- 1 -
7th Meeting, Brussels, 8 April 2010
Economic and Social Rights
by Ms Marija Hanževački (Employees Group)
- 1 -
The impact of the global crisis on economic and social rights
Given that economic and social rights constitute a very complex area, it is impossible to illustrate the situation in the Republic of Croatiain its entirety in a brief document. This report therefore does not even attempt to cover all areas, but focuses instead on a number of key areas (insofar as it is even possible, to determine which economic or social right should take priority over others).
In December 2009, Chapter 19 Social Policy and Employment, which harmonises Croatian employment legislation with the EU acquis, was provisionally closed.Harmonising legislation is in itself no guarantee of compliance with and the safeguarding of the rights to work, to payment for work carried out and to justconditions of work.This report does not include a list of all the legislative acts relating to economic and social rights which have been harmonised with the acquis. The report focuses on the actual situation on the ground.
The right to work
Croatia has been in crisis for some considerable time now. Unfortunately, the economic crisis, which has hit Croatia hard, has considerably worsened the state of economic and social rights. As a result, the rights to work, to a justremuneration and to just working conditions, some of the fundamental rights of every citizen, have been seriously undermined.Although these rights are covered and safeguarded by relevant legislation, and thus guaranteed to all citizens, the current situation in Croatia has presented us with a different picture.
The table in the appendix reveals a significant increase in unemployment numbers. What it does not show, however, is the fact that nearly 70,000 workers in Croatia who are in employment do not receive a proper salary (in most cases, all they receive is the minimum wage) and it also fails to reveal a detailed breakdown of unemployment.
In terms of age, young people up to 29 years of age account for 32.5% of the total number of those registered as unemployed (103,127 persons), the 30-49 age group (the middle-age working category) account for 41.6% (132,082 persons) and persons of 50 years or over account for 25.9% (82,416 persons) of the unemployed.Compared to the same period last year, unemployment in all age groups has increased. The increase is, however, most pronounced in the 25-29 agegroup (31.9%)and in the 30-34 age group (29.8%), which is particularly alarming, because it affects the most productive sector of the working population.
In February 2010, 88,594 unemployed persons (or 27.9% of the total number of the unemployed)were in receipt of unemployment benefit. Beneficiary numbers increased by 1,100, or 1.3%, on the previous month and by 18,664, or 26.7%,on the same period last year.
A World Bank study has found that the “profile” of the unemployment structure in Croatia has changed: men and women are equally represented amongst the unemployed (in February2010,55.1% of all unemployed were women, compared to 61% February 2009); the age group most represented (25-54) has increased even further as a proportion of the whole; “the new unemployed” are better trained and skilled than “the old unemployed” (more professionals, technicians, skilled workers, fewer unskilled workers).Active employment measures have not been able to produce more significant results, because there is little in the way of new jobs. As a result, the Croatian Unemployment Office is currently mainly undertaking passive measures, i.e. paying out unemployment benefit to those unemployed who are eligible under the Croatian Labour Exchange and Unemployment Rights Act.
Greater unemployment will also directly trigger an increase in numbers of the homeless and those beneath the poverty line.
In the absence of any quality measures on the part of the Croatian Government to extricate us from the crisis, the numbers of private business owners and small and medium-sized entrepreneurswho are being forced to close their businesses and enterprises are rising and so are the numbers of the unemployed and those dependent on state benefits, whether that take the form of unemployment benefit or social welfare. However, such benefits are insufficient to meet the basic essential outgoings of one individual, let alone of a family where both parents are out of work.
Economic policy in times of crisis
In mid-2009, the Croatian Parliament passed the Act on a Special Tax on Salaries, Pensions and Other Income as one of its anti-crisis measures. This act requires all employees receivinga net salary of betweenHRK 3,000 and HRK 6,000 to pay an additional tax of 2% on their net wages. All employees receiving a net salary of over HRK 6,000 are required to pay an additional tax of 4%. In addition, the value-added tax rate was increased from 22% to 23%. This additional tax is the very factor that has affected the purchasing power of Croatian citizens. This power has been diminished and, under the psychological pressure of the crisis, Croatian citizens have cut back even more on their consumption of all inessential goods and services. The sale of goods and services has undergone a further slump. All of this has had an impact on manufacturing, with wage cuts for those employed in manufacturing and closures and redundancies. Despite calls from the trade unions, non-governmental organisations and many citizens for the act to be assessed for compliance with the Croatian Constitution, the Constitutional Court has concluded that the act is compliant with the Constitution.At the time of writing of this report, the Croatian Government had decided to scrap the special 2% pay tax from 1July 2010.
