Empowering Croatia's Future Enhancing Youth Employment and Skills Development Empowering Croatia’s Future Enhancing Youth Employment and Skills Development February 2025 Disclaimer © 2025 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Internet: www.worldbank.org Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The bound- aries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Design and typesetting: Kuna zlatica, www.kunazlatica.hr Cover photos from left to right: © monkeybusinessimages / iStock © Pekic / iStock © Phynart Studio / iStock © PeopleImages / iStock © Dusan Stankovic / iStock © Drazen Zigic / Shutterstock 3 Table of Contents Abbreviations and Acronyms.......................................................................................................................... 6 Acknowledgments.............................................................................................................................................. 8 Executive Summary............................................................................................................................................ 9 1 / Context............................................................................................................................................................19 2 / Barriers to Youth Employment.............................................................................................................. 29 3 / Government Responses ...........................................................................................................................41 4 / Policy Recommendations........................................................................................................................57 Recommendation 1: Strengthening the labor market information system (LMIS) to monitor emerging labor market trends and inform different types of users.......................... 63 Recommendation 2: Deploying lifelong human capital development solutions.................. 69 Recommendation 3: Tailoring services and their delivery to increasingly diverse target groups..............................................................................................................................................................74 Conclusions........................................................................................................................................................ 81 References...........................................................................................................................................................83 Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 4 Table of Figures Figure 1: NEET Rates in Croatia and the EU..............................................................................................25 Figure 2: NEET Rates by Level of Educational Attainment in EU in 2023....................................... 30 Figure 3: NEET Rates by Labor Market Status in the EU in 2023.......................................................33 Figure B4.1: Transitions of the Youth Population (Ages 15–24) from Unemployment and Inactivity to Employment in the EU in 2023..............................................................................................34 Figure B4.2: Employment Rates of Recent Graduates (Ages 18–34) by Educational Attainment Level in the EU in 2023, One to Three Years After the Completion of Their Highest Level of Education.............................................................................................................................34 Figure 4: Composition of the Youth NEET Population (Ages 15–29) by Gender and Education Level and Type ................................................................................................................................................... 36 Figure 5: Main Reasons for Nonparticipation by Youth (Ages 15–29) not in Work, by Gender.37 Figure B5.1: Regional Differences in Unemployment and Job Shortages and Surpluses..........38 Figure 6: The Youth Guarantee Implementation Process................................................................... 45 Figure 7: Share of ALMP Entrants (Ages 15–29) Among Different Programs................................47 Figure 8. Average Coverage (%) of the Registered Unemployed Over Time, by Gender and Age Group........................................................................................................................................................... 48 Figure 9: Spending on Active Labor Market Policies by Category, 2016–23.................................. 50 Figure 10: Main Factors or Barriers Affecting Youth Employment and Potential Areas of Intervention........................................................................................................................................................ 59 Figure B11.1: Government Interventions to Prevent Youth Unemployment and Support Unemployed Youth........................................................................................................................................... 62 Figure 11: Potential Policy Priorities for Public Employment Services Going Forward............. 63 Figure 12: Irish Pathways to Work for Unemployed Youth................................................................... 79 Boxes Box 1: Youth and the Green and Digital Transitions in Croatia........................................................... 21 Box 2: Who are NEETs?.....................................................................................................................................24 Box 3: How Do Different Personal and Household Characteristics Affect the likelihood of being a NEET in Croatia?................................................................................................................................. 31 Box 4: Challenges with the School-to-Work Transition in Croatia....................................................33 Box 5: Regional Differences in Unemployment, Job Shortages and Surpluses ...........................38 Box 6: Key Government Institutions Involved in Youth-Related Policies in Croatia....................43 Box 7: NEET Monitoring System.................................................................................................................. 46 Box 8: CISOK and its Offerings..................................................................................................................... 46 Box 9: Plavi ured (The Blue Office): An Opportunity for Entrepreneurial Support in Zagreb.. 50 Box 10: Demand-Side Interventions—Stimulating Demand for Young Workers........................ 60 Box 11: Coordinated Actions to Maximize the Job-Related Impact on Youth...............................61 Box 12: The Czech Labor Market Prediction System............................................................................ 65 Box 13: Australia’s Jobs and Skills Atlas.................................................................................................... 66 5 Box 14: Estonian PES: Aligning Training with Market Demand...........................................................67 Box 15: Job Matching Mechanism (JMM)................................................................................................ 69 Box 16: The role of the German PES in the Transformation Processes of the Steel and Port industries..............................................................................................................................................................72 Box 17: Employment Incentives for Green Jobs in Slovenia................................................................72 Box 18: Examples of Learning Accounts....................................................................................................73 Box 19: Attracting Skilled Labor from Third Countries: The Role of the PES.................................74 Box 20: Sweden: From Financial Education to Retail Investing.........................................................76 Box 21: The Digital Transformation of the Swedish PES.......................................................................78 Box 22: Better Care Facilities Addressing Embedded Social Norms............................................... 79 Box 23: Support to Youth with Health Challenges................................................................................. 80 List of Tables Table 1: Government Programs focused on Youth Activation........................................................... 42 List of Spotlights Spotlight 1: Croatia's TVET System: Strengths, Areas for Improvement and a Potential Way Forward.................................................................................................................................................................52 Leveraging Immigration for Croatia’s Prosperity 6 Abbreviations and Acronyms AI Artificial intelligence ALMP Active Labor Market Policy ASOO Agency for Vocational Education and Training and Adult Education AZVO Agency for Science and Higher Education CBS Croatian Bureau of Statistics Cedefop European Centre for the Development of Vocational Training CES Croatian Employment Services CISOK Career Information and Counselling Centre CNB Croatian National Bank COVID-19 Coronavirus disease 2019 CROQF Croatian Qualifications Framework CSODY Central State Office for Demography and Youth EA Euro area EC European Commission ECA Europe and Central Asia ECEC Early childhood education and care EMCO European Commission’s Employment Committee ESCO European Skills, Competences, Qualifications and Occupations EU European Union EURES EURopean Employment Services Eurofound European Foundation for the Improvement of Living and Working Conditions GDP Gross Domestic Product HANFA Croatian Financial Services Supervisory Agency HBOR Croatian Bank for Reconstruction and Development ICT Information and Communications Technology ILO International Labour Organization IMF International Monetary Fund JMM Jobs matching mechanism LFS Labor Force Survey LMIS Labor Market Information System MoDI Ministry of Demography and Immigration MoE Ministry of Economy MoH Ministry of Health MoF Ministry of Finance MoI Ministry of Interior MoL or Ministry of Labor, Pension System, Family and Social Policy MoLPSFSP MoPPCSA Ministry of Physical Planning, Construction and State Assets MoSEY Ministry of Science, Education and Youth NEET Not in employment, education or training 7 NGO Non-Governmental Organization NRRP National Recovery and Resilience Plan OECD Organization for Economic Co-operation and Development  PES Public employment services PPS Purchasing Power Standard R&D Research and Development SMEs Small and medium sized enterprises SCD Systematic Country Diagnostic STEM Science, technology, engineering, and mathematics TVET Technical and Vocational Education and Training USAID United States Agency for International Development VET Vocational Education and Training WDS Whole-day school WB World Bank WBL Work-based learning YG Youth Guarantee Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 8 Acknowledgments This document has been prepared by a team including Iva Tomic (Economist, ETC, EECM2), Andrea Sitarova (Consultant, HECSP), Kevwe Sylvester Pela (Economist, HSPGE), Ana Budimir (Consultant, EECF1), and Lea Karla Matić (Consultant, Institute of Economics, Zagreb), under the supervision of Mauro Testaverde (Senior Economist, HECSP). The team would like to thank Nithin Umapathi (Lead Economist, Program Leader, HECDR) for guidance during the initial phases of this task, and Ciro Avitabile (Senior Economist, HECED), Biljana Birac (Consultant, HECED), and Helly D. Mehta (Consultant, HECSP) for useful inputs to this work. The team also wishes to thank the peer reviewer, Samik Adhikari (Senior Economist, HAWS3), for his advice and contributions. The team appreciates managerial support and guidance from Jehan Arulpragasam (Country Manager, Croatia) and Paolo Belli (Practice Manager, Social Protection and Jobs for Europe and Central Asia). During the preparation of the report, the team also received insightful com- ments and useful material from World Bank colleagues, including Dhushyanth Raju, Indhira Santos, and Ana Simundza. Executive Summary 9 Executive Summary This note examines the current barriers to employment faced by Croatian youths who are not in employment, education, or training (NEET) and reviews the government’s efforts to address these challenges, with the aim of providing recommendations to accelerate progress, enhance existing initiatives, and foster innovations. By analyzing the broader economic con- text and the root causes of youth unemployment and inactivity in Croatia, the note identifies key barriers to employment faced by Croatian youth, reviews the government’s current efforts, and offers actionable recommendations to address these issues and better support young people in accessing the labor market. Croatia faces two key labor market challenges: a shortage of labor and the inadequate skills of its existing workforce. These challenges are being shaped by global megatrends, namely, demographic, green, and digital transitions. Labor shortages mainly reflect demographic pressures, including emigration, as well as institutional factors that limit labor force partici- pation, whereas shortages of skills have their roots in systemic issues relating to education and training systems which are not aligned with labor market needs (World Bank, 2024a). For example, although the employment rate for the working-age population (20–64 years of age) increased from 57 percent to 71 percent in the period 2013–23, it is still below the European Union (EU) average of 75 percent, indicating low levels of labor force participation. On the other hand, only 27.3 percent of adults in Croatia participated in some form of education or training in 2022, significantly less than the EU average of 46.6 percent. To address these key challenges, actions are needed on several different fronts, including the activation of untapped domestic labor potential, diaspora engagement, and attracting foreign workers, in addition to improving the skills of the existing and future workforce. Labor shortages and inadequate skills constrain Croatia’s long-term growth and productivity, which may undermine income convergence with the EU; Croatian gross domestic product (GDP) per capita, in purchasing power standard (PPS), was 76 percent of the EU-average in 2023. To address labor shortages, the government aims to activate more people to work, including youth, the elderly, women, and vulnerable populations, as well as to hire foreign workers. To address skills mismatches and help individuals realize their potential, key actions include reforming the education system, strengthening upskilling and reskilling programs, attracting foreign talent and the diaspora, and improving access to capital to drive innovation (World Bank, 2024a; World Bank, 2024b). Croatian youths (ages 15–29) are one of the groups the government aims to activate. In the last decade (2013–23), youth employment rose from 31 percent to 43 percent of the respective population (still below the EU average of 49.7 percent in 2023), but structural challenges remain pervasive. For example, Croatia has the highest share of young adults ages 25–34 living with their parents among all EU countries (64.3 percent versus the EU average of 30.0 percent in 2023), suggesting that a scarcity of stable employment opportunities and affordable housing may be a primary reason for this pattern (Eurofound, 2023; World Bank, 2024b). Helping youths overcome barriers to work and reskill or upskill in line with future labor market needs would be an important step to achieve the country’s vision. Actions in this direction would not only Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 10 alleviate immediate workforce gaps but would also lay the foundation for structural shifts which could improve the quality of jobs, limit migration outflows, and attract foreign talent. Young Croatians in NEET status vary by age, gender, and education level and face a multi- plicity of challenges. With a NEET rate of 11.8 percent (more than 72,000 young people ages 15–29), down from a peak of 22.3 percent in 2013, Croatia almost reached the EU average of 11.2 percent in 2023. The largest NEET group are those with secondary vocational education training (VET), followed by those with tertiary education (see Figure ES1). More than half of the NEET population are women, and older groups (ages 20 and above) are more likely to be in this status than younger ones. Additionally, young people make up a smaller share of the unemployed population in Zagreb and the Adriatic, where seasonal tourism demand is high, compared to Pannonia and the North region, which rely on manufacturing and agriculture with fewer suitable jobs for youth. Figure ES1: NEET Rates by the Level of Educational Attainment in the EU in 2023 30 25 % of population 15-29 20 15 10 5 0 RO IT EL CY BG LT ES FR HR EA20 EU27 SK HU CZ LV BE EE AT FI PL PT DE DK IE LU SI MT SE NL edo-2 ed3_4gen ed3_4voc ed5_8 Source: Eurostat database. Note: AT = Austria; BE = Belgium; BG = Bulgaria; CY = Cyprus; CZ = Czech Republic; DE = Germany; DK = Denmark; EE = Estonia; EL = Greece; ES = Spain; FI = Finland; FR = France; HR = Croatia; HU = Hungary; IE = Ireland; IT = Italy; LT = Lithuania; LU = Luxembourg; LV = Latvia; MT = Malta; NL = Netherlands; PL = Poland; RO = Romania; SE = Sweden; SI = Slovenia; SK = Slovakia; EU27 = the 27 countries of the European Union; EA20 = the 20 euro area countries. ED0-2 = less than primary, primary, and lower-secondary education (levels 0–2); ED3_4GEN = upper secondary and postsecondary nontertiary education (levels 3 and 4)—general; ED3_4VOC = upper secondary and postsecondary nontertiary education (levels 3 and 4)—vocational; ED5-8 = tertiary education (levels 5–8). This report examines the reasons for their lack of labor force engagement, identifying barri- ers that can be grouped into three broad categories: (1) demand-side, (2) supply-side, and (3) institutional deficiencies. The demand-side barriers mainly relate to a lack of quality jobs, a restrictive environment for businesses, and limited access to finance. Supply-side factors that prevent greater youth labor market participation are related to a lack of job-relevant skills, a lack of work experience, and caretaker duties, which are often related to social norms. Institutional Executive Summary 11 or systemic deficiencies are related to a wide range of factors that can be improved or reformed in order for more young people to enter the labor market. Among other things, these are related to the existence of limited information on job prospects that is fragmented across different web portals, with no job forecasts; the reality that offered services or programs do not seem to benefit the most vulnerable and that there are no complementary activities for beneficiaries; and the fact that there are data gaps both in NEET identification as well as in the assessment of labor market outcomes for active labor market policy (ALMP) beneficiaries, while outreach is still limited (see Figure ES2). Figure ES2: The Main Factors Preventing Youth Employment Barriers to Employment Demand-side Institutions and Supply-side factors Intermediaries factors ○○ Limited job creation ○○ Poor labor market ○○ Skills mismatch ○○ Poor business information ○○ Limited work environment ○○ Fragmented experience ○○ Financial constraints service delivery ○○ Social and structural ○○ Weak monitoring barriers systems The Croatian government recognizes these challenges and has responded with a set of policy measures meant to help get young people into jobs, learning, or starting a business. The gov- ernment’s interventions so far have focused on adjusting how the education system prepares youths for work (for example, reforming the VET curriculum) and on support for those already in the labor market who face difficulties in finding jobs. The latter group of policies includes expanding early childcare access, reskilling, upskilling, and the implementation of the Youth Guarantee (YG), a scheme aimed at accelerating young people’s moves into jobs or training within four months of registering as unemployed. As of 2023, 66 percent of the Croatian NEET population, compared to 36 percent in the EU, expressed interest in working irrespective of their labor market status—there is an opportunity for the authorities to consider further action. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 12 Recommendations Building on the government’s progress in addressing the barriers preventing young people from securing suitable employment, the following recommendations are offered for consider- ation to further accelerate the results and foster innovation. Given ongoing discussions with the Croatian government and the role of the Ministry of Labor (MoL) as the main counterpart of this work, the recommendations provided by the World Bank in this note are mainly related to supply-side constraints on youth employment. However, the proposed actions will be less effective and sustainable if institutional and market failures that might affect labor demand are not addressed as well. Many supply-side interventions aimed at the NEET population are under the purview of public employment services (PES). In Croatia, Croatian Employment Service (CES) provides labor market intermediation between employers and employees, and it supports both groups through ALMPs, career guidance, and additional services. However, supply-side interventions exclusively focused on CES will not be sufficient to improve youth employment in the absence of coordination across different agencies. The lifecycle of young people in NEET status, along with the bottlenecks they face, underscores the need for coordinated efforts from a range of stakeholders. While CES still plays a central role in serving the NEET population to support their activation in the labor market, facilitate their school-to-work transition, or help them return to the education system, there is also an important role to be played by other agencies and stakeholders in the areas of education, training, and child and adult care services. Figure ES3: Potential Policy Priorities for PES Going Forward Providing employment services suitable for the changing world of Vision work Strategic Supporting the development of a resilient and productive objectives workforce 1 2 3 — — — Strengthening Deploying lifelong Tailoring services the labor market human capital and their delivery Priorities information development to increasingly for action system to monitor solutions diverse target emerging labor groups market trends and inform different types of users Given the changing world of work, the recommendations presented in this report take into account potential adaptations that CES would need to consider in order to respond to glob- al megatrends and leverage the advantages of modern technology. With the main strategic objective of supporting the development of a resilient and productive workforce, CES could Executive Summary 13 focus on the following three priorities: (1) strengthening the labor market information system to monitor emerging labor market trends and inform different types of users, (2) deploying lifelong human capital development solutions, and (3) tailoring services and their delivery to increasingly diverse target groups (see Figure ES3). Recommendation 1: Strengthening the labor market information system (LMIS) to monitor emerging labor market trends and inform different types of users 1.1. LMIS upgrades Upgrading the LMIS for Enhanced Labor Market Outcomes Real-time Skill Outcome User-friendly Job Data Forecasting Tracking Interface Matching Integration The following LMIS upgrades are suggested: ○○ Real-time data integration. Combine employment, education, and pension (work) data to create a dynamic system that tracks labor demand and skills needs, and that identifies early those at-risk of becoming NEET youth. Integrating graduate surveys can help improve the school-to-work transition. ○○ Skills forecasting. Add functionalities for forecasting future skills needs based on mismatches between labor supply and demand in terms of education group, factoring in major investment plans and technology changes, to detect gaps among the youth population, including current students, so as to improve planning for training and curriculum adjustments. ○○ Outcome tracking and evaluation. Add tools to track labor market outcomes for graduates and the effectiveness of ALMPs to allow design adjustments. ○○ User-friendly public interface. Integrate LMIS data forecasts with current CES and Career Information and Counselling Centre (CISOK) career navigation tools, including salary expectations, regional job demand, and future job shortage projections. ○○ Enhanced job matching. Include a graduate database with resumes to allow employers to search for qualified candidates. Integrate a job matching mechanism (JMM) that proactively connects graduates with local businesses based on regional labor market needs. Proactively promote workplace training programs and offer targeted subsidies and incentive options to support regional employment and retention. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 14 1.2. Integrating LMIS data into decision-making processes and actions Integrated Real-Time Aligning Training Employment Outreach Reporting Online Programs Counselors Engagement for Youth System The following approaches are recommended: ○○ Integrated education and employment reporting. Assign a dedicated team to produce regular reports on program uptake and results, sharing insights with education and employment authorities to inform program or policy adjustments and resource allocation. ○○ An online information system for career choices in real time. Adjust the online system in real time and ensure that users are informed in a timely matter. ○○ Aligning education and training programs with labor market needs. Involve education and training organizations as input providers to end users of the LMIS, including for planning curriculum adjustments and training programs. ○○ Training career counselors on the effective use of LMIS data. Train CES and CISOK counselors on how to use LMIS data in designing, implementing, and targeting ALMPs, and also on how to empower students to use LMIS data from the public interface to make informed decisions on study and career choices. ○○ Enhancing employer engagement with the LMIS. Conduct outreach campaigns to raise awareness about LMIS resources among employers and encourage them to post vacancies and identify suitable candidates through the system. ○○ Using LMIS data for proactive outreach to at-risk youth. Establish outreach teams and develop early intervention protocols, offering personalized support and guidance to connect at-risk youth with appropriate education and employment opportunities. Executive Summary 15 Recommendation 2: Deploying lifelong human capital development solutions 2.1. Dynamic adjustments to the school system to prepare youths with job-ready skills Enhanced Youth Employability through Education Adapting Education Systems Preparing Youth with Expanding Work-based Learning Job-Ready Skills Engaging Employers The following adjustments are suggested: ○○ Adapting the education system to evolving needs and promote inclusivity. Align curricula and enrolment quotas with LMIS data to meet the current and future demand for skills. Focus on inclusivity and invest in targeted interventions aimed at disadvantaged groups. ○○ Expanding apprenticeships and internships. Increase the scope of apprenticeships and internships, provide financial incentives for firms to take up apprentices, and raise awareness of the benefits both for firms and young people, highlighting the long-term career advantages of work-based learning (WBL). ○○ Supporting more employer engagement. Focusing on employers’ needs increases employment and earnings prospects; thus, engaging employers in the education process by using their input when producing curricula and engaging them more for practical experience during schooling (including at the tertiary level) should be encouraged. By tackling skills mismatch, outdated curricula, limited industry collaboration, and funding issues, Croatia can enhance its technical and vocational education and training (TVET) system to meet the demands of the modern workforce. Modernizing curricula, integrating microcre- dentials, and boosting partnerships between vocational schools and industry are essential steps. Improved career guidance and efficient resource allocation will support students and program sustainability. Continuous professional development for teachers is crucial for quality education. With curricula updates set for 2025/26, success relies on support from government, educators, employers, and the community. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 16 2.2. Lifelong learning for workforce adaptability Enhancing Workforce Adaptability Learning Enterpreneurial Future Job Upskilling Accounts Education Skills and Reskilling Programs ○○ Systems to ○○ Education to ○○ Focus on green incentivize and support entre­ and digital skills ○○ Programs track lifelong preneurship for future jobs to improve learning and financial existing skills literacy and acquire new ones The following recommendations are given: ○○ Boosting upskilling and reskilling programs. Continuously assess the effectiveness of upskilling and reskilling programs based on feedback from participants, employers, and training providers to understand the labor market outcomes. Based on these assessments, adjust programs to bundle support with the other components needed to improve employment outcomes (for example, skills or craft training, incentives, outreach, or access to financing), with attention focused on underrepresented groups, and increase funding for effective practices. ○○ Focusing more on jobs for the future, such as green and digital skills. Within the traditional education system, on-the-job training, and training for the unemployed, increasingly focus on skills for the future, utilizing both LMIS data as well as input from other stakeholders, including employers. ○○ Supporting entrepreneurial and financial education. Strengthen CES start-up grants by integrating entrepreneurial and financial education into the support. Building on successful practices at the local level relating to education, consulting, and the promotion of entrepreneurship, scale this support to other parts of Croatia. This support could focus on helping young entrepreneurs establish, grow, or exit their businesses, including improving access to suitable financial products. ○○ Implementing learning accounts for lifelong learning. Use the lessons from the learning voucher program to explore the implementation of learning accounts for a broader range of citizens to incentivize upskilling or reskilling in line with evolving market needs. The accounts could provide personalized guidance and a range of tailored courses based on market needs, allowing for certification tracking. Executive Summary 17 Recommendation 3: Tailoring services and their delivery to increasingly diverse target groups 3.1. Adapting CES services to diverse and evolving labor market needs Adapting CES Services Profiling and Individualized Services Outreach Measures for NEETs ○○ Profiling Beneficiaries ○○ Disaggregating the NEET Population ○○ Individualized Services ○○ Identifying Constraints ○○ Specific Outreach Strategies The following adaptations are proposed: ○○ Personalized services through profiling. Use data-driven profiling to assess beneficiaries’ skills and aptitudes, and to offer interventions based on the distinct needs of various NEET subgroups. ○○ Targeted outreach strategies and incentives for registration with CES. Develop specific measures to reach different disengaged youth groups, based on their labor market status, age, region, gender, and educational attainment, instead of a uniform outreach strategy. Consider offering financial incentives, for example, entry-level unemployment benefits not tied to previous work experience, to encourage more youths with NEET status to engage with CES. 3.2. Leveraging digital and artificial intelligence (AI) solutions for efficient service delivery Digital tools AI Solutions Service Proactive Streamlining Outreach Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 18 The following suggestions are provided: ○○ Using digital tools and AI solutions to optimize CES services. This should cover administrative tools (such as registration, activity reports, and so on), matching services, career guidance, advice and guidance in terms of job seeking, education, recruitment, and so on, as well as applications for supported employment. ○○ Streamlining access through a centralized jobseeker pathway. Explore converting digital services for youths in NEET status that are currently offered through multiple sites to a single streamlined pathway and include additional services, such as child and adult care and disability services, to help navigate the barriers effectively. ○○ Increasing digital services uptake to free up counselor time for vulnerable youths needing in-person support. Ensure the increased uptake of existing digital employment services and implement additional digital tools, for example, for job matching, career guidance and administrative processes, to enhance the user experience and free up counselor time to focus on in-person services for youths with complex needs. ○○ Leveraging proactive digital outreach to accelerate results. Use data relating to beneficiaries for proactive and personalized outreach, based on the barriers that youths face, including personalized job and training offers, child and adult care options, referrals, and notifications, to maintain motivation and accelerate results. For these recommendations to have full impact, they would need to be accompanied by demand-side measures that could improve productivity and provide better jobs, alongside measures aimed at alleviating family responsibilities and addressing embedded social norms. On the demand side, supporting investment in research and development (R&D) and green technology adoption is necessary for improving productivity and providing better-paid jobs (World Bank, 2024a). Similarly, ensuring a favorable business environment and access to finance, including for start-ups and vulnerable groups, is equally important. In addition, expanding ac- cess to childcare and care services is essential for enabling youth, especially women, to enter the workforce or pursue further education. In parallel with expanding care services, addressing entrenched social norms is crucial to facilitate greater youth participation in the labor market. 1/ Context Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 20 Croatia’s labor market faces two major challenges: a shortage of labor and the inadequate skills of its existing workforce. These challenges are shaped by global megatrends, particularly demographic shifts, as well as the green and digital transitions (see Box 1). Labor shortages are primarily driven by demographic pressures, including emigration, alongside institutional factors that limit labor force participation. Skills shortages, on the other hand, stem from systemic issues within education and training systems, which are not fully aligned with labor market needs (World Bank, 2024a). The impact of these challenges is significant—over 30 percent of managers in the manufacturing and services sectors and over 50 percent of managers in the construction industry cite labor shortages as a constraint on business growth.1 Additionally, poorly educated workers are identified as the most significant obstacle in the business envi- ronment,2 while more than 60 percent of firms report a deterioration in workforce quality over the past five years.3 Despite job vacancies outpacing available labor and a historically low unemployment rate of 6 percent, Croatia’s employment rate for 20- to 64-year olds is only 71 percent, below the EU average. The 2008–09 global financial crisis caused a six-year recession, reducing GDP by 11 percent and doubling the unemployment rate to over 17 percent by 2013, with the youth unemployment rate exceeding 50 percent for the 15–24 age group and 34 percent for the 15–29 age group. Improved external conditions and EU accession in 2013 boosted economic growth and job creation, particularly in tourism and construction (OECD, 2023; IMF, 2024). Many working-age individuals, however, left Croatia during this period, straining the labor market. Nevertheless, from 2013 to 2023, the employment rate for the working-age population (ages 20–64) increased from 57 percent to 71 percent, but this is still below the EU average of 75 per- cent. At the same time, youth (ages 15–29) employment rose from 31 percent to 43 percent of the respective population, and youth unemployment fell to only 13 percent of the labor force. The skills composition of Croatia’s workforce mirrors the current structure of its econo- my, which is heavily skewed towards the service sector. Tourism alone accounts for nearly one-quarter of the country’s GDP, generating demand for predominantly low-skilled jobs (World Bank 2024a). Most job vacancies are concentrated in the construction, food services, tourism, and IT sectors. However, individuals with qualifications in administration-, economics-, and humanities or arts–related fields often struggle to find employment, highlighting a persistent mismatch between workforce skills and labor market demands (EURES, 2023). This trend has been on the rise since 2016, with only a temporary pause during the COVID-19 crisis. These skills shortages are not only limiting the number of workers that high value–added sectors can tap into but are also driving many highly skilled individuals to seek better opportunities abroad, further exacerbating Croatia’s labor market challenges (World Bank 2024a). To address these challenges, the Croatian government is exploring a multifaceted approach, including activating untapped domestic labor potential, engaging the diaspora, attracting foreign workers, and improving the skills of both current and future workers. Labor shortages and skills mismatches continue to constrain Croatia’s long-term growth and productivity, posing a risk to income convergence with the EU; Croatian GDP per capita (in PPS), was 76 percent of 1 European Commission (2023). 2 World Bank (2024e). 3 AmCham Croatia (2023). Context 21 the EU-average in 2023. To address labor shortages, the government aims to increase workforce participation among youth, the elderly, women, and vulnerable populations, while also hiring foreign workers to fill critical gaps. Key actions to tackle skills mismatches and help individuals realize their potential include reforming the education system, strengthening upskilling and reskilling programs, attracting foreign talent and engaging the diaspora, and improving access to capital to drive innovation and productive growth (World Bank, 2024a; World Bank, 2024b). Activating young talent is also part of broader strategies4 that aim to tap into different pockets of inactivity to increase the labor supply. With a youth (ages 15–29) employment-to-popula- tion ratio of 43.1 percent (below the EU average of 49.7 percent in 2023), structural challenges remain pervasive. Alongside reskilling and upskilling, these efforts are important not only to address labor shortages but also to create models that accelerate economic restructuring in line with green and digital transitions (see Box 1). This, in turn, can provide more robust economic opportunities, reduce youth emigration, and attract international talent, including members of the Croatian diaspora. Box 1: Youth and the Green and Digital Transitions in Croatia Both the green and digital transitions are at the top of the EU’s political agenda, with their interplay having important implications for member states’ labor markets. New technologies and new forms of work driven by digitalization, alongside the urgent need to address climate change and transition to a low-carbon economy, are leading the twin transformations5. The green transition will not be realized without turning to the targets and policies outlined in the European Green Deal,6 a cross-cutting strategy aimed at achieving climate neutrality and re- ducing environmental degradation by 2050. To minimize adverse side effects and unlock the full potential to drive environmental, social, and economic sustainability, the digital transition is also essential, as outlined in Digital Compass,7 Digital Decade Policy Programme,8 and Fit for 55.9 Among the 10 key areas of action for successfully aligning the green and digital transitions, the 2022 Strategic Foresight Report10 emphasizes the need to adapt education and training systems to meet the challenges posed by rapid technological and socioeconomic changes. Additionally, the report highlights the importance of facilitating labor mobility across sectors as a critical priority for ensuring a smooth transition to these new economic realities. In line with the EU’s agenda, Croatia’s green and digital transitions are reshaping employment opportunities across the economy. The EU’s ambitious climate targets of reducing emissions by 55 percent by 2030 and achieving net-zero emissions by 2050 are particularly relevant to 4 The National Development Strategy of the Republic of Croatia until 2030, Demographic Revitalization Strategy until 2033, and National Plan for Work, Protection at Work and Employment for the period from 2021 to 2027. 5 https://www.bfna.org/politics-society/the-future-of-work-in-the-twin-transition-to-green-and-digital-3xn0a3queo/ 6 https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en 7 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52021DC0118 8 https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32022D2481 9 https://www.consilium.europa.eu/en/policies/fit-for-55/ 10 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52022DC0289&qid=1658824364827 Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 22 Croatia’s high-emission and climate-sensitive sectors, such as energy, transport, industry, agri- culture, and waste management. These sectors require significant adaptation to meet climate goals. At the same time, Croatia is experiencing substantial growth in sustainable sectors: the environmental goods and services sector already employs 2.3 percent of the workforce, surpassing employment in some traditional, emission-intensive industries (2 percent). The National Adaptation Strategy11 and energy efficiency goals are expected to further accelerate the expansion of green jobs. New roles—such as wind turbine technicians, sustainable con- struction workers, environmental consultants, and energy auditors—are emerging as viable career paths for young people entering the labor market. Additionally, emerging evidence suggests that Croatia is expected to automate approximately 22 percent of 2019’s total work hours by 2030. As a result, up to 140,000 workers may need to transition to new occupations by 2030 to remain employed, due to the effects of digitalization and automation (McKinsey, 2021). The green transition offers Croatia a crucial opportunity to address youth unemployment while advancing climate goals. Among the newer EU member states, Croatia has one of the highest proportions of workers who require retraining to meet the demands of the green economy. The construction sector, pivotal to green projects, has a job vacancy rate of 1.7 percent, with one-third of workers reporting a lack of necessary green skills.12 These challenges are further compounded by persistent mismatches between educational output and the skills required for green jobs, as well as the limited opportunities for work-based learning, restricting young people’s ability to gain relevant experience. Moreover, weak connections between vocational education and the needs of industry contribute to gaps in practical skills, while insufficient career guidance for navigating green pathways and a low participation in lifelong learning (be- low 30 percent) continue to limit young people’s ability to adapt to the emerging green jobs market. However, young people’s successful integration into the green economy depends on overcoming multiple, interconnected challenges. By systematically removing barriers and pri- oritizing investments in skills development, Croatia can enable its youths to lead the country’s sustainable transformation, simultaneously creating quality employment opportunities and accelerating progress toward climate objectives. By fostering a digitally skilled youth workforce, Croatia can address its labor shortages and boost productivity. The high levels of digital skills among young Croatians present both oppor- tunities and challenges in the context of ongoing digitalization.13 While the COVID-19 pandemic accelerated the integration of digital tools and remote learning within the Croatian education system, it also exposed existing digital divides, with some students facing barriers to accessing necessary technology and infrastructure (Doolan, Dolenec, and Domazet, 2021).14 Addressing these inequalities will be crucial for ensuring that all young Croatians can fully benefit from the digital transformation of education. By fostering a digitally skilled youth workforce, Croa- tia can address its labor shortages and boost productivity, particularly in high-growth sectors such as information and communication technology (ICT), fintech, and creative industries. Moreover, digital tools can enhance productivity in agricultural practices and elevate Croa- tia’s tourism sector through the use of innovative marketing and service delivery platforms. 11 Republic of Croatia (2020), https://mingo.gov.hr/UserDocsImages/KLIMA/Climate%20change%20adaptation%20 strategy.pdf. 12 https://economy-finance.ec.europa.eu/system/files/2023-06/ip235_en.pdf?utm_source 13 OECD (2023a). 