Opportunities and Challenges in the Croatian labour market

European Commission

[Check Against Delivery]

László Andor

European Commissioner for Employment, Social Affairs and Inclusion

Opportunities and Challenges in the Croatian labour market

Croatian Chamber of Economy

Brussels, 10 July 2014

Minister,

Ladies and gentlemen,

My greetings to all and my thanks to Minister Mrsić, Ms Martinović, and Mr Juričić, for inviting me to this event in this remarkable building.

Apart from housing the Brussels Representation of the Croatian Chamber of Economy, it is also a masterpiece of European art nouveau.

Following my recent visit to Croatia, I want to express my appreciation of the steps that the country has taken in this first year since accession.

EU membership itself is a huge step forward, and an incentive to push ahead with reforms needed.

Another big step forward was the adoption and implementation of the European Social Fund Human Resources Development Operational Programme for 2007 to 2013.

Croatia’s allocation from the Fund for July to December last year was 60 million euros, which is much more than the investment under the Instrument for Pre-accession Assistance.

It bears witness to the EU’s commitment to investing in employment, lifelong learning and social inclusion in Croatia.

Another step is the progress made in the negotiations on the current Structural Fund programming period.

Building on achievements to date, Croatia is expected to continue developing its track record, particularly in the fields of employment, education and social inclusion.

The bad news is that 2014 is forecast to be Croatia’s sixth consecutive year of recession, with real GDP projected to fall again, before it starts to grow next year.

The employment rate, which is already among the EU’s lowest, is set to continue falling.

Unemployment is expected to rise before stabilising at around 18% as the recovery gradually starts to take hold in 2015.

More worrying still is the youth unemployment rate — the percentage of young people actually looking for work and unable to find any, which excludes students.

It is close to 50% — well above the EU average.

The percentage of young people neither in employment nor in education or training has also increased and stands above the EU average.

The employment rate for recent graduates is significantly lower than the EU average, while fewer than one in two people who complete vocational education and training end up in a job that matches their studies.

Those adverse economic and labour market trends are reflected in the growing percentage of people at risk of poverty and social exclusion.

At 32.3%, it is significantly higher than that of the EU as a whole, which was 24.8% in 2012.

[Europe 2020 and challenges]

This year Croatia has played a full part in the European Semester process.

On 2 June the Commission put forward proposals for country-specific recommendations.

Following their adoption in the Committees and by the EPSCO Council, the country-specific recommendations were endorsed by the European Council and finally adopted by the Ecofin Council meeting on 8 July.

Like the 27 other Member States, Croatia received country-specific recommendations to help address the challenges facing the country.

As regards the labour market, these include:

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  implementing the second phase of the labour law reform, in consultation with the social partners, to make the labour market more flexible and prevent further labour-market segmentation;

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  reviewing the wage-setting system;

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  improving the effectiveness and transparency of the social protection system;

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  strengthening the effectiveness and reach of active labour-market policies;

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  addressing undeclared work;

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  improving the labour-market relevance and quality of education and training;

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  in line with the Youth Guarantee, reaching out more to young people who are not registered, and offering more apprenticeships;

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  reducing access to early retirement, and taking forward retirement age reform.

It is crucial for Croatia to make sure the second phase of the labour law reform is implemented, in consultation with the social partners, to achieve a more flexible labour market.

If structural reforms are to succeed in the longer term, the social partners’ close involvement and some consensus on the thrust of the reform are vital.

Some claim that social dialogue and strong industrial relations institutions are barriers to competitiveness, but there is no empirical evidence to back that up.

On the contrary, in Member States where social dialogue is well established and industrial relations institutions are strong, the economic and social situation tends to be more favourable and subject to less strain.

The economies of such countries are in fact the most competitive in Europe.

Social dialogue is not part of the problem, but part of the solution to the crisis, and genuine social dialogue has added value in economic and social policy-making.

This is why the EU supports efforts to bolster the administrative capacity of social-partner organisations and address such issues as representativeness, pluralism, combining different levels of social dialogue, and fostering synergy between national and European social dialogue,

The European Structural and Investment Funds, which are now being fully mobilised in Croatia, are a once-in-a-generation chance to modernise systems, establish essential new structures and invest in people — at work and in society.

