GPs per population in the county of Dubrovnik-Neretva, and the lowest on the islands of the Adriatic coast (Split-Dalmatia) (Croatian Institute of Public Health, 2022[34]). In addition, the medical workforce is ageing rapidly: in 2023, 30% of doctors were over the age of 55 and are expected to retire within the next decade, raising concerns about the future availability of physicians (OECD, 2025[15]).
The limited availability of GPs weakens primary care, placing additional strain on both emergency and specialised care. The GPs act as gatekeepers to the system as patients need to obtain a referral to see a specialist. However, the relatively low number of GPs creates a bottleneck in accessing specialist care. As a result, nearly half of emergency room visits are for non-urgent conditions, suggesting that emergency care is being used as a substitute for inaccessible primary care. This contributes to long waiting lists in emergency departments and drives up healthcare costs (OECD, Forthcoming[16]). In addition, lower GPs density is associated with higher referrals rates to specialists (Figure 4.21), suggesting that in areas with fewer GPs, high workloads may also incentivise GPs to conduct fewer diagnostics and refer patients to more expensive specialists, weakening the gatekeeping and guidance role of primary care.
Source: OECD Health Statistics.
Source: Croatian Institute of Public Health.
Improving the availability of healthcare personnel across the country
Effective planning of the healthcare workforce, especially of GPs, is needed to ensure adequate and equal access to healthcare across the country. The allocation and recruitment of healthcare workers is organised at the county level, and local authorities are ultimately responsible for providing healthcare in their counties (World Bank, 2021[35]; OECD, Forthcoming[16]). Yet, the health workforce planning has not been regularly adjusted to the changing size and regional distribution of the population, changing population health needs, and seasonal pressures due to tourism, especially on the coastline and islands (OECD, Forthcoming[16]). This has resulted in insufficient staffing in underserved areas. To compensate, counties often provide additional incentives, such as scholarships to medical students, free housing, or bonuses to attract doctors, exacerbating regional inequalities in healthcare access due to disparities in local resources (OECD, Forthcoming[16]).
To address disparities and staff shortages across counties, the health workforce planning process should improve. This will need to take into account regional differences in vacancies, staffing, and future demographic trends in both the population and the health workforce. A needs-based assessment by county conducted at the central level would enable to allocate adequate financial resources to contract physicians across counties. Achieving this requires stronger coordination between national and local administrations. The National Health Development Plan 2021–2027 outlines several steps in this direction, including the creation of a national database on health workforce supply and demand, as well as forecasting tools and planning methodologies to address workforce challenges. In addition, incentives for newly trained doctors can be strengthened to reduce the shortage of physicians in the periphery. For example, Israel’s Ilanot programme includes scholarships for qualified students from the periphery who study locally. Research shows that these students are most likely to stay in the periphery after their studies (OECD, 2023[36]; Ono, Schoenstein and Buchan, 2014[37]).
Besides better workforce planning and financial incentives, fully rolling out planned telemedicine projects can help address accessibility challenges and healthcare workforce shortages in underserved areas. It will enable patients to consult with doctors remotely, while physicians can interpret diagnostic results and prescribe treatment without the need for in-person visits. The planned rollout of mobile clinics to provide access to care in areas with limited transport option has the potential to help.
Increasing the attractiveness of the profession and efficiency of primary care
Relatively low salaries of GPs and nurses and high workload contribute to the low attractiveness of the profession. In 2022, the ratio of wages of primary doctors and nurses to average wages was lower than in many OECD countries (Figure 4.22). In contrast, the pay rate of specialists is higher, with a ratio of 2.6 of the average wages, in line with the OECD average. Low wages compared to neighbouring countries have been one of the main reasons for the emigration of doctors, mainly to Germany, in the beginning of the 2010s, especially after Croatia’s accession to the EU in 2013 (World Bank, 2021[35]). In 2024, as part of the broader reform of the public sector salary system, the authorities raised salaries of publicly employed GPs and nurses by 23%, and 86%, respectively. Such efforts can be effective in reducing shortages in the public healthcare sector, but can also be very costly, as they are one of the largest components of healthcare and hospital spending.
Note: Fewer countries are shown in panel A due to limited data availability. The latest available data for Croatia in panel A and B refers to 2022.
Source: OECD Health Statistics.
Strengthening performance-based remunerations can help to raise the attractiveness of the profession and improve health outcomes without inflating healthcare spending. Croatia has a mixed payment model for GPs, combining lump sum payments (49%), capitation (20%), fee-for-service (24%), and performance-based (7%) incentives (EOHSP, 2024[38]). This mix is welcome, as it aims to address the drawbacks of each payment scheme. However, the pay for performance component remains limited, and lower than in some OECD countries, such as the United Kingdom (10%) and Türkiye (around 20%) (OECD, 2025[39]). The relative weight of the performance-based component of GPs salaries should be increased to enhance the quality and efficiency of primary care. Evidence from Estonia shows that performance-based compensation has improved health outcomes by better motivating healthcare workers while lowering overall costs (WHO, 2015[40]).
Strengthening the pay-for-performance (P4P) component in GPs remuneration requires improving data collection and processing. The performance indicators currently used in the P4P systems mostly reflect service volume, such as the number of prescriptions, referrals, laboratory tests, chronic disease follow-ups, participation in preventive programmes, and the formation of group practices, rather than patient outcomes (OECD, Forthcoming[16]). In contrast, more mature P4P systems tie incentives to outcome-oriented indicators across a broader range. The United Kingdom’s Quality and Outcomes Framework (QOF), for example, uses over 80 indicators grouped into four domains: clinical (e.g., chronic kidney disease, heart failure, and high blood pressure), organisational quality (e.g., patient information, staff training), patient experience (e.g., consultation length, access), and additional services (e.g., child health surveillance). Performance on these indicators is translated into points, which directly influence the level of financial compensation (OECD, 2022[41]; Jamili et al., 2023[42]). To apply this system, it is key for Croatia to continue efforts to improve the collection of reliable information on the quality of care and outcomes, as planned (OECD, Forthcoming[16]).
The working conditions of GPs can be improved by shifting tasks between professions and by reducing administrative tasks. In 2024, the Ministry of Health (MoH) implemented a reform to reduce the administrative burden on primary care physicians. Tasks such as processing travel vouchers and reimbursement requests were transferred to administrative services, allowing physicians to dedicate more time to patient care. These efforts are welcome. In addition, training of nurses and technicians can be introduced or enhanced to allow them to take on advanced roles and share tasks with doctors in primary care, as it has been recently done in emergency medical teams (OECD, Forthcoming[16]). This would help distribute workloads more evenly, improve job satisfaction among nurses, and strengthen the overall capacity of primary care.
Improving medical education and expanding training programmes is also crucial to improve the quality of primary care and attract more people to the profession, especially in light of an ageing medical workforce. The Family Medicine specialisation programme, a postgraduate primary care training initiative, was interrupted for 12 years due to a shortage of qualified mentors and lack of training resources (Vrcić Keglević and Tiljak, 2014[43]; OECD, Forthcoming[16]). Efforts are underway to expand and improve specialisation and training programmes in primary care, mainly through EU structural funds and implementation of the National Recovery and Resilience Plan. This is welcome, and the authorities should ensure implementation and continuity of funding for such programmes.
4.3.4. Improving the quality and efficiency of hospitals
The quality and efficiency of hospital care should be improved. Indicators of hospital care quality point at severe underperformance of hospitals. In 2023, the 30-day mortality rate for acute myocardial infarction, and ischaemic stroke are higher than in most OECD countries (OECD, 2025[15]). In addition, hospitals are financially inefficient and accumulated high debt and arrears over time (OECD, Forthcoming[16]). This reflects long‑standing problems of insufficient funding, overcapacity and governance.
