Impact of the economic crisis on employment

Unions and employers have been discussing changes to labour laws in Croatia. The economic crisis has brought the issue sharply into focus. While business groups are calling for more flexibility, unions say labour laws should be used to foster good relations between the two sides, and not only to help businesses overcome difficult trading conditions. An analysis of employment trends in Croatia between 2009 and 2012 has highlighted the impact of the crisis on trade and on workers.

Background and overview

Discussions have been taking place in Croatia about amendments to the country’s Labour Act. Understanding employment trends and their determinants may be valuable when it comes to formulating labour market policies, especially in the context of the fallout from the global economic crisis.

Country specific analysis is crucial if the results are to be used as a basis for policy decisions, given that the adjustment patterns of specific labour markets can be very different in the economic crisis.

Response to the crisis

The results of a recent analysis of employment trends in Croatia between 2009 and 2012 by the Institute of Public Finance show the first response of businesses to the crisis was to cut jobs. However, in the later phase of the crisis, the intensity of decline in real wages exceeded that of employment reduction. There are, however, considerable differences in adjustment patterns across economic activities.

During the crisis, jobs were lost in the private sector and in entities with mixed ownership. However, the number of jobs in the public sector – government and state owned enterprises – slightly increased. There are indications that wages increased faster – or at least, declined more slowly – in those economic activities with a comparatively higher share of public sector workers.

The results also showed:

  • businesses with a comparatively larger share of women in employment cut fewer jobs, so their aggregate employment share rose in the crisis;
  • the share of younger workers (under the age of 25) decreased, while there was an increased share of workers aged between 25 and 60, and, even more pronounced, of older workers (60 or older) during the crisis;
  • employees with comparatively lower educational attainment faced severe challenges in the labour market, though this can been seen as a longer term trend and not specific to the crisis period;
  • there was increasing demand for fixed-term employees and part time workers – in other words, more flexible forms of employment.

Data on working hours do not show any strong trends that would be specific to the crisis, except for a drop in the number of overtime hours per worker.

Taken altogether, the results may justify reforms to increase flexibility in wages and working hours, and specific measures to help young workers and those with comparatively lower educational attainment into employment.

Social partners’ views

Employee groups in Croatia have often called for changes in the Labour Act to make employment and rigidly-regulated working hours more flexible. They also propose measures to lower labour costs and make it easier for employers to retain more workers in the present crisis.

Trade unions have called for more control and penalties for employers who do not comply with the law and observe employees’ rights.

The Independent Croatian Unions (NHS) claim that some employers clearly violate legal provisions, saying they are ‘insufficiently flexible in terms of freedom in organising business processes in response to changes in the market’.

The Union of Autonomous Trade Unions of Croatia (UATUC) has emphasised that the purpose of the Labour Law is not to help employers overcome the crisis, but to regulate relationships between workers and employers. It says those regulations should be framed in a way which allows good business practice among employers, while at the same time efficiently protecting workers’ rights.

As for the proposed amendments, UATUC felt the Labour Ministry of Croatia had not conducted detailed analysis which would prove the existence of problems. UATUC says the proposed changes only take into account the interests of the employers, ignoring the workers’ point of view. Their interests have been put aside even though their work and productivity also contribute to the competitiveness of the economy.

Commentary

The fact that jobs cuts rather than wage cuts have been employers’ preferred way of dealing with the crisis, especially in the first two years, suggests that the costs of the crisis have been unevenly shared among workers – clearly, some have lost all of their labour income.

This puts unemployment benefits at the centre of the debate. Policies are needed that mitigate the negative consequences of complete or severe losses of labour income.

However, there is also a need to consider how income losses could be mitigated before jobs are lost. It could be argued more generally that labour market policies that increase the flexibility of wages or working hours may more evenly distribute the risks of an economic downturn.

The results of the recent analysis also show an increased demand for fixed-term employment contracts and for part time workers – in other words, more flexible forms of employment.

The situation for young workers deteriorated significantly during the crisis, so policy makers need to come up with tailored measures that help create employment for people in this age group. They also need policies to promote their stronger participation in secondary and higher education.

Predrag Bejakovic, Institute of Public Finance

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