Zagreb, June 30, 2010 – The global economic crisis has impacted quite substantially all segments of the Croatian economy and society. How deep the impact has been on employment, how the crisis has affected poverty levels in Croatia, how effective social safety net policies have been in providing assistance to people who lost their jobs during the crisis and how the social protection system could be strengthened to more effectively respond to the needs of the poor now and in the future are questions that a joint World Bank/United Nations Development Programme (UNDP) report Croatia: Social Impact of the Crisis and Building Resilience presented today is looking at.
The crisis had reversed the significant reduction in unemployment levels achieved during 2007 and first half of 2008 with formal employment falling by 6 percent equaling the 6 percent fall in GDP in 2009. Manufacture, trade, tourism and construction industries have suffered the most with industrialized and therefore low unemployment regions taking the largest brunt. During the crisis prime aged skilled blue collar workers were those who mostly lost their jobs. The crisis has reduced the already low labor force participation rate of 57.8 percent by about 2 percentage points, further highlighting the structural labor market issues and the need for more effective pro-employment policies.
Before the crisis poverty (defined as HRK 2063 per month for an adult), in Croatia was below 10 percent. This was due to strong economic growth, job creation and high spending on social safety nets. Poverty was mostly associated with those who had been without a job for more than three years and low skilled workers. Now simulations indicate that poverty has increased by 3.5 percent mostly affecting economically active, better educated and younger people, living in richer urban areas. The simulations of the crisis impact also show that child poverty likely increased affecting mostly multi-children families.
“The crisis can be seen as an opportunity for reforms, a time to build a more resilient social protection system, providing well-targeted assistance to those most in need and introducing more effective labor market programs to help the unemployed to get skills needed to find jobs quicker.” said Peter Harrold, World Bank Country Director for Central Europe and the Baltic Countries. “The good news is that significant improvements could be done without extra burden on the budget and it is encouraging to see that the Government’s Economic Recovery Program has already envisioned numerous measures with that goal in mind. A good social protection system is not only important within the context of the current crisis but just as important for any future similar shocks to the economy.”
“The crisis provides an opportunity to define the proper role of the state and revise the mix of social protection programs away from categorical benefits toward transfers and social services that are more efficient in reducing poverty. Moreover, it is critical to improve the quality and timeliness of relevant data to support evidence-based policymaking and monitoring. This is needed to avoid wasting taxpayers’ money and ensure that support reaches those who need it most even as the poverty situation evolves.” – stressed Balazs Horvath, poverty reduction practice leader from UNDP’s Bratislava Regional Centre for Europe and the CIS.
The analysis showed that the social protection system relied mostly on existing instruments such as unemployment benefits and social support allowance set at a low threshold which left many new unemployed without coverage. Much less focus was put on active labor market programs to prevent long term unemployment and chronic poverty. The report suggests measures which could significantly strengthen the effectiveness of the social protection system without extra budgetary resources, focusing more on those that are most in need and adjusting employment programs to the needs of the labor market allowing more people to find suitable jobs.