Boosting efficiency in hospital spending
The hospitals payment system has not been sufficiently aligned with the provision of services. Hospital care is reimbursed by the Croatian Health Insurance Fund (HZZO) through a mix of global budgets (90%) – whereby hospitals receive in advance a fixed annual amount based on their submitted business plans - and Diagnosis Related Groups (DRGs) (10%) – a system that classifies hospital cases into clinically similar groups and reimburses hospitals at a fixed rate for each DRG-assigned case (EOHSP, 2024[38]). While this mixed-payment model is common among OECD countries, the system is largely dominated by global budgets, which in practice are mostly allocated according to HZZO’s available funds rather than actual service needs, resulting in hospital underfunding. In addition, the DRG system, introduced in 2007 to promote efficiency and transparency, has not delivered the expected improvements (Kalanj et al., 2021[44]). This is partly due to the fact that, despite being regularly updated in line with macroeconomic conditions, DRGs have insufficiently reflected the complexity of cases, limiting their cost-reflectiveness and leading to over-provision or under-provision of certain procedures. This system has led to inefficiencies and the accumulation of high hospital debts, which have been systematically repaid by the central government (Kalanj et al., 2021[44]; World Bank, 2018[45]).
The authorities should ensure that hospital funding is well aligned with the provision of services. Increasing the share of hospital funding through DRGs, for instance to around 30%, could help improve the efficient use of hospital resources (OECD, 2016[46]), while maintaining a sufficiently balanced mixed-payment model, in line with OECD countries (Milstein and Schreyögg, 2024[47]). However, this primarily requires refining the DRG system in line with international best practice, as outlined in the National Health Development Plan 2021‑2027. DRGs need to be regularly updated to reflect evolving medical practices and costs. This requires upscaling efforts to improve the quality of the data used to compute average costs per DRG – including hospitals’ invoiced charges, clinical data (diagnosis, length of stay, etc.), resource use (pharmaceuticals and equipment used and staff time), patients’ demographic - as in France or the United Kingdom.
Despite progress, pharmaceutical spending remains relatively high, and a large driver of hospital and HZZO costs (Figure 4.23) (World Bank, 2018[45]; Bađun, 2020[48]). Since 2012, the MoH introduced joint procurement for state-owned hospitals, with voluntary county participation, achieving substantial savings. By 2020, nearly half of hospital spending on drugs and supplies was centrally procured (World Bank, 2020[49]). In addition, the MoH has enhanced data collection and monitoring of especially expensive medicines by establishing a register of treatment outcomes, which will improve oversight and support the development of data infrastructure. These efforts should be sustained.
Further progress on digitising the health care sector could also improve efficiency. The digital health infrastructure is already relatively advanced with further plans to expand it (OECD, Forthcoming[16]). For example, in 2022, electronic health records (“eKarton”) that consolidate patient data (e.g., chronic conditions, vaccination records, medical examinations, referrals, prescriptions) and facilitate communication across hospitals and primary care were introduced. Patients can access their electronic records and communicate with GPs through the Health Portal (“Portal zdravlja”). So far, 25 public hospitals (out of 90) have used the electronic health record, and there are plans to expand coverage further (EOHSP, 2023[50]). This is expected to improve diagnoses, streamline administrative tasks, and support more efficient healthcare delivery.
Pharmaceuticals and other medical non-durable goods expenditure, % of expenditure on health, 2024 or latest available year
Source: OECD Health Statistics.
Rationalising the hospital network and improve quality by increasing hospital specialisation
The hospital sector is marked by significant overcapacity. In 2023, the average number of hospital beds per 1 000 inhabitants was 5.7, well above the OECD average of 4.3 (Figure 4.24). National averages mask regional imbalances, with a disproportionately high number of beds concentrated in the city of Zagreb and the counties of Varaždin, Požega-Slavonia, and Krapina-Zagorje, where the ratio approaches 10 beds per 1000 population (Croatian Institute of Public Health, 2022[34]). Moreover, most beds are for acute care (averaging 3.6 per 1 000 people in 2023). However, their occupancy rate is 64%, a lower share than the OECD average of 71%, suggesting room for efficiency improvements (OECD, 2025[15]). An over-sized hospital sector results in lower financing per bed, reducing quality of outcomes and efficiency. There are plans to reallocate some of the acute care beds to palliative and long-term care wards and increase day-care bed capacity, which is welcome.
Highly specialised care should be centralised in specialised facilities. Currently, all general hospitals can provide the full range of acute healthcare services, including highly specialised care, depending on the needs of the county population and the availability of specialist workforce (OECD, Forthcoming[16]; EOHSP, 2024[38]). This results in inefficiencies in resource allocation and poor quality of this care. To address this, a clearer and more restrictive definition of the scope of services offered by individual hospitals should be established. In line with best practices from OECD countries, such as France, Germany, and the Netherlands, the authorities should introduce minimum volume requirements for specific procedures and centralise complex care in high-performing specialised facilities, while taking into account accessibility of care in remote areas (OECD, Forthcoming[16]). Evidence from OECD countries shows that implementing such minimum volume limits for procedures in hospitals can significantly improve the quality of health outcomes (Vogel et al., 2022[51]).
Reforming the governance of hospitals could help strengthen incentives to provide care efficiently. The ownership and management of public hospitals has been historically fragmented. The MoH oversees tertiary level institutions, counties are responsible for specialised regional hospitals and, until 2024, also for general hospitals. In addition, the city of Zagreb owns a small number of hospitals. In 2024, the ownership of county hospitals was transferred to the central government, with the aim of bringing more efficient management to the hospitals, and cost savings stemming from strengthened centralised public procurement, standardised financial control mechanisms and monitoring of quality and outcomes. The effects of this reform should be monitored, and the authorities should make sure that the governance structure does not lead to a potential conflict of interest, as the MoH is both the main regulator of the health care system as well as a major provider.
Hospital beds per 1 000 inhabitants, 2024 or latest available year
Source: OECD Health Statistics.
4.3.5. Expanding formal long-term care
The demand for long-term care (LTC) is high and will continue to grow. People aged 65+ are the most likely to report poor health compared to OECD countries, especially among lower income groups, and nearly half of older Croatians experience severe limitations in daily activities and may require assistance. Yet, in 2019, 52% of Croatians aged 65 and older with severe limitations reported unmet medical needs—significantly higher than the EU average of 41% (Eurostat, 2019[52]). Population ageing will put further pressure on the demand for long-term care and the sustainability of the system.
The supply of formal institutional and home-based LTC is limited. In 2021, there were only 15 LTC hospital beds per 1 000 people aged 65+, compared to the OECD average of 45.6. State and county nursing homes operate at full capacity, with long waiting lists and high regional disparities: nearly half of all nursing homes are concentrated in the city of Zagreb, Split-Dalmatia, and the County of Zagreb. As a result, in 2022, only 3% of older adults with LTC needs lived in nursing homes. In addition, just 0.5% of older people received formal home-based care, and 5% received in-cash support, among the lowest rates in the OECD (OECD, 2023[53]).
LTC affordability is also a major barrier. Public support for LTC is provided via in-kind services (help at home or in residential settings) and in-cash benefits. However, social protection covers only a small share of the total costs, placing a heavy financial burden on old people in need. Out-of-pocket costs for older people with severe needs exceed 140% of the median income for home care and 100% for institutional care. While on average in OECD countries LTC benefits and services reduce poverty risks by an average of 27 percentage points, in Croatia the benefits reduce poverty risk by less than 5 percentage points (OECD, 2024[54]).
In the absence of accessible formal LTC care, the burden falls heavily on informal family caregivers, most of whom are women. This leads to physical and emotional strain and adverse impacts on their participation in the labour market. As a result, these caregivers are often unemployed (75%), receive no financial compensation, and over half live below the poverty line (OECD, 2023[53]).
