ZAGREB, April 10, 2024 - Croatia's population is rapidly aging and will record the largest decline among all European Union members by 2030, which poses a potential risk to economic performance and increases social challenges. A new World Bank report shows how increasing economic participation and the quality of human capital can help to mitigate - and even reverse -the adverse economic impact of Croatia's aging demographic and substantially speed up income convergence with the European Union by the 2030s.
Without an increase in the working age population, it will be much harder for the Croatian economy to grow. Aging also leads to a larger percentage of the population that is dependent on care-related and pension resources, which creates pressure on social services and limited state resources.
The report - Harnessing Human Capital for Growth in Croatia: Unleashing Potential for Economic Takeoff Amid Demographic and Technological Challenges - was presented today at a major knowledge event. It analyzes how key economic tools can help to unleash Croatia's economic potential and address the economic challenges of a shrinking and aging population by strengthening its labor force and human capital and by removing barriers to employment.
Presented by World Bank Senior Economist for Social Protection and Labor, Nithin Umapathi, the report suggests that supporting Croatians with the highest participation gaps, youth, women of certain ages, and older people will be essential. By providing better opportunities for these groups and with the implementation of productivity enhancing reforms, Croatia could increase its economic potential and expect an average per capita GDP growth of 3 percent per year from 2025 to 2050. However, if conditions remain unchanged with respect to productivity, participation, and human capital, the demographic pressures could limit the average GDP per capita growth to just 1.6 percent per year over the next 25 years, much less than what Croatia has averaged in the last two decades. Achieving this optimistic scenario requires an ambitious labor and human capital strategy consisting of three pillars: competitive skills, enabling conditions, and coordinated incentives.
"The Ministry of Labour, Pension System, Family and Social Policy and the Croatian Employment Service continually support including all unemployed persons onto the labor market with active employment policy measures. Additionally, for the purpose of increasing the number of adult citizens in lifelong learning, increasing competencies of the employed persons and thus ensuring a quality workforce, a model for financing adult learners through the voucher system has been developed. The objective is to ensure prerequisites and procedures for enticing life-long learning and acquiring new skills, with an emphasis on green and digital skills", stated Ivan Vidiš, State Secretary at the Ministry of Labor, Pension System, Family and Social Policy.
"If more Croatians enter the labor force equipped with the skills required to be productive in line with changing technologies, dramatic improvements in GDP growth are possible. Such steps can bring the prospect of income convergence with the EU-27 within reach by the 2030s", said Jehan Arulpragasam, World Bank Country Manager for Croatia. "This can be done by strengthening the country's labor force and human capital and by removing barriers to employment, in particular for women, youth and the elderly, and by strategically prioritizing and promoting participation in high-value-added sectors. Croatia has already demonstrated impressive economic resilience in recent years and this quality can be sustained in the long run by implementing policies to fully activate the country's human capital."
The report outlines five policy areas within the three pillars that are critical for the implementation of a coherent labor and human capital strategy and that complement some of the planned actions in the National Recovery and Resilience Plan (NRRP). The first area seeks to boost competitive skills by requiring the education sector to provide training for work-relevant skills that are essential for a dynamic modern workplace. The second area encourages supporting economic participation by expanding child-care and high-quality elderly care, promoting flexible work, affordable housing, and opportunities for adult training. The third area calls for more effective social policies that encourage and enable people to remain economically active as they age. Improvements in active labor market policies aimed at career guidance, job matching, retraining to upskill and reskill more of the labor force are highlighted in the fourth policy area. Finally, developing effective migration policies is crucial for addressing skills shortages and increasing Croatia's competitiveness and sustainability in the global labor landscape.
The event gathered policy makers, representatives of local government, the European Commission, the international community, as well as the private sector, think tanks, academia, and civil society. The conference also hosted a panel discussion with distinguished experts on how to take Croatia's human capital to the next level.
About the World Bank in Croatia
The World Bank has been a partner to Croatia over 30 years. During this period, the Bank has supported more than 50 projects, totaling almost $5 billion and provided knowledge and technical assistance to help strengthen institutions and support policymaking through more than 330 reports and studies.
The World Bank currently provides knowledge, technical assistance and financing in the areas of, digital transformation and the green transition of the economy, justice service delivery, education, business environment, land administration, science and technology, post-earthquake reconstruction of key health and education facilities, social policy, deinstitutionalization, pension system modernization, long-term care, and public administration.
