OECD Reviews of Labour Market and Social Policies: Croatia 2025

1. Main assessment

1.1. The labour market and social situation in Croatia

1.1.1. An impressive labour market recovery and a mounting demographic challenge

After a long and painful recession following the global financial crisis, which brought a drop in real GDP of nearly 11% and peak unemployment rates of 17.5%, Croatia has been experiencing a remarkable labour market recovery. Since the peak of the crisis in 2013, the unemployment rate has declined by over 12 percentage points (p.p.), while labour force participation has risen by over 8 p.p. The COVID‑19 pandemic dealt a short but heavy blow to Croatia’s important tourism sector, but only had a relatively mild impact on open unemployment and employment, thanks mainly to the massive use of job retention support, which at its peak covered nearly 40% of workers. In the second quarter of 2025, unemployment in Croatia stood at 4.9%, a rate lower than before the COVID‑19 crisis.

Croatia has therefore been heading into a tighter labour market. The number of jobseekers registered with the Croatian Employment Service (CES) stands at an all-time low, at 95 300 in 2024, down 72% from the value reached in 2013. In 2022, more than half of employers in the construction sector reported shortage of suitable workers to be a limiting factor for business, and growing shortages were being reported also in industry and services. However, job vacancy rates remain low in international comparison.

Croatia’s labour market and economy are already deeply affected by the very rapid population decline, which is increasingly contributing to labour market tightening. Over the decade to 2024, Croatia’s population shrank by 8%, dropping below the mark of 4 million inhabitants for the first time since Croatia’s independence. It is projected to continue declining to only about 3.1 million in 2060. Croatia’s working-age population is falling even faster and is forecast to shrink from 63% to 54% of the total population by 2060.

High emigration – a significant phenomenon throughout Croatia’s history – has been a major driver of this rapid population decline. After Croatia joined the European Union in 2013, at the height of the economic crisis, particularly the young and highly skilled left the country in large numbers in search for better employment opportunities and higher wages abroad. While initially contributing to driving down high unemployment, this trend is now contributing to labour shortages. Croatia has responded by opening up to workers from abroad. Traditionally low immigration flows to Croatia have started rising and exceeded emigration flows in 2022 and 2023. For the first time, immigrants are also not just coming from neighbouring Balkan countries, but from Asian countries such as Nepal, India and the Philippines.

1.1.2. Employment, productivity and wages remain low

Given these demographic trends, it is particularly worrying that employment rates remain low in Croatia. In the second quarter of 2025, 68.8% of 15‑64 year‑olds in Croatia were in work, a substantially lower share than in neighbouring Hungary (74.9%) and Slovenia (72.5%) and below the OECD on average (70.5%). This reflects on average very short working lives, with low employment rates both for young people (25.7% among 15‑24 year‑olds in 2024) and older workers (53.9% among 55‑64 year‑olds). Working lives tend to be particularly short for women, but as employment is low for both women and men, the gender employment gap is relatively narrow in Croatia, at around 6 p.p. In addition, Croatia has ample margin for raising employment among disadvantaged groups of workers, notably low‑educated workers and people with a disability. The positive labour market trend has also not yet benefited all parts of the country equally, with unemployment still high in the economically lagging parts in the north-east of the country.

Growth in high-skilled employment has been relatively weak in Croatia compared to European OECD countries. Labour productivity and wages have also grown slowly, and their levels are low in Croatia, though in line with those in Central and Eastern European OECD countries. The distribution of earnings is relatively equal, and the gender pay gap is comparatively low.

Job quality in Croatia is in line with that in European OECD countries. About one‑in‑eight workers in Croatia experience high or extreme job strain, a slightly greater share than across European OECD countries on average. The incidence of job strain is of the three dimensions of the OECD Job Quality Framework, measuring the quality of the working environment. The incidence of non-standard work in Croatia is in line with levels observed in many OECD countries, though a comparatively large share (2%) of workers in Croatia were employed on contracts with at most three months duration. This reflects frequent use of such contracts in Croatia’s tourism industry, but such contracts are widespread also in industry and construction. Temporary work in Croatia has a gender dimension, with women being more likely than men to be employed on temporary and very short contracts.