14 Doolan et al. (2021). Context 23 Croatia’s integration into the European Digital Single Market further amplifies the opportunities available to young professionals and entrepreneurs. Access to EU funding programs, such as Horizon Europe and Digital Europe, with additional funding through the National Recovery and Resilience Plan (NRRP), provides a foundation for skills-building, research, and innovation in digital fields. Croatia’s Smart Specialization Strategy,15 which has the digital transformation and green transition as horizontal themes, further strengthens the opportunities for upgrading the skills needed for the twin transitions. Additionally, Croatia’s growing tech startup ecosystem presents pathways for youth-led innovation in sectors such as artificial intelligence, green tech, and software development. Ensuring that young people have the support and opportunities to translate their digital capabilities and emerging green skills into successful careers and entrepreneurial ventures requires targeted action. Programs such as the Green and digital voucher scheme, aimed at equipping vulnerable groups with green and digital skills, are a positive starting point. Expanding and scaling up these programs will be crucial for reaching more young people and creating a generation of tech-savvy professionals with specialized skills for the green economy. This will help ensure that they are competitive in both regional and global markets. In alignment with both EU and national strategic documents, policy actions prioritize young individuals who are NEET. Unlike the adult population, where alternatives to nonemployment primarily involve employment, for youth, education represents a significant alternative. Conse- quently, the three main outcomes identified for the youth labor-market-ready population are employment, nonemployment, and education. Notably, many young people who are neither employed nor in education are also not actively seeking employment (that is, they are not regis- tered as unemployed). This demographic is often excluded from relevant statistics, thus falling outside the focus of economic policy measures (Monastiriotis and Tomic, 2018). To address this issue, the NEET population (see Box 2 for a definition) should be incorporated into policy agendas. For instance, consistent with the EU’s target of achieving a 78 percent employment rate for the working-age population (ages 20–64 years) by 2030, there is also an objective to decrease the NEET rate from 12.6 percent in 2019 to 9 percent by 2030 by enhancing NEET employment prospects. Similarly, Croatian policy documents, such as the National Youth Pro- gram for the Period 2023 to 2025 and the Youth Guarantee Implementation Plan 2022-2023, place an emphasis on the NEET population. Therefore, this note focuses on the NEET youth population, as it is a priority target group defined by both national and EU policy documents. 15 htt ps : / / mi ngo. gov. hr/o - ministarstvu-1065/djelokrug /uprava-za-internacionalizaciju-6087/inovac ije / strategija-pametne-specijalizacije-do-2029/9839 Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 24 Box 2: Who are NEETs? NEET is an acronym for not in employment, education, or training, and it is often used to refer to the employment status of individuals ages 15 to 29.16 The NEET concept has been introduced to highlight the vulnerable status of these young people and better monitor their access to the labor market (Eurofound, 2016). The term has been used more widely since 2010, when the European Commission’s Employment Committee (EMCO) agreed to focus on NEETs in the context of the Employment Guidelines for the Europe 2020 strategy (Eurofound, 2016 and Redmond and McFadden, 2023). Figure B2.1: Understanding NEET Status Characteristics Other NEETs Re-entrants Discouraged Short-term Unemployment Understanding NEET Status Characteristics Family Long-term Responsibilities Unemployment Illness/Disability Source: Own elaboration based on Eurofound (2016) 16 Likewise, Croatian policy documents refer to the youth NEET population as those between the ages of 15 and 29. See, for example, the definition of youth in the Council Recommendation of 30 October 2020 (Council of the EU, 2020) or in the National Youth Program for the Period 2023 to 2025 (Central State Office for Demography and Youth, 2023). Context 25 Usually, young people in NEET status are a diverse group with different characteristics and vulnerability levels (Eurofound, 2016):17 ○○ Reentrants. Recently hired or enrolled in education or training and expected to leave the NEET group soon ○○ Short-term unemployed. Already seeking work and unemployed for less than a year, moderately vulnerable ○○ Long-term unemployed. Unemployed for more than a year and seeking work; face a high risk of disengagement and social exclusion ○○ Illness, disability. Not seeking work due to illness or disability; require more social support because they cannot do paid work ○○ Family or care responsibilities. Unable to work due to caretaker duties; predominantly women (90 percent); a mix of vulnerable and nonvulnerable individuals ○○ Discouraged. Believe there are no job opportunities and have stopped looking for work; at high risk of long-term disengagement and social exclusion ○○ Other NEETs. A heterogeneous group, including the highly vulnerable, the most privileged, and those pursuing alternative paths, such as artistic careers. Although Croatia has made significant progress in lowering the NEET rate, there is still space to activate the potential of its youth. With a NEET rate of 11.8 percent in 2023, down from a peak of 22.3 percent in 2013 (Figure 1), Croatia has more than 72,000 young people neither in education and training systems nor working. In addition, between 2013 and 2023, more than 100,000 Croatians ages 15–29 left the country18 in search of better economic opportunities. Figure 1: NEET Rates in Croatia and the EU (a) NEET rates over time (2012–23) (b) NEET rates by gender in 2023 24 25 22 20 % of population ages 15–29 % of population ages 15–29 20 18 15 16 10 14 5 12 10 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 RO IT EL CY BG LT ES FR HR EA20 EU27 SK HU CZ LV BE EE AT FI PL PT DE DK IE LU SI MT SE NL eu27 males total croatia females eu-level target 2030 Source: Eurostat database. 17 However, this list is not exhaustive, as young NEETs could also be grouped using some other criteria; however, whichever grouping criteria is used, they represent young people neither participating in education or training systems nor in working life due to different personal, societal, and institutional reasons. 18 Based on Croatian Bureau of Statistics (CBS) data from 2024; although this group comprises about 16 percent of the total population, youth represented 26 percent of those who emigrated in this period. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 26 For those who do find work, employment security remains a significant concern. In 2023, 27.7 percent of employed youths in Croatia were on temporary contracts, more than double the rate for the overall working population (ages 15–64), which stands at 11.1 percent. Furthermore, among youth, over 50 percent of temporary employment was involuntary, meaning that these individuals either could not secure a permanent job or were employed in positions that were only available on a temporary basis. Similarly, although only 5 percent of the youth population in Croatia worked part-time (compared to 3.7 percent of the working-age population), one-third of these positions were involuntary. This prevalence of (involuntary) temporary contracts often translates into job insecurity and limited career development opportunities. Workers in these positions are less likely to receive employer-sponsored training and face greater difficulties transitioning to permanent employment. The impact of temporary employment extends beyond job security to affect earnings and career progression. Temporary roles often offer lower wages than permanent positions, leav- ing young workers at a financial disadvantage and hindering their ability to achieve economic independence or invest in their futures. Moreover, limited opportunities for professional growth and skills development in temporary roles can impede career advancement, restricting young workers’ ability to secure stable, well-paying jobs. The combination of difficult job prospects and skills mismatches creates a complex cycle that can significantly reduce worker motivation and labor market participation. When individuals cannot find opportunities that align with their qualifications, they often feel discouraged, which negatively impacts their job-seeking behavior. This reluctance is based on valid concerns that accepting lower-skilled jobs could harm their long-term career prospects and professional reputations. Consequently, educational attainment, traditionally seen as a pathway to better employment opportunities, may paradoxically lead to higher levels of voluntary unemployment or inactivity.19 This creates a troubling cycle where valuable human capital remains underuti- lized, as skilled workers choose to wait for suitable opportunities rather than settle for jobs they perceive as being misaligned with their qualifications. International evidence shows that prolonged youth unemployment may have economic and social costs. The fairly high rates of involuntary temporary and part-time employment among youths indicate that there is underemployment present in the youth labor market in Croatia. There is robust empirical evidence showing that frequent and repeated spells of unemploy- ment or underemployment negatively affect young people’s current livelihoods and lead to “scarring”. “Scarred individuals” fare systematically worse in the labor market as adults, with lower pay and higher unemployment probabilities.20 This has negative consequences not only for individuals but for society as a whole. For example, Croatia has the highest share of young adults ages 25–34 living with their parents among EU countries (64.3 percent versus the EU average of 30.0 percent in 2023), suggesting that a scarcity of stable employment opportuni- ties and affordable housing may be a primary reason for this pattern (Eurofound, 2023; World Bank, 2024b). 19 For example, Tomić and Zilic (2020) show that an ALMP enabling a young person without relevant work experience to get a one-year contract and a net monthly remuneration of 210 euro in Croatia propelled a portion of young individuals into inactivity, with, at best, neutral effects on employment and unemployment. 20 Redmond and McFadden (2023). Context 27 This note analyzes the current barriers to employment faced by Croatian NEET youths and reviews government efforts to address existing challenges, with the objective of providing recommendations that could accelerate progress, strengthen existing initiatives, and foster innovation. By examining the broader economic context and the root causes of youth un- employment and inactivity, the note assesses the key barriers and reviews the government’s response to these. Based on this analysis, the note offers actionable recommendations to further accelerate the government’s efforts to address labor and skills shortages and to better support young people in NEET status. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 28 2/ Barriers to Youth Employment Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 30 Though Croatia has managed to close the gap to the EU in terms of NEET rates, certain demo- graphic groups still have high NEET levels. As of 2023, the NEET rate in Croatia moved much closer to the EU average (11.8 percent versus 11.2 percent in 2023, see Figure 1); however, NEET rates vary among different subgroups of young Croatians, depending on age, gender, and ed- ucational attainment. In Croatia, the largest group of young people ages 15–29 in NEET status are those with secondary vocational education, followed by those with tertiary education.21 This contrasts with some EU countries where it is those with primary education that have the biggest difficulties finding jobs (see Figure 2). More than half of those in NEET status are women (approximately 38,000), while older groups (ages 20 and above) within the youth population are more likely to be in the NEET status than those up to the age of 19 (see Box 3). Figure 2: NEET Rates by Level of Educational Attainment in EU in 2023 30 25 % of population 15-29 20 15 10 5 0 RO IT EL CY BG LT ES FR HR EA20 EU27 SK HU CZ LV BE EE AT FI PL PT DE DK IE LU SI MT SE NL edo-2 ed3_4gen ed3_4voc ed5_8 Source: Eurostat database. Note: ED0-2 = less than primary, primary, and lower-secondary education (levels 0–2); ED3_4GEN = upper secondary and postsecondary nontertiary education (levels 3 and 4)—general; ED3_4VOC = upper secondary and postsecondary nontertiary education (levels 3 and 4)—vocational; ED5-8 = tertiary education (levels 5–8). 21 In 2022, more than two-thirds of the NEET population in Croatia had upper secondary or postsecondary nontertiary education, with as many as 65.9 percent of them having some form of VET education (based on Labor Force Survey (LFS) data). A similar trend is observed in data from CES, which show that among the registered unemployed youth, more than two-thirds (69.2 percent) have secondary education (mainly technical, that is, VET). In 2023, among the total population ages 15–29, 44.4 percent had attained vocational upper secondary or postsecondary nontertiary education, followed by 25.4 percent with less than primary, primary and lower-secondary education, 17.2 percent with tertiary education, and 19.9 percent with general upper secondary and postsecondary nontertiary education. Barriers to Youth Employment 31 Box 3: How Do Different Personal and Household Characteristics Affect the likelihood of being a NEET in Croatia? Specific demographic, educational, and socioeconomic characteristics of the young popula- tion are associated with a higher risk of being in NEET status. Contrary to the initial message emerging from descriptive statistics (see Figure 1), after taking into account other demograph- ic, educational, and socioeconomic characteristics,22 young women appear to be slightly less likely than young men to be out of work or education (see Figure B3.1). A higher risk of NEET status is observed among young women who are married and have children. Older age groups also have a higher probability of being NEET, as they are more likely to have already exited the education system and have difficulties in entering the labor market. The highest risk of being in NEET status is among individuals with a three-year secondary vocational education, indicating potential skills mismatches in the labor market. Given that more than 70 percent of Croatian youths enroll in some form of secondary (three- or four- year) vocational education, this calls for careful assessment. Those with some form of tertiary education also have a higher likelihood of being NEET in comparison to those with less than primary, primary, and lower-secondary education.23 Youths with previous work experience, whether occasional or permanent, have a higher chance of being in NEET status than those without any experience. This may indicate that those with experience, possibly coming from disadvantaged backgrounds, needed to work during their studies but continue to face diffi- culties securing stable employment. Youths from eastern Croatia (the Pannonian region) have a somewhat higher likelihood of becoming NEETs in comparison to youths from the capital (the city of Zagreb). 22 Based on regression analysis, employing a probit model on LFS data for 2022, and taking into account various demographic, educational, and socioeconomic variables. 23 Early school leavers, expressed as a percentage of the people out of the total population ages 18 to 24, stood at 2.0 percent for Croatia in 2023 (lowest share) in comparison to 9.5 percent at the EU level, indicating that school dropouts are not a key group among the NEET population in Croatia. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 32 Figure B3.1: Factors Indicating the Likelihood of Being in NEET Status 1.00 0.80 0.60 0.40 0.20 0.00 -0.20 -0.40 Female** Married* Born abroad 15-19 (ref.) 20-24** 25-29*** Primary (ref.) Sec. VET (1-3)*** Sec. VET (4+)*** General sec.** Tertiary*** General programs (ref.) Educ., health and wel.*** Soc. sci.and humanities*** Business, admin. and law** STEM*** Agriculture Services*** Any work experience*** City of Zagreb (ref.) Panonian Croatia** Adriatic Croatia Northern Croatia HH size Has a child <=6** Source: Own calculations based on LFS data (2022). Living with parents Note: Red circles represent the average marginal effects of various control variables of being in NEET status, while the black lines show the 95 percent confidence interval. Business, admin. and law = business, administration, and law; Educ., health and wel. = education, health, and welfare; General sec. = general secondary education; HH = household; ref. = reference; Sec. VET = secondary vocational education and training; Soc. sci. and humanities = social sciences and humanities; STEM = science, technology, engineering, and mathematics. ***p<0.01, **p<0.05, *p<0.1. In 2023, 52 percent of the NEET population in Croatia was outside the labor force (inactive), implying that they neither registered with CES nor were actively looking for a job. While this is significantly lower than the EU average of 74 percent, this figure still indicates that there are approximately 37,000 individuals who remain disconnected from both the labor market and the education system. At the same time, 66 percent of Croatian NEETs, compared to 36 percent in the EU (see Figure 3), expressed interest in working, irrespective of their labor market status. This represents an opportunity for the authorities to explore targeted interventions to better engage them, especially in relation to the school-to-work transition (see Box 4). Barriers to Youth Employment 33 Figure 3: NEET Rates by Labor Market Status in the EU in 2023 (a) NEET rates by labor market status (b) NEET rates by willingness to work 20 20 18 18 16 16 % of population ages 15–29 % of population ages 15–29 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 RO IT EL CY BG LT ES FR HR EA20 EU27 SK HU CZ LV BE EE AT FI PL PT DE DK IE LU SI MT SE NL RO IT EL CY BG LT ES FR HR EA20 EU27 SK HU CZ LV BE EE AT FI PL PT DE DK IE LU SI MT SE NL Unemployed persons inactive persons (persons persons do not Persons would like to work outside the labour force) want to work (seeking employment or not) Source: Eurostat database. Box 4: Challenges with the School-to-Work Transition in Croatia The high proportion of NEETs among the youth population suggests potential issues with the school-to-work transition (see Figure B4.1) and scarce opportunities for young people in the labor market. This is especially true for secondary school VET graduates (see Figure B4.2).24 The school-to-work transition in the Croatian labor market is a structural issue, and issues have persisted for a significant period, as evidenced in the available literature (Eurofound, 2016). Preconditions for a smoother transition from the education system to the world of work in Croatia involve different economic, social, and policy features, including macroeconomic conditions and the demographic structure of the economy, the education system and its links with the labor market, alignment between the social benefits system and active labor market measures, the minimum wage system, the corresponding labor legislation, and so on (Tomić, Botrić, and Žilić, 2018). 24 As the Croatian system of (secondary) education is not a dual system, young people are rarely simultaneously present in both education and work, as is the case in some other EU countries. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 34 Figure B4.1: Transitions of the Youth Population Figure B4.2: Employment Rates of Recent (Ages 15–24) from Unemployment and Inactivity Graduates (Ages 18–34) by Educational to Employment in the EU in 2023 Attainment Level in the EU in 2023, One to Three Years After the Completion of Their Highest Level of Education 50 100 45 90 40 80 35 70 30 60 25 50 % % 20 40 15 30 10 20 5 10 0 0 RO BG EL SK HR CY HU IT PL BE CZ LV ES FR PT SE EE FI LT IE DE AT SI DK NL RO BG EL SK HR CY HU IT PL BE CZ LV ES FR PT SE EE FI LT IE DE AT SI DK NL from inactivity from unemployment ED3_4 ED5-8 total Source: Eurostat database. Note: ED3_4 = upper secondary and postsecondary nontertiary education (levels 3 and 4); ED5-8 = tertiary education (levels 5–8). Youths around the world face different constraints when accessing the labor market. These include a lack of job-ready skills, mismatches between skills and labor market needs, and caretaker responsibilities that prevent them from working (Datta et al., 2018). The prevalence of specific constraints varies depending on a country’s income level and its stage of structur- al transformation. 25These challenges also vary by gender, age, educational attainment, labor market status, and region. The different patterns observed, not only among different age and gender groups but also among education levels and regions, imply the need for different pol- icy mixes aimed at activating the youth population in the labor market. Fresh analysis and a review of the available evidence suggest that the following constraints might prevent Croatian youths from actively participating in the labor market: ○○ Lack of quality jobs. Croatia has a shortage of suitable jobs for young people, mainly for tertiary-education graduates. The economy is dominated by a relatively high share of lower- value-added jobs in services and some high-technology manufacturing opportunities. A lack of adequate jobs is a reason for not participating in the labor market predominately associated with young men (see Figure 5). The high share of involuntary temporary employment among youths (53 percent and 37 percent of temporary employees in Croatia and the EU, respectively) also suggests a potential lack of good job prospects for Croatian youth.26 25 Typical labor market constraints in high-income countries include the following: workers being displaced from specific industries and locations, an aging workforce, information frictions, and the rapid evolution of skills (World Bank, 2024c). 