Furthermore, due to a decline in orders and sales, some enterprises have decided to shorten the working week, making Friday a non-working day. This applies, in particular, to the textile, wood-processing and building industries, as they are the most vulnerable. At the initiative of employers and trade unions, the Croatian Government has tried to help these enterprises by passing the Assistance for Job Retention Act. Under the terms of this act, the Government was required to finance some of the employer’s obligations towards workers, but the criteria which employers have to meet in order to become eligible for such assistance are too stringent. As a result, very few employers have applied for this form of assistance. However, in order to finance this act, the Government had toamend the Labour Exchange and Unemployment Rights Actby cutting unemployment benefits (the highest benefit level at the end of 2009 being equal to 100% of the minimum wage,less compulsory contributions during the first three months of unemployment benefit, 80% for the rest of the first year of unemployment and a permanent benefit of 60% thereafter until a return to employment or retirement).However, although job retention assistance has not proved workable in practice, the Government has not returned unemployment benefit to the level prior to the beginning of 2009. All indicators for 2009 show that the brunt of the crisis has been borne by the workers. In the absence of quality measureson the part of the Croatian Government and due to insufficient knowledge and skill in dealing with the crisis amongst some managers, wages were frozen, reduced or not paid at all and workers were made redundant.
Meanwhile, internal liquidity has been on the increase. By the end of January 2010, a total of 27,343 registered legal entities, which employed 44,344 workers and had outstanding liabilities in the order of HRK22.2billion, had beendeclared bankrupt. Amongst private business owners, the outstanding liabilities and bankruptcies trend continued. By the end of January, 37,227 private business owners, who employed 23,592 workers (an increase of 15.9%), had been declared bankrupt, which is 16% more than in the same period in 2009. At the end of January, the outstanding liabilities of private business owners totalled around HRK5.2billion. In such a situation, where illiquidity is on the increase, the worker and his/her right to a just and decent remuneration is under threat, because his/her pay will either be late or he/she will not receive it at all (i.e. his/her employment contract will be terminated).Overall, outstanding liabilities totalled HRK 27.4billion and there were almost 70,000employees whose jobs were directly at risk because their employersfaced theimmediate threat of going under. These outstanding liabilities of HRK27.4billion are seriously threatening to return Croatia to the situation it faced in the annus horribilis of 1999, when outstanding liabilities in Croatia totalled HRK28.7billion. Back then, as today, the majority of those liabilities were generated by state-owned companies. We still expect the Croatian Government to come up with measures which will put an end to the trend of non-payment and set in motion the payment of outstanding liabilities as one of the measures for extricating us from the crisis.
The Government has failed to mitigate the future impact of the global economic crisis, because of the domestic crisis, which has narrowed its room for manoeuvre. As a consequence, the economy has been abandoned to its fate and the export industry, the entire manufacturing industry, building and small crafts have been particularly hard-hit.
At the beginning of 2010, the Government established models for funding economic recovery and development measures without seeking any consultation with the Economic and Social Affairs Council. These measures are geared towards creating the conditions for long-term economic growth, i.e. towards maintaining existing jobs and creating new ones, boosting investment, ensuring a satisfactory level of liquidity in the economy etc.There are two basic finance models.The first modelenvisages the state actively co-financing banks’ loan investments in sustainable economic projects (under the aegis of HBOR, the Croatian Bank for Reconstruction and Development). The loans covered by this model are intended to finance operating assets and the necessary funds will be secured though the coordinated efforts of the Croatian National bank, business banks and the Government. According to the second model, the Government absorbs some risk associated with banks’ new loan investments through a guarantee fund, primarily in order to launch investment projects which are intended to benefit the economy. However, the Government would also absorb the risk associated with loan investments intended to finance operating assets and the rescheduling of loans agreed after 1July 2008. Guarantees will be issued through HBOR.
In order to help the section of the population seeking to buy a flat and the building industry, at the beginning of 2010 the Government tabled the Act on Promoting the Sale of Flats before the Croatian Parliament. With a view to promoting the sale of flats and overcoming the adverse climate in the building industry, this act provides, until 31 December 2011, for loans to be granted and agreements to be concluded, and their implementation monitored, with loans granted to flat buyers from state funds (ranging from EUR100 to EUR300 per sq. metre of flat surface area, depending on square metre price).In so doing, the Government is making it possible for building companies (contractors) to use the profit from flat sales to kick-start a new building cycle, have their workers in employment and thus save many jobs. However, expert opinion is divided as to the effect of this act: will it help reduce flat prices or will it (as seems more likely) discourage builders from reducing the prices of new flats in order to make them affordable to citizens.