Estimates of informality in Croatia vary greatly and have at times been heavily contested, but studies seem to point to a decline in its incidence. While macro‑level research suggest that Croatia’s shadow economy is among the largest in the EU, with estimates using a macro-level approach reaching as high as around 30% of GDP, micro-level estimates suggest that undeclared work in the private sector accounted for about 13.5% of gross value added in Croatia in 2019. This estimate is below the EU average and comparable estimates for European OECD countries such as Hungary, Italy and Lithuania. However, the share of people reporting having paid for goods or services that likely included undeclared work in the last 12 months is one of the highest across European countries, at 18% in 2019 (EU average of 10%).

1.1.3. Living standards are rising, and deprivation has declined, but challenges remain for the social inclusion of some vulnerable groups

Economic inequalities are low in Croatia, and material deprivation has declined substantially since the peak of global financial crisis. With a Gini Index of 0.30, inequality in disposable incomes in Croatia is comparable to that in Hungary and Poland, and below the OECD average (Gini of 0.32). Inequalities in household wealth are also relatively low because of widespread homeownership. Thanks to declining unemployment and rising wages and incomes, Croatia has considerably reduced material and social deprivation, with the proportion of people facing an enforced lack of necessary and desirable items to lead an adequate life having dropped by a factor of four since 2015, from 8.4% to 2.0% in 2024. Relative poverty rates are a little above the OECD average, but old-age poverty is widespread because of short working lives and low pensions. Poverty and material deprivation are also much larger in rural and remote areas than in the rest of the country, though precise data are lacking.

Some minorities face disadvantage and discrimination, but minority outcomes in Croatia are not an outlier relative to those in OECD countries. Croatia has narrower gender gaps in employment and pay than many OECD countries, but very large disparities in the amount of unpaid work done by women and men (see discussion further below). The share of young people in Croatia who are NEET has declined substantially, but remains higher than in neighbouring Slovenia, and youth employment rates are low; the disability employment gap in Croatia is one of the widest across European countries, though this partly reflects a large number of veterans with a disability from Croatia’s War of Independence. Croatia is a largely ethnically homogenous country, with over 91% of the population identifying as ethnic Croat. However, various surveys show that the Roma population still faces major structural disadvantages in the labour market and in society at large. Croatia has been taking very active steps to promote the socio‑economic inclusion of national and ethnic minorities, including through the Operational Programmes of National Minorities 2021‑2024, and to address the specific challenges of the Roma minority (see Box 5.1). In Croatia’s Parliament, the Roma minority, as other national minorities, is represented through their own Member of Parliament, and the annual state funding allocated to umbrella associations of national minorities has increased over tenfold between 2017 and 2022. LGBTI people are another minority that likely faces discrimination in different areas of life in Croatia. In a recent Eurobarometer survey, one‑in‑four (25%) respondents indicated that they would feel “uncomfortable” working alongside a person who is transgender or gay, lesbian or bisexual, and according to a different study more than half of surveyed LGBTI people in Croatia recently felt discriminated against based on their sexual orientation. In January 2025, the Croatian Government adopted two Action Plans on the Protection and Promotion of Human Rights and on the Prevention of Discrimination. These were drafted by a cross‑sectoral working group composed of representatives from ministries and government offices, academia, and non‑governmental organisations, including an LGBTQI association. Proposed draft measures focus on raising awareness of the various types of discrimination faced by different discriminated groups, including the LGBTQI minority; strengthening prevention through training for public servants, teachers, and health workers; promoting access to free legal support for the LGBTQI minority; capacity building for LGBTQI‑rights’ associations; improving support for victims of discrimination; and cross-sectoral co‑operation for more efficient prevention of hate speech and hate crimes.

