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Employment protection reforms in the recession: how have they transformed the labour market in Croatia?

This paper examines the effects of employment protection legislation (EPL) reforms on employment outcomes in Croatia, testing the available theoretical predictions of partial labour market reforms from the literature. With a push from the EU accession, the reforms liberalized employment protection provisions for both temporary (2013) and permanent (2014) contracts at the end of six-year long recession thus presenting a distinctive case for policy evaluation. Using Labour Force Survey (LFS) data in the period 2007-2017 and applying event study method in combination with probit regressions, main results suggest that EPL reforms from 2013 and 2014 induced a rise in temporary employment, while the effects on overall employment are clearly visible only in the case of the permanent contracts reform, suggesting that easing of temporary employment possibly encouraged substitution of temporary for permanent work. Moreover, probit regression estimations indicate that specific groups of the population—females, youths, foreigners, low-skilled and singles from rural areas—have higher probability to end up with temporary contracts, demonstrating a segmentation of the Croatian labour market between specific demographic groups.

employment protection ; reform ; recession ; temporary employment ; policy evaluation ; Croatia.

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