26 The latest national survey of graduate employability in higher education indicates that four months after graduation only 45 percent of graduates had some kind of permanent employment, while the unemployed reported that the main reason for their unemployment is an insufficient supply of jobs in their chosen profession (58 percent of respondents) (Matković et al., 2023). Barriers to Youth Employment 35 Many of the young people who cannot find suitable opportunities leave to seek jobs abroad. ○○ Restrictive environment for creating quality jobs. A thorough analysis of the Croatian economy suggests that despite some improvements in recent years, many challenges remain before the country can achieve higher, more inclusive, and greener growth (World Bank, 2024a). Among others, these include private sector underinvestment—including in R&D, innovation, and the green and digital transformations—and underdeveloped managerial practices, which impair productivity growth. Although digitalizing the economy provides opportunities to improve transparency, raise productivity, and create new jobs, Croatia’s digitalization efforts are lagging compared to the rest of the EU, especially regarding connectivity and digital public services. In addition, while Croatia has made progress in lowering the high administrative and regulatory burden on enterprises, the business environment remains challenging. Across the economy, Croatian businesses are subject to complex mandatory approvals for entry and operation, such as burdensome licensing procedures and legal requirements.27 Access to finance is not a major constraint for Croatian firms, however, capital markets remain underdeveloped, while the green transition in Croatia will be difficult to achieve without stronger support from the financial sector (World Bank, 2024a). ○○ Limited access to finance and limited availability of other accompanying measures to support entrepreneurship. A recent World Bank study (World Bank, 2024g) shows that vulnerable groups, such as women, Roma, and older and also younger cohorts, face barriers to entry when it comes to entrepreneurship, with key constraints including low levels of financial literacy and entrepreneurial skills, which are compounded by the complex regulatory and environmental environment and a lack of collateral. According to the OECD and European Commission (2021), the main causes of the difference in intensity in entrepreneurial activity between successful social groups and those falling behind (where the youth population belongs) should be connected with inaccessible sources of financing, underdeveloped entrepreneurial skills, underdeveloped networks of contacts, and institutional barriers. Due to their adverse situation in the labor market, the youth population has limited access to finance to start their own businesses, as they are usually not able to get loans. For example, a recent study (Ljumović and Pavlović, 2021) has shown that youths in the Western Balkans and Croatia are severely underbanked compared with their EU counterparts.28 CES has been extensively financing subsidies to help beneficiaries start their own businesses (see Figure 9); however, young Croatians have not been the main beneficiaries (see Figure 7)29 . ○○ Lack of job-relevant skills. The education system has not kept pace with labor market developments, leading to a skills mismatch. Croatia ranks 14th out of 31 countries on the European Skills Index, which covers the three pillars of skills development, skills activation, and skills matching.30 Young graduates of VET programs are the biggest group among those in NEET status (see Figure 2), yet many vocational graduates (70 percent of young people 27 https://www.enterprisesurveys.org/en/enterprisesurveys 28 Being older, achieving a higher education, and already being a user of digital technologies are all significant indicators of formal financial inclusion for youths in the Western Balkans, including Croatia (Ljumović and Pavlović, 2021). 29 See also Srhoj and Zilic (2021) for more details on the success and main beneficiaries of self-employment subsidies in Croatia. 30 Cedefop (2024). Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 36 in Croatia), in particular those from lower socioeconomic backgrounds,31 are entering VET systems with a lack of foundational and higher-order skills, which reduces their ability to learn and apply new knowledge, take informed decisions about their future educational and professional pathways, conduct relevant job searches, and interact with prospective employers (World Bank, 2024b). The skills mismatch between higher education and the needs of the labor market is also a reflection of poor educational quality (World Bank, 2024f). This problem is particularly severe for tertiary graduates in fields not related to science, technology, engineering, and mathematics (STEM), who face difficulties in getting jobs due to a skills mismatch. While IT specialists easily find jobs, there is an oversupply of graduates in fields like humanities, arts, political sciences, journalism, business, and social sciences (see Figure 4). On the other hand, many VET (secondary education level) NEETs, especially men, have STEM-related education (see Figure 4), suggesting that programs may be of low quality 32 also evident, with women predominantly represented in services and the fields of business, administration, and law. Conversely, men are overrepresented in STEM- related fields at the secondary education level and in arts, humanities, and social sciences at the tertiary education level (see Figure 4). A lack of coordination with employers during enrollment planning often results in students enrolling in programs that lead to qualifications not needed in the labor market.33 Figure 4: Composition of the Youth NEET Population (Ages 15–29) by Gender and Education Level and Type Upper secondary and post- Tertiary education secondary non-tertiary education Services Natural science, mathematics, statistics, ICT, Engineering, manufacturing, construction Generic programs and qualifications Education, Health & Welfare Business, administration and law Arts & Humanities, Social sciences, Journalism & Information Agriculture 0 10 20 30 40 0 10 20 30 40 Percentage of Gender and Education level (%) total men WOMAN Source: LFS (2022). 31 For example, students from vulnerable families are significantly more likely to continue their education in vocational schools in comparison to wealthier students, who tend to attend general education schools (gymnasiums); at the same time , Croatia’s VET students perform worse than general education students in PISA testing for 15-year olds (World Bank, 2024b). An earlier study showed that more than 87 percent of Croatian students from the lowest socioeconomic quintile were enrolled in VET programs (53 percent in four-year VET programs and 35 percent in three-year VET programs), while only 13 percent attended general upper secondary education (World Bank, 2019). 32 A recent World Bank report suggests that the main challenge that most Europe and Central Asia (ECA) countries face is not enrollment but the quality of education, which has fallen in recent years (World Bank, 2024f). It seems that gaps in the quality of basic (primary and secondary) education are particularly large for students from disadvantaged backgrounds. 33 Ministry of Science and Education (2023). Barriers to Youth Employment 37 ○○ Lack of work experience. Educational programs include little practical experience, which employers view as a key obstacle to hiring (World Bank, 2024e). Employers, mostly small and medium enterprises (SMEs), cite the following as key barriers to taking on VET trainees: a lack of methodological support for providing traineeships, limited awareness of incentives and cumbersome cost-recovery processes, and difficulties covering comprehensive training as a small business (Cedefop, 2019). Given that previous work experience is one of the most important factors for finding employment, the inability of young people to acquire certain work experience may incentivize them to continue to higher education after completing secondary school (Bejaković, Vehovec, and Mrnjavac, 2015).34 Based on a recent EU-wide survey 35 on traineeships and internships among the 18–35 age group, 44 percent of Croatians who had never been a trainee attributed their lack of traineeship to a shortage of suitable opportunities and a lack of awareness of such opportunities. This figure is higher than the EU average (38 percent). ○○ Caretaker duties and social norms. There are clear gender differences related to the reasons for not working. Most of those reporting that they are not able to work face caretaking responsibilities (30 percent of female NEETs) or disabilities (38 percent of male NEETs) (see Figure 5). In 2022, only 83.5 percent of children ages three years and older attended early childhood education and care (ECEC) programs, while the EU average stood at 93.1 percent. In addition, 31 percent of those ages 50 and above who perceive a need for long-term care reported receiving inadequate support for their needs, especially in rural areas, with uneven coverage and limited access to service providers (SHARE, 2022). Taking all family-related reasons together, almost 45 percent of young women who are not working attribute this to family and caregiving duties, in contrast with only 0.2 percent of young men (see Figure 5). Given that care responsibilities are a primary factor behind the lower labor market participation of young women, social norms seem to play a significant role in shaping decisions and possibilities related to participating in the labor market (World Bank, 2020). In addition, significant regional differences persist on both the demand and supply sides (see Box 5). Figure 5: Main Reasons for Nonparticipation by Youth (Ages 15–29) not in Work, by Gender Does not want to work Not looking for a job Retired waiting list Other reasons Other reasons Other personal Other personal reasons reasons Other family reasons Other family reasons no adequate job Illness or disability Illness or disability Education and training Education and training Care for children or Care for children relatives or relatives 0 10 20 30 40 0 10 20 30 40 Percentage of Gender (%) total men WOMAN Source: LFS (2022). 34 Monastiriotis and Tomić (2018) further suggest that the role of education in Croatia is not as a skills provider but often as a refuge or coping strategy. 35 Eurobarometer (2023). Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 38 Box 5: Regional Differences in Unemployment, Job Shortages and Surpluses There are significant differences in labor market outcomes across the country, with regional gaps tending to increase over time. The share of young people among the unemployed is lower in Zagreb and Adriatic Croatia (where there is seasonal tourism demand), while the Pannoni- an and Northern regions, with their focus on manufacturing and agriculture, offer fewer jobs suitable for young people. The lower levels of childcare and eldercare coverage in the latter two regions additionally weigh on youth employment, and mobility is further restricted by an underdeveloped housing and rental market (World Bank, 2024b). More details are presented in Figure B5.1 and below. Figure B5.1: Regional Differences in Unemployment and Job Shortages and Surpluses ZAGREB METROPOLITAN NORTH Unemployment:* Tertiary education: Unemployment:* Tertiary education: 6.2% 48.9% 5.5% 22.3% Barriers: Barriers: other caretaking (F) disability (M) No adequate Jobs in: Jobseekers in: jobs construction, photographers, truck drivers, economists, Jobs in: Jobseekers in: waiters, administrative construction, economist, IT officers, truck drivers, salespersons, graphic arts, tailors, administrative fashion, and food services, officers, hospitality IT hospitality operators 31.7 share of youth in registreted unemployed (%) 20.7 ADRIATIC PANNONIAN Unemployment:* Tertiary education: Unemployment:* Tertiary education: 4.7% 28.8% 11.1% 17.1% Barriers: Barriers: other caretaking (F) disability (M) Jobs in: Jobseekers in: waiters, food administrative services, officers, Jobs in: Jobseekers in: construction, economists, construction, salespersons, truck drivers, salespersons, truck drivers, florists, IT hospitality butchers, hairdressers, IT photographers, economists, administrators *general unemployment rate, 2022 Source: Authors, based on EURES, Eurostat, and LFS (2022) data. Barriers to Youth Employment 39 The Zagreb metropolitan area has the lowest share of young people (ages 15–29) among the registered unemployed (21 percent). Nearly half of the population has tertiary education. Job demand is concentrated in the construction, IT, and hospitality sectors, although there is a mismatch between available jobs and jobseekers’ qualifications in more specialized or cre- ative sectors (for example, photography and economics). Given the higher share of youths with tertiary education, the reasons for not working are likely to pertain to skills mismatches. The Adriatic region has the lowest general unemployment rate but a slightly higher share of young people among the registered unemployed. There is significant demand for workers in hospitality, construction, and food services, aligning well with the region’s tourism-driven econ- omy. However, some jobseekers still face challenges, particularly those with qualifications in more administrative or service-oriented roles, and barriers likely involve seasonality. In the Northern region, general unemployment is below the national average, although the share of young people among the registered unemployed is higher in some of its counties (it is highest in Međimurje county, at 31 percent) and tertiary education rates are lower compared to the Adriatic and Zagreb regions. There is demand in manual labor sectors like construction and food services, while jobseekers with qualifications in administration and sales struggle to find suitable roles. Gender-specific barriers such as caretaking (for women), with lower coverage of preschool facilities, and disability (for men) also contribute to unemployment. The Pannonian region experiences the highest general unemployment in the country (11.1 per- cent) and the largest share of youths among the unemployed (highest in Požega-Slavonia coun- ty, at 31.7 percent, with the highest absolute number of unemployed youths in Osijek-Baranja county), which is coupled with the lowest level of tertiary education attainment in the country (17 percent). There is strong demand for manual labor in this region predominantly focusing on manufacturing and agriculture, while the surplus of jobseekers with more service-oriented skills, like hairdressing, sales, and administration, adds to the mismatch. Social barriers, par- ticularly caregiving for women and disability for men, exacerbate the employment challenges. ○○ Limited information on job prospects. CES has long-standing experience in the professional guidance of students in the final grades of primary and secondary school, which should help students choose a future profession or education and is carried out in cooperation with the school and parents or guardians. However, some earlier surveys showed that less than 10 percent of students have been covered by professional guidance procedures from CES36 (Perin and Drobac, 2010), while more recent studies show that career guidance services were not available to over one-quarter of students in Croatia’s schools in 2018 (Bulman, 2023). In addition, CES relies on information reflecting the current labor market situation when providing career guidance, since no forecasts on future labor market needs are carried out by the organization. As such, students may not have full information on their labor market prospects when choosing their fields of study. Without effective information about future job market realities, students are likely basing their decisions on further studies on aspirations and social norms rather than on realistic employment options (Gardiner and Goedhuys, 2020). 36 http://apnu.hzz.hr/App/Portal/Surveys_result.aspx Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 40 3/ Government Responses Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 42 To address the challenges faced by Croatia’s youth, the government has introduced a set of programs to help young people enter the labor market, provide them with skills, or help them set up a business. Government interventions focus both on adjusting how the education system prepares youths for work and on supporting those already facing difficulties in finding jobs. The two key overarching documents aimed at promoting youth employment are the National Youth Program 2023-202537 and the Youth Guarantee Implementation Plan 2022-202338. Ad- ditionally, the action plan for the implementation of the European Pillar of Social Rights sets a target of reducing the share of young people with NEET status to 9 percent by 2030.39 The EU supports member states in reaching this objective through various measures, including the YG, the EU’s reference policy framework to fight youth unemployment and inactivity. Table 1 shows a list of reforms and measures implemented by different government agencies (see also Box 6Box ) according to their contribution to addressing two key challenges—labor and skills shortages. Table 1: Government Programs focused on Youth Activation Status and government Government reforms and measures agency Integrating employment, education, and pension databases to identify young Pilot discontinued; people in NEET status not registered with CES MoL Accelerating job placement through the Youth Guarantee, ensuring that young Ongoing; MoL, MoSEY people are in a job or training within four months of registering as unemployed. Its outreach was supported by a national Youth Guarantee campaign Expanding the CISOK network and promoting outreach to NEETs Ongoing; MoL, CES Increasing funding for job and self-employment subsidies and traineeships, MoL, CES40 with the duration of support progressively increased for green and digital employment subsidies aimed at the most vulnerable groups Introducing a green and digital voucher microcredentials scheme aimed at MoL, CES41 NEETs, among others, while establishing a Catalogue of digital and green skills Developing CISOK tools to provide better counselling support through self- MoL, CES assessment tools, information, and workshops Digitizing access to career navigation resources (CES, CISOK, e-Direction, MoL, CES YG websites) and the voucher system (CES) Developing a better tracking system to evaluate employment and training Ongoing; MoL, CES program outcomes Using annual labor shortage forecasts (developed by CES) to inform education CES, MoSEY program quotas and scholarships Expanding early childcare access and scaling the Whole-Day School model Ongoing; MoSEY 37 The document outlines six priority areas with 28 measures, for which five state administration bodies are in charge, in line with EU Youth Strategy postulates: https://youth.europa.eu/strategy_en 38 The Plan for the period 2024–27 is currently being prepared. 39 The intermediary target of a NEET rate of 12 percent by 2027 has already been surpassed (see Figure 1). 40 https://mjere.hzz.hr/mjere/potpore-za-zaposljavanje-zeleno-digitalno-2024/. 41 https://vjestine.hzz.hr/ Government Response with Analysis of Good Practices and the Identification of Institutional Barriers 43 Status and government Government reforms and measures agency Offering scholarships to descendants of the Croatian diaspora to study at Central State Office for Croatian universities Croats Abroad Reforming VET curricula with employer input and greater focus on practical Ongoing; MoSEY experience, based on Qualification Framework updated with new occupations Increasing the number of scholarships in occupations with shortages (from Ongoing; MoSEY 350 scholarships in 2015 to over 15,000 annually) Providing tax incentives for youths and employers aimed at stimulating Ongoing; MoF youth employment Alleviating the tax burden on students and increasing the minimum student Ongoing; MoF, MoSEY hourly wage Special loans for young entrepreneurs MoF, HBOR42 Discontinued; MoF, Subsidizing housing loans for young families MoPPCSA Extending the validity of the EU Blue Card to 48 months for highly qualified MoI individuals, while also allowing individuals without educational qualifications but with skills, specifically in the IT sector, to obtain the card as a result of upcoming amendments to the 2020 Aliens Act Note: CES = Croatian Employment Services; CISOK = Career Information and Counselling Centre; HBOR = Croatian Bank for Reconstruction and Development; MoF = Ministry of Finance; MoI = Ministry of Interior; MoL = Ministry of Labor, Pension System, Family and Social Policy; MoPPCSA = Ministry of Physical Planning, Construction and State Assets; MoSEY = Ministry of Science, Education, and Youth; NEET = not in employment, education, or training; VET = vocational education and training; YG = Youth Guarantee. Box 6: Key Government Institutions Involved in Youth-Related Policies in Croatia Youth policy decision-making in Croatia primarily occurs at a central government level, with the main responsibilities divided across various government bodies. The Ministry of Science, Education and Youth (MoSEY) is primarily responsible for overarching youth policy. Labor mar- ket–related policies and the Youth Guarantee fall under the Ministry of Labor, Pension System, Family and Social Policy (MoLPSFSP, or MoL) and are implemented by Croatian Employment Service (CES). Before the establishment of a new government in May 2024, youth policy responsibilities were held by the Central State Office for Demography and Youth (CSODY). CSODY housed a youth office within its Youth and Parenting Support Sector, which is expected to continue operating within MoSEY moving forward. 42 A young person is considered to be someone who has not reached the age of 41 on the date of submission of the application. For its program focused on youth, female, and start-up entrepreneurship, HBOR combines several sources of funding, including funds from the Council of Europe Development Bank (CEB), the European Investment Bank (EIB), and the National Recovery and Resilience Plan (NPOO). See https://www.hbor.hr/poduzetnistvo-mladih-zena-pocetnika-i-ostalih-posebnih-segmenata/648 Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 44 The Youth Council, an interdepartmental advisory body of the government, contributes to the development of public policies for young people. The government’s Decision on the Establish- ment of the Youth Council expanded the representation of youths and youth organizations in the advisory body of the government, alongside members from relevant government bodies, scientific institutions, and regional associations. The Committee on the Family, Youth and Sports within the Croatian Parliament has a mandate to initiate and monitor the implementation of youth-related policies and legislation. Other institutions relevant to this agenda include the Ministry of Finance(MoF), Ministry of Demography and Immigration (MoDI), Central State Office for Croats Abroad, Ministry of Interior(MoI), Ministry of Physical Planning, Construction and State Assets (MoPPCSA), and Ministry of Economy (MoE), as well as different youth nongovernmental organizations (NGOs) that participate as members of different working or task groups within the above-mentioned institutions on different sets of youth-related policies. One of the key programs to combat youth unemployment in Croatia is the Youth Guarantee. The YG has the specific goal of connecting young people to a job or training opportunity with- in four months of registering as unemployed.43 Croatia’s YG implementation plan for 2022–23 focuses on leveraging the following to connect more young people with jobs: (1) employment, internship, and self-employment subsidies; (2) tax relief for employees; and (3) fiscal benefits for employers, such as exemptions from paying social contributions. To deliver the YG, the government primarily uses the network of CES and CISOK regional of- fices, in partnership with a range of education providers and nongovernmental organizations (NGOs). Figure 6 shows the process for delivering the YG. Outreach is an important part of the process; in order to benefit from support, one has to be registered with CES, while about half of NEETs are currently inactive (see Figure 3). The CISOK network and NGOs help with this process. The Ministry of Labor, together with CES, is in charge of the design and implementa- tion of ALMPs and delivers training support through partnerships with education institutions and training providers. 