Proposed changes to labour law aimed at creating jobs

Croatia’s strict Labour Law polarises its labour market between workers who are protected by its provisions, and the unemployed, who are rarely able to find one of these coveted highly protected jobs. The Ministry of Labour wants to reduce employment protection in the hope that this will stimulate job creation. Employers approve, but trade unions want to keep mechanisms that guarantee automatic pay increases and set out comprehensive safeguards against dismissal.

Current labour legislation

Croatia’s employment protection legislation has 18 basic provisions that cover three main areas:

  • employment protection of regular workers against individual dismissal;
  • specific requirements for collective dismissals;
  • regulation of temporary forms of employment.

The effect of this legislation has been to polarise the labour market into ‘good’ jobs – those covered by the law and offering a high level of legal protection to workers – and ‘bad’ jobs that don’t have the same legal protection. Once unemployed, it becomes very difficult for workers to find a good job in the primary sector.

Generally, the unemployed in Croatia belong to already disadvantaged groups such as new labour market entrants, the young and low-skilled workers. Current labour laws improve working conditions only for those who manage to break into the primary sector. According to a recent study published by the Friedrich Ebert Foundation, there are a considerable number of long-term unemployed who are very unlikely to find work. The current rigid labour laws do not reflect the trend towards greater flexibility in both the global and the regional EU economy, where the emphasis is on creating the conditions for employability rather than on saving jobs.

Croatia’s labour market has diverse forms of labour flexibility. A high proportion of the newly employed have fixed-term contracts; a relatively high proportion of the employed work shifts and weekends, and few work regularly in the evening and at night. Until 2008, the number of fixed-term contracts had been dropping but began to increase with the onset of the global financial crisis. With the exception of the private agriculture sector, there is little working time flexibility and little part-time work in Croatia. Wage flexibility is relatively limited.

Proposed changes

The Ministry of Labour and Pension System (MRMS) announced in April 2014 that it was proposing to modify working time legislation to make internal organisation of work easier for employers. The aim is to help them cut operating costs by being able to respond quickly to short-term fluctuations in orders. The ministry also wants changes to the current rules on severance payments so that all workers, including employees on the fixed-term contracts, have the right to severance pay. It hopes that the changes will stimulate job creation, and the proposals are now being discussed in Parliament.

Social partners’ responses

The social partners have conflicting views.

Employers are campaigning for flexible approaches to labour law and the Croatian Employers’ Association (HUP) has said it will support any improvement in labour flexibility.

Trade unions are demanding a fixed structure for wage setting, and want the current rules covering dismissal processes and severance payments to remain in place. The unions have said that liberalisation of labour laws and the introduction of more flexible forms of work will not guarantee economic growth. They argue that part-time employment is not common in Croatia because the lower wages paid for such work mean no-one can afford to work part-time. They also argue that part-time work should be a choice, not a means of lowering the number of unemployed.

The unions also oppose any move towards more use of agency workers on temporary employment contracts. Although not currently widespread, the unions say they are increasingly being used by employers as a mean of exerting pressure on the existing workforce, rather than to provide much-needed extra capacity when production needs increase.

Commentary

Some changes in the Labour Law in Croatia would probably be useful, but they would have only limited impact on the Croatian economy. Expectations of economic and social benefit from proposed changes in the labour Law in economic and social terms should be kept in perspective.

There is no evidence to suggest that the proposed changes would lead to greater employment, investment and job creation.

An adequate implementation of and respect for the Labour Law is more important. Frequent changes make full and successful implementation difficult. They damage legal certainty and make harmonisation of court practice hard to achieve because effort is constantly being redirected towards mastering new regulations rather than implementing them.

The expectation that problems can be solved by constant changes in normative regulations is not realistic, and will not contribute to the establishment of the rule of law in Croatia. Like every other country, Croatia has to find and develop the constitutional and legal arrangements – particularly for labour legislation – that best suit its own historical, social, cultural and economic conditions.

Government needs to provide a stable legal framework and social infrastructure so that, with the co-operation of its citizens, it can establish the rule of law.

Bejaković, P., Gotovac, V., Novaković, N., and Rožman, K. 2014. The Real Implementation of Labour Law on the Republic of Croatia. Friedrich Ebert Foundation, Radno pravo and Institute of Public Finance, Zagreb.

Predrag Bejakovic, Institute of Public Finance

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