Expanding access to high-quality long-term care
The authorities are taking welcome steps to expand the supply of institutional care, but further efforts are needed to meet existing and future needs. Notably, some acute care beds in hospitals with low occupancy are being converted to long-term care wards. Moreover, with the support of the National Recovery and Resilience Fund, Croatia plans to invest EUR 159 million (0.2% of GDP) to build 18 care centres for older people, which will offer accommodation to 1 849 users in severe need and 4 549 non-institutional beneficiaries (including half-day residential service and care service during the absence of a caregiver). This is welcome and should be accompanied by efforts to increase support of home care. Institutional care in hospitals or nursing homes is generally more expensive than home care and is considered the last resort option, with individuals preferring to have health and social care provided within their own home settings (OECD, 2023[53]).
Expanding the provision of formal home LTC services requires efforts to attract more workers to the sector. In 2021, there were only 2 long-term care workers for 1 000 people aged over 65, a much lower share than the OECD average of 57 (OECD, 2025[15]). An assessment of the LTC workforce is currently underway and will provide a clearer understanding of the requirements needed to meet both current and future demand. In addition, attracting more workers into the LTC sector requires improving working conditions. The system is characterised by high job insecurity, low salaries - only slightly higher than the minimum wage - and a high incidence of undeclared work (Bađun, 2020[55]; OECD, 2023[53]). LTC workers also report more overtime work and greater exposure to physical health risks than those working in hospitals (OECD, 2020[56]). A recent OECD study shows that low wages and poor working conditions induce many LTC to migrate to neighbouring countries, such as Austria and Italy (OECD, 2023[53]). Recent increases in the minimum wage will benefit LTC workers, but further measures, such as guaranteed overtime compensation, as practiced in the United States, could help improve retention and job quality. Switching to voucher-based benefits for care recipients, as suggested below, would strengthen incentives to reduce undeclared work. Providing better training opportunities as planned will be crucial to improve the quality of services while also motivating workers. The authorities could leverage the growing intake of foreign workers to strengthen the long-term care workforce by streamlining foreign qualification recognition and training and integrating them as professional carers (see Section 4.4.4). Targeted campaigns to change gender stereotypes and recruit more men, as was done in Norway of the United Kingdom, would also help (OECD, 2025[39]).
The design of cash benefits for older people with disability in home-based care could be further improved to reach the most in need and reduce undeclared work. Public support for older dependent people at home is mainly based on cash transfers. However, these benefits are modest and reach only a limited share of those in need. In 2024, the system was reformed with the introduction of the Inclusive Allowance, which replaced the less generous personal disability and assistance allowances. The new benefit is based on an assessment of the level of disability, is no longer income-tested, and includes only limited asset testing. As means testing is less strict, coverage is expected to expand, and benefit levels have risen, up to 74% of the minimum wage (from the previous 40%). These changes are welcome as they address high poverty rates and out-of-pocket spending among older people with LTC needs. In addition, as previously recommended by the OECD (OECD, 2023[53]), the use of the cash benefit could be regulated to improve home care quality and ensure that it is effectively used. One option is to provide the benefit as voucher—similar to France’s Chèque emploi service universel—to pay carers. This would support formalisation of the labour relation through contracts between carers and recipients, with the state covering social contributions. Carers could also be required to meet basic eligibility criteria, such as health and training standards. To ensure the financial sustainability of this measure, Croatia could consider reintroducing income testing with a gradual tapering down of the benefit, as in countries like France, Lithuania, Spain, and the United Kingdom (OECD, 2024[54]). This would help to avoid sharp increases in out-of-pocket costs as older individuals' incomes rise.
Strengthening support for informal family carers is essential to improve the quality of home-based care and the well-being of carers. Before 2024, the caregiver allowance mainly targeted parents of children with disabilities. A recent reform broadened eligibility by removing the requirements to be a parent or spouse and to be under 65 years of age (Bađun and Penava Šimac, 2024[57]). This change enables carers of older people—typically over 65 years old— but also relatives, and friends living in the same household, to qualify for support. The benefit amount was also increased to up to EUR 1 000, and 4-week paid leave for caregiving duties was introduced. While these changes mark important progress, further steps are needed. First, expanding respite care, as planned (see above), would allow carers to fully benefit from paid leave. Second, linking the caregiver allowance to training opportunities—as done in Germany or Austria- could improve care quality and enhance employment prospects for informal carers, 75% of whom are currently unemployed (OECD, 2023[53]). Finally, addressing barriers to labour market participation of carers is crucial. This includes promoting flexible working arrangements and considering the introduction of caregiving leave, as implemented in Finland.
Raising long-term care funding
Expanding the provision of long-term care requires increasing its funding. In 2022, health spending on long‑term healthcare accounted for only 0.2% of GDP, well below the OECD average and the levels observed in demographically comparable countries such as Czechia and Slovenia (Figure 4.25). The availability and adequacy of LTC is a concern especially given negative demographic trends. According to OECD simulations, population ageing alone will increase public spending on LTC up to 0.5% of GDP by 2050, and if Croatia had to fully eliminate out-of-pocket expenses for people in need it would further increase LTC spending to 0.8% of GDP (OECD, 2024[54]). This calls for reform to the LTC system to improve sustainability in the long term.
Health spending on long-term care, % of GDP, 2024 or latest available year
Source: OECD Health Statistics.
An integrated LTC model that coordinates health and social welfare, and different level of government would support a cost-effective and sustainable LTC system. LTC provision and funding are fragmented between central and local governments and across the health and social sectors. While the health system covers medical needs and the social system provides personal and support services, in practice it has proven difficult to distinguish between the two needs, leading to overlapping or redundant service provision (Joshua, 2017[58]). Weak coordination between national and county level programs leads to inefficiencies, such as differences in service prices, for example between state and county nursing homes, and an uneven regional distribution of support (World Bank, 2020[59]). Experience from OECD countries, as for example Sweden and the United Kingdom, shows that constructing an integrated LTC model can bring significant efficiency and quality gains. Some possible reform options include creating regional one-stop shops to coordinate and simplify access to long-term care services, together with regular contact between medical professionals and social care providers, and creating a single integrated information system to track beneficiaries (OECD, 2024[54]).
The authorities should explore new financing options for LTC. The system mostly relies on a fragmented set of funding sources, including national health insurance, general taxes, local budgets, out-of-pocket payments and EU contributions. There are plans to develop a new financing model, following an assessment of the LTC needs based on projections of expenditures and funding sources. The authorities should ensure a reliable and predictable source of funding for LTC. One option would be to introduce insurance-based funding as in Germany, Japan, the Netherlands, and recently Slovenia (Box 4.4). A drawback of this model is that it is generally financed via contributions on work income with potentially negative effects on demand for formal work. Another option is to assign a budget for LTC embedded in a multi-year fiscal framework financed by general taxation. Maximum prices for LTC services and targets for LTC expenditures, as in the Netherlands, might be useful tools for sustainability (OECD, 2024[54]). Alternatively, private insurance and home equity programmes might provide a valuable solution. An example is reverse mortgages, i.e., borrowing against the value of the home and repaying the loan when the borrower dies, moves or sells. These schemes exist in Canada, France, Spain, New Zealand, the United Kingdom, and the United States, but are not widely used. A study of the potential for these products in Croatia suggests that a robust regulatory framework will be necessary as well as a strong role for the government, for example by having the state (as opposed to private banks) act as lender (Bađun and Krišto, 2020[60]).
In 2023, Slovenia introduced a mandatory insurance-based system for long-term care (LTC). All individuals covered by compulsory health insurance, along with their family members over the age of 18, are now included in the LTC insurance scheme. Starting 1 July 2025, contributions will be set at 1% of gross salary for both employers and employees, 2% of the gross pension base for sole traders and farmers, and 1% of net pension for pensioners. In addition, the state budget will allocate a maximum of EUR 190 million a year for LTC. As a result, public expenditure on LTC is expected to reach 1.4% of GDP in 2026. From 1 January 2028, the law also allows for the introduction of user co-payments of up to 10% of service value if other funding sources prove insufficient. This approach is expected to enhance transparency by linking dedicated contributions directly to LTC. It also promotes horizontal equity, as services are provided equally to all users regardless of their income, while contribution levels are income-based, ensuring equity in funding.
