WITH the coronavirus pandemic, the pay levels in Croatia haven't significantly changed. But economists warn that has come to an end, and in the upcoming crisis period, we can expect that salaries of the employed will start to decrease due to a strong coronavirus impact on the economy, while it will take years to recover.

It seems that it will end the multiannual period where the pay levels in Croatia were increasing. Of course, the whole situation won't be the same in all sectors so one could expect that the salaries in the IT sector will even continue to rise, but in general, the pay level in the country has already begun its way down.

Play cuts will be long term, and not only temporary, as it was thought earlier

"At the beginning of the coronavirus crisis, we have already seen pay cuts in the private sector and pay freeze in the public sector. Given the severe crisis, it realistic to expect that the government will once again raise the question by the end of the year about pay freeze in the public sector, while on the other hand, pay cuts in the private sector, which have already happened in some places, and it is bound to happen in others, will probably be long term," Zeljko Lovrincevic from Zagreb Institute of Economics warns for Index. 

Similar warnings come from Predrag Bejakovic from the Institute of Public Finance, who warns that pay rises won't happen in the next two or three years. Moreover, he adds, there are bigger chances of a pay level to decrease in the country. This process has already begun in the private sector, and its acceleration can be expected in fall, after an already weak tourist season.

"Everything will, of course, depend on coronavirus, the situation will be different from sector to sector, and in the next two or three years, and generally speaking, it's not realistic to expect pay rises in the country. It's more likely that they will decrease in many sectors," said Bejakovic for Index.

The increase in unemployment and low productivity force pays downwards

As obstacles for pay rises and "triggers" for their cuts in the coronavirus conditions, Bejakovic mentions the increase in unemployment and large expenses of the country for fighting the coronavirus crisis. He also states that productivity in Croatia is weak, and that pay rise in this crisis condition would additionally compromise the position of Croatia on global ranking of competitiveness and in a race for attracting investments.

The national statistics data for May show that the average pays in Croatia is still rising despite the crisis. According to the Croatian Bureau of Statistics, the average net salary in the country in May was 6,655 kunas (894 EUR), which is really 1.1 percent more than in May last year, and only 0.4 more than in April last year. The average gross salary was 9,067 kunas (1,218 EUR), which is 0.8 percent more than in May last year, while there wasn't growth in comparison to April this year.

By and large, there is a very small growth in personal income. The economists also warn that even that slight pay rise is mostly the result of government aids for preserving jobs. By the end of the year, the government won't be that generous because it won't have funds anymore, and employers warn that they won't have another choice than to take pay cuts and lay off employees, or to shut down their businesses. Especially in case of a new wave of coronavirus in the fall, after the end of a weak tourist season.

We are still among the new EU state members with the highest salaries  

"In the next few years, we will have to adjust to having less, but the degree of development of Croatia is such that it doesn't allow the higher salaries," Bejakovic points out. 

So the Croats are left with a little comfort that they are among the new EU member states with the highest salaries. Namely, according to the Vienna Institute for International Economic Studies and Raiffeisen, with an average gross salary of 1,131 euros, Croatia took third place last year with the pay level among the transition countries - behind Slovenia, which the average gross salary was 1,754 euros, and the Czech Republic, where gross salary amounted to 1,329 euros, and in front of Poland, Hungary, Slovakia, Romania, Bulgaria, and Serbia where the gross salary was 643 euros. Although the salaries in Croatia are higher than in other transition countries, they are still barely enough for living and don't cover the subsistence.

For example, the Eurostat data show that the level of retail prices in Croatia reached 67 percent of the EU average last year, which means that according to the subsidence, we are among the most expensive EU member states. But that data is even more devastating when we take into account the food prices in Croatia, which last year reached 96 percent of the average prices in the EU. 

On the other hand, economists warn that the increase in wages in Croatia hasn't followed the productivity growth so far, which means that it was actually difficult to sustain in the long run. The Croatian salaries have been increasing slower in the last years than in other EU state members, where the productivity increased more.

Without productivity growth, the pay rise won't be possible

"The Croatian salaries are low in relation to our prices and high for our productivity, which is poor," said Bejakovic.

Lovrincevic also points out that in the upcoming period, the pay rise won't be possible without the rise in productivity. Croatia should use the funds for recovery that the EU intended for its "coronavirus fund," he says, for the project that will increase productivity and the development of the industry 4.0. Without that, the effect on the economy, and thus the salaries will only be one time and limited.

"The key to everything is to come up with the projects that would be financed from the EU funds and increase the productivity and strengthen the industry based on new technologies and has a large added value. Those aren't the projects such as building infrastructure or health centers in places where no one lives anymore or arranging paved walkways or flower gardens, or starting helplines. We need projects that will increase productivity because, without them, the pay rise won't be possible in the upcoming period," said Lovrincevic.

Recovery won't happen until 2023 or 2024

He adds that one should not expect the salaries and living standards in Croatia to return to pre-coronavirus status until 2023 or 2024. Of course, the pays will increase in certain sectors, while in others, it will still decline, but without reforms, the danger of a new wave of emigration after the coronavirus crisis and complete opening of the borders will rise.

"The recovery of salaries and standards in Croatia will be very slow. It will take years to return to the pre-coronavirus level," Lovrincevic concludes.