1.2. Making best use of Croatia’s labour force potential

1.2.1. Recent initiatives to raise employment and improve job quality

Croatia passed a series of important changes to its labour market legislation in 2022 that address some of the challenges outlined above. Through an amendment to the Labour Act, Croatia tightened the hitherto very liberal regulation of fixed-term contracts. Under previous legislation, there had been no limit to the number of short contracts that an employer could give to a worker during a period of up to three years. The amendment restricts the maximum number of successive fixed-term contracts to no more than three over a three‑year period and ties the use of fixed-term contracts to strict criteria. A second notable amendment, which entered into force in 2024, introduced far‑reaching regulations of platform work. This includes the mandatory registration of all digital labour platforms and intermediaries; regulations on the mandatory content of employment contracts; and the collection of personal data of everyone working through a digital platform, their hours worked, and any financial transactions made, and the transmission of these data to financial and social security authorities. Croatia also stepped up the fight against undeclared work with the adoption of a new Act on the Elimination of Undeclared Work. This new law increases penalties for employers who do not declare their workers, requiring them to pay workers a compensation equivalent to six months of wages plus social insurance contributions irrespective of the actual duration of their undeclared activities.

1.2.2. A training system ill-equipped to satisfy the growing skill needs

One key challenge for raising employment, productivity and wages in Croatia is that Croatia’s training system is currently ill-equipped to provide workers with the skills needed in the labour market. Vocational education and training plays an important role in Croatia, with 70.6% of all upper‑secondary students enrolled in vocational programmes. But these programmes are largely school-based, poorly aligned with the needs of Croatia’s changing labour market, and despite of their high enrolment rates generally perceived as unattractive. Particularly young people growing up in more rural parts of Croatia often need to choose from a very limited set of vocational training options that may not suit their interests and for which there is not much local labour demand. This is one reason for why many young people in Croatia have struggled to find work after graduation, ended up working in low‑skilled jobs or have left the country. And while the low quality of vocational education increases the need for adult learning, participation rates are very low in Croatia, with only 6.6% of adults reporting having participated in formal or non-formal education and training activities in the last four weeks in 2024. Croatia has invested significant efforts in recent years into modernising its VET system, with the focus on improving the alignment of the education system with the labour market, moving to a system that focusses on learning outcomes, and strengthening work‑based learning.

A new voucher system, financed under Croatia’s National Recovery and Resilience Plan, has been a promising new instrument for promoting adult learning and upskilling since 2022. This system, administered through the CES, permits both employed and unemployed workers to participate in training of six to ten months duration in fields related to the digital and green transition. Initial uptake has been very encouraging with about 11 000 vouchers approved within the first year, and current targets foresee the use of 40 000 vouchers by mid-2026, 12 000 of which through long-term unemployed, inactive people or NEETs. In May 2023, the Croatian Government broadened the programme with support from the ESF+ to cover a wider range of skills for an additional 75 000 users by the end of 2029.

1.2.3. Employment support in a tightening labour market

Croatia provides employment support for jobseekers through the CES, and spending on active labour market programmes (ALMPs), at 0.5% of GDP, is comparable to that of many OECD countries. ALMP spending has nearly tripled relative to 2013, which, against the background of rapidly declining unemployment, implies a very substantial increase in the resources available per jobseeker. EU funds have been playing a key role in financing employment support to jobseekers in Croatia, accounting for a little over two‑thirds (69%) of the total funds dispersed for ALMPs in 2025. In response to the recent labour market trends, the CES has been taking steps to adjust its programme mix, increasing the provision of education and training and further prioritising activation and support of hard-to‑employ jobseekers. This has included the introduction of a new programme under the name of Job+, which provides disadvantaged participants with a sequence of activation, individualised support including work practice, and education and training over a duration of 12 and 24 months.

1.2.4. Improving social dialogue and worker representation

Social dialogue and collective bargaining have an important role to play in raising employment, increasing job quality, and improving the skills and productivity of the Croatian workforce. The institutional framework for involving the social partners in promoting better labour market outcomes in Croatia is fundamentally solid. The Croatian social partners discuss key economic and social issues with government representatives in the Economic and Social Council (ESC), which is supposed to meet monthly under participation of ministers or their state secretaries and serves as a consultative and advisory body to the government. At the start of each year, the government submits a list of planned legislative initiatives to the ESC giving the social partners the opportunity to indicate which issues they would like to see discussed. However, the day‑to‑day quality of tripartite dialogue is rather mixed. The government generally involves the social partners in important legislative process, often from a relatively early stage, and the Ministry of Labour in particular tries to ensure regular high-level participation in the ESC. Nonetheless, the trade union representatives voiced their frustration about the ESC’s functioning, criticising the growing irregularity of meetings and insufficient or late information flows.

