Working for 200 euro? The effects of traineeship reform on labor market outcomes in Croatia

Sa？etak In this paper we evaluate the effects of active labor market policy (ALMP) reform, the so-called SOR measure (vocational training for work without commencing employment), on labor market outcomes in Croatia. In 2012 SOR was redesigned to ease the first labor market entry and promote on-the-job training, enabling a young person without relevant work experience to get a one-year contract and a net monthly remuneration of 210 euro. The measure soon became popular, especially among university graduates, accounting for around third of their unemployment exits, and absorbing two thirds of funds allocated to ALMPs. Pooling Croatian Labor Force Surveys from 2007–2016 and using difference-in-difference strategy, we estimate the causal intent-to-treat effect of the reform on labor market outcomes of the potentially eligible group: 18–29-year-olds. Results indicate that the reform has had, at best, neutral effects on employment and unemployment; moreover, we find some evidence that a portion of young individuals were propelled into inactivity. However, we do find an adverse effect on wages—driven mostly by wages received by females and university graduates—both at the mean and higher percentiles of the wage distribution. This research provides insights on effectiveness of ALMPs in ameliorating youth unemployment in Europe, and opens questions on the appropriateness of the use of European Union funds in new EU member states