Social security
A particular problem in Croatia is the increasingly unfavourable ratio between the number of citizens paying into social security schemes and the number of pensioners. In February 2010, the Croatian Pension Insurance Institute’s figures for the previous month put the total number of insured persons at 1,507,067 andpension beneficiaries at 1,178,449. As a consequence, the ratio between the number of insured persons and the number of pension beneficiaries which was 1:1.32 at the end of 2009 dropped to 1:1.28, which is more than alarming. As early as the end of 2007, that ratio was 1:1.41 and in 1990 it was 1:3. More precisely, there were 655,788 pension beneficiaries and 1,968,737 insured persons. This alarming situation has come about because of problems with the sustainability of the pension system, on the one hand and, on the other,because of the excessively low proportion of the overall working-age population accounted for by those in employmentand because of rising unemployment figures, the latter of which has been a major strain on the state budget. Another reason why pensioner numbers rose throughout 2009 and at the beginning of 2010was because of worker redundancies, as everyone who qualified for early retirement was forced to take it (this permanently dented their pension income and increased their dependence on external help).
Following the healthcare reform of 2008, Croatian citizens have been able to claim supplementary health insurance as a form of voluntary health insurance.Such schemes have been provided by private insurers and the Croatian Health Insurance Institute (HZZO). A HZZO supplementary health insurance policy covers contributions towards certain health services which are payable outside the supplementary health insurance scheme. Thus, a worker is required to pay a monthly contribution of,depending on his/her wages, between HRK80and HRK130, whereas a pensioner is required to pay HRK50 or HRK80, unless he/she falls within one of the categories exempted from the contribution payment. That is another expenditure which a worker has to deduct from his/her wages if he/she wants to avail him/herself of supplementary health insurance.
Just remuneration
The average Croatian net salary for January 2010 was HRK5,258 (around EUR720), but a worker also has to pay the 2% special tax on that amount. According to the consumer basket assembled by the trade unions, the average Croatian salary barely covers 80% of the basic costs needed to see a family of four through the month. Furthermore, more than 60% of those employed by legal entities in Croatia receive an average monthly net wage lower than the national average. The majority of Croatian citizens have loans, which means that they use part of their salaries to cover various loan repayments (more details provided in the table).
If, on top of that, a worker wishes to insure his/her pension, he/she will have to allocate money for the third pension pillar, as well.However, the majority of those inemployment simply do not have sufficient funds onwhich they can draw in order to cover all those bases.
It is precisely this inability to cover basic living expenses that directs a section of the population into the grey economy, i.e. into having to do extra jobs over and above their regular working hours without receiving any rights or protection in such jobs. However, in times of crisis, there are fewer jobs going in the grey economy, as well.
In 2008, the Minimum Wage Act was passed as a result of tripartite negotiations. This act provides that the minimum wage shall be subject to change in June every year.Yet, in June 2009, the Croatian Central Bureau of Statistics (DZS), the body in charge of calculating and publishing the amount of the minimum wage, published an amount which ran counter to the agreement reached with the social partners and which failed to reflect the minimum wage calculation formula published by the Croatian Government in the Pre-accession Economic Programme for 2009-2011.Since the act is to some extent ambiguous on how the minimum wage should be calculated, the DZS decided to use the less favourable calculation for workers, despite the fact that the agreement signed by the social partners clearly sets out the calculation method to be used. According to some estimates (in the absence of official data), there are nearly 130,000 workers in Croatia who receive the minimum wage (EUR385). However, under the act, workers employed in the textile, wood-processing and leather and footwear industries may receive a wage lower than that. In the second half of 2009, negotiations on amending the Minimum Wage Act began, but not a single meeting has been held on this issue for the last few months.
There are around 260,000workers employed in the government and public services sector and in local self-government. This employee category saw their wages slashed by 6% in 2009, and further cuts to their allowances (their Christmas bonus, back pay, travel allowance etc.) are anticipated in 2010. However, there have not been redundancies in this sector.The current situation,whereby manufacturing jobs disappear every day, has also taken big chunks out of the budget, which is why the sustainability of the government budget for 2010 is seriously being called into question. In 2009, the government budget was amended three times, so it is not unreasonable to expect thatit will be amended this year, too.
The right of association
As has already been said, the right of association and the right of collective bargaining are guaranteed by the Croatian Constitution and further regulated by the Croatian Labour Act. Croatia has also ratified ILO Convention No 87 on the Freedom of Association and Protection of the Right to Organise Convention and ILO Convention No 98 on the Right to Organise and Collective Bargaining.