How to prolong labour market participation in the Republic of Croatia?

* The authors would like to thank two anonymous referees for helpful comments on the paper. The views expressed are those of the authors and do not necessarily represent those of the institutions they are employed in.

¹ The “lump of labour” theory claims that the quantity of jobs is fixed and that older workers can take the place of younger. The theory was first raised in Mayhew’s London Labour and the London Poor, 1851; Mayhew claimed that a reduction in the hours of work could reduce unemployment (Munnell and Yanyuan Wu, 2013).

² First of all by David Frederick Schloss in 1891 (for more, see Munnell and Wu, 2013), and in more recent times the most important rebuttal is considered a series of findings for 12 countries in the framework of the National Bureau for Economic Research (NBER), USA (Gruber and Wise, 2010).

³ These indicators are the ratio between the projected number of persons above the age of 65 (the age at which on the whole people tend to be economically inactive) and the projected number of persons in the 15 to 64 age group (Eurostat metadata).

⁴ Source: fragment, Eurostat, accessed May 12, 2018.

⁵ OECD.Stat accessed May 13, 2018 (Employment rate and Labour force participation rate refers to the 15 to 64 age group).

⁶ The duration of working life indicator (DWL) measures the number of years a person aged 15 is expected to be active in the labour market throughout his/her life (Eurostat metadata). Eurostat, accessed May 12, 2018.

⁷ Source: OECD.Stat, accessed May 14, 2018.

⁸ Source: HMZO.

⁹ Worth mentioning is that the Labour Force Survey, on which the OECD data and Eurostat data are based, do not differentiate those working in the official and in the unofficial economy, all of them are just employed. The same holds true for SHARE research.

¹⁰ For the 70 to 74 age group there is no recorded labour force participation rate in the Republic of Croatia in 2016, while in 2002 the rate was 6.7%.

¹¹ The seventh phase of the NBER project Social Security Programs and Retirement Around the World, the objective of which is a comparison of the experiences of 12 developed countries concerned with the impact of social contributions on retirement and related issues.

¹² Clearly, mortality is not the same as morbidity, and other measures of health status, which are based on a large number of health indicators (Milligan and Wise, 2012b) and that all the increase in lifespan is not necessarily spent in additional work years (Coile, Milligan and Wise, 2016). However, an integral analysis according to health indicators would assume a much greater and more detailed study focused only on health, which is not the case in the present paper.

¹³ The definition of older workers according to most statistical databases refers to the age of from 55 to 64 (Eurostat, OECD). The WHO makes 45 the dividing point between older and younger (Reischl, 2007). The UN defines people of 60 as older (e.g., United Nations, 2015), and the ILO (ILO, 2013b) defines older people as those of advanced years. An active labour market policy in most countries, including Croatia, defines older persons as those above the age of 50, and according to Eurobarometer, the age of 63.9 years is the average age at which a person is considered old.

¹⁴ As well as early retirement, it is worth mentioning a large number of other forms of retirement: disability retirement, work injury retirement with the right of placement, in other words, employment (from 1996 to 1998) and other (HZMO, 2002). However, considering the scope of the material, this work will not in detail analyse their influence on the economic activity of the labour force.

¹⁵ Between 2011 and 2029 the ages for women will become the same as those for men. The third period of enlargement is from 2031 to 2038 for early retirement from 60 to 62 and from 65 to 67 for old age retirement (Pension Insurance Act).

¹⁶ Source: Eurostat, accessed May 14, 2018.

¹⁷ According to the Pension Insurance Act, Article 85, in the case of an insured who is granted pension for the first time after the age of 65, and has 35 years of qualifying periods, shall be determined by increasing the initial factor by 0.15% a month for each month once the insuree has reached the age required for obtaining the right to old-age pension, and for no longer than five years.

¹⁸ Phased retirement, if work is done with the same employer, or partial retirement, if the employer is changed (Kantarci and Soest, 2008).

¹⁹ Work after retirement was once common. The retirement insurance system of the 19^th century in Germany was not meant to replace earned income entirely, but only to supplement it, since it was assumed that earnings with age and infirmity would be lower, and pensions recipients often went on working. This was changed after WWII with a greater amount of retirement benefit (Scherger, 2015). E.g. countries with centralised economies had very low retirement ages, and pensioners were permitted to work if they wanted, without any curtailment of their pensions. In the USSR more than a half of all pensioners worked and also received their pensions up to a certain amount. The situation changed with the move to a market economy and with the increase of the numbers unemployed, when the policy of early retirement began to be used to free-up jobs (Samorodov, 1999). In Georgia, for example, 88 per cent of workers/retirees work as self-employed persons. Work during retirement is permitted, with no curtailment of the pension, with the exception of state and public employees, but including retirees working in the public sector in science and education (ILO, 2013a:76).