Source: (OECD, 2024[54]).
Despite progress, the overall employment rate in 2024 (68.3%) lags behind the OECD average (70.2%) and neighbouring countries. While prime-age workers show strong employment, the overall shortfall is largely driven by difficulties integrating youth and retaining older workers. Within these groups, female employment rates also fall behind those of OECD and peer countries, primarily due to caregiving responsibilities of young children and older dependent relatives. Moreover, the employment gap based on education is wider than in the OECD (Figure 4.26). To mitigate the adverse impact of a smaller and ageing workforce on the long-term growth potential, it is crucial to mobilise these underutilised labour resources. Simulations reported in Box 4.5 suggest that policies aimed at improving health outcomes, mitigating the effects of long-term unemployment, and enhancing skills, discussed throughout this chapter, can significantly boost employment of younger and older workers.
Employed persons, % of the working age population in the same subgroup, 2024
Note: 'Peers' is the unweighted average of Czechia, Hungary, Slovak Republic, and Slovenia. Low education refers to less than upper secondary, medium education to upper secondary or post-secondary education, high education to tertiary education.
Source: OECD infra-annual labour statistics; OECD Education at Glance database.
To examine factors influencing employment among seniors and youth, a logistic regression model was estimated using data from the 2023 Survey of Adult Skills (PIAAC) Cycle 2, separately for a sample of 1 099 Croatian respondents aged 55-64 years old, and 251 Croatian respondents aged 16-25 (excluding students). Specifically, model (1) estimates the correlation between employment (Ei) and socio-economic and demographic factors, including health (Healthi), skills (measured by education level in specification 1, 3, 5 and 7 of Table 4.4, and the average of PIAAC literacy and numeracy scores in specification 2, 4, 6 and 8 of Table 4.4), (Skillsi), type of education (vocational vs. general) (VETi), and long-term unemployment history (unemployed for over 12 months in the past five years) (LTUni ). The model is estimated on Croatia (column 1, 2, 5, 6 of Table 4.4), and on the rest of OECD countries for comparative purposes (column 3, 4, 7 and 8 of Table 4.4).
The results indicate that self-reported health is strongly correlated with employment for older adults, while it is nonsignificant for the younger cohort. Skills matter significantly for both older and younger workers, whether measured by educational attainment or PIAAC literacy scores. Having a vocational rather than general education background is associated with a lower likelihood of employment for older workers in Croatia, while it has no effect in OECD countries. The effect is non-significant for younger workers. Long-term unemployment has a pronounced scarring effect. Both older and younger individuals experiencing unemployment in the past are over 30% less likely to be employed. Notably, gender does not appear to significantly influence employment outcomes for older workers in Croatia, while it has a significant and negative effect among the young. Therefore, policies aimed at improving health, skills and reducing the incidence of long-term unemployment, as discussed in this chapter, can enhance employability among older and younger workers. According to this model, if Croatia matched the average performance of the top three OECD countries in health, skills, and long-term unemployment, older workers employment could rise by 1.3, 1.4, and 2.5 percentage points, respectively. For youth, improving skills and reducing long-term unemployment could increase employment by 1.8 and 1.6 points.
Note: Standard errors are included in parentheses, with *, **, and *** indicating significance at the 95, 99 and 99.9% level, respectively.
All regressions apply sampling weights. For education level, primary education was used as a reference.
Source: OECD calculations based on the 2023 Survey of Adult Skills (Cycle 2).
Well-designed immigration policies and policies to encourage the return of the Croatian emigrants can help offset the impacts of population ageing and address skills shortages. Croatia has seen a sharp rise in labour migration in recent years, reversing historical emigration trends, driven by improved living standards and streamlined immigration procedures. However, enhanced migrant selection mechanisms and integration services are needed to better match labour market needs.
4.4.1. Unlocking the employment potential of older workers
The low employment rate of older people reflects a range of labour market barriers, in addition to their health status and the pension system discussed above. These include weak incentives for individuals with disabilities to return to work, limited training opportunities for older workers and a lack of flexible working arrangements.
Activating people with disabilities through early intervention, financial incentives and guarantees
Poor health and disability significantly limit labour market participation among older people. About 25% of those aged 55 and over report a mild disability, much higher than the EU average but similar to neighbouring Slovenia (Figure 4.27, panel A). However, the employment gap for people with disabilities - i.e., the difference between the employment rates of people with no and those with some limitation in their daily activities- stands at 36 percentage points, far above the EU average and Slovenia (Figure 4.27, panel B). Increasing employment among adults with mild disability, for example to reach the EU average, could lead to an improvement of the old age employment rate of approximately 5 percentage points.
Note: Activity limitation (panel A) is defined according to the Global Activity Limitation Indicator (GALI). It considers (severe, mild, or none) limitation in usual activities for at least the past six months due to one or more health problems. The employment gap for people with disabilities (panel B) is defined as the difference between the employment rates between people without and with some limitation in their daily activities.
Source: Eurostat.
The authorities should prioritise early intervention for people who acquire a disability during adult life. Unlike most OECD countries, sick leave has no fixed duration and is compensated indefinitely, although at low levels that gradually decrease over time. In addition, the legally required waiting period between entering sick leave and going through work capacity assessment (12 months) is very long as it requires the completion of medical rehabilitation. The long waiting times to start any professional rehabilitation jeopardises an eventual return to work. Data from OECD countries shows that the likelihood of returning to work drops sharply after 4–6 months of sickness absence, with a permanent labour market exit becoming more likely than re-employment after 6–9 months (OECD, 2022[61]). To raise employment among people with disability and remaining work capacity, the authorities should set a maximum duration for sick leave and start the work capacity assessment earlier to allow for simultaneous medical and professional rehabilitation, as in Norway for example (OECD, Forthcoming[62]; OECD, 2025[63]). In addition, plans are underway to enhance work capacity assessments based on the findings of an ongoing evaluation conducted jointly with the OECD.
The professional rehabilitation system for people with remaining work capacity has very low uptake. The system offers individualised rehabilitation and reskilling plans which is in line with OECD best practices. However, participation is voluntary, limited to those under 55 years, and hampered by weak financial incentives. Individuals undergoing professional rehabilitation lose their disability pension and instead receive compensation equivalent to the minimum wage during the rehabilitation period. Despite recent increases in the minimum wage, many and especially older individuals with higher pensions prefer the certainty of the disability pension to the uncertain outcomes of rehabilitation. The sharp decline in unemployment benefits, from 60% to 35% of the previous income after three months, contribute to make the uncertain outcomes of rehabilitation more costly. This results in low uptake, with only 534 people registered in 2024 (0.5% of disability pensions recipients) (OECD, Forthcoming[62]).
Participation in professional rehabilitation should be broadened. The 55-year age limit should be removed, and participation should be made mandatory to people with identified remaining work capacity for receiving partial disability pensions as in Luxembourg, Norway, and Switzerland and Sweden (OECD, 2010[64]; OECD, 2022[65]). In addition, during the rehabilitation period, individuals should be entitled to retain the more advantageous of either their disability pension or the minimum wage. Furthermore, beneficiaries should have the option to revert to their original disability pension if they are unable to sustain employment within a defined trial period. Such provisions exist in several OECD countries. For example, Canada allows a three-month trial period, while Belgium provides a six-month period during which beneficiaries can return to disability benefits if reintegration is unsuccessful (OECD, 2022[65]). Additionally, establishing a statutory right to gradual return-to-work options, such as part-time reintegration, could further improve employment outcomes for individuals recovering from illness (OECD, 2025[66]).