Collective bargaining in Croatia usually takes place at the company level. However, there also exist 12 sectoral‑level agreements, including in commerce, hospitality, construction and wood processing where they extend by law to all employees. While many workers are currently not represented through collective bargaining, the coverage rate is higher in Croatia than in most Central and Eastern European OECD countries, at an estimated 65%. Trade union membership is also slightly higher than in most Central and Eastern European OECD countries, at 21% of workers in 2018. In line with the EU 2022 Directive on adequate minimum wages, Croatia, as an EU Member State with a collective bargaining coverage below 80%, will have to develop an action plan that sets out a clear timeline and concrete measures to progressively increase coverage rate. A working group tasked with drafting a proposal for such a plan was established in June 2023 and includes representatives of government and social partners.

Croatia has had a statutory national-level minimum wage in place since 2008, which since 2018 is set annually through government decree. A single rate applies to all workers, except in construction and hospitality, where the extended collective agreements foresee higher minimum wages for all employees depending on job complexity. The minimum wage was relatively low for many years but has been increased significantly over the last few years. Since January 2025, it stands at EUR 970 per month gross – close to 50% of the average wage, one of the suggested reference values to assess the adequacy of the minimum wage in the EU 2022 Minimum Wage Directive. The incidence of low pay, defined as the share of workers earning less than two‑thirds of median earnings, was higher in Croatia in 2023 than in nearly all OECD countries.

1.3. A migration strategy that addresses Croatia’s demographic challenges

1.3.1. Modernising migration policy to address growing skill shortages

An effective migration policy is needed as part of Croatia’s strategy to address structural labour market shortages, promote innovation and productivity, and alleviate the financial pressures on the social protection system. Recent legislative changes have made immigration more responsive to labour market needs. Croatia passed the new Aliens Act in 2021 to replace the previous quota system with a labour market testing regime, because the old system had been too rigid to effectively respond to a rapidly evolving labour market. Although the new labour migration model is more responsive to labour market needs, it places a high administrative burden on public authorities, and the rapid increase in the demand for work and stay permits since 2017 has met insufficient administrative capacity. Croatia currently does not have a well-defined strategy in place that would spell out the role that immigration can play for the country’s longer-term economic, labour market and social development, i.e. beyond just addressing the countries’ immediate skill shortages. However, the Demographic Revitalisation Strategy up to the year 2033, adopted in March 2024, foresees the development of a national migration plan. A new migration policy could form the basis for a new immigration system and allow Croatia to better anticipate skills needs and actively steer migration flows.

1.3.2. Developing a comprehensive integration policy

As previous generations of immigrants have mainly originated from neighbouring countries and shared cultural and linguistic similarities with Croatians, Croatia has never had to invest in more comprehensive integration policies targeted to the whole migrant population. Current integration measures for migrants are therefore very limited and targeted towards beneficiaries of international protection. Given the large recent inflows of migrants from Asian countries, Croatia urgently needs a comprehensive integration policy to be able to fully exploit the skills and potential of its growing number of immigrants from diverse origins and ensure that they can integrate and contribute to Croatian society. Priorities should include offering language and orientation courses to new arrivals, developing mechanisms to inform all migrants of their rights, and facilitating and accelerating the recognition of foreign qualifications. As Croatia is experiencing a shift in the ethnic composition of its foreign-born population, policies to combat discrimination and racism will also become essential.

1.3.3. Attracting and retaining Croatian emigrants and their descendants

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 recent governments have made diaspora outreach a policy priority. Personal remittances received by Croatian households have increased, reaching a high of 7.5% of GDP in 2022 and declining slightly to 6.9% in 2023, well above the levels in any OECD country. Croatia has adopted a strategic diaspora policy with a primary focus on engaging and connecting with its diverse diaspora and encouraging and facilitating their return. To that end, Croatia recently facilitated the acquisition of Croatian citizenship for the descendants of emigrants and implemented various programmes and subsidies, particularly targeted towards the young and highly educated. Although some members of the diaspora have been starting to return, potential return migrants still encounter obstacles to return and (re)integrate. There remains some potential for Croatia to further improve its well‑developed diaspora policies along several dimensions, including by strengthening outreach efforts, raising the efficiency of administrative procedures, facilitating access to (re‑)integration programmes, and improving data collection on emigration and the diaspora to permit a better targeting of policies.

