OECD Reviews of Labour Market and Social Policies: Croatia 2025

Croatia’s economy and society have been marked by two major trends over the last decade: an impressive labour market recovery, and a mounting demographic challenge. After a long and painful recession following the global financial crisis, with a real GDP drop of nearly 11% and a peak unemployment rate of 17.5% in 2013, labour market outcomes in Croatia have steadily improved. The COVID‑19 pandemic dealt a short but heavy blow to Croatia’s important tourism sector, but thanks to the massive use of job retention support open unemployment only rose by little. In the second quarter of 2025, the unemployment rate in Croatia stood at 4.9%, and the number of registered jobseekers is currently at an all‑time low. Rapid population shrinking and ageing are increasingly contributing to labour market tightening. Over the decade to 2024, Croatia’s population declined by 8%, and it is projected to shrink by a further 17% by 2060. Meanwhile, the old-age dependency ratio is forecast to rise from 41% to 59%. Besides low fertility, high emigration has been a major driver of population decline, as particularly young and highly skilled people have left the country in large numbers after Croatia joined the EU in 2013.

Given these demographic trends, Croatia’s low employment rate is a major concern, at 68.8% in the second quarter of 2025 (OECD average of 70.5%). Employment is particularly low among young people and older workers, low-educated workers, and people with a disability. Growth in high-skilled employment has been relatively weak in Croatia over the last decade, and productivity and wage growth have been rather sluggish. Non-standard work is not particularly widespread, though the share of workers with contracts of very short duration is comparatively high. Estimates of informality vary greatly, but a recent micro‑level study put the share of undeclared work in the private sector in Croatia below that in the EU on average.

Inequalities in earnings, disposable incomes and household wealth are relatively modest in Croatia, but challenges remain for the labour market and social inclusion of some groups. Croatia has narrower gender gaps in employment and pay than many OECD countries, but disparities in the amount of unpaid work done by women and men are larger than in any other European country. The share of young people not in employment, education and training (NEET) in Croatia has dropped substantially, to 10.6% in 2024, but it remains higher than in neighbouring Slovenia. And Croatia has one of the widest disability employment gaps across European countries. The poverty rate is broadly in line with the OECD average, and material and social deprivation has strongly declined, but many seniors and people in rural areas live on very low incomes. Croatia’s Roma population still faces major structural challenges in the labour market and in society at large, and negative attitudes towards Roma people as well as the LGBTQI community are relatively widespread.

Croatia has been taking a series of steps in recent years to address key labour market challenges. A number of legislative reforms have focussed on improving job quality: Croatia amended its Labour Act in 2022 to tighten the hitherto very liberal regulation of fixed-term contracts and introduce far‑reaching regulations of platform work. The country also introduced a new Act on the Elimination of Undeclared Work. Increasing workers’ employability and improving the supply of skills has been a second priority area: Croatia has begun modernising its outdated upper-secondary vocational education and training system, improving its alignment with the labour market and strengthening work‑based learning. A new Adult Education Act improves quality assurance and harmonises training programmes with the Croatian Qualification Framework. In the context of declining unemployment, the Croatian Employment Service has been shifting the focus of its active labour market programmes towards education and training (including through a promising new voucher-based training system) as well as activation and support for the hardest‑to‑employ jobseekers (through the intensive Job+ activation and education programme). To reduce the high incidence of low pay, Croatia significantly increased its statutory minimum wage in recent years, to now EUR 970 gross per month, or about 50% of the average wage.

Croatia has also started modernising its migration policy with a view to better addressing labour shortages and alleviating pressure on the social protection system. With the new Aliens Act of 2021, Croatia replaced its rigid quota system through a more responsive labour market testing regime. However, this system suffers from insufficient administrative capacity given rapid rise in the demand for work and stay permits, increasingly also from migrants from Asian countries. Croatia also lacks an immigration strategy that would define the role that immigration can play for the country’s longer-term economic, labour market and social development, though the recently adopted Demographic Revitalisation Strategy foresees the development of a national migration plan. Since previous generations of immigrants have mainly originated from culturally and linguistically similar neighbouring countries, Croatia never had to systematically invest in integration policies. A comprehensive integration strategy is now urgently needed to exploit the potential of the rapidly growing number of immigrants from more diverse origins. Croatia’s diverse and highly skilled diaspora has a large potential for the country’s economic development as a source of remittances, knowledge transfer, and return migration, and diaspora outreach has been a policy priority for Croatia.

In the area of social policies, one of Croatia’s priorities has been to improve the accessibility and adequacy of social services. Particularly rural and remote localities struggle to provide social support and care for vulnerable groups because of a lack of resources, service fragmentation, and a shortage of providers and care professionals. This partly reflects that a relatively large share of Croatia’s public social expenditures – which are higher relative to GDP than in the OECD on average – go to pensions and incapacity benefits, with few resources dedicated to minimum-income support and unemployment benefits. With a new Social Welfare Act, adopted in 2022, Croatia took first steps towards reorganising the welfare system, consolidated different social benefits, and introduced a new social mentoring service for highly disadvantaged groups, and further reforms have taken place since. A recent amendment to the Labour Market Act improves the coverage and adequacy of unemployment benefits, notably for young people. The Make‑a-Wish public-works programme has been successfully employing jobless women with no more than upper-secondary education for the provision of local care services. Croatia’s high rates of old‑age poverty reflect low pension payments for the current pensioner generation, many of whom have contributed too few years. The future adequacy of the Croatian pension system is broadly in line with that of many OECD countries; also pension expenditures are comparable to those of many other European countries, and they are forecast to decline relative to GDP. In June 2025, Croatia adopted a new Pension Insurance Act that will raise average pensions while improving incentives to work for longer.