Incentives for the long-term unemployed to participate in work rehabilitation programmes need to be strengthened. Chronic health problems are often a main cause for long-term unemployment, while long-term unemployment tends to worsen people’s health (OECD, Forthcoming[62]). The long-term unemployed who acquire a disability in adult life often have to rely on social assistance and disability benefits (Inclusive Allowance since 2024), as opposed to disability pensions. Despite recent increases (see Section 4.3.5), such benefits are low and can be combined with work income in most cases, posing no strong financial disincentives to work for those with remaining work capacity. In addition, they can also be referred to the professional rehabilitation system by the Croatian Employment Service. However, this happens rarely in practice, further limiting the probability of entering the labour market. Making disability benefit entitlements conditional on participation in professional rehabilitation, tailored to individual remaining work capacities, would help raise participation among the long-term unemployed.
Tackling discrimination against persons with disabilities and older workers in general is crucial to further eliminate barriers to their employment. Evidence from Croatia, consistent with findings across the OECD (OECD, 2025[63]), shows some bias in hiring based on age and disability (Bejaković, 2025[67]). While anti-discrimination laws exist, enforcement can be challenging also due to the financial or procedural hurdles individuals face when pursuing discrimination claims in court (OECD, 2025[63]). Additional measures, such as using blind applications, standardised interviews, and offering reasonable adjustments for candidates’ needs, can help effectively reduce bias in hiring. Public awareness campaigns and shifts in media representation are also crucial to combat negative attitudes towards these groups of workers (OECD, 2025[63]).
Expanding participation in adult learning
Lifelong learning is essential to maintain older workers’ employability over time and adapting to evolving labour market needs. Participation in training is low—particularly among older adults and the low-skilled (Figure 4.28). In general, beyond time constraints, limited financial resources, and a lack of training courses that match individuals’ needs, lower participation among older adults can be attributed to shorter remaining working lives, which reduce the incentives for both workers and employers to invest in upskilling. Extending working lives through pension reforms, as suggested above, can help boost older workers engagement in lifelong learning (Montizaan, Cörvers and De Grip, 2010[68]; Brunello and Comi, 2015[69]). Additional financial support targeted to mid-career and older workers can be justified. This is because the social returns to training, such as delayed retirement, reduced public pension expenditures, and higher revenues from income taxes, often outweigh the private benefits (OECD, 2025[63]).
Participation in formal and non-formal education and training during the latest 12 months, %, 2022
Source: Eurostat.
Offering financial incentives to firms to invest in the skills of older workers could enhance their participation in upskilling initiatives. Currently, only 30% of firms provide training in general, compared to the EU average of 55%, with a large gap between large firms (75%) and small firms (25%) (Eurostat, 2022[70]). While the system allows up to 80% of training costs to be deducted from the corporate tax base, these incentives may not effectively support small firms with insufficient tax liability. Introducing direct targeted subsidies to firms for training activities, as it is done in Austria, could more effectively support SMEs (OECD, 2023[71]). Financial support to firms could also better target mid-career and older workers. In Germany, firms receive subsidies ranging from 25 to 100% of training costs, with full coverage for workers over 45. In Austria, employers can access additional funding specifically for training workers over 50.
To support training in small firms, the authorities could also promote arrangements that allow cooperation between employers. The provision of training involves some fixed costs, such as filling administrative duties, applying for subsidies, organising training on the site. If these costs are shared among employers, for instance through training associations (like in Austria and Switzerland), the financial burden on small firms can be significantly eased. This can be accompanied by a system of training levies collected by employers as a share of payroll and then pooled across companies and sectors, as in Italy and Korea (OECD, 2023[71]).
Financial support for adult learning through voucher schemes has been expanded significantly, yet engaging the older and hard-to-employ population remains a challenge. In 2022, Croatia introduced an EU-funded voucher training scheme for employed and unemployed people, which covers the full cost of selected courses in digital and green skills. In 2024, the programme was scaled up to target an additional 75 000 beneficiaries by 2030 (up from the initial 40 000 by 2026) (Eurostat, 2022[72]). Take-up has been encouraging, and by 2024, 73% of the initial 2026 voucher target had already been approved. However, participation remains concentrated among younger, highly educated individuals, reflecting the programme’s early emphasis on digital and green competencies. To broaden participation, the authorities have introduced targeted career guidance, financial support for unemployed (monthly allowances and transportation subsidies), and expanded training courses for in-demand sectors (see Table 4.5). These are welcome adjustments. Going forward, the authorities could consider linking voucher amounts to workers' skills, similar to France (Perez and Vourc’h, 2020[73]), and expanding flexible training options, especially distance learning, which are currently underdeveloped. Moreover, adapting training content to the specific needs and experiences of older adults can improve take-up among this group. For instance, evidence suggests that ICT training is more effective for older learners when tailored to their everyday experiences and practical relevance (Schirmer et al., 2022[74]).
Promoting more flexible working conditions
Flexible work remains uncommon. Part-time employment accounted for just 3% of total employment in 2024, far below the OECD average of 16.6%, while only 4.5% of workers usually engaged in telework, compared to 8.9% across the EU (Figure 4.29). Yet, evidence shows that flexible work arrangement support employment among older workers, especially in the years leading up to retirement (Albinowski, 2024[75]; Ameriks et al., 2020[76]). Expanding flexible work options would also support employment of people with disability and young parents—especially women—returning from parental leave (see below) (World Bank, 2025[77]).
The authorities should strengthen the legal framework of flexible work. While recent legislative changes allow parents to work part-time or telework after parental leave, these arrangements often depend on employer discretion and are frequently denied (World Bank, 2025[77]). To boost uptake, the legal right to flexible work for older workers and parents of young children could be strengthened, for example by regulating the conditions under which employers may refuse such requests. For example, in Australia, employers can reject flexible work arrangements only on reasonable business grounds, with disputes overseen by the Fair Work Commission. Collective bargaining agreements can play a role in securing these rights, as in Austria where a sectoral collective agreement guarantees older workers access to part-time work (OECD, 2025[66]).
Note: Part-time employment is defined as working less than 30 hours per week in the main job.
Source: OECD Employment and Labour Market Statistics (database); Eurostat.
4.4.2. Improving the VET system to facilitate the labour market integration of the young
Croatia has a strong tradition of vocational education and training (VET), but employment of its graduates is low. In 2023, 70% of 15–19-year-old students were enrolled in VET, which is much higher than the OECD average (38%) (OECD, 2025[78]). However, 15% of VET graduates were neither in employment nor in education and training (NEET), a much higher share than OECD countries with strong VET tradition (Figure 4.30). Adults’ skills are on average lower than OECD countries, especially for VET graduates, and VET graduates are less successful in higher education and exhibit higher mismatches on the labour market (OECD, 2025[79]).
Vocational upper secondary or post-secondary non-tertiary education graduates, aged 15 to 29, neither in employment nor in education, %, 2024
Source: Eurostat.
VET programmes often fail to provide labour market relevant and practical skills. The VET curriculum is outdated, and less than 10% of the national curriculum includes a work-based learning component. Moreover, young people growing up in rural areas, who are more likely enrolled in VET programmes, often have a small set of vocational training options that may not suit their interests and for which there is limited local labour demand (OECD, 2025[2]).
The authorities should continue efforts to improve the quality of the VET curriculum and strengthen work-based learning. A reform to modernise the VET curriculum and improve its alignment with labour market needs is ongoing. The reform will strengthen work-based learning by clarifying the content and expected outcomes, better connecting schools and local employers, and supervising the quality of work-based learning provided by employers (OECD, 2025[2]). With EU support, the authorities have set up 26 regional centres of competences for work-based learning in five key sectors—tourism and hospitality, mechanical engineering, electrical engineering and ICT, agriculture, and healthcare—equipped with facilities that simulate real work environments. This is welcome. Participation of rural students should be promoted, for example by lowering transportation costs to such centres.