1.4. Adequate and accessible social support for vulnerable groups in Croatia

Public social expenditures in Croatia are comparable to those in OECD countries. In 2021, Croatia spent 22.5% of its GDP on cash benefits and social and health services, slightly above the OECD average of 22.1%. Croatia dedicates a relatively high share of this spending to pensions (8.9%, compared to an OECD average of 8%). Also spending on income support for the working-age population is relatively high. This reflects primarily large spending on incapacity benefits, including disability pensions for War Veterans, while spending on unemployment and minimum‑income benefits is low. The overall redistributive capacity of the tax and benefit system in Croatia, as measured by its impact on the Gini Index, is in line with the OECD average. Increasing benefit coverage, improving social services and reducing fragmentation of minimum-income benefits would help increase the effectiveness of the system in reducing poverty.

1.4.1. Addressing the low coverage and adequacy of support for jobseekers and vulnerable households

Workers in Croatia who lose their job are protected against income losses through a single‑tier unemployment benefit. However, benefit coverage is very low, with only an estimated 23% of jobseekers (according to ILO definition) receiving benefits. This reflects a comparatively short maximum benefit duration, and a large share of jobseekers who do not qualify, such as young people and those with short previous employment spells. The payment level is initially high, with a net replacement rate of 70% in the first three months of a benefit spell, but sharply drops for benefit recipients with longer spells. In 2025, an amendment to the Labour Market Act improved coverage and adequacy of unemployment benefits, somewhat reducing the degressivity of payments after the third month and shortening the minimum employment requirement for young people from nine to six months.

Minimum-income support in Croatia is fragmented, and benefit adequacy is very low. Low-income households who struggle to make ends meet from own resources may be entitled to support from different national and local schemes, the most important one being the means-tested Guaranteed Minimum Benefit (GMB). However, these schemes often do not effectively prevent poverty for the most vulnerable, because payment levels are low and because different schemes are insufficiently integrated and lack predictability and consistency across localities. After its introduction in 2014, GMB payment levels continuously declined relative to the median household income, and hence the relative poverty line, until rates were increased for some households in 2023. Still, for a single working‑age adult, GMB plus top-up in the form of a housing cost allowance provide a combined income of less than 20% of the median equivalised household income, i.e. not even half of the amount needed to reach the poverty line.

A further major challenge for the support of vulnerable groups in Croatia is the very patchy provision of social services. Particularly rural and remote localities struggle to organise an adequate provision of social support and care for older people and those with disabilities, at-risk families, children and young people, disadvantaged minorities, and other vulnerable groups. This reflects a lack of financial resources, a shortage of local providers and care professionals as well as insufficient public capacity. Supported by EU funding, Croatia has been launching a number of initiatives to improve social service provision, including by streamlining administrative structures and introducing a new social mentoring service for highly disadvantaged people.

1.4.2. Tackling gender inequalities

Croatia has been making progress in reducing gender inequalities, but there is more work to be done. Croatian women and girls do well in education at all levels, with tertiary enrolment rates of women clearly surpassing those of men. Nonetheless, women in Croatia lag men in both employment rates and earnings, even if these gender gaps are narrower than in many OECD countries. Differences in job quality remain a concern, including the greater share of employed women working on temporary contracts, notably on very short contracts. And while the gender pensions gap is lower than in the EU on average, particularly single older women face a very high poverty risk.

The high burden from unpaid work for many women is a major source of gender inequalities in Croatia. While the gender gap in paid work is relatively low, women in Croatia spend nearly 20 hours more per week than men on unpaid work – the highest value across European countries. The low availability of formal care services is one main reason for this. Early childhood education and care (ECEC) services suffer from insufficient capacity, both in infrastructure and staffing, and ECEC participation rates among 3‑5 year‑olds are low (71%, compared to an OECD average of 87%). Croatia has been increasing the capacity of childcare institutions with the target of raising the participation rate of above‑3‑year‑olds to 90% by 2026, and further to 96% by 2030. The long-term care system in Croatia is also strongly underdeveloped, with most care being provided informally by families and relatives. Geographic inequalities in the availability of care services are large, with access being much lower in rural and less developed parts of the country. The resulting care burden is mainly picked up by women: more than one‑in‑four (27%) women who were inactive but wanted to work in 2023 did not do so because of caring duties.

