Croatia’s public sector is the focus of public debate and confrontation. Two arguments dominate public debate: first, there is an overgrown but inefficient state (see Jafarov and Gunnarsson 2008; Bađun et al. 2011); second, there is overemployment in the public sector, coupled with advantages over private sector workers with regard to working conditions. The fact that the public sector is highly vulnerable, but hard to reform became clear with the recession starting in 2008. So far, however, stability has prevailed in the public sector, with modest employment adjustments, minor changes in working conditions and wage freeze but no major cuts. This outcome is due primarily to the particular political and social context, and to a lesser extent to the prevailing economic conditions (a stable banking system and relatively low fiscal deficit at the start of the recession, allowing for public debt increase). However, with worsening economic performance (including Croatia’s main trading partners) in 2012, after zero growth in 2011, stability and moderate adjustments will be much harder to sustain.

This chapter considers only general government sector employment until June 2012. It is organized as follows. Section 2 deals with the public sector’s size, structure and dynamics. Section 3 covers public sector structural reforms and adjustment policies, as well as crisis dialogue. Section 4 deals with the effects of crisis adjustments on public sector working conditions. Section 5 presents two case studies to illustrate adjustments in secondary education (Case Study 1), and conflicts and dialogue concerning public sector wage adjustments in the economic and political context of the period (Case Study 2). In the concluding section we discuss forthcoming challenges.