The labour law reform should put Croatia broadly on a par with its peers in terms of employment protection legislation.

The reforms are expected to reduce the risk of further labour-market segmentation, which has so far materialised in the increase in the incidence of fixed-term contracts, especially for young people.

The 2014 in-depth review for Croatia shows that the cost of labour is high compared with other Member States with similar rates of productivity.

Given the extremely low employment rate, a review of wage-setting practice is warranted with a view to creating the right environment for bringing productivity and wage developments into line and thus supporting job creation.

Meanwhile, the inactive and the unemployed need to be reactivated by a more effective and transparent social protection system.

This should also help address the precarious situation of those most in need by improving social benefit adequacy and coverage.

The effectiveness and scope of active labour-market policies targeting the young, the long-term unemployed and older workers should be stepped up.

Given the high incidence of undeclared work in Croatia, further measures are needed to address the problem.

Labour-market reforms should be backed up by efforts to improve the labour-market relevance and quality of education and training by modernising qualification systems, putting quality assurance mechanisms in place and improving school-to-work transitions.

Lastly, the relatively short working life in Croatia remains a challenge because it affects both labour supply and pension adequacy.

Although a number of major reforms are currently being implemented, there is a need to speed up the increase in the statutory retirement age and take further measures to address early retirement.

Active-ageing strategies should also be developed in the light of the ageing of the workforce.

Stepping up the public administration’s transparency, accountability, capacity and professionalism — including at local level — and improving the business environment are preconditions for successfully using the Structural Funds and boosting the Croatian economy.

One point worth stressing is the need to ensure Youth Guarantee schemes are in place, so all young people receive an offer of employment, an apprenticeship, a traineeship or the chance to continue their education or training within four months of leaving school or becoming unemployed.

Croatia’s Youth Guarantee Implementation Plan, which was adopted recently, illustrates the firm commitment on the part of the Government and other stakeholders.

We acknowledge their efforts and are currently analysing the Plan.

Factors in successfully implementing the Youth Guarantee include stepping up the public employment service’s capacity to provide individualised services for all young people neither in employment, nor in education or training.

Croatia needs to ensure the Youth Guarantee covers all young people in that situation, including those who are not registered.

There is also a need for far-reaching reforms to improve the quality and labour-market relevance of Croatia’s vocational education and training and higher education systems.

Financing from the European Social Fund and the Youth Employment Initiative should be used carefully for this.

Lastly, the Commission would like to see more mobilisation of the private sector, instead of excessive reliance on subsidised Youth Guarantee offers.

I want to thank Croatia for its support in the Council for the Recommendation on the Quality Framework for Traineeships.

A recent Eurobarometer survey reports that one in five traineeships in Croatia offer inadequate working conditions.

I hope that the Recommendation’s implementation will reduce the number of sub-standard traineeships significantly.

Another key Commission initiative is the European Alliance for Apprenticeships.

I encourage the authorities and companies in Croatia to join the Alliance in order to learn from others and develop the apprenticeship system there.

I am sure that Croatia’s commitment to fighting youth unemployment will be another big step towards making the Youth Guarantee a success.

Opportunities and Structural Funds

Ladies and gentlemen,

We are convinced that striking a good balance between investment in fixed assets and human capital is vital for economic development, particularly with the prospect of an ageing and shrinking labour force.

Focusing on the problems of employment and social inclusion is important both because they affect many families’ standard of living, and because they hold back growth.

In addition to policy design, the Structural Funds are there to help tackle the challenges.

This is especially true of the European Social Fund, the EU’s key instrument for investing directly in people and tackling labour market, education and social inclusion issues.

During the crisis, the Fund has demonstrated its effectiveness and usefulness as a flexible source of funding.

It has responded to short-term needs triggered by the crisis and has helped keep major policy reforms on track.

It has assisted low-skilled people, who make up almost half of all Social Fund project participants, and has offered opportunities to continue funding life-long learning.

Europe’s economic and social recovery will only be sustainable if it is underpinned by broad political support, partnerships at national, regional and local level, and sufficient funding, and the European Social Fund is vital there.

The Croatian Government and the Commission are looking at the many big challenges I mentioned.

Negotiations are under way on the 2014 to 2020 programming period.