An effective and innovative solution for bringing basic home care services into underserved rural communities in Croatia has been the Make‑a-Wish programme, rolled out in 2017 with EU funding. Make‑a‑Wish provides funding to local and regional authorities and NGOs to employ lower‑educated unemployed women – who in many cases are vulnerable or hard to place – for the provision of care services to the local population of seniors and infirm. These women receive a full-time contract at the minimum wage, and can receive formal vocational training. While the main aim of the programme had initially just been to promote employment of lower-educated jobless women, Make‑a‑Wish has been making a substantial contribution to delivering care services and supporting the independent living of vulnerable seniors. Demand for participation in the programme is high, with by now long waiting lists, and Make‑a-Wish was recently extended by a further four years up to 2027.

Croatia has been taking important steps to prevent and combat violence against women. As a signatory of the Istanbul Convention, Croatia recently underwent a first comprehensive assessment of its implementation of the Convention, which highlighted the many Croatian initiatives to prevent and combat violence against women. The report positively acknowledged authorities’ commitment on gender equality and the combating of violence against women, and highlighted crucial recent legislative changes, including the introduction of a consent-based definition of rape into the Criminal Code. It notes room for improvement in the absence of comprehensive policies to address stalking, female genital mutilation, forced marriage, or forced sterilisation and forced abortion, as well as pointing to an insufficient number of domestic‑violence shelters. The prevalence of violence against women remains difficult to assess, and available statistics may not be very reliable and are often not easily comparable across countries. A recent EU-level survey, 28% of ever‑partnered women in Croatia report having experienced psychological, physical or sexual violence by an intimate partner; in about two‑thirds of EU countries the rate is even higher than this. In the same survey, over one‑in-three (36%) women in Croatia report having experienced sexual harassment at work, a share that is somewhat higher than across EU countries on average.

1.4.3. Ensuring pension adequacy and sustainability in a rapidly ageing society

Croatia operates a three‑tier pension system, which consists of a pay-as-you-go public pension scheme, created in its current form through a comprehensive reform of Croatia’s previous public scheme in 1998, a mandatory and a voluntary private funded scheme, both introduced in 2002. The statutory retirement age in Croatia in broadly in line with the average across OECD countries. The normal retirement age is 65 years for men and 63 years and nine months for women, 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 at age 60 without penalty. Early retirement is permitted five years before the normal retirement age for workers who have contributed for at least 35 years. A major reform of the pension system, which raised the retirement age to 67 years, was passed in 2018, took effect in January 2019, but was largely taken back only nine months later under huge public pressure, leaving the retirement age unchanged. In June 2025, Croatia adopted a new Pension Insurance Act that will raise average pensions while improving incentives to work for longer.

Pension adequacy is low in Croatia because working lives are short. The gross median pension income of 65‑74 year‑olds equalled only about 35% of gross median earnings from work of 55‑64 year‑olds in 2024, one of the lowest Aggregate Replacement Ratios among EU countries (EU average of 60%). Only a relatively small share of pensioners (19.6% in August 2025) receive a pension based on 40 or more qualifying years, though this figure has been rising; nearly 40% have fewer than 30 years of contributions. While women are overrepresented among pensioners with shorter qualifying periods, the gender gap in pension payments substantially lower than in the EU on average. Croatia’s funded private pension schemes have had little impact on adequacy so far, though this should start changing for coming pensioner generations. The future adequacy of the Croatian pension system under the rules in place up to the 2025 pension reform was broadly in line with that in many OECD countries. According to simulations from the OECD pensions model, a person entering the labour market in 2022 at age 22, working at average earnings throughout their career, and retiring at the earliest possible age without penalty was entitled to a pension corresponding to 60% of their previous net earnings. This net replacement rate was slightly below the OECD average (61% in 2022), but above those in many OECD countries. The recent pension reform should increase adequacy through a more favourable pension adjustment formula, increases in the minimum pension, the introduction of an annual pension supplement tied to years of service, and additional credited service to mothers for raising children.

