Wine is a family business for Toni Katunar. His family has been producing wine for decades, and their 20,000 vines are located on the paradise isle of Krk, Croatia’s biggest island. Situated in the northern part of the Adriatic Sea, Krk is a well-known tourist destination, praised for its beautiful landscape, turquoise sea and excellent gastronomy.

There is just one problem: the Katunars are struggling to find workers. “We only employ 10 people on the agricultural side of the business, but it has been hard to find even 10 people in the past years,” explains Katunar in a phone interview with Equal Times. This year, for the first time they have employed four foreign workers, from Albania.

Katunar’s case is not an isolated one: labour shortages have become an acute problem in Croatia, the European Union’s youngest member state. According to estimates from the Croatian Chamber of Commerce, Croatia has lost over 500,000 workers in the past ten years due to retirement and emigration. The so-called ‘brain drain’ became a glaring problem after the country’s accession to the EU in 2013when Croatian workers got free access to better paid jobs in western Europe.

According to figures from the 2018 Statistical Yearbook of the Republic of Croatia, some 150,000 people have left the country since 2013, while only 62,000 have moved back. However, the true number is thought to be much higher as many Croatians move abroad without registering at their local police station in compliance with the country’s residency laws.

In the past few years, the emigration issue has become a much-discussed topic in Croatia. There are regular news reports about busloads of young people heading to Germany or Austria in search of work, especially from the poorer regions in the east and the centre of the country. Political parties now routinely address the issue of demographics in their manifestos, and the government has declared reversing Croatia’s demographic decline as one of its top priorities.

“They [the government] did implement some positive measures, such as increasing child benefits,” says Sanja Klempić Bogadi, a senior research associate at the Institute for Migration and Ethnic Studies in Zagreb. But it is not enough, she warns: “Good demographic measures have to be long-term. They need to keep being implemented, even when the government changes, and the results are not immediate.”

Optimistic hiring plans and ambivalent realities

Croatia’s labour shortage may have been exacerbated by depopulation, but the roots of the problem lie in the “wave of early retirements in the 1990s,” argues Klempić Bogadi. After the breakup of Yugoslavia, as state-owned companies began to downsize and close amidst (often dubious) privatisation deals, ‘social peace’ was being bought by sending people into early retirement. “It resulted in people that still belonged to the active workforce category retiring too early,” explains Klempić Bogadi.

This year, Croatian employers will have the opportunity to recruit more foreign workers to fill vacancies as the government has doubled the quotas for foreign worker licenses from 31,000 in 2018 to 65,100 in 2019, with some 33,578 licenses already issued by June 2019. So far, most foreign workers come from the countries of the former Yugoslavia, such as Bosnia and Herzegovina, Serbia, North Macedonia and Kosovo, followed by workers from Albania and Ukraine. However, since neighbouring countries are also feeling the effects of the ‘brain drain’ to western Europe, Croatian employers might start looking to countries such as India, Pakistan and the Philippines, a representative of the Croatian Employers’ Association (HUP) recently suggested.

HUP has not only welcomed the government’s decision to increase quotas for foreign workers, but it has also been lobbying for a change in the labour law that would abolish the quota system altogether, allowing employers to recruit as many workers as they need abroad if there are no Croatian workers are immediately available.

HUP didn’t respond to our request for comment, but Croatian trade unions strongly oppose such a model, according to Kresimir Sever, president of the Independent Trade Unions of Croatia (Nezavisni hrvatski sindikati).

“The Croatian Employers’ Association and foreign investors want greater job flexibility, which would de facto mean slowly turning Croatia into a neo-colonial country. Croatian trade unions are not xenophobic, but it is in nobody’s interest to see the brain drain from Croatia continue while we import a much cheaper workforce. This can only serve the interests of employers,” argues Sever.

While wages have increased in recent years, Croatian workers are still amongst the worst paid in the EU. According to Eurostat, in 2018 the average hourly labour cost in Croatia was €11, which represented an eight per cent increase since 2017 (when that figure was €10.10). However, Sever fears this uptick could produce a downturn in wages if the quota system is completely abolished. He argues that higher wages and better, long-term contracts (currently Croatia has a record number of workers in temporary contracts – 20.7 per cent according to Eurostat) would help reduce the emigration of Croatia’s active workforce.