The Partnership Agreements and operational programmes for 2014 to 2020 will be the main instrument for the EU Funds to help support efforts to restore growth and job creation in Croatia and other EU regions.

The Croatian Partnership Agreement needs to focus more closely on the objectives and set clear, practical results to be achieved.

The priorities need to be identified in order to concentrate the EU Structural and Investment Fund investment on areas that are strategically most important for Croatia.

In other words, we need to make sure that the investment priorities set are in line with the country’s key development challenges, and the assistance is well designed and geared to achieving maximum results.

Negotiations are also under way on the European Social Fund Operational Programme on Efficient Human Resources for 2014 to 2020.

The strategy generally identifies the key challenges clearly, but it also needs to show how they will be tackled in practice, and what investments and experience were gained in the pre-accession phase and particularly the impact of the Instrument for Pre-Accession Assistance on the direction and targeting of the new European Social Fund programme.

As you know, the Commission has strongly supported allocating a minimum share of Structural Fund support for the European Social Fund in every country — in other words, earmarking it for investing in human capital.

Croatia has a European Social Fund allocation of well over one billion euros.

Croatia's indicative European Social Fund allocation for 2014 to 2020 is 1 516 033 073 euros;

The European Social Fund’s share of Structural Fund resources is 25.97%, which is slightly higher than the ESF minimum share of 24.6%.

Main priorities:

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  Enhancing labour-market participation and quality of the education system;

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  Active inclusion and reducing poverty;

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  Supporting the quality, effectiveness and efficiency of the public administration and judiciary.

The European Social Fund’s investment priorities that are relevant to Croatia need to tackle a number of crucial challenges effectively, in line with the country-specific recommendations.

It should support the implementation of the structural reforms which Croatia has undertaken to carry out in the National Reform Programme.

In particular, the key aim is to activate the labour-market potential of all — including young people, elderly people, women and the low-skilled, who account for most of the long-term unemployed.

There is room to improve the effectiveness of active labour-market policies, and of efforts to improve people’s skills, so they can find a job or keep working.

There is a need to step up the capacity of labour-market institutions to introduce and implement active labour-market policies and ensure that programmes are in line with the skills needed on the labour market.

Croatia’s many highly educated but unemployed people — and especially young people — highlight the mismatch between labour-market needs and education.

Croatia faces a significant challenge in terms of youth unemployment, but while the needs are substantial, there is funding available.

Helping young people find a job must be among our top priorities, along with tackling the risk of poverty among the most vulnerable, such as older people, especially women, single-person households and the unemployed.

Croatia will receive 66 177 144 euros, to be matched by at least the same amount from the European Social Fund, under the Youth Employment Initiative.

This will directly target young persons up to 29 years old who are neither in employment, nor in education or training by providing job offers, and through qualifications and education.

Youth Employment Initiative resources for Croatia, which are included in the programming of the European Social Fund operational programme, are programmed as part of priority axis 1 for High Employment and Labour Mobility.

Jadranska Hrvatska and Kontinentalna Hrvatska are eligible regions.

This funding must be rolled out as soon as possible.

For that very purpose, the Commission is organising tomorrow (11/07) a dedicated seminar to help Member States in the design of their operational programmes related to the Youth Employment Initiative in order to accelerate the implementation.

The Social Fund will supplement this investment through further reforms of the employment and education services to target actions at young people.

More emphasis on life-long learning is also needed.

All Member States, including Croatia, need to invest continuously in upgrading skills, particularly among older people.

Last but not least, the authorities need to provide Croatia’s people with better services, create an attractive business environment and step up social dialogue in order to cope with the big changes under way or ahead.

Improving the administration’s capacity is vital for success, now and in the future.

I cannot overemphasise its importance for the use of EU funding, as experience in some Member States shows.

Ladies and gentlemen,

I want to wind up by thanking the organisers again for holding this event.

Raising awareness of the challenges and opportunities is an important task.

I also want to thank all of you for coming to listen and learn about how the European Social Fund can help boost employment, education and social inclusion.

The European Social Fund can play a vital role in bolstering Europe’s competitiveness and prosperity, because it invests in our most valuable asset — our fellow Europeans and especially our youth.

That is the most important message for economic stakeholders from Croatia and across the EU, while the negotiations on the current programming period are still in progress.

Thank you.