43 The Youth Guarantee, created in 2013 and reinforced in 2020, is the EU’s reference policy framework to fight youth unemployment and inactivity. Upon its accession to the EU (on July 1, 2013), Croatia officially became part of the European Youth Guarantee. Diagnostic of the Legislative and Institutional Immigration System in Croatia 45 Figure 6: The Youth Guarantee Implementation Process 1 2 3 4 — — — — Mapping Outreach Preparation Offer ○○ Identifying YG website and ○○ Profiling to ○○ Offer for job target groups campaign targeted better match ○○ Self-employment (completed to NEETs and response support education or outreach by: ○○ Training drop out) ○○ Education/ ○○ CISOK centers ○○ Recognition of training offer ○○ Skill needs of ○○ NGOs previous learning those at risk ○○ Tax credits outcomes of NEET ○○ Schools ○○ Fiscal relief Source: Original elaboration, based on Croatia’s Youth Guarantee implementation plan 2022–23. Note: NEETs = those not in education, employment, or training; YG = Youth Guarantee; CISOK = Career Information and Counselling Centre; NGO = nongovernmental organization. Other programs and actions have also been recently introduced. The green and digital voucher program,44 introduced in 2022, aims to reach up to 12,000 vulnerable beneficiaries, including NEETs, running until 2026. Recently, CES, within their ALMPs, added two additional programs: I Choose Croatia,45 to encourage the return of the emigrant population, and Posao+,46 which provides individualized support to the long-term unemployed (see Figure 7). Additionally, in- terventions such as the NEET monitoring model (see Box 7), CISOK one-stop shops (see Box 8), and the green and digital microcredentials systems47 are considered particularly promising. 44 The education vouchers are an innovative microcredentials scheme for upskilling and reskilling the employed and unemployed for green and digital professions and those with shortages, aiming to reach 30,000 users by 2026, including vulnerable groups and young people in NEET status. 45 https://mjere.hzz.hr/mjere/biram-hrvatsku-mobilnost-radne-snage-2023/ 46 https://mjere.hzz.hr/mjere/program-posao-2024/ 47 https://vauceri.hzz.hr/obrazovanje-za-sve/#digitalni-programi Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 46 Box 7: NEET Monitoring System The NEET monitoring system aims to identify the young people in NEET status to allow early intervention and activation. It was created based on a data sharing agreement connecting the databases of Croatian Employment Services, the Ministry of Science and Education (via the Croatian Academic and Research Network, (CARNET) and University Computing Centre (SRCE) systems), and the Croatian Pension Insurance Institute. By analyzing data from these sources, the system identified young people who had completed secondary or higher educa- tion but had not continued their studies, found employment, or registered as jobseekers. The data gathered from this initiative identifies NEET subgroups and provides recommendations to improve the transition to work or education and training. The system was piloted between 2016 and 202248, however, it has not been institutionalized yet. An upgrade of the existing advanced labor market monitoring system49 is expected to allow for more structured NEET mapping. Box 8: CISOK and its Offerings CISOK is a one-stop shop for career guidance, serving children, students, and both employed and unemployed individuals. Its 17 regional centers in 16 cities50 serve as central points for identifying, tracking, and activating those not in education, employment, or training (NEET). They use a partnership-based model to collaborate with relevant stakeholders and adapt their services to the local context. CISOK offers (1) self-help web-based services (self-assessment tools, information on careers, job vacancies, educational opportunities, and other labor market information); (2) group activities (group counseling sessions on career management skills and other competencies for labor market integration; and (3) individual case-managed services (personalized career counseling). From 2013 to 2018, over 253,836 users accessed their services (EC, 2020b). In terms of types of support, unemployed youths registered with CES have mainly benefited from employment subsidies and training, in line with global trends. Employment subsidies (including those for internships in the public and private sectors, as well as in the green and digital sectors) are the dominant category of ALMPs for the youth population, although reskilling 48 Cedefop and ReferNet (2023). 49 https://trzisterada.gov.hr/ 50 https://cisok.hzz.hr/cisok-centri/ Diagnostic of the Legislative and Institutional Immigration System in Croatia 47 and upskilling programs are gaining more popularity (see Figure 7). This is in line with global trends, which suggest that skills training and wage subsidies are the most effective programs in high-income countries such as Croatia (World Bank and ILO, 2024). Figure 7: Share of ALMP Entrants (Ages 15–29) Among Different Programs 100% 80% 60% 40% 20% 0% 2021 2022 2023 2024* Training Employment subsidies Direct job creation or public works Self-employment subsidies Subsidies to preserve jobs Labour mobility: I choose Croatia Source: CES. Note: *January to September 2024 Coverage of youth NEETs by different programs and services is less than 50 percent, indi- cating significant room for improvement. On average, over the period 2021–24, young people (ages 15–29) comprised 25 percent of the total registered unemployed, with approximately 46 percent of them participating in some ALMP programs. This contrasts with less than a third (28 percent) of prime-age workers (ages 30–54) and slightly more than 10 percent of the oldest group (ages 55 and above) being covered by these programs (see Figure 8). Moreover, out of a total of 19,838 career information and counseling services provided to various user groups in CISOK centers in 2023, 36 percent were delivered to individuals ages 15–29 (CES, 2024).51 In the same year, CISOK services catered to 456 inactive (2 percent) and 1,262 active persons (6 per- cent) from the NEET group, predominantly women and those in the older age bracket (25–29). 51 The largest number of services (27 percent) taking place in CISOK centers in 2023 was provided to users in the under-15 age group. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 48 Figure 8. Average Coverage (%) of the Registered Unemployed Over Time, by Gender and Age Group 70% 60% 50% 40% 30% 20% 10% 0% 2021 2022 2023 2024* 2021 2022 2023 2024* 2021 2022 2023 2024* 15-29 30-54 55+ Coverage by ALMPs - women Coverage by ALMPs - men Source: CES. Note: * January to September 2024. Coverage is measured as a percentage of the number of persons entering any active labor market policy (ALMP) program offered by Croatian Employment Services in a specific year out of the average number of unemployed in the respective (age and gender) group. Additionally, there are several reforms underway that are important for addressing the bar- riers to work, and it will take time for their effects to be realized: ○○ VET curriculum reform, with greater focus on practical training, is planned to be rolled out in 2025/26 based on the 2021 update of the Qualification Framework (see Spotlight 1 below). ○○ The childcare network has seen expansions of its facilities and uptake among children ages 4–6, with additional investments planned for the upcoming period, including the roll out of the Whole-Day School program from 2028, which better aligns education services with working hours. ○○ The long-term care network and coverage, which is undergoing a review, is planned to be expanded further, as pressure on family caregivers is increasing in response to an aging population and emigration. Based on the review of the current offering of services to youth, a number of lessons emerge suggesting the need for improvement of existing or potential institutional/systemic factors affecting youth employment: ○○ Though CES and CISOK serve as access points for NEET outreach and as main service providers, given the large share of inactive (nonregistered) NEETs, a significant portion of young NEETs still remain out of reach. Insufficient outreach and services hinder some potential nonactive youths from registering with CES or CISOK and getting the appropriate Diagnostic of the Legislative and Institutional Immigration System in Croatia 49 support.52 This is an issue because for youths who become long-term unemployed, it is even harder to help them to (re)integrate into the labor market (Eurofound, 2017). ○○ Services often benefit those who are already better positioned to find a job. For example, the last time the YG program was evaluated, it was shown to have reached only 39 percent of NEETs (EC, 2019). Data from CES suggests that individuals with higher levels of education and shorter unemployment spells accounted for 87 percent of beneficiaries in 2022, despite representing only 63 percent of the registered unemployed (World Bank, 2024b). Similarly, NEETs only accounted for about 9 percent of CISOK clients in 2023 (CES, 2024), up from 3 percent in 2018 (EC, 2020a), and, as such, most users were active jobseekers. A recent review also shows that Croatia’s ALMPs lack targeted measures for people with disabilities, such as upskilling and workplace adaptations (World Bank, 2024b). ○○ While spending on the support of self-employment has been generous (Figure 9), complementary activities for beneficiaries to learn how to run a business have been more limited. Start-up grants of up to 10,000 euros account for the largest share of expenditure by ALMPs in Croatia. In 2020, Croatia spent five times more on them as a share of GDP than the EU average (World Bank, 2024b). CES runs workshops and a customer center to support grant applicants in preparing their applications. While some basic entrepreneurship concepts are covered as part of the curriculum at schools, self-employment applicants typically do not receive additional entrepreneurial training. Such support and mentoring exists through start-up incubators, but institutions like the Zagreb Innovation Center (see Box 9) and STeP Ri Science and Technology Park in Rijeka are limited geographically. After receiving a grant to set up a business, many recipients lack subsequent access to mentoring and capital to sustain their growth. Financial literacy and retail investing for youths is not widespread either and is limited to occasional education activities organized by the Croatian National Bank (CNB), Zagreb Stock Exchange, private entities, or a recent pilot by the Croatian Financial Services Supervisory Agency (HANFA), which distributed an educational game to primary and secondary schools teaching students about concepts like savings, investments, insurance, and the pension system.53 The government has, however, adopted the National Strategic Framework for Consumer Financial Literacy for the period from 2021 to 2026, which aims to raise the level of financial literacy in Croatia, mostly for vulnerable groups such as children and young people, younger adults, working-age income earners, and the elderly. 54 52 Despite Croatia making certain progress in terms of fostering employment opportunities and social inclusion for NEETs, challenges remain, specifically with respect to fine-tuning general ALMPs to the specific needs of young people, and the need for better outreach strategies and targeting, and lower levels of regional disparities in the availability and design of ALMPs (European Commission, 2020b). 53 HANFA (2024). 54 https://mfin.gov.hr/istaknute-teme/financijska-trzista-i-financijska-pismenost/financijska-pismenost-potrosaca/3293 Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 50 Figure 9: Spending on Active Labor Market Policies by Category, 2016–23 180 160 140 120 Million EUR 100 80 60 40 20 0 2016 2017 2018 2019 2020 2021 2022 2023 Training Employment subsidies Direct job creation or public works Self-employment subsidies Subsidies to preserve jobs Source: CES. Box 9: Plavi ured (The Blue Office): An Opportunity for Entrepreneurial Support in Zagreb Plavi ured, part of the Zagreb Innovation Centre, serves as an interface between economic policymakers and entrepreneurs, providing free support to Zagreb’s business community and promoting innovative entrepreneurship. The office acts as a platform and communication channel between relevant state and city institutions and Zagreb entrepreneurs. Its activities are divided into four areas: education, consulting, support programs, and promoting entrepre- neurial culture. The office has organized more than 1,400 seminars for 23,758 participants, 70 percent of whom were women and 23 percent were youth. A timetable includes all upcoming training sessions so that entrepreneurs can plan ahead. This model could serve as an example for other parts of Croatia, especially for providing support to young entrepreneurs. ○○ CES and CISOK offer a range of digital tools for self-assessment and career guidance to young people, however, job forecasts, which could help students and parents make informed decisions about future studies, are not included. CISOK’s online self-assessment tools are in line with good practices, and their workshops help youths prepare for the job search process. CES offers career guidance in primary and secondary schools, with some gaps in coverage (Bulman, 2023; Matković, 2024). The CES recommendations for study areas and scholarships are, however, based on current job shortages, and CES’s public interface mainly provides Diagnostic of the Legislative and Institutional Immigration System in Croatia 51 unemployment data and highlights jobs for which there is currently the highest demand. ○○ Despite improvements in the LMIS, there are presently data gaps relating to both NEET identification and the assessment of labor market outcomes for ALMP beneficiaries. The NEET identification model, which connected education, employment, and pensions administrative data, is presently discontinued (see Box 7). The data to assess the programs are focused primarily on inputs, spending, and some outputs (see Figure 7, Figure 8, Figure 9). Tracking of data relating to the labor market outcomes of the recipients of employment support is missing, limiting the possibility to assess the effectiveness of the programs and take decisions on funding allocations. Graduate tracking, established in numerous EU countries, at both secondary and tertiary education levels is also missing, though there have been some attempts to create a tracking system at the tertiary education level.55 ○○ Access to most employment services has been digitized, including the possibility to apply for them online, which significantly improves access. However, they are fragmented over several different portals, which may be overwhelming for young people with complex needs to navigate. These include the CES (for registering as a jobseeker, and applying for subsidies and training), Youth Guarantee (for information), e-Usmjeravanje (e-direction) (for self- assessment tools and career navigation tools), vouchers and CISOK network (for workshops, school information, job descriptions, and self-assessment tools), and catalogue of digital and green skills (subsets of green and digital skills from the existing inventory of ESCO and Croatian Qualifications Framework (CROQF) skills) portals, which all include information for unemployed youth. Hence, there is room to streamline the processes to obtain simpler and better integrated pathways. ○○ Tax incentives for youths and employers aimed at stimulating youth employment are in place; however, their effect is being reevaluated. In 2015, the government introduced the option for an employer not to pay the contribution for health insurance (16.5 percent of the gross wage) for five years for an employee up to 30 years of age at the time of employment if they are employed on an open-ended contract.56 However, given the current low unemployment rate and workforce shortages, it was announced that this measure will be discontinued starting from January 2025. Still, employers do not have to pay health insurance for first-time employees for up to one year, while as of 2020, young people up to 25 years of age do not have to pay income tax, and those between the ages of 25 and 30 are obliged to pay only 50 percent of their income tax obligation. Recent studies show that the tax burden on labor is often perceived by employers as one of the biggest obstacles to job creation (for example, World Bank, 2024e), which especially affects youth employment. Additionally, young people may perceive other activities, including undeclared work and rental activities (especially in tourism), more desirable given the tax incentives (World Bank, 2023a). 55 The Agency for Science and Higher Education (AZVO) conducts regular national graduate employability surveys (https://www.studij.hr/zaposljivost/), while Croatia is also part of a wider European Eurograduate survey (https://www. eurograduate.hr/). 56 At the end of 2023, there were more than 183,000 employees (11.1 percent of the total number of employed registered at Croatian Pension Insurance Institute) using this opportunity. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 52 Spotlight 1: Croatia's TVET System: Strengths, Areas for Improvement and a Potential Way Forward Croatia has a well-established Technical and Vocational Education and Training (TVET) sys- tem that is integrated into the secondary education framework. The overall responsibility for vocational education and training (VET) in Croatia lies with the Ministry of Science, Education, and Youth, supported by the Agency for VET and Adult Education (ASOO). The agency is respon- sible for developing VET curricula, the continuous professional development of VET teachers, the development of qualifications based on competences and learning outcomes, and qual- ity assurance. The system has a high enrollment rate, with more than 70 percent of students opting for vocational education, placing Croatia among the top countries in the EU under this metric57. It is designed to provide students with practical skills and theoretical knowledge that are applicable to various industries, including engineering, healthcare, information technology, and tourism. Around two-thirds of VET learners are in four-year school-based programs, with under one-third in three-year programs; only one upper secondary program lasts for five years, leading to a general nursing qualification58. Despite the strengths of the Croatian TVET system and its high enrollment rates, several challenges need to be addressed to improve its effectiveness. There is a gap between the skills provided by the TVET system and the demands of the labor market. Employers often report difficulties in finding workers with the right skills, indicating a mismatch between edu- cation and industry needs.59 Additionally, there are many TVET programs available (274 TVET programs in the school year 2023/24), and many of the curricula are outdated and have not kept pace with technological advancements and industry changes. This results in graduates who may not be fully prepared for the modern workplace. Furthermore, while there are efforts to involve industry stakeholders in curriculum development, collaboration is often limited, leading to a lack of practical training opportunities for students and insufficient exposure to real-world work environments. The TVET system in Croatia also faces challenges related to funding and resources, as many vocational schools lack modern equipment and facilities, which hampers the quality of education and training provided. The Croatian TVET system also faces inefficiencies exacerbated by negative demographic trends, leading to the frequent formation of substandard classes. Between 2013 and 2021, 25.9 percent of publicly funded secondary school classes had fewer students than required by pedagogical standards, often without formal justification. This issue peaked in 2018 (36.1 percent) and stabilized in the range 26–28 percent from 2019 to 2021. Declining student populations contributed to under enrollment, with 7.9 percent of programs starting with fewer than six students, highlighting inefficiencies in resource allocation and program sustainability.60 The government initiated a series of reforms in the TVET system aimed at enhancing its relevance, quality, appeal, and internationalization. These reforms, driven by the Ministry of 57 https://ec.europa.eu/eurostat/databrowser/view/educ_uoe_enrs05__custom_15156411/default/table 58 More info on the system is available at Vocational education and training in Europe: VET in Europe database - detailed VET system descriptions: https://www.cedefop.europa.eu/en/tools/vet-in-europe/systems/croatia-u3 59 World Bank and Ministry of Science and Education (2022). Report on Smart Skills. Available at https://mzom.gov.hr/ UserDocsImages/dokumenti/EUfondovi/Report-on-Smart-Skills---7-2023.pdf. 60 Matković and Šabić (2022). Diagnostic of the Legislative and Institutional Immigration System in Croatia 53 Science, Education, and Youth and funded by EU-supported projects, seek to align the system with labor market demands while enhancing the overall quality of vocational education. The initiative focuses on revising curricula, addressing skills mismatches, and improving the quality of both work-based learning (WBL) and apprenticeships. The reforms began in 2018, with the first phase completed in 2023, and a second phase is ongoing until 2029. A core aspect of the reforms is the overhaul of the TVET curriculum, aligning it with labor market needs by focusing on learning outcomes and WBL61. For example, in 2018, regional centers of competence in vocational education were designated, and dual programs have been experimentally launched for a small number of programs. There are 25 regional competence centers across the country, characterized by innovative learning models; excellence in terms of teachers, lecturers, and employer-based mentors; high-quality infrastructure; and constructive cooperation with social partners, the public sector, business entities, and other institutions at various levels. Since 2018, with support from partner institu- tions in Germany, Austria, and Switzerland, dual programs have been experimentally launched, with most already implemented in an existing three-year Unified Model of Education (JMO), featuring on-the-job learning and contracts with employers62. In 2023/24, it was conducted in nine qualifications at European Qualifications Framework (EQF) Level 4 (seven three-year programs and two four-year programs) in 24 VET schools. The program is financed by the state budget and the Swiss-Croatian Cooperation Program as part of the Modernization of VET Programs project. The National Recovery and Resilience Plan (NRRP) includes the reform of the entire education system, aiming to increase the relevance of general secondary education while improving the relevance of VET programs. Within the NRRP, one reform aims to increase the relevance of sec- ondary education by increasing students’ enrollment in gimnazija (general secondary education) programs, reducing the share of VET and improving the labor market relevance of vocational programs. This reform contributes to consolidating numerous existing secondary vocational programs, reducing surplus programs, and increasing their relevance to labor market needs. The flagship reform involves redesigning 148 vocational curricula, introducing a modular structure, and emphasizing skills development. New curricula should be based on the qual- ifications and occupational standards of the Croatian Qualifications Framework (CROQF),63 accompanied by new teaching materials and professional training for vocational education teachers. The curricula focus on learning outcomes aligned with labor market skills, with em- ployer involvement in their design. The modular approach integrates general and vocational subjects, incorporating both the- oretical knowledge and practical skills in each module. The new system allows students to choose their profession later in their educational journey, unlike the previous system, which required early commitment to a specific vocation. This flexibility is expected to help students make more informed career choices and provide easier transitions between related profes- sions within a sector, reducing dropout rates and improving labor market outcomes. The new 61 More information on recent legislative changes can be found here: https://eurydice.eacea.ec.europa.eu/ national-education-systems/croatia/national-reforms-vocational-education-and-training 62 Matković and Šabić (2022). 