Income transfers may generate work disincentives: if certain income payments are stopped when individuals (re)enter employment, this can cause demotivation for taking up employment – the so-called “unemployment trap”. To make work pay off, several countries have introduced policy measure - financial incentives - which enhance employment opportunities for marginal groups in the labour market. Such policies increase in-work incomes and improve work incentives for those receiving only out-of-work incomes.
The Institute for Public Finance realised the project "Does Work Pay Off in Croatia", which has shown that Croatia does not differ on the international scale with regard to net replacement rates. Compared to OECD countries, Croatia is not the odd-one-out when reemployment incentives are concerned. Researchers found, however, that there are some groups of unemployed persons - like single parents with two children, couples with two children and only one adult member employed - who are potentially less stimulated to re-employ, because for them, the low-income potential net replacement rate is very high (more than 110%).
This research has been updated and supplemented, and the results can be found on the project webpage "How to Make Work Pay Off in Croatia?"