²⁰ The activity of a tradesperson, sole trader, freelancers (such as lawyers) and that, to be able to carry out this activity or profession have to be enrolled in the appropriate register (trades register, court register, professional register and so on).

²¹ However, in the event of any temporary incapacity for work, they have no right to salary compensation charged to health insurance, rather it is charged to the employer (Article 50 of the Mandatory Health Insurance Act) and they are not exempt from the payment of the employment contribution at a rate of 1.7 per cent (Article 16 of the Contributions Act), while at the same time they are not considered unemployed persons (Article 10 of the Act on Employment Mediation and Unemployment Rights ).

²² When the Contributions Act was changed (OG 115/16) the total rate of contributions for retirement insurance was made 10 per cent (for insureds in the first pillar), or 7.5 and 2.5 per cent for insureds of the 1^st and 2^nd pillars, and the contribution for mandatory health insurance is 7.5 per cent.

²³ The share of pensioners with an equivalised disposable income below the at-risk-of-poverty threshold. Eurostat metadata, accessed April 20, 2018.

²⁴ Two other are: functional and financial flexibility.

²⁵ Other indicators of this flexibility, like the share of people who work nights or weekends and so on (European Commission, 2013:72) are also low for Croatia. Source: Eurostat, accessed May 14, 2018.

²⁶ Very important indicators of this kind of flexibility are the indices of employment protection legislation (employment protection for regular contracts, including collective lay-offs and employment protection for temporary contracts). Indices that are exaggeratedly high, that is, with exaggerated statutory protection for the employment of older workers, which many countries use as tools in their anti-discrimination policies, can reduce their chances of being employed (Heywood and Siebert, 2009) and is linked with a low level of selfemployment (Christelis and Fonseca, 2015).

²⁷ In actual fact, the percentage of self-employed in Croatia for those older than 15 years is even a little higher than the EU-28 average (16.1 per cent as against 15.6 per cent for 2014, European Commission, 2015:385). There are several explanations for the lower percentage of older self-employed persons. According to the report of the European Commission (2015:49), in the new member states, which are marked by a background of the former centrally planned economies with the emphasis on dependence and conformism, the older generations show some resistance to the key characteristics of self-employment and enterprise, such as self-confidence and individualism. According to Botrić and Tomić (2016), in Croatia the older turn to self-employment out of necessity, not as an opportunity, and during the time of the Crisis, the percentage of older self-employed fell, which confirms the fact that the older workers often used early retirement as a way out of the labour market. Apart from that, according to Botrić (2012), in parts of Croatia where more people are employed in the public sector, there is a lower percentage of self-employment. In other words, work in the public sector is a safer way of being employed, and in Croatia (according to SHARE data) people from the up-to-64 group are much more employed in the public sector than they are in other countries, which is particularly brought out by the shares of men in the up-to-59 group and women older than 60. However, for any establishment of a wider spectrum of influences, or causes of the low percentage of self-employed older people in Croatia, a more extensive and detailed analysis would be required.

²⁸ Source: Eurostat, accessed May 15, 2018.

²⁹ For example, in Austria up to 2012 firms paid 12.45 percentage points lower contributions for workers older than 60 (Eichhorst et al., 2013). In Spain social contributions were paid only in the amount of 50 per cent for the employment of workers over 60, and fell by 10 per cent until the worker had turned 65 (Eurofound, 2012a), while on Cyprus, as a result of the shortages of labour in some deficit occupations it was made possible for workers over 65 not to pay any contribution (Fortuny, Nesporova and Popova, 2003). Some authors have even proposed the founding of an agency for the employment of older workers, with lower contributions, part time, something like a student employment service (Ograjanšek et al., 2008).

³⁰ Data in greater details are not available. Source: Annual Reports of HZZ, OECD, accessed May 15, 2018.

³¹ Public expenditure on ALMP as a percentage of GDP (category of interventions 1-7) for 2015. Source: OECD.Stat, Eurostat.

³² The SHARE database is primarily financed by the European Commission through FP5 (QLK6-CT-2001-00360), FP6 (SHARE-I3:RII-CT-2006-062193, COMPARE:CIT5-CT-2005-028857, SHARELIFE:CIT4-CT-2006-028812) and FP7 (SHARE-PREP:N°211909, SHARE-LEAP:N°227822, SHARE M4: N°261982). For details, see www.share-project.org.