Collaboration with social partners could be further strengthened. The limited involvement of social partners in the design and implementation of school-based VET programs has been recognised as a key challenge (OECD, 2025[79]). However, their more recent engagement in shaping the VET reform marks a positive development. Going forward, the authorities should continue to strengthen the involvement of social partners in VET, and ensure that their input is provided regularly, in a timely way and in all areas (e.g., curriculum design, examinations and in-company training), as is common in other countries with a strong VET tradition, such as Austria, Denmark, Germany, Norway, the Netherlands and Switzerland (OECD, 2023[71]) (Box 4.6).
In Denmark, social partners participate in the national advisory council on upper-secondary VET education, alongside local governments, schools, and student representatives. Meeting 8–10 times per year, the council advises the Ministry of Education on new and revised VET programmes. There are also 50 national trade committees, composed of employer and employee representatives for each sector, responsible for 106 VET programmes. They update curricula, define learning goals and exam standards, set programme duration and the balance between school and work-based learning, approve training enterprises, resolve apprentice disputes. At the institution level, each vocational college collaborates with at least one local training committee, which includes representatives from employers, employees, staff, management, and students. These committees adapt programmes to local needs, support work placements, and serve as a link between local and national levels, assisting in enterprise approvals and conflict mediation.
Source: (OECD, 2023[71]).
The authorities could further strengthen work-based learning by increasing financial incentives. Currently, VET schools are mainly funded by the central government (covering teacher salaries and training), while local governments cover operational costs. As the ability to raise funds for schools varies across sub-national authorities, local governments receive additional funding for their operational costs according to the number of students, classrooms and school buildings. Going forward, funding could also be adjusted to raise incentives to provide in-company learning, as international evidence shows that such training is more effective than school-based practical training in developing professional skills directly applicable to the labour market (Neyt, Verhaest and Baert, 2020[80]; Neyt et al., 2022[81]). For example, the authorities could link part of VET school funding from the central government to the number of students in work placements and in regional centres of competences (OECD, 2021[82]). In parallel, introducing arrangements like training associations will also help employers share training costs and increase work-based learning, as suggested above.
Expanding short-cycle tertiary education programmes can support the alignment of VET graduates’ skills with labour market needs. In 2021, only 0.1% of tertiary graduates completed a short-cycle tertiary education programme - a professionally oriented education programme (ISCED 4 and 5) designed to provide participants with professional knowledge, and competencies to enter the labour market. The current supply of accredited short-cycle tertiary programmes is limited: only five accredited programmes were available in 2024 in the fields of social and technical sciences. In the absence of short-cycle professionally oriented alternatives, many VET graduates enrol in undergraduate study programmes (Bachelor’s level, ISCED 6), which are longer (3-4 years) and more academically oriented, where they often face high dropout rates due to insufficient preparation. Moreover, while short-cycle programmes are accredited under the same office of universities, employers are sceptical about the value of such qualifications (OECD, 2025[79]). One option to expand the supply of high-quality short-cycle tertiary education programmes would be to gradually introduce a separate governance structure and funding model to transform some existing universities into professionally oriented institutions. The funding model could provide professionally oriented institutions with stronger incentives to focus on the employability of graduates (e.g., through a greater share of funding being allocated on the basis of earnings or labour mismatch indicators), whereas the governance structure should allow for a significant level of employer engagement, as for example is done in Italy (Box 4.7).
Italy has introduced EQF level 5 professional bachelor courses in 2010 within newly formed education institutions, the Istituti Tecnici Superiori (ITS). There are currently 75 ITS and approximately 350 activated programmes for almost 8 000 admitted students. Graduates have experienced strong employment outcomes: according to the latest monitoring report by the Italian Ministry for Education, 80% of graduates are in employment after one year (compared to 71% for individuals with a bachelor’s and 74% for master’s graduates). The ITS is overseen by a foundation that brings together employers, research centres and subnational authorities. Companies are deeply involved in the governance of the ITS as members of the Participation Council, which takes decisions of an administrative nature, and the Direction/ Management council, which defines course content.
Source: (OECD, 2020[83]).
4.4.3. Alleviating women’s caregiving responsibilities to raise female employment
Low employment rates among young and older women are associated with caregiving responsibilities. Women spend on average 20 more hours per week on unpaid work than men—the highest gap in Europe (Eurofound, 2022[84]). A significant proportion of women who would like to work remain inactive due to care and family responsibilities. Traditional values - with 60% of the population agreeing in Surveys that a woman’s main responsibility is to care for the home and family compared to the EU average of 44% (World Bank, 2025[77]; OECD, 2025[2]) - and the limited availability of formal care services are among the main causes. Besides developing long term care as suggested in Section 4.3.5, expanding early childhood education and care (ECEC) and incentivising fathers to participate more in caring duties is paramount to promote female employment.
Expanding affordable high-quality early childhood education and care
Staring pre-school education at age 5 leaves a long childcare gap, i.e., the time between the end of paid parental leave and the start of mandatory free education (OECD, 2025[85]). Maternity leave lasts 7 months and can be extended with parental leave for 6.5 months. While the duration of total leave available to mothers is broadly in line with the OECD average (Table 4.6), free pre-school education for children only starts at age 5. This places a disproportionate burden on women, especially young mothers who are often forced to take extended breaks from employment or exit the labour force entirely to care for young children.
To improve employment of women, the authorities should focus on expanding access to high-quality and affordable ECEC. Besides facilitating mothers’ participation in the labour market, raising access to high-quality ECEC from early ages has a strong positive impact on the development of children from vulnerable groups, provides a crucial foundation for future learning, and raises equality of opportunity (Heckman et al., 2010[86]; Felfe and Lalive, 2018[87]). Extending the duration of parental leave is not advisable, as evidence from OECD countries shows that excessively long leave periods can further discourage women’s return to work and reduce their long-term employment prospects (Thévenon and Solaz, 2013[88]).
Despite recent progress, participation of children in high-quality and affordable ECEC remains low and unequal. In 2023, 31% of children under the age of three enrolled in formal ECEC, which is more than the OECD average, and close to the national target of 33% by 2030. However, participation of children aged 3 to 5 remains below the OECD average (Figure 4.31). Moreover, children from low-income families are less likely to enrol in ECEC than children from wealthier backgrounds. Only 11% of children from the lowest income tercile were enrolled in ECEC in 2022 versus 35% in the third income tercile (OECD, 2025[85]). Participation in ECEC is also unequal across regions, with higher participation rates in more urban and developed parts of Croatia, such as in the Adriatic region and Zagreb (World Bank, 2025[77]; OECD, 2025[79]).
Parental leave policies in Croatia and OECD, 2024
Note: The average payment rate is defined as the proportion of previous earnings replaced by the benefit over the length of the paid leave entitlement for a person earning the average full-time earnings. Father-specific parental leave refers to entitlements to paternity leave, 'father quotas' or periods of parental leave that can be used only by the father and cannot be transferred to the mother, and any weeks of sharable leave that must be taken by the father in order for the family to qualify for 'bonus' weeks of parental leave. The childcare gap is defined as the difference between the time between the end of paid parental leave and the start of mandatory free pre-school education.
Source: OECD (2025[85]), Family Database; and OECD (2024[89]), Education at Glance 2024: OECD Indicators, OECD Publishing, Paris.
Enrolment rate in early childhood education (ISCED 0) and primary education (ISCED 1), by age, %, 2023
Source: OECD Education at a Glance database.
