Icelandic Government Presents Third COVID-19 Response Package

Katrín Jakobsdóttir Bjarni Benediktsson Sigurður Ingi Ráðherra

Iceland will extend its partial employment benefits scheme, streamline the financial restructuring process for businesses, and help companies pay severance packages to mitigate the economic impact of COVID-19. The measures are part of the government’s third COVID-19 response package, which was presented by Prime Minister Katrín Jakobsdóttir at a press conference in Reykjavík’s Culture House this morning.

Partial employment benefits extended throughout summer

Katrín stated that 35,000 workers are already receiving partial employment benefits through a government scheme instituted last month in order to help businesses avoid layoffs. The scheme was originally scheduled to last until May 31, but will be extended until the end of August. While currently, the government has taken on up to 75% of salaries for struggling businesses, that ratio will be lowered to 50% from July 1.

While the partial employment benefits cannot be applied to employees that have received a notice of termination, the third response package introduces financial help for companies that must resort to layoffs. Companies that have seen a drop in income of 75% or more can now apply for government funds toward severance pay, which in Iceland corresponds to three months’ salary for most employees. This measure is intended to help failing companies avoid bankruptcy.

The government will also temporarily streamline rules on financial restructuring for businesses. The changes are aimed at providing companies with support while assessing their status and until more certainty is reached about future prospects.

Measures should help tourism industry, say ministers

When questioned on whether the government was considering specific measures to help Icelandair stay afloat, Katrín Jakobsdóttir responded that the third response package measures are useful to the airline as well as other businesses in tourism. Other ministers present confirmed that while the government has been following Icelandair’s situation closely, it is the company’s management and shareholders who are responsible for the privately-owned airline’s operations.

Over 20,000 Apply for Benefits Due to Reduced Employment


Over 20,000 Icelandic residents have applied to the Directorate of Labour for benefits due to reduced employment ratio, RÚV reports. An additional 5,000 have applied for standard unemployment benefits. The Icelandic government has promised to temporarily pay up to 75% of salaries for businesses that reduce their employees’ hours in response to the coronavirus pandemic in order to encourage them to retain staff.

Benefits paid out by April 7

More than half of those who have applied for benefits from the Directorate of Labour have been reduced to a 25% employment ratio, says Unnur Sverrisdóttir, its director. Applications continue to stream in, mostly from those employed in the tourism industry. “These are a vast amount in passenger transportation and all kinds of transportation of people both in the air and on land and these are hotels, hostels, car rental agencies, and restaurants and just all these services that are connected to tourism,” Unnur stated.

Due to the sheer number of applications, it is not possible for the Directorate of Labour to pay out all benefits by April 1, but Unnur says the plan is to do so by April 7.

Hundreds laid off nevertheless

Around 4,500 people have lost their jobs in Iceland this month, and must therefore apply for standard unemployment benefits. Unnur says it is difficult to predict how many more will be laid off in the coming weeks.

Despite government measures intended to preserve jobs, some large employers have resorted to layoffs in addition to reducing staff’s employment ratio. Icelandair has laid off 240 employees, the Blue Lagoon has laid off 164, and airport services company Isavia has laid off 101. All three companies have reduced the working hours of all or most of their remaining staff.

All three companies have a high proportion of employees based in Reykjanesbær, Southwest Iceland, which has in recent years experienced a higher unemployment rate than anywhere else in the country. That rate has now spiked to 14%.

The town’s mayor Kjartan Már Kjartansson says the rates may be higher than following the 2008 banking collapse, but the town is ready to take on the challenge. He points out, however, that the town has experienced rapid population growth in recent years and calls on the government to allocate funding to its institutions in accordance with the number of residents. “We’re talking about the Suðurnes Hospital and Health Centre, we’re talking about the police, junior college, transport and more. Because population growth has been, as has often been stated, extremely rapid here in recent years. And government agencies have not received funding that is in line with population growth.”