Public pension expenditures in Croatia are much in line with those in other European countries, and – up to the recent pension reform – were forecast to decline relative to GDP. According to the EU Ageing Report 2024, total gross public pension expenditure in Croatia equalled 9.0% of GDP in 2022, 2.4 p.p. below the EU average of 11.4%. Total expenditures were projected to continuously decline over the next decades to reach 8.8% of GDP by 2070, which reflects primarily a fall in the expenditures for disability pensions. Expenditures on old-age and early pensions alone were projected to rise until 2033 before starting to decline.

Nonetheless, Croatia’s public pension system runs a major deficit, as the number of contributors to the system is very low. In March 2023, the public pension scheme counted only about 1.3 employees for each pensioner, a dependency ratio of 78%. This reflects not so much demographics, but primarily the high share of pensioners per employed person. As a consequence, with pension contribution rates similar to other countries, Croatia finances nearly half of its public pension expenditures from the state budget. There remains scope for Croatia to promote longer working lives by taking further steps to discourage early retirement, which remains relatively attractive in international comparison, encourage deferred retirement, and by further reducing, or entirely lifting, the restrictions on combining receipt of old-age pensions and work.

Box 1.1. Main policy recommendations for Croatia

The Croatian Government is invited to consider the following items as part of its strategy to cope with the demographic challenge, raise employment, job quality and wages, and improve inclusiveness and living standards, including for vulnerable groups:

Raising employment and job quality

• Monitor the evolution of non-standard and informal work, notably the incidence of contracts of very short duration and the development of platform work following the recent amendments to the Labour Act and the adoption of the New Act on the Elimination of Undeclared Work;

• Reinforce efforts to promote the employment of people with a disability, including by carrying out the planned changes to work capacity assessments, and by prioritising activation and support for out-of-work people with partial work capacity.

Upskilling Croatia’s workforce

• Continue ongoing efforts to modernise the upper-secondary vocational education and training system, notably by strengthening work-based learning, raising the responsiveness of the VET programme offer and contents to local labour market needs, and involving the social partners in the design, implementation and assessment;

• Reinforce efforts to raise low participation rates in adult learning, particularly for lower-skilled workers. The recent expansion and broadening of the voucher-based training system beyond digital and green skills is a welcome step.

Developing a migration strategy

• Develop an immigration strategy that clearly defines the role that immigration can play for Croatia’s longer-term economic, labour market and social development;

• Work towards a comprehensive integration policy that permits Croatia to fully exploit the skills and potential of its growing number of immigrants from diverse origins;

• Further strengthen diaspora policies, including possibly by reinforcing outreach efforts, raising the efficiency of administrative procedures, facilitating access to (re‑)integration programmes, and improving data collection on emigration and the diaspora.

Strengthening social protection and the provision of social services

• Continue ongoing efforts to expand the availability of quality early childhood education and care and long-term care services to reduce the high unpaid-work burden on women and improve living standards of frail and senior people;

• Continue ongoing efforts to reform the social benefit system and to improve social services for the most vulnerable by consolidating the different minimum-income benefits, improving data exchange and co‑ordination between national and local authorities, raising payment rates of the Guaranteed Minimum Benefit, and building local capacity for social service provision, particularly in rural areas. This will require increasing public spending on minimum-income benefits and social support, which could be matched by a reduction in the high spending on incapacity-related benefits;

• Strengthen social and mental-health support for disadvantaged young people by creating low‑threshold support options for at-risk students and young people outside the education system, in particular the NEETs;

• Continue to prioritise the socio‑economic integration of the Roma community and other national minorities through implementation of the Operational Programmes of National Minorities;

• Continue to prioritise the fight against discrimination of minorities, including LGBTQI people by implementing the Action Plans on the Protection and Promotion of Human Rights and on the Prevention of Discrimination;

• Consider further reforms of the pension system to extend working lives and improve pension adequacy, notably through further steps to discourage early retirement, encourage deferred retirement, or facilitate the combination of pension receipt and work.