63 https://www.kvalifikacije.hr/en Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 54 modular approach should also reduce the frequency of substandard, small-class department formation, at least in the first years of TVET education. The new curricula, developed over six years, were finalized in May 2024 and will be introduced in schools by the 2025/26 academic year. Ten experimental modular programs were introduced in nine regional centers of competence during the 2023/24 school year, receiving mixed feed- back. Teachers generally supported the changes more than students, reflecting the need for additional support and adaptation. As part of the reforms, significant efforts are being made to train TVET teachers and school heads to adapt to the new curricula. The modular teaching approach requires enhanced collaboration among teachers, as multiple educators may be involved in teaching a single module.64 To improve the overall quality of teaching, the reforms include professional development initiatives, such as teacher training programs designed to equip educators with new methodologies for delivering skills-based, outcome-focused education. Another major goal of the reforms is to enhance the public image of TVET in Croatia. Historically, TVET has been seen as less prestigious than general education pathways, which has impacted enrollment. The reforms aim to change this by increasing the quality of TVET programs and im- proving the pathways for students to continue into higher education. Internationalization is also a key aspect of the reforms, with a focus on aligning Croatian TVET with European standards to facilitate student mobility and international employment opportunities. The reforms also focus on better matching the supply of TVET graduates with labor market needs. Some efforts are already in place, like the Recommendations for Educational Enrollment Policy and Scholarships Policy from the Croatian Employment Service (CES),65 but there is no systematic approach linking these recommendations directly with school enrollment. Regional disparities in how CES recommendations are implemented pose challenges, with some areas making significant progress in encouraging students to enroll in programs associated with labor market shortages, while others lag behind. Recently, however, awareness among students re- garding labor market needs has grown, with more students enrolling in programs linked to labor shortages rather than surpluses.66 While significant progress has been made, particularly in terms of curriculum reform and teacher training, several challenges remain. Engaging employers, especially small and medium enterprises (SMEs), in offering work-based learning (WBL) opportunities is one key challenge. Although the government has introduced subsidies for employers offering WBL in the past, they did not fully cover the costs, leading to limited uptake by employers. Also, there are no new financial incen- tives for employers to offer more training opportunities. Similarly, the government has also made efforts to support students enrolling in programs related to labor shortages, previously offering grants and scholarships funded by the European Social Fund (ESF), but these were discontinued 64 For example, both general education teachers (for example, for math or the Croatian language) and vocational teachers will be involved in teaching interconnected subjects within a module. 65 For example, https://www.hzz.hr/objavljene-preporuke-za-obrazovnu-upisnu-politiku-i-politiku-stipendiranja-za-2025-godinu/ 66 Matković and Šabić (2022). Diagnostic of the Legislative and Institutional Immigration System in Croatia 55 in 2021, leaving students with less financial support.67 In addition, school infrastructure and avail- able equipment would also need significant investment to adapt to the envisioned new system; however, schools are not receiving budget increases for the reforms. Further, while CES provides recommendations for expanding VET quotas in specific areas, these are not compulsory and are implemented differently in different regions. Also, there is no systematic messaging to students about shortages of jobs. While the reforms aim to align TVET with labor market demands, a sig- nificant portion of students continues to enroll in programs that do not directly address labor shortages,68 thus leaving the problem of skills mismatches unsolved. Addressing the challenges related to skills mismatches, outdated curricula, limited industry collaboration, and funding is essential for improving the system. To enhance the effectiveness of the TVET system in Croatia, several recommendations are proposed: ○○ Curriculum Modernization. Updating curricula to align with current industry standards and technological advancements is crucial. This includes incorporating digital and green skills and emerging technologies into training programs. Curricula should evolve in line with industry needs. Flexible learning pathways for students and enhanced roles for microcredentials should be embedded into the TVET system. ○○ Strengthening Industry Collaboration. Enhancing partnerships between vocational schools and industry stakeholders can provide students with more practical training opportunities and exposure to real-world work environments. This can be achieved through internships, apprenticeships, and industry-led training programs. Greater incentives, possibly in the form of expanded financial support or tax breaks, could encourage more employers to engage in providing training during students’ studies. ○○ Career Guidance. Existing CES recommendations could be integrated with additional data through the Labor Market Information System (LMIS) to provide real-time information on labor market needs to the education system. Digital technologies should also be utilized to provide career guidance for students (see recommendation 1.2 below). ○○ Increasing Funding and Resources for Schools and Students. Allocating more resources to vocational schools to upgrade their facilities and equipment is essential. This can improve the quality of education and training provided to students. Scholarships and grants for those enrolling in programs linked to labor market shortages should be implemented. Funding could be improved by reducing inefficiencies in resource allocation and program sustainability, primarily by reducing the number of substandard classes (under enrollment), rationalizing the TVET school network, and ensuring adequate transport and student dormitories. ○○ Enhancing Teacher Training. Providing continuous professional development opportunities for TVET teachers can ensure they are equipped with the latest knowledge and teaching methodologies. This can improve the overall quality of education and training. By implementing these measures, Croatia can enhance the effectiveness of its TVET system and better meet the demands of modern workforce. With the new curricula set to be fully im- plemented by 2025/26, the success of these reforms will depend on ongoing support from the government, educators, employers, and the broader community. 67 Some local governments, such as the city of Zagreb, continue to offer financial support to students, including grants for those enrolling in programs linked to labor market shortages. 68 For example, as of 2021, about 30 percent of students in VET programs that lead to higher education (via the state matura exam) were enrolled in programs linked to labor surpluses, while 10 percent were in programs linked to labor shortages. For three-year programs, the share of those in programs linked to labor market surpluses was only 4 percent, while the share of those in programs linked to shortages was around 60 percent (Matković and Šabić, 2022). Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 56 4/ Policy Recommendations Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 58 Government measures aimed at the youth population, along with economic and labor mar- ket developments, have brought about a significant decrease in the NEET rate in Croatia; however, a continuation of successful practices as well as the introduction of new ones is necessary to decrease the rate even further and enable every young person to participate in the labor market. Sustained economic growth as of 2015, with an interruption in 2020 due to a COVID-19 induced recession, has brought about significant changes in the labor market in Croatia, creating new jobs and thus substantially decreasing the level of unemployment. This has also been reflected in the youth population, as their unemployment fell substantially and the NEET rate for the population ages 15–29 in 2023 was only half of what it was a decade ago (Figure 1). However, it was not only general economic and labor market conditions that brought about these changes, as a set of different government programs, aimed more-or-less specifically at the youth population, has helped in increasing their employability. Different ALMP programs,69 strengthened by the YG, expansion of CISOK centers, digitalization of of- fered services, scholarships for occupations where there are labor shortages, tax incentives for both employers and youths, and other incentives (see Table 1) have helped to get more youths into the labor market. Though some of the measures proved to be not as effective and have been discontinued,70 others have the potential to be continued in the future. With some upgrading and the accompaniment of new and innovative programs, the target of a NEET rate of 9 percent by 2030 could be surpassed. Building on the identified barriers to securing suitable employment that young people face in Croatia (chapter 2) and on the government’s progress in improving its policy direction, man- agement, and responses to these barriers (chapter 3), this section presents recommendations to accelerate results and foster innovation. The identified barriers can be grouped into three broad categories: demand-side, supply-side, and institutional or systemic deficiencies, as seen in Figure 10. The demand-side barriers mainly relate to a lack of quality jobs, a restrictive envi- ronment for businesses, and limited access to finance for the youth population. Supply-side factors that prevent greater youth labor market participation are related to a lack of job-relevant skills, a lack of work experience, and caretaker duties, which are often related to social norms. Institutional or systemic deficiencies cover a wide range of factors that can be improved or reformed in order to bring more youths into the labor market. Among other things, these are related to the existence of limited information about job prospects that is fragmented across different web portals, with no job forecasts; the reality that offered services or programs do not seem to benefit the most vulnerable and that there are no complementary activities for beneficiaries; and the fact that there are data gaps both in NEET identification as well as in the assessment of labor market outcomes for ALMP beneficiaries, while outreach is still lim- ited (see Figure 10). The recommendations in this note are mainly related to the supply-side constraints of youth employment, with a focus on related institutional deficiencies; however, these recommendations will be less effective and sustainable if institutional and market fail- ures that might affect labor demand are not addressed as well (see Box 10). 69 For example, in the period from 2017 to 2021, a total of 75,066 young people (ages 15–29) were included in active employment policy programs, with HRK1.1 billion (151 million euro) worth of grants contracted (MoLPSFSP, 2022). 70 An ALMP scheme called vocational training without commencing employment, a combination of training and wage subsidies for the youth population, was the dominant program for youths in the period 2013–19; it proved not to be effective in increasing employment and was abolished in 2020. For more details on the scheme, see Tomić and Zilic (2020). Actionable Recommendations 59 Figure 10: Main Factors or Barriers Affecting Youth Employment and Potential Areas of Intervention A. Barriers to Employment Demand-side Institutions and Supply-side factors Intermediaries factors ○○ Limited job creation ○○ Poor labor market ○○ Skills mismatch ○○ Poor business information ○○ Limited work environment ○○ Fragmented experience ○○ Financial constraints service delivery ○○ Social and structural ○○ Weak monitoring barriers systems B. Interventions Demand-side Institutions and Supply-side factors Intermediaries factors ○○ Enhancing business ○○ Labor market ○○ Education system support information system ○○ Skills development ○○ Regional development ○○ Service delivery ○○ Lifelong learning ○○ Access to finance modernization ○○ Health and care ○○ Institutional facilities coordination ○○ Targeted support Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 60 Box 10: Demand-Side Interventions—Stimulating Demand for Young Workers Promoting job creation requires targeted interventions on the demand side that address specific constraints or market failures affecting enterprises in both the formal and informal sectors. Different interventions exist to create an enabling environment for firms—and could include economywide reforms, interventions or policy reforms targeted at specific sectors, clusters, or value chains—but these interventions are not necessarily targeted at youths or jobs for that matter. However, there have been examples of successful targeted interventions that address demand-side constraints:71 –– Programs to address financing constraints, which aim to alleviate the credit constraints which prevent firms from entering the market or growing, –– Capacity building and information provision interventions, which include both financial and nonfinancial services and products offered to entrepreneurs at various stages of their business cycle, including training programs, consulting services, and matching grants, –– Targeted sector-specific approaches include a range of approaches such as lead firm-SME linkage programs aimed at developing forward and backward linkages with lead firms, which can create a market for related SMEs, and value chain development approaches aimed at fostering linkages across firms to improve coordination and collaboration among value chain actors, in particular to sustainably improve SME access, –– Financing to increase private investment with the objective of creating new jobs. Overall, the evidence base for what works to foster more and better job creation by firms is still weak. Interventions may vary significantly across different target groups, objectives, eligibility criteria, implementing agencies, selection mechanisms, and other characteristics, indicating that design and implementation issues are critically important. In the Croatian context, the World Bank suggests that supporting investment in R&D and in green technology adoption is necessary for improving productivity and providing better paid jobs (World Bank, 2024a). In order to achieve this, the government should enhance invest- ment in technology adoption in the private sector, with particular focus on digital and green technologies; modernize the research system and foster science-industry linkages; and foster innovation and entrepreneurship with policies that should focus on improving overall condi- tions for research, development, and innovation among firms, with targeted funding for applied research, entrepreneurship, and innovation. Likewise, ensuring a favorable business environ- ment and access to finance, including to start-ups and vulnerable groups, is equally important (World Bank, 2024a). The World Bank recommends that in order to lower transaction costs, the transparency of business licensing needs to be improved and online services enabled, but also that the government should broaden investment opportunities with new products that 71 Based on Datta et al. (2018). Actionable Recommendations 61 mobilize private capital, including for green and blue investments, as well as strengthening and expanding current financing and business support schemes for micro, small, and medi- um enterprises either owned or operated by vulnerable population groups (including youth). Many supply-side interventions aimed at the NEET population are under the purview of PES. In Croatia, CES facilitates labor market intermediation between employers and employees, and supports both groups through ALMPs, career guidance, and additional services. However, supply-side interventions exclusively focused through CES will not be sufficient to improve youth employment, in the absence of coordination across different agencies. The lifecycle of young people in NEET status, along with the bottlenecks they face, underscores the need for coordinated efforts from a range of stakeholders. While CES still plays a central role in serving the NEET population to support their activation in the labor market, facilitate the school-to- work transition, or help them return to the education system, there is also an important role to be played by other agencies (see Box 11). Box 11: Coordinated Actions to Maximize the Job-Related Impact on Youth An effective approach to youth employment programs should include comprehensive and coordinated policies, including multisectoral actions, to maximize the job-related impact. Figure B11.1 shows a series of currently implemented and planned improvements aimed at supporting young people at different stages of their lifecycle into successful employment pathways. Achieving meaningful impact requires a shift from isolated agency interventions to stronger cross-departmental collaboration, where the Ministry of Labor, Croatian Employ- ment Services, Ministry of Science, Education and Youth, and Ministry of Demography and Immigration view their contributions as part of a collective effort to obtain better labor market outcomes for young people. This holistic approach must be underpinned by integrated data sharing to understand the interdependencies between education, employment, training, and caretaking services. With the joint monitoring of results and learning from what works, these entities can create an evidence-driven and adaptive policy approach responding to emerging needs, leading to improved opportunities for young people. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 62 Figure B11.1: Government Interventions to Prevent Youth Unemployment and Support Unemployed Youth Monitoring what Policy (adjustments, Study program Support for works (MoL, MoL, MoE, MoH, MoD) quotas and early starting CES, MoE, MoD) Data on LM scholarships and vulnerable shortages (CES) (MoE) groups (MoE) Government Interventions to Prevent Youth Unemployment and YG, job incentives, reski­lling or Support Unemployed Support for upskilling, entre­pre­neurship, vulnerable group support Youth desicions on study (CES) programs (CES) Caretaker Proactive Data on those that Provide more Curricula services and outreach to fail to find jobs or practice adjustments support for the register with continue to study (MoE and to LM needs disabled (MoE, CES (CISOK, (CES, MoE and CES) (MoE) MoH, MoL) NGOs) pension fund) Source: Original elaboration Note: CES = Croatian Employment Services; CISOK = Career Information and Counselling Centre; LM = labor market; MoD = Ministry of Demography and Immigration; MoE = Ministry of Economy; MoH = Ministry of Health; MoL = Ministry of Labor, Pension System, Family and Social Policy; NGOs = nongovernmental organizations; YG = Youth Guarantee. Given the changing world of work, the recommendations presented in this report take into account potential adaptations that CES would need to consider to adjust to global megatrends and leverage the advantages of modern technology. With the main strategic objective of sup- porting the development of a resilient and productive workforce, a reform agenda for CES could focus on the following actions: (1) strengthening labor market information to monitor emerging labor market trends and inform different types of users, (2) deploying lifelong human capital development solutions, and (3) tailoring services and their delivery to increasingly diverse tar- get groups (see Figure 11). Actionable Recommendations 63 Figure 11: Potential Policy Priorities for Public Employment Services Going Forward Vision Providing employment services suitable for the changing world of work Strategic Supporting the development of a resilient and productive objectives workforce 1 2 3 — — — Strengthening Deploying lifelong Tailoring services the labor market human capital and their delivery Priorities information development to increasingly for action system to monitor solutions diverse target emerging labor groups market trends and inform different types of users Recommendation 1: Strengthening the labor market information system (LMIS) to monitor emerging labor market trends and inform different types of users 1.1. LMIS upgrades Upgrading the LMIS for Enhanced Labor Market Outcomes Real-time Skill Outcome User-friendly Job Data Forecasting Tracking Interface Matching Integration Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 64 A comprehensive LMIS would serve as an essential basis for employment and skills develop- ment policies, as well as to inform the design, implementation, monitoring, and evaluation of policies better targeted at needs. The LMIS would do this by analyzing labor market devel- opments regularly and facilitating the translation of specific skills and certifications to match employer needs. This implies data collection, data analysis, and data dissemination. First, it is necessary to expand the data sources to include real-time labor market information, by having all the relevant stakeholders on board. Second, analysis of these data could help with identi- fying skills needs and the transferability of skills across jobs. Finally, it is necessary to ensure a user-friendly experience for different types of beneficiaries. Croatia could build on its existing web portal, constructed on the basis of Croatian Qualifi- cations Framework (CROQF)72, to establish a strong LMIS that could serve as a policy tool to activate youths in the labor market. The current web portal connects administrative data from different sources, covering both educational and labor market institutions. However, the web portal currently in place is not user friendly (it requires a special registration process to get access), nor does it have any forecasts (only the current situation and some past trends). As such, the portal would need to be upgraded to better help the identification of NEETs and to serve as an employment tracking system and career guidance tool. Utilizing administrative data can help pinpoint skill gaps and identify areas where graduates struggle to enter the workforce or pursue further education. Based on both labor market and educational system data, the LMIS could play a key role in identifying skills needs in the labor market and forecasting future needs, as well as detecting skills gaps among the youth popu- lation, including those already in school. The LMIS can be enriched by including information from graduate surveys, which provide insights into the trends and factors that contribute to successful transitions. Clear protocols should be developed for respective outreach teams to act upon the data and proactively reach out to the identified NEETs. For instance, YG centers in Denmark are tasked with engaging all young NEETs through various outreach methods to connect them quickly to available services. Bulgaria’s PES teams engage other young people who are out of work to help reach out to inactive youth. Ex ante profiling of skills needs could ensure smoother school-to-work transitions, improved job matching, and better targeting of available labor market interventions. Integrating LMIS data forecasts with current CES and CISOK career navigation tools, including salary expecta- tions, regional job demand, and future job projections, could help outreach efforts. The Czech and Australian forecasting systems (see Box 12 and Box 13) are examples of how Croatian authorities could integrate jobs, education, labor market, industry trends (investments and technology changes), and demographic data. This data integration would allow the Croatian government to be better able to forecast future skill gaps across sectors and regions, to see where to allocate funds and for what kind of (re)training initiatives, and how to best deliver these. 