Labor shortage compounds Croatia's struggle to catch up to western Europe

ZAGREB (Reuters) - Croatia is suffering a severe labor shortage, most glaringly in its booming seaside tourist resorts, that is compounding obstacles to economic growth and dimming hopes of catching up to more developed European Union peers.

FILE PHOTO: Tourist crowds mill about on the flagship Stradun street of the city of Dubrovnik on Croatia's Dalmatian seacoast, August 2, 2018. REUTERS/Antonio Bronic/File Photo

The problem reflects poor levels of pay, education and skills-training in a still mainly state-dominated economy that has driven many young Croats to find more lucrative, fulfilling work in affluent western EU countries, analysts say.

“The mismatch between education and the needs of the economy, a low readiness for mobility within Croatia and a high number of people leaving to work in other EU states negatively affect Croatia’s labor market,” Iva Tomic at the Zagreb Economic Institute think-tank told Reuters.

According to the national employers’ association HUP, Croatian firms cannot fill at least 30,000 jobs, largely in tourism, which accounts for almost 20 percent of gross domestic product, and in construction, retail and manufacturing.

This at a time when Croatia and other European Mediterranean tourist hotspots are struggling to cope with huge crowds arriving on cheap flights and cruise ships in the summer high season.

Tourism in Croatia, with its spectacular, rugged Dalmatian seacoast and offshore islands, regularly offsets the country’s considerable trade deficit, so it is crucial for the service sector underpinning it to be able to fill job openings.

But many other businesses, Croatian- or foreign-owned, also have many job opportunities going begging, compounding the drag on growth and helping keep the unemployment rate unacceptably high - currently at 9.1 percent, analysts say.

That is down from 11.6 percent a year, but only because of the brain drain of young Croats.

“In (the town of) Sisak there is a visible lack of adequate workers. In the past financial year, when we hired 71 workers, 40 percent of those interviewed did not meet the conditions and 43 percent of our 90 employees had to be trained internally,” said Ivana Rumac at Italian-owned steelmaker ABS.

“The (Croatian) education system does not offer programs which provide skills we need,” a company statement said.

ABS, in Sisak 50 km (30 miles) southeast of the capital Zagreb, has now built its workforce up to 116 with a target of 150 by the end of the current fiscal year next June.

Franz Letica, head of Zagreb’s restaurant and bar owners association, said that in the first nine months of 2018 there were 782 unfilled openings for cooks and 1,493 for waiters, with only 272 cooks and 796 waiters employed in a city of 800,000.

The newest EU member country’s public sector is also affected. Ankica Prasnjak at the nurses union said Zagreb University Hospital was short of some 300 nurses as many had gone to higher-paying jobs elsewhere in the EU.

Potential investors face similar difficulties.

“A bigger Austrian company wanted to expand business in Croatia but, because of a shortage of adequately skilled workforce, eventually opted for South America where it also runs businesses,” said Sonja Holocher-Ertl, director of the Austrian Chamber of Commerce’s office in Croatia.


Labor shortages are not unique to Croatia - other emerging economies in Europe’s ex-communist east and southeast have also

experienced a drain of young talent to the richer west of the EU, exploiting the right of free movement within the bloc.

But it explains analysts’ doubt that Croatia’s longer-term growth will surpass a modest 1-2 percent needed to rise to western levels of prosperity.

At the moment the former Yugoslav republic’s economy is expanding just below three percent annually, but even that is below peers in eastern and southeastern Europe.

Labor-starved businesses are lobbying the Zagreb government to raise the annual quota for foreign workers, which this year amounted to 38,769 licenses.

But skilled workers from other, less developed east European economies are difficult to lure as they can find better paid jobs further west, for instance in wealthy Austria or Germany.

The average salary in Croatia in September was 6,195 kuna ($950.21), far below western European levels. Croatian media report anecdotally that Croats working in hotels in Austria earn at least double what they could at home.

“Businesses here cannot raise salaries much and thus become more competitive because they would jeopardize their profitability,” Tomic said.

Critics say that excessive red tape and high tax rates lingering from Croatia’s communist past within old Yugoslavia, lumbering judicial procedures and frequently changing, opaque regulations add to barriers to growth and investment.

While a clear solution for Croatia’s growth problems is not in sight, senior Labor Ministry official Marija Knezevic Kajari said the domestic workforce pool was far from exhausted.

Only about 60 percent of Croatians between 15 and 64 years of age are employed - among the lowest rates in the EU.

“Importing workers is partly a solution but we believe there is space for retraining local people, for which we offer financial support to businesses and for people who have a business idea and want to be self-employed,” Knezevic Kajari said.

In the meantime local businesses fear missing out on new contracts. “With the shortage of skilled workers some employers are already having to cancel some business deals for next year. It has become a very serious problem,” the HUP statement said.

Reporting by Igor Ilic; Editing by Mark Heinrich