On 14 October 2025 the Institute of Public Finance and the Croatian National Bank organised a presentation based on an article published in the journal Public Sector Economics in which Ivana Čičak (Croatian National Bank) and Josip Raos (Energy Institute Hrvoje Požar) analyse how the reallocation of workers among firms influences aggregate wages in Croatia.

Macroeconomic factors, such as economic activity, labour demand and inflation, usually explain wage developments. During periods of economic growth, increased demand for labour typically leads to rising wages.

The authors examine how changes in labour allocation influence wage and productivity trends in Croatia, using firm-level data from 2002 to 2023, and apply static and dynamic decompositions to assess the impact of labour reorganization on wages and productivity. The analysis of firm data for the observed period reveals that the effect of labour allocation on wages exhibited a countercyclical pattern until 2021, transitioning to a procyclical pattern after the pandemic, when wages experienced a significant increase driven by the recovery in economic activity and the erosion of purchasing power caused by elevated inflation.

Dynamic decomposition showed that firms entering the market tend to exert downward pressure on aggregate wages. This suggests that new firms typically pay lower wages, which is consistent with the literature indicating that startups usually offer lower initial wages that rise over time as they stabilize. At the same time, exiting firms have an upward impact on aggregate wages (as exiting firms typically pay lower wages compared to surviving firms). However, this effect is weaker than the effect of new entrants.

   Presentation

Photo: CNB