The high decentralisation of ECEC funding has led to significant disparities in investment and affordability across localities. The financing of the ECEC system has been decentralised since 1959 and, unlike for primary and secondary education, fiscal equalisation mechanisms have been introduced only recently. Sub-national governments (counties and municipalities) are responsible for 99% of total ECEC funding, including infrastructure, staff salaries, and fee subsidies. As a result, vulnerable households in less developed areas face limited access to childcare facilities and receive little to no financial support, while more developed areas are able to offer more services and subsidies (University of Zagreb, 2023[90]). To address these inequalities, the central government introduced a new co-financing model in 2023, supported by an equalisation fund. This model allocates additional central government funding to municipalities based on the number of children enrolled in ECEC facilities and the economic development level of the respective county and municipality (World Bank, 2025[77]). In addition, the authorities aim to create 22 000 new ECEC places by 2026 prioritising areas with insufficient provision, with support from the National Recovery and Resilience Plan, and 1 832 additional places from the cohesion policy funds. This is expected to raise the ECEC enrolment rate of 3–5-year-olds to 90% by 2026. However, even with these planned increases, additional places will still be needed to meet national targets of full attendance by 2030 (OECD, 2025[79]).
The authorities should strengthen efforts to improve the affordability of high-quality ECEC for vulnerable households. While the equalisation fund is expected to support less economically developed areas to expand ECEC capacity, it currently includes no specific measures or guarantees to ensure affordability for vulnerable families. Decisions about fee subsidies remain at the discretion of municipalities. The central government should introduce stricter conditions for the use of equalisation funds, requiring that (part of the) co-financing is linked to the provision of fee subsidies for vulnerable households (OECD, 2025[79]). To ensure that all vulnerable groups are considered a priority for ECEC participation, ECEC enrolment criteria could be established at the national level. Finally, as capacity expands, the authorities could consider gradually reducing the mandatory pre-primary school age to 3, as for example in France.
Ensuring that school hours are in line with working hours would facilitate female employment. Parents consider ECEC operating hours not sufficiently aligned with full-time work (World Bank, 2025[77]). In addition, learning time in primary education is lower than the OECD average and many schools operate in multiple shifts, making it difficult for mothers to reconcile work and caring responsibilities. With the support of EU funding, the authorities are implementing the Whole Day School project, with the aim of transitioning all primary schools from double shifts to a whole day of school by 2027. This is expected to generate a 6% increase in employment for non-working mothers (World Bank, 2025[77]). This is welcome. In addition, ECEC hours should be extended accordingly. Moving to a whole day school model requires sustainable long-term domestic resource commitments to ensure suitable facilities, hiring more teachers and providing additional activities to children in school. Clustering schools and ECEC facilities across neighbouring municipalities to facilitate resource sharing could help ease financial pressures (OECD, 2025[79]).
Encouraging fathers to share family caregiving responsibilities
Specific paternity and parental leave for fathers is generous, but uptake is low. Since 2024, fathers are entitled to 20 days of paternity leave (up from the previous 10 days) at full pay, and two months of specific, non-transferable parental leave with compensation corresponding to the full salary, with a benefit ceiling at around EUR 3 000 (up from the previous EUR 1 000). Despite parental leave being specific to fathers and leave entitlements being close to the OECD average (Table 4.6), uptake by fathers remains very low. In 2023, only 4.7% of parental leave beneficiaries were men, and only 50% took the paternity leave entitlement. Key barriers include financial loss, lack of awareness, and employer resistance (World Bank, 2025[77]; OECD, 2025[2]).
Beyond financial incentives, cultural and organisational change is equally important to improve uptake of paternity and parental leave by fathers. Promoting a work environment in which employers actively support a more equitable sharing of leave is key. Requiring firms to publish the numbers of employees taking parental leave, as in Japan, could enhance transparency, promote accountability, and showcase leading practices (Yang, Wallington and Morain, 2022[91]; OECD, 2024[92]). Additional support for small and medium-sized enterprises could reduce operational burdens and encourage a more supportive workplace culture. For example, in France, employers with less than 50 employees receive financial support for temporary replacements during parental leave, covering up to 50% of the monthly minimum wage for each replacement (Tissot, 2023[93]).
4.4.4. Enhancing the benefits of migration
Croatia has a long history of emigration. In the 1960s and 1970s, nearly half a million Croatians left for Western Europe—particularly Germany—in search of better job opportunities, and many more left in the wake of the War of Independence in the 1990s. Emigration rose sharply again following EU accession in 2013, driven by economic motivations and the pursuit of better living conditions (Liu, Kutnjak Ivković and Pavlović Vinogradac, 2024[94]). Between 2013 and 2023, annual departures averaged nearly 38 000. A majority of emigrants (60%) were prime-age workers and highly educated, further exacerbating labour and skills shortages.
Immigration has increased sharply in recent years, reversing historical net emigration patterns, and helping to mitigate labour shortages. The sharp increase reflects in part legislative changes to facilitate obtaining work permits. The number of work permits issued rose from fewer than 1 per 1 000 people in 2015 to 22 per 1 000 people in 2024—well above the EU average (Figure 4.32, panel A). This shift marks a significant reversal of historical migration patterns, resulting in a positive net migration balance for the first time in 2022 (Figure 4.32, panel B). Most (90%) of these work permits are for short-term (below 12 months) seasonal workers, especially in hospitality, but also agriculture (Eurostat, 2023). The origin of immigrants has changed notably. While migration was once dominated by workers from neighbouring Western Balkan countries, the country is now attracting a more diverse group of third-country nationals (TCN). The fastest-growing origin countries are in South and Southeast Asia, particularly Nepal, India, the Philippines, and Bangladesh (World Bank, 2025[95]).
Source: Eurostat.
Improving the selection process of foreign workers and making the most of their skills
The authorities have streamlined the legal and administrative framework for labour migration to better address skills and labour shortages. In 2021, a strict profession-specific quota system was replaced with a more flexible model where employers can request work visas for foreign workers to fill skill gaps. The Croatian Employment Service (CES) keeps and updates a list of hard-to-fill occupations and offers a faster, simplified work permit process for these, usually taking 2 to 8 weeks. This is quicker than in Germany or Italy - potential neighbouring competitors with higher wages - enhancing Croatia’s attractiveness to foreign workers. For other jobs the process takes longer as the CES conducts a labour market test to check for suitable local candidates before approving permits (World Bank, 2025[95]; OECD, 2025[2]).
There is room to further improve the selection process of foreign workers to reduce skills shortages also in the medium and longer term. Currently, the labour immigration process is driven by employers, who report the need to fill a vacancy in the short-term. The shortage occupations list for faster processing is based on retrospective data on vacancies, reducing the system’s responsiveness to evolving labour market needs (World Bank, 2025[95]; OECD, 2025[2]). Moreover, workers with qualifications in high demand could benefit from more favourable permit conditions, to enhance the likelihood of attracting and retaining such workers. The authorities are aware of these issues and are currently developing a National Migration Plan.
As recommended in the previous Survey, the selection process could be based on forecasts of skills and occupation demand (OECD, 2023[96]). Based on the forecasted skills needs, the authorities could consider granting longer-term residence permits with better conditions (e.g., fast tracked family reunification, simplified access to long-term resident status) to foreign workers in strategic fields meeting the required qualifications, experience and integration capacity criteria. Introducing a selection process based on forecasts of skills needs would require more input from key stakeholders, such as employers, trade unions and education representatives. It would also need better data (e.g., projections of future graduates and expected labour demand by sector and occupation, as well as more detailed data on the characteristics of foreign workers) and analytical capacity. In the United Kingdom, the Migration Advisory Committee—an independent expert body—conducts detailed labour market analysis to advise the government on skills shortages and shape immigration policy (World Bank, 2025[95]).
