The Pandemic Has Reshaped Unemployment in Iceland Skip to content

The Pandemic Has Reshaped Unemployment in Iceland

By Yelena

While unemployment in Iceland has dropped to pre-pandemic rates, the lay of the land has changed both on the job market and among those who still remain jobless. Thousands are working on temporary contracts and 44% of workers on the unemployment register have been without work for a year or longer, Kjarninn reports.

Iceland’s unemployment rate has dropped to 5% and is equivalent to the rate in February 2020, before the COVID-19 pandemic reached the country. It has more than halved since April of this year, when it measured 10.4%. During the height of the pandemic, Iceland’s government implemented several economic response packages that included partial unemployment benefits for workers on reduced hours as well as financial aid for businesses.

Temporary contracts subsidised by state treasury

Despite the drop in unemployment, two notable changes are apparent in Iceland’s labour market as the country embarks on a path toward economic recovery. Rates of long-term unemployment have more than doubled among those who are out of work; and among those who are working, many are on temporary contracts subsidised by the state treasury.

The subsidies that allowed many businesses to rehire laid-off workers are scheduled to end in the coming weeks. These subsidies were heavily utilised by tourism-related businesses, which tend to wind down over the quieter fall and winter seasons. It remains to be seen whether tourism companies have recovered sufficiently to retain employees once government subsidies run out.

Long-term unemployment more than double

In February 2020, right before the pandemic broke out in Iceland, there were 9,162 people on the unemployment register. Of those people, 1,893 had been without work for 12 months or more, or 21%. In September 2021, the number of people who had been unemployed for a year or longer had jumped to 4,598, or 44% of all those unemployed. The Directorate of Labour is aware of this shift and its director Unnur Sverrisdóttir stated it would focus on tackling long-term unemployment this winter.

As has often been the case in recent years, unemployment rates are highest on the Suðurnes peninsula, in Southwest Iceland. The peninsula’s proximity to the airport has led to a high dependence on tourism as a source of jobs. Foreign citizens are more likely to be unemployed than Icelandic citizens, and research shows that they were hit harder by the pandemic recession in Iceland. Foreign citizens’ rates of unemployment have, however, returned to pre-pandemic figures.

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