However, the government is keen to stress that increased quotas for foreign workers isn’t the only thing it is doing to improve the labour market. “In the first two years of its mandate, the government has allocated some €601 million (4.5 billion kuna) for employment measures, with an additional €270 million (two billion kuna) being allocated this year...it is the biggest sum ever allocated to employment measures, that has resulted in 96,000 newly-employed people,” explained the Ministry of Labour to Equal Times via email.

Dependent on tourism

While some of the measures, such as the provision of additional training for workers, were warmly welcomed, others have been more controversial. At the beginning of the year, the government changed the labour law to allow retirees to work part-time. For those with 32 years of employment, the average state pension in Croatia is approximately €330 (2500 kuna), and people over the age of 65 are at the highest risk of poverty in Croatia. In theory, part-time employment allows them to boost their income without losing their pension. Employers welcomed the change, hoping to attract retirees as seasonal workers. However, critics argue that retirees should be able to enjoy their well-deserved pensions without having to supplement it with part-time work.

The multinational supermarket chain Spar recently provoked ire on social media when it advertised part-time retail jobs for pensioners at its stores in coastal areas. Using the slogan “Go to the seaside with Spar”, it promised all new retired recruits free towels, free sunscreen and plenty of free time to swim in the sea, but it failed to mention anything about free accommodation. Coincidentally, this incident dovetailed with a campaign by unions to allow citizens to vote in a referendum to keep the retirement age at 65 (rather than increase it to 67 in 2033) and to limit the penalisation of early retirement.

Tourism, along with healthcare and construction, is experiencing the biggest labour shortages. The sector accounts for 19.6 per cent of Croatian GDP (data for 2018), and the current dearth of workers is due to an increase in the number of temporary, seasonal jobs available during the tourist season.

Eduard Antic, president of the Trade Union of Tourism and Services of Croatia (Sindikat turizma i usluga Hrvatske), thinks that a large part of the problem is Croatia’s uncompetitive tax structure. “We have a very high general VAT tax (25 per cent) and also quite a high VAT tax in tourism industry (13 per cent), higher than many other nearby tourist destinations. Therefore, employers can’t raise wages by that much. If the taxes in the tourism industry were lower, and if employers raised wages and offered non-seasonal contracts to people, I bet many people would choose to stay in the country,” he argues. VAT decreases (both on general VAT, to 24 per cent, and on VAT for the tourism industry, to 10 per cent) have already been announced for 2020. But the effects of this cut will take some time. A more immediate solution seems to be found in hiring more workers from abroad.

In 2019 the quota for foreign workers in tourism was initially raised to 15,611 from 8,930. Then, on 19 June 2019, the government decided to increase the number of existing licenses for foreign workers in tourism by a further 2,000, and by 1,000 in the construction industry. This followed an appeal from Croatian business owners and the HUP, warning that “the success of the tourist season is in jeopardy because of the lack of workers.”

Although more foreign workers may temporarily solve Croatia’s labour shortage problem, Klempić Bogadi warns that such a strategy needs to be a part of a wider, well-elaborated immigration plan – which is something Croatia doesn’t have. “We do have an action plan for migration that focuses on asylum seekers, refugees, and undocumented migrants, but not a long-term migration strategy,” she explains.

The most recent Migrant Integration Policy Index from 2015 ranked Croatia 30th out of 38 countries, noting that “Croatia’s policies that best promote integration are in areas of European law.” Nevertheless, it cautioned that these legal conditions “can be undermined by the authorities’ rather discretionary procedures,” and that future policies and funds need to address policy gaps such as “work-related language courses, access to vocational training and study grants, targeted education support for children beyond language learning, health entitlements/access and a migrant health plan, discrimination against non-EU citizens.”

Klempić Bogadi’s warnings seem to be echoed in the recent attacks on the Croatian coast, where the workers of Serbian origin were physically assaulted on the island of Brac and in the city of Dubrovnik. As more and more foreign workers are expected to pour into the country as the summer season gets into full swing, an all-encompassing immigration strategy is becoming ever-more urgent.