More efforts are also needed to recognise the qualifications and skills of foreign workers. Foreign workers experience high skill mismatches. In 2024, 22% of foreign workers were overqualified, compared to 12% nationals (Eurostat, 2024[97]). The current process for recognising foreign qualifications can be lengthy, bureaucratic, and costly (OECD, 2023[96]). About 30% of occupations (300) are regulated—above the EU average of 22%—including sectors like tourism and hospitality, which are typically unregulated elsewhere. Since 2021, with the support from the National Recovery and Resilience Plan, the authorities have implemented around 270 deregulatory measures across 50 professions and activities (World Bank, 2020[98]; World Bank, 2025[95]). These efforts are welcome and should continue. In addition, stronger cooperation with countries of origin is needed to facilitate the validation of foreign credentials. Employers lack verified data on worker qualifications, and foreign workers lack detailed information on job postings, as they are often only provided in Croatian language (World Bank, 2025[95]). Bilateral agreements and direct cooperation between employment services could enhance transparency, facilitate credential validation, and improve outcomes for both workers and employers. The authorities recently concluded a Memorandum of Understanding with the Philippines to advance these objectives.
The provision of training, especially language classes, should be expanded (OECD, 2025[2]). A language proficiency or pre-arrival training is not offered, making workplace integration more difficult and time-consuming. Vouchers for Croatian language courses are provided through the CES, but provision is limited—currently capped at 70 hours (World Bank, 2025[95]). The Ministry of Demography and Immigration plans to broaden this initiative by awarding 500 scholarships for Croatian-language studies. This is a welcome step and could be used to offer preparatory courses before and after arrival to improve readiness and integration.
Improving integration policies to retain foreign workers
Better integration policies are crucial to make the most of labour migration. Foreign workers face a higher risk of poverty, living in poor housing conditions and experiencing violations of their labour rights (World Bank, 2025[95]). This increases the risk of high turnover, as migrants may move to other EU countries offering better wages and working conditions, limiting Croatia’s ability to retain talent and reduce skill shortages. The government has taken important steps to improve foreign workers’ conditions - including by extending the duration of work permits, providing more flexibility to change employers, granting repatriation guarantees and allowing to remain unemployed for up to 60 days without losing their permit - but challenges remain. Integration services remain fragmented and hard to access, with foreign workers navigating multiple institutions (Ministry of Interior, CES, local authorities, NGOs) often with limited multilingual support. To improve this, the authorities should establish a centralised online one-stop-shop offering coordinated services—including legal advice, housing, education, healthcare, and language training—in multiple languages and counselling, a common practice in OECD countries like Germany and Sweden (World Bank, 2025[95]). The recently launched Migracije.hr platform marks some progress by offering information on labour regulations, social protection, and healthcare in English, German, Italian, and French.
Seasonal foreign workers face higher and specific integration challenges due to the short-term nature of their employment and stay. Unlike permanent workers, seasonal workers are not covered by financial guarantees for repatriation and are not eligible for unemployment benefits or municipal social housing, increasing their risk of poor working and living conditions and contributing to high worker turnover (World Bank, 2025[95]). To foster better integration and stability, the authorities could adopt bilateral agreements with origin countries, akin to Canada's Seasonal Agricultural Worker Programme (Box 4.8), which promote fair recruitment, decent work and living conditions, and portable social security rights, supporting circular migration.
The Seasonal Agricultural Worker Programme (SAWP) is a bilateral agreement between Canada, Mexico, and several Caribbean countries. Established in 1974, the programme was designed to mitigate labour shortages in Canada’s agricultural sector by enabling temporary employment of Mexican workers. The programme is managed by respective central government agencies and ensures that recruitment, employment conditions, and worker protections are upheld. Canadian employers provide free approved housing and cover the round-trip cost of transportation. Employers must also have a signed employment agreement with each foreign worker, including the job description, wages, and working conditions. Additionally, workers are enrolled in health insurance plans and are eligible for some pension and employment insurance benefits. In 2023, over 26 500 Mexican workers participated in SAWP, supporting Canada’s agricultural industry while at the same time providing employment opportunities for Mexican nationals.
Source: (Ryan, 2023[99]).
Limiting the misuse of work permits
The rapid increase in work permits has raised concerns about a lack of compliance and oversight. While EU rules permit third-country nationals to be posted to another EU country after having worked for one month in Croatia and remaining under Croatian social security, there are indications of misuse. Some workers obtain permits but are employed abroad without prior domestic employment (World Bank, 2025[95]; OECD, 2025[2]). This puts pressure on the administrative capacity to process the high volume of permit requests, without the benefits of foreign workers' integration into the labour market. In 2025, the authorities introduced stricter conditions for permits to limit misuse through amendments to the Foreigners Act. The Ministry of Interior tightened conditions for employers, including by introducing the requirement to employ at least one full-time domestic worker for a year, and minimum shares of domestic/EU workers (16% for non-shortage, 8% for shortage occupations). These measures are intended to curb the practice of companies created for the purpose of labour importation from filing excessive work permit applications. However, to be effective they require strengthened monitoring, for example through more targeted inspections, penalties for non-compliers and rewards for compliers (World Bank, 2025[95]).
Encouraging the return of the Croatian diaspora
Return migration has a significant potential for Croatia. The Croatian diaspora is estimated at about 3.2 million people, equivalent to 80% of the resident population, and well above the number of vacancies (OECD, 2025[2]). Around 25% of the Croatians who emigrated left to other EU countries, while North America (45%), and Argentina (10%) were the main overseas destinations. As living standards are converging with those in higher‑income EU and OECD countries, some members of the diaspora have been returning. The Central State Office for Croats Abroad reported a rise in both intended and effective returns, with Croatian citizens returning from abroad making up 16% all immigrants in 2023 (OECD, 2025[2]).
Encouraging return migration is a government priority. Recent reforms have eased access to temporary and permanent residency for descendants of emigrants, particularly for family reunification and educational purposes (World Bank, 2025[95]; OECD, 2025[2]). Financial incentives have been introduced, such as a five-year income tax exemption and a grant for Croatian citizens abroad to start their own business through the I Choose Croatia programme. However, take-up remains low: only 216 applications for the I Choose Croatia programme were approved between 2021 and 2023 (OECD, 2025[2]). In addition, the impact of the income tax exemption for returning Croatian citizens should be monitored and evaluated. International evidence on the fiscal impact and return migration of tax incentives remains limited, and there is a risk that these schemes primarily benefit individuals who would have returned even without the incentive (Del Carpio et al., 2016[100]; OECD, 2024[101]).
Efforts to improve diaspora outreach and integration should be strengthened. Data collection on Croatian citizens living abroad could be broadened. Outreach could be encouraged during administrative procedures at the respective embassies, such as passport issuance or election registration (OECD, 2023[102]). A more detailed knowledge of the diaspora composition and motivations (e.g., key factors influencing return decisions) would allow for a more targeted promotion of the benefits of returning to Croatia (OECD, 2023[96]). Support for job search could be provided through a one-stop-shop online portal, similar to Ireland’s Returning to Ireland platform (Box 4.9), as planned. Enhanced integration services, including by facilitating the recognition of qualifications acquired abroad, offering dedicated assistance to access social services and expanding the offer of language courses, as suggested above, are especially crucial for distant or long-settled diaspora members facing greater integration barriers.
Ireland, a country with a large share of its citizens living abroad, has developed a comprehensive Diaspora Strategy aimed at supporting emigrants' return and strengthening ties with the global Irish community. One key initiative is the Emigrant Support Programme, which provides grants to projects that build diaspora networks through culture, sport, heritage, education, and business. Practical support for diaspora members is provided through the Returning to Ireland online portal, launched in 2019. The portal offers detailed guidance on relocation, housing, welfare, education, healthcare, and employment, and has since become a central resource, attracting over 13 million users and 47 million page views. Additionally, the Back for Business programme supports entrepreneurial activity among returned Irish emigrants and those planning to return by providing mentoring, peer-to-peer learning, start-up support, and opportunities to build networks with other entrepreneurs and returnees.
Source: Global Ireland Ireland’s Diaspora Strategy 2020–2025, Government of Ireland, https://www.citizensinformation.ie/en/returning-to-ireland/.
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