72 https://trzisterada.gov.hr/11-D.html Actionable Recommendations 65 Box 12: The Czech Labor Market Prediction System The Czech Republic employs a model that maps and forecasts the national and regional mis- matches between labor supply and demand by educational groups, factoring in major regional investment plans and anticipated changes in production. It provides information to young peo- ple on what field is worth studying based on a five-year predictive model of job opportunities in the selected field of study and region. Figure B12.1: The Czech Labor Market Prediction System Illustration Source: Kompas (2024). Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 66 Box 13: Australia’s Jobs and Skills Atlas Australia’s Jobs and Skills Atlas offers a straightforward, user-friendly interface that includes 3- to 10-year forecasts of labor market needs from industry, occupational, and geographical perspectives. It features ratings for shortages or surpluses in occupations, average salaries, the share of women in specific jobs, and the proportion of part-time opportunities available. Figure B13.1: Australia’s Jobs and Skills Atlas Illustration Source: Jobs and Skills Atlas (2024). A LMIS can be of great help in tracking labor market outcomes after beneficiaries exit differ- ent programs, thereby allowing the possibility to rigorously evaluate these measures. Careful tracking would allow an understanding of whether training programs are effective in preparing people for available jobs. Additional program engagement, to understand participants’ moti- vation, encourage them to remain in the program and use it fully, and provide services ex post, also has benefits. Although these services increase program costs significantly, they may be necessary for program success (Datta et al, 2018). For example, Estonian PES developed a methodology to identify mismatches between the training offered to jobseekers and the de- mands of the labor market, to reduce the oversupply of training in certain fields (see Box 14). Actionable Recommendations 67 Box 14: Estonian PES: Aligning Training with Market Demand Estonian PES created a methodology that allowed them to determine when there are too many people trained in a certain area. It analyzed historical data on training figures and job vacancies, using ratios to assess skills deficits or surpluses, and employed machine learning algorithms to predict employment probabilities 12-months posttraining. The methodology also incorporated qualitative input from stakeholders. This then led to legislative changes which narrowed down the PES training offers, and alternative options, such as paid internships and entrepreneurship allowances, were mapped to meet client needs.73 1.2. Integrating LMIS data into decision-making processes and actions Integrated Real-Time Aligning Training Employment Outreach Reporting Online Programs Counselors Engagement for Youth System The ultimate objective of developing a LMIS is to empower decision-makers in policy and investment decisions. The system needs to provide relevant information in a user-friendly manner so that all relevant stakeholders (see Box 11) can take well-informed decisions. If data are presented clearly and accessibly, the information system can serve various stakeholders: students and their CISOK and CES counsellors can assess employment prospects based on the field of study; individuals in areas with limited job opportunities can see where else to look for vacancies; and training providers can plan courses to meet demand. For example, the LMIS could provide the basis for the better alignment of education and training programs with labor market needs, along with adequately informing and equipping counsellors. Any changes in economic circumstances, curricula, labor or migration policy, or the preparation of teachers or course providers to provide new content take time, and ac- cess to dynamic information and forecasting can facilitate effective planning and investment decisions. Therefore, education and training providers could utilize LMIS data for planning curriculum adjustments and training programs, while CES staff could use LMIS data in mak- ing training course recommendations. An earlier evaluation of training programs conducted by CES highlighted difficulties involved in forecasting labor market demands for the purpose of designing training content (World Bank, 2024b). The responsibility for designing training 73 European Commission (2024a). Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 68 programs is usually delegated to staff at CES regional offices to ensure that programs are com- patible with local labor market needs, but these staff need more information and assessment tools. To a significant extent, training was supply driven, and CES counselors were promoting enrollment to keep training programs going despite low demand. Using the LMIS for this pur- pose should overcome these issues. It is also important to train CES and CISOK counselors on how to empower students to use LMIS data from the public interface to make informed decisions on study and career choices. The LMIS could also be used as an online information system on career choices, in addition to as a tool for more proactive outreach. The career guidance system under CES currently includes some online tools74 that should help a young person make their education (career) choices, however, there is ample room for improvement. Utilizing LMIS forecasts and amending with graduate surveys would provide valuable data on the employment outcomes of graduates, guide students in choosing fields of study that align with labor market demand, help colleges and universities to redefine their course offerings, and offer insights into the salary levels of graduates by sector and discipline. It is important that the system adjusts in real time and in- forms a person in a timely matter, even if there is a need for adjusting their current choice. In addition, by establishing outreach teams and developing early intervention protocols, while offering personalized support and guidance to connect at-risk youth with appropriate education and employment opportunities, CES and CISOK counsellors could further increase outreach. Once the user sets up an account with basic information, the authorities can leverage back-of- fice data for proactive outreach, maintaining the user’s motivation for continued engagement and providing tailored job or training opportunities. Regional CES or CISOK offices could use this data for individual needs assessments and program evaluations. The LMIS can also be a tool that provides information to prospective employers to enhance job searching and matching efficiency, especially at the local level. The LMIS could provide annual information on the occupational conditions of graduates, gather archives of graduate and doctoral theses, and help promote postgraduate and lifelong learning courses. Employers would have online access to the largest database of graduate resumes in the region.75 This could be especially relevant at the local level (see Box 15). 74 https://e-usmjeravanje.hzz.hr/karijerni-plan 75 Similar platforms exist in several European countries; Alma Laurea in Italy stands out as the largest and best-known. Actionable Recommendations 69 Box 15: Job Matching Mechanism (JMM) Utilizing LMIS data, a JMM could link secondary and tertiary graduates with local businesses (World Bank, 2022).76 Currently, similar efforts exist at some educational institutions but are uncoordinated. This platform would focus on recruiting graduates from key study programs and promoting workplace training through incentives like subsidies and points. This regional implementation is vital due to local stakeholders’ deep understanding of regional issues and their interest in regional vitality. The JMM would support labor market development and en- courage skilled workers to stay in the region, starting as a pilot coordinated by existing CISOKs. Conducting outreach campaigns to raise awareness about LMIS resources among employers and encourage them to post vacancies and identify suitable candidates should further enhance employers’ engagement. Recommendation 2: Deploying lifelong human capital development solutions 2.1. Dynamic adjustments to the school system to prepare youths with job-ready skills Enhanced Youth Employability through Education Adapting Education Systems Preparing Youth with Expanding Work-based Learning Job-Ready Skills Engaging Employers The traditional school system should adapt to changing economic and labor market environ- ments and promote inclusivity. The education system at all levels, but especially for VETs (see Spotlight 1 above), needs to adapt, not only to current labor market needs but also to those anticipated in the future, by changing curricula, establishing different enrollment quotas, and engaging employers more in the education process, utilizing LMIS data in the process. For ex- ample, Hornstein-Tomić and Taylor (2021) suggest that changes to the education system are one of the key factors in reducing the mismatch between prevailing education and training programs and the specialist knowledge requirements of the domestic labor market, and in 76 As part of the development of the Plans for industrial transition for the three NUTS-2 regions (Pannonian Croatia, Northern Croatia, and Adriatic Croatia), initial mapping of key regional value chains was undertaken by the Ministry of Regional Development and EU Funds. Priority sectors and niches for individual regions were defined in each of the Plans. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 70 improving youth employability in Croatia. In addition, it would also be beneficial to increase investments and develop targeted interventions to support the development of foundational and high-order skills among children and youths from disadvantaged groups in order to reduce inequalities across the country. It is also recommended to incorporate modern pedagogical practices that support students’ learning and skills development (such as group work, team teaching, or coteaching) into teachers’ daily practice, and also to continue investments and specific policy interventions to reduce teacher shortages at different levels of the education system (World Bank, 2024b). More practical experience within education curricula would improve labor market outcomes for graduates. International evidence shows that training interventions that combine prac- tical skills training and exposure to the world of work are more effective (Datta et al., 2018). For employers, dual vocational training with apprenticeships may be a cost-effective, albeit gradual, way of getting skilled workers, given that this model provides a successful introduc- tion to company values and expectations, and permits long-term staff planning.77 Evaluations suggest that dialogue with employers, sufficient investment in staff skills and performance management, and a generally good LMIS and well-functioning ICT services are important for success, while a strong client focus and engagement between counselors and clients works better than online services alone (Datta et al., 2018). Focusing more on apprenticeships and internships within the school system, as well as in the context of ALMPs, would lead to better job matching. Experience suggests that training programs improve skills matching, while vocational training programs facilitate the transition from education to work (World Bank, 2024b). Exposure to the world of work through intern- ships tied to training can significantly improve employment outcomes compared to training alone (Datta et al., 2018). Within current ALMPs there are support measures (subsidies) for internships in both the private and the public sector. However, these need to be improved in collaboration with employers in order to cover larger number of youths by the programs. The government could increase the scope of apprenticeships, provide financial incentives to encourage take-up, and raise awareness about apprenticeships, informing firms about the advantages and benefits to them as well as informing young workers about the high future returns of these kinds of work-based learning.78 More involvement from employers in the design of education programs could attenuate skills mismatches. For example, to address skills mismatches, tertiary institutions could enhance their education programs by incorporating industry input. Programs in specific sectors should be updated with private sector involvement, ideally offered in foreign languages to attract both national and international students to Croatia (World Bank, 2022). These programs could feature private sector teaching, international visiting professors, industry experts, and funded internships for hands-on learning. 77 In Croatia, VET programs still focus too much on theoretical knowledge and not enough on practical skills training (Cedefop, 2019). Only three-year dual programs and unified craft programs (JMO) are run as apprenticeship schemes in which about half of schooling happens in the workplace, but these programs are a minority (World Bank, 2024b). 78 The European Commission, in its Youth Employment Support package, also includes, besides the YG, recommendations on vocational education and training which aim to make systems more modern, attractive, and fit for the digital and green economy; it also focuses on apprenticeships that benefit both employers and young people, adding a skilled labor force to a wide range of sectors. More info can be found here: https://ec.europa.eu/social/main.jsp?catId=1036&langId=en Policy Actions to Enhance the Benefits of Migration in Croatia 71 2.2. Lifelong learning for workforce adaptability Enhancing Workforce Adaptability Learning Enterpreneurial Future Job Upskilling Accounts Education Skills and Reskilling Programs ○○ Systems to ○○ Education to ○○ Focus on green ○○ Programs to incentivize and support entre­ and digital skills improve existing track lifelong preneurship and for future jobs skills and acquire learning financial literacy new ones Taking into account global experiences and evaluation results, adjusting upskilling and reskilling programs has the potential to build skills and tackle skills mismatches and labor shortages. Data from 2022 indicate that only 27.3 percent of adults (ages 25 to 64) in Croatia participated in some form of education or training, significantly less than the EU average of 46.6 percent. Information about participant uptake, completion rates, and labor market out- comes by target group, together with surveys and interviews, can provide insights into the user experience, barriers, and course effectiveness. Evaluations could also assess whether learning opportunities align with labor market demands and rate their accessibility, particu- larly for target groups in rural or disadvantaged areas. Ideally, such programs would include a mix of targeted actions for various demographic groups that provide employers with wage or training subsidies to incentivize trialing workers in a risk-free manner. This could be more cost-effective for the government than self-employment subsidies. With an increase in funding and a stronger focus on upskilling and reskilling, training subsidies have the potential to build skills and tackle skills mismatches and labor shortages (World Bank, 2024b). Upskilling and reskilling programs would benefit from a stronger focus on jobs for the fu- ture, delivered via a range of instruments, including personal learning accounts. Within the traditional education system, as well as in relation to on-the-job training and training for the unemployed, more focus could be placed on skills for the future. Examples of this, led by PES, were implemented in the case of the transformation of the German steel and port industries (see Box 16), as well as in Slovenia (see Box 17). The Croatian government could also consider scaling the voucher scheme to create personal learning accounts, which has been successfully done by several countries for lifelong learning for all of their citizens (Singapore and France) or for specific target groups (Scotland) (see Box 18). Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 72 Box 16: The role of the German PES in the Transformation Processes of the Steel and Port industries With the implementation of Germany’s Sustainability strategy, production process changed from burning coal to using green hydrogen and green electricity in the steel industry, while pressure due to high competition (among the North Range ports of Antwerp, Rotterdam, Bremen, and Hamburg) required the digitalization and automation of the port industry. Around 10,000 employees with well paid jobs in the Bremen region were affected by these changes. German PES (Bundesagentur für Arbeit) acted as the key actor in providing reskilling and upskilling during the transformation of the steel and port industries. It is important to note that social partnerships played a predominant role; a tripartite advisory board (employ- ers, trade unions, and governmental bodies) works as a “natural” network in German PES, implying that German PES are part of a network with all relevant actors. So, how does the German PES help with upskilling and reskilling? Before the qualifica- tion process starts, the agency assesses the suitability of participants (medical and psy- chological testing). During upskilling or reskilling, it finances the qualification program and provides a wage subsidy (up to 100 percent). It also participates in the upskilling or reskilling of unemployed persons, financing their qualification program and providing unemployment benefits. In addition, it also provides a so-called qualification allowance. Box 17: Employment Incentives for Green Jobs in Slovenia Within their Employment Incentives for Green Jobs program, Slovenian PES partnered with the Ministry of Environment and Spatial Planning. The biggest challenge was to define the criteria for a green job, which was in the end done in partnership with other stakeholders (the Ministry of Environment and Spatial Planning; Ministry of Labor, Family, Social Affairs and Equal Opportunities; and Employment Service of Slovenia), taking into account criteria such as occupation, employer’s activity, the product or service, workplace activities, sustainability certificates and standards, and the social enterprise status. The second big challenge was to promote the measure among employers and PES employees, as they had little knowledge of the subject and because the definition of green jobs varies among the general public. Sloveni- an PES frequently promoted this measure among employer associations and the media, while more support than usual was needed for employers, as some did not recognize their jobs as being green even though they might be. In the end, 323 companies and 386 unemployed people were matched through this program, with 15 percent of the participants under 25 years of age, while for 24 percent, this employment represented their first employment. Policy Actions to Enhance the Benefits of Migration in Croatia 73 Box 18: Examples of Learning Accounts Singapore’s SkillsFuture SkillsFuture Credit provides financial support to all Singaporeans above the age of 25. Each in- dividual receives an initial credit of approximately 350 euro (SGD 500) for use on a preapproved learning course. Midcareer citizens additionally get 280 euro (SGD 400) for reskilling and up- skilling. Courses are accredited under the Workforce Skills Qualifications system. SkillsFuture Credit also tracks citizens’ personal learning records and provides access to labor market data and career planning tools through links with the MySkillsFuture portal. France’s Personal Training Accounts A Personal Training Account (Compte Personnel de Formation, CPF) provides employees and jobseekers with a yearly allowance of 500 euro, or 800 euro for those with disabilities, with lower levels of qualifications, or in threatened jobs. It is funded through tax levies on employers. This allowance can be accumulated over ten years, up to 5,000 euro or 8,000 euro, respectively. Once the course is confirmed, the provider receives the payment directly. The CPF scheme features around 20,000 training providers and 300,000 courses, which have to be aligned with professions in demand and meet quality assurance standards. Scotland’s Individual Training Accounts An Individual Training Account (ITA) offers to up 240 euro per year for training courses for job- seekers or those in low-paid work that want to advance their careers. The courses are aligned with Scotland’s National labor market strategy and focus on priority sectors, such as agriculture; business; construction; health and safety; science, technology, engineering, and mathematics; and social care. The ITA scheme includes 1,500 approved programs, and employers have the option to top up the funding. Learners can apply for the courses digitally through a dedicated portal and can receive comprehensive career advice and guidance both in-person and online. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 74 Recommendation 3: Tailoring services and their delivery to increasingly diverse target groups 3.1. Adapting CES services for diverse and evolving labor market needs Adapting CES Services Profiling and Financial Entrepre­ Incentives Outreach Individualized Support for neurship for Youth ­Measures for Services Employers Training Registration NEETs ○○ Profiling ○○ Financial ○○ Financial ○○ Local-level ○○ Disaggregating Beneficiaries Instruments Education Bottom-up the NEET ○○ Individualized for Sectors Module Approach Population Services ○○ Competitive ○○ CES Start- ○○ Unemploy­ ○○ Identifying Wages up Grants ment Benefits Constraints for Youth ○○ Specific Outreach Stretegies Adjusting services to diverse target groups and changing economic conditions will be im- portant to ensure that the services provided are always relevant. Findings from the literature suggest that programs that include the profiling of beneficiaries’ aptitudes and capacities, and individualized services (for example, sorting beneficiaries into different groups depending on needs) perform better (Datta et al., 2018). For example, in a recent thematic paper (EC, 2024d) the European Commission assesses that PES in the EU rarely act as matchmakers between domestic employers and jobseekers from abroad and suggest several solutions to overcome the issues (see Box 19). Useful examples for Croatia include Slovenian PES, who have a range of innovative programs for emigrants, foreigners, the elderly, and green jobs (see Box 17), and the Swedish example, where digital delivery enhances the effectiveness of services, with the motto “nobody is left behind” (see Box 21). Box 19: Attracting Skilled Labor from Third Countries: The Role of the PES Given the widespread issue of labor shortages across the EU and the need to attract peo- ple from third (non-EU) countries, the role of PES has also been changing. A survey on the role of PES in the international recruitment of skilled talent, conducted in September and Policy Actions to Enhance the Benefits of Migration in Croatia 75 October 2023,79 shows that the role of PES in international job matching has mostly been related to the implementation of national labor migration laws and regulations, includ- ing being involved in decisions on the admissions of jobseekers and the issuing of work permits, performing labor market tests and other assessments of working conditions. However, it sems that recently an increasing number of PES have been actively involved in the recruitment of skilled workers from outside the EU—often within bilateral mobility agreements. For PES to play a more active role in attracting skilled labor from third countries, recommen- dations indicate that they would need to refine the identification of occupations with labor shortages through the better use of labor market intelligence (LMIS), and the provision of reliable and up-to-date information on the work permit process, qualification recognition procedures, and job opportunities. Making comprehensive information available through a single information source in several languages and in cooperation with ministries and migration authorities may be a way to build PES capacity for international recruitment. In addition, to facilitate third country nationals’ professional, social, and cultural integration, PES may further develop and offer additional post-recruitment services, such as training or information on language courses, vocational training (including bridging courses), or information on family reunification. To safeguard working conditions and fair recruitment, PES may further reinforce their role as gatekeepers. An important starting point is the establishment of a set of different outreach measures to engage different categories of youths in need of support. While governments usually set tar- gets to reduce the number of NEETs through initiatives such as the YG, the heterogeneity of the NEET population should be taken into account when designing such measures. Effective intervention can only be designed if the NEET population has been disaggregated to identify the distinct characteristics and needs of each subgroup; each one is likely to have different welfare, training, and activation needs (Eurofound, 2016). After identifying the NEET population, it is essential to define a suitable outreach strategy for each specific group. In order to do that, identifying and prioritizing constraints as factors that lead to NEET status is of utmost impor- tance. Outreach strategies should be developed based on specific subcategories of NEETs or those at risk of becoming NEET, as no one-size-fits-all solution would accomplish the goal. Additional incentives need to be provided to encourage youths to register with CES, includ- ing local-level bottom-up approaches and, possibly, also the introduction of unemployment benefits for youths without work experience. A lack of outreach and services means that potential participants are less likely to register with CES.80 Only a portion of the youth popula- tion is registered at CES, while the rest are not easy to identify (Tomic, 2015). As youths usually have no or low levels of work experience, they are not eligible for unemployment benefits, so they don’t have any financial incentives to register with CES. One of the solutions could be to introduce an incentive in the form of an unemployment benefit (not linked to previous work 79 https://ec.europa.eu/social/main.jsp?langId=en&catId=105&furtherNews=yes&newsId=10868 80 Despite Croatia making certain progress in terms of fostering employment opportunities and social inclusion for NEETs, challenges remain, specifically with respect to finetuning general ALMPs to the specific needs of young people, creating better outreach strategies and targeting, and lowering regional disparities in the availability and design of ALMPs (European Commission, 2020). Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 76 experience) that would be gradually phased out when a young person gets employment (sim- ilar to the guaranteed minimum benefit (GMB)). In addition, a local-level bottom-up approach to accomplish the objective of registering all NEETs and creating measures that will success- fully include them in employment, education, or training might be beneficial (Butković, 2017). Some employers could be offered financial support to attract and retain a qualified workforce in regions that are lagging behind. Firms in specific sectors in Slavonia, such as agrifood and wood processing, have reported difficulties in offering competitive wages, which hinders eco- nomic development (World Bank, 2022). Financial instruments for employers in specific sectors aim to keep skilled workers in parts of the country that are lagging economically, supporting sustainable growth in chosen sectors. Additionally, competitive wages would encourage ed- ucated young people to settle and build their careers in those regions, helping to counteract outmigration and demographic decline. Entrepreneurship training can be an important supplement to the self-employment subsidies offered by CES. Adding a financial education module can build skills useful both to entrepre- neurs and to those young people facing various constraints when seeking employment (care- taking responsibilities or disabilities) to gain additional income; this could, in the medium- or long-term, enhance investment and access to capital in Croatia. CES start-up grants could be strengthened by integrating entrepreneurial and financial education into the support. Building on the successful practices of the Zagreb Innovation Center in education, consulting, and the promotion of entrepreneurship (see Box 9), the authorities could scale this support to other parts of Croatia. The support could focus on helping young entrepreneurs establish, grow, or exit their businesses, including improving access to suitable financial products. Sweden is an example of a country that has been investing in financial education from primary school through high school,81 and it now has a significant part of its population gaining income from retail investing (see Box 20). Additionally, the depth of capital markets helps retain innovative companies within Sweden’s productive system. Box 20: Sweden: From Financial Education to Retail Investing Sweden has successfully encouraged a significant portion of its citizens to invest, resulting in a deeper capital market relative to its GDP. This robust retail investment has fueled a booming initial public offering (IPO) market, with over 500 IPOs in the past decade, which is more than the combined total of Germany, France, the Netherlands, and Spain. A key driver of these deep capital markets is pension funds, which hold substantial domestic equities and automatical- ly allocate 2.5 percent of pensionable income to funds in which savers can choose to invest. Additionally, Swedish savers can invest in small and mid-cap companies through investment savings accounts which are favorably taxed and come with minimal reporting requirements.82 81 European Consumer Debt Network (2017). 82 European Commission (2024c). Policy Actions to Enhance the Benefits of Migration in Croatia 77 3.2. Leveraging digital and AI solutions for efficient service delivery Digital tools AI Solutions Service Proactive Streamlining Outreach In order to empower more users to interact digitally and create more time for supporting NEETs with complex needs, CES services could be optimized with the help of digital and AI tools. This should cover administration tools, such as registration, activity reports, and so on; matching services; career guidance, advice, and guidance in terms of job seeking, education, recruitment, and so on; as well as applications for supported employment. Though it might be difficult to go from a traditional system to one fully supported by digital technology and AI, some good practice examples could serve as a starting point. For example, Swedish PES used both AI and digital services for both upgrading internal processes and helping jobseekers and employers (see Box 21). Utilizing digital and AI tools could also help CES counsellors to prioritize vulnerable youths. To address the varying capacities of CES offices, authorities could consider business process reviews to identify tasks that can be automated, particularly for beneficiaries who require less support and are more adept at job searching. For instance, Swedish PES developed a tool that empowers jobseekers by using AI to broaden their job recommendations and accelerate their path to employment (see Box 21). By saving time with this group of users, counselors can dedicate more in-person support to vulnerable youths with complex needs to support their service uptake, participation, and overall employment outcomes. Reaching the part of the NEET population that is not actively seeking a job, that is, those not registered with CES, could be much more challenging, but also more important, since this group probably has a greater need for help with acquiring skills or looking for jobs. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 78 Box 21: The Digital Transformation of the Swedish PES Swedish PES used artificial intelligence (AI) for both employee decisions, including the as- sessment of distance from the labor market and the detection of discrimination in job ad- verts, and for self-service purposes, to widen the job search beyond obvious matches. The main challenges in implementing this were inefficiency and stress due to a fragmented digital work environment, a distrust of new digital and AI tools, and also resistance to new ways of working and difficulties in identifying jobseekers with disabilities and health problems early in the process. These challenges were approached by involving staff early on in development, implementing pilots before full implementation, providing staff with training and enough time to learn, cooperation between channels, improved digital accessibility, and asking questions about difficulties in the registration form. In addition, they recently introduced so-called digital job coaching that includes personalized paths through the available digital services, providing digital career guidance, improving job searching, and finding vacancies beyond obvious matches. Digital job coaching also helps to maintain motivation through a step-by-step approach and the existence of visible progress after each step. Finaly, digital job coaching is targeted at jobseekers close to the labor market. In general, they reported increased overall efficiency and better use of resources, more valuable meetings due to segmenting and directing jobseekers to counsellors with appropriate skills, as well as better quality in case processing; there was also increased PES accessibility, a better overview of the journey taken, and transparency relating to the processes behind the scenes. Swedish PES also developed an algorithm to analyze job advertisements and break down professions into essential hard and soft skills. This algorithm clusters occupational keywords into four main categories: hard skills, soft skills, work descriptions, and education, to help jobseekers identify appealing skills for various professions. On the PES job platform, users can access a Find Other Occupations feature to explore suggested career options, with links to actual job listings related to those options. A survey found that 78 percent of users were positive about the service, and 68 percent expressed interest in applying for jobs in at least one of the recommended professions.83 Streamlining all the services supporting unemployed youths into one clear, centralized pathway would make the system more efficient and enable youths to get to the relevant information in a much faster, simpler, and easier way. Merging the available digital services, including the CES, Youth Guarantee, e-direction, vouchers, CISOK network, and catalogue of digital and green skills portals, into a one-stop shop would aid less experienced jobseekers in navigating the system effectively. For example, Irish employment services use a simple path- way to access all resources in one place (see Figure 12). Additionally, the jobseeker pathway could also include all other resources that they may need to overcome the barriers to work, such as centralized information about childcare or adult care facilities (see Box 22), services for the disabled (see Box 23), and so on. 83 European Commission (2024b). Policy Actions to Enhance the Benefits of Migration in Croatia 79 Figure 12: Irish Pathways to Work for Unemployed Youth Source: MyWelfare, Ireland. AI and digital technologies could also be utilized for proactive digital outreach to accelerate results. Using data on beneficiaries for proactive and personalized outreach, based on the barriers that youths face—including personalized job and training offers, child and adult care options (see Box 22), referrals, and notifications—could maintain motivation and accelerate results. Providing tailored job or training opportunities via digital platforms and SMS notifica- tions, similar to the Danish PES approach, additionally outside of scheduled in-person meetings could significantly improve outreach efforts. Box 22: Better Care Facilities Addressing Embedded Social Norms Providing youths classified as not in education, employment, or training (NEET) with compre- hensive support is essential to enable their full participation in the labor market. Addressing the barriers faced by youths who are classified as NEET requires more than just providing them with employment opportunities or skills. For many youths, particularly young women, family and caregiving responsibilities are significant obstacles to labor market participation. Almost 45 percent of young women in Croatia who are not employed report that family care obligations are a key barrier. Expanding access to childcare and care services is essential for enabling these youths to engage in the workforce or pursue further education. Investing in accessible and flexible childcare options will reduce the caregiving barriers af- fecting youths and enhance their opportunities for employment and education. This could include extending operating hours for early childhood education and care (ECEC) services and introducing more flexible entry options throughout the year, allowing parents to balance Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 80 work and caregiving responsibilities. To further address the needs of working parents, espe- cially those with nontraditional work hours, alternative childcare models that leverage digital platforms and community-based solutions could be explored. Local authorities could support these initiatives, making it easier for parents to access flexible care options. Additionally, en- suring guaranteed and subsidized kindergarten placements after parental leave and expanding means-tested childcare subsidies for low-income families would significantly increase youth labor market participation. Investing in a more efficient and widespread network of ECEC facil- ities, alongside scaling the Whole-Day School (WDS) program, would also align with Croatia’s broader demographic and social goals, including those set out in the Strategy for Demographic Revitalization by 2033. Tackling societal norms around caregiving and gender roles is critical for creating equal opportunities for youths in the labor market. In parallel with expanding care services, ad- dressing entrenched social norms is crucial for facilitating greater youth participation in the labor market. One key area for change is increasing the attractiveness of parental leave to en- courage more fathers to take it. This would help shift traditional gender expectations around caregiving. Schools should also prioritize gender-neutral career guidance, providing students with exposure to diverse career options without reinforcing stereotypes. Promoting women’s economic empowerment through incentives for businesses to adopt family-friendly practices, including mentoring programs and equal pay audits, could create a more inclusive labor mar- ket. Additionally, to close the gender gap in STEM fields, policies should target the multiple factors influencing career choices, such as family dynamics, educational environments, and broader cultural norms. Box 23: Support to Youth with Health Challenges Youths facing health challenges, particularly those from disadvantaged backgrounds, need targeted support to access the labor market. A significant proportion of youths, particularly young men, cite health issues—both physical and mental—as barriers to employment. This is especially true for those from disadvantaged backgrounds. Factors that hinder quality em- ployment among youths with disabilities include social stigma, employer misconceptions regarding the ability of youths with disabilities to carry out a job, limited access to education and training, a lack of access to credit and financing, disabling environments, a lack of work- place accommodation, and more (USAID, 2022). Providing appropriate support for youths with health challenges, including targeted mental health services, is essential for facilitating their inclusion in the labor market. Ensuring that these youths can access the necessary resources and opportunities requires a multistakeholder approach, involving educational institutions, employers, nongovernmental organizations (NGOs), and local authorities. By offering tailored support and creating inclusive workplace environments, these youths will be better positioned to contribute to the workforce and enjoy sustained employment. Policy Actions to Enhance the Benefits of Migration in Croatia 81 Conclusions The government of Croatia has made substantial progress in addressing labor market chal- lenges, including youth unemployment and inactivity. Activating more young people to participate in the labor force and supporting them to acquire skills in line with the needs of the labor market not only addresses immediate labor and skills shortages but it can also lay the foundation for structural shifts in the future. These could create more robust economic opportunities, and both stop young people from leaving the country and attract foreign talent, including the diaspora. Conversely, prolonged youth unemployment not only leaves a scar on individuals, but it also creates a financial burden on the government and brings economic and social costs. Building on the government’s progress in improving their policy direction and management, this report offers recommendations to further accelerate results and foster innovation in youth employment initiatives. First, a comprehensive approach addressing labor demand, supply, and intermediation con- straints is likely to yield better results. Upgrading the LMIS is a critical precondition. A new LMIS could integrate employment and education data to better target at-risk youth, as well as to forecast mismatches between labor supply and demand nationally and regionally, providing better skills intelligence. It is equally important to then incorporate these data into the deci- sion-making, planning, and reporting processes of a range of actors, from employment and education policymakers to training providers, frontline workers, employers, and young people deciding on their studies and careers. Second, Croatia’s education and training systems require rethinking, and a number of re- forms and initiatives are already underway. Traditional curricula should continuously adapt to equip young people with job-ready skills, especially those aligned with the green and digital transitions. Lifelong learning initiatives should enable people to dynamically reskill or upskill in response to emerging global trends, with focus on areas such as digitization, financial skills, green skills, and AI. The successful uptake of Croatia’s microcredentials voucher scheme, focused on green and digital skills, can offer valuable insights into the effectiveness of such training programs for improving employment in the context of the skills demanded by Croatia’s labor market, and what additional measures could be bundled together to yield better results. Further strengthening of the TVET system is necessary to enhance its effectiveness and better meet the demands of modern workforce. Similarly, support for entrepreneurship and other income-generating opportunities, particu- larly for young women facing caregiving constraints and who need more flexible working arrangements, could be enhanced through bundling CES self-employment grants with addi- tional support, such as skills training, mentoring, access to capital, financial education, and additional outreach communications. The good practices already developed can provide valu- able insights into how to scale such initiatives outside of large urban centers. Based on these lessons from adult learning, the government can consider scaling continuous learning programs to the broader population through learning accounts to adapt to evolving labor market needs. Empowering Croatia’s Future: Enhancing Youth Employment and Skills Development 82 Finally, modernizing CES services and further leveraging digital tools can help frontline work- ers better respond to diverse groups of young people with complex needs. Building on the improvements CES has made in digital access to services, additional tools can be leveraged to empower more users to find solutions themselves, while freeing up the time of frontline workers for young beneficiaries with complex needs. Digital tools can also be better leveraged for profiling and proactive outreach, offering tailored services, including services to address a broader range of barriers outside of employment, for example, access to caregiver services, as well as various referrals, notifications, and proactive job matches, thus accelerating results. REferences 83 References American Chamber of Commerce in Cro- Croatian Employment Service. 2023. “2022 atia. 2023. “Survey of the Business Envi- Yearbook.” Croatian Employment Service, ronment in Croatia - 2023.” https://www. Zagreb. Available at: https://www.hzz.hr/ amcham.hr/storage/upload/novosti/am- app/uploads/2023/03/2022-YEARBOOK.pdf. cham_-_survey_of_the_business_environ- ment_in_croatia_-_2023_172347.pdf. 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