Collective Agreement Signed, Avoiding Strike and Lockout

VR Union. VR Chairman Ragnar Þór Ingólfsson and SA CEO Sigríður Margrét Oddsdóttir shake on the new collective agreement, March 2024

VR Union and the Confederation of Icelandic Enterprise (SA) signed a four-year collective agreement just after midnight last night, RÚV reports. The airport workers’ strike proposed by VR Union and the lockout proposed by SA have therefore been called off. VR Union’s chair Ragnar Þór Ingólfsson stated that the agreement is acceptable given the circumstances, but that the matter is not over yet.

“It’s been a long and hard period for us and it’s very gratifying that we’ve gotten this long-term collective agreement,” stated Sigríður Margrét Oddsdóttir, CEO of SA. The two parties signed an agreement based on a proposal submitted by the State Mediator yesterday. “The mediator submitted an internal proposal that was based on a certain special wage agreement resulting from the main wage agreement that we were finalising and which the negotiating committees of both parties agreed to,” Sigríður added.

Shift changes for airport workers

She stated that the wage hikes for VR Union members are the same as those that have been agreed on with other unions. They include a general percentage-based increase of 3.25% this year and 3.5% for the next three years.

Ragnar stated that the agreement includes an article on changing the shift schedule for Keflavík Airport workers, the group that had been set to strike later this month if an agreement had not been reached. Changes to the group’s shift schedule are to be agreed on by December 20 with the help of the State Mediator.

Last major signing in a series of negotiations

The collective agreement between VR and SA was the last of a series of collective agreements being negotiated on the Icelandic labour market for the coming years. VR Union also signed a collective agreement this morning with the Icelandic Federation of Trade (Félag atvinnurekenda) with terms similar to those of their agreement with SA.

Another Collective Bargaining Agreement Signed

A new collective bargaining agreement was signed yesterday, Vísir reports, between the Confederation of Icelandic Enterprise (SA) and the labour unions The Electrical Industry Association of Iceland, the food and restaurant union Matvís, the Icelandic Union of Marine Engineers and Metal Technicians, and the printers’ union Grafía.

Stability and gratitude

The contract worked out between the parties is to last four years, and outlines terms similar to the agreement recently approved by the labour union Efling and others last week.

SA director Sigríður Margrét Oddsdóttir told reporters that the aim of the agreement was for “economic stability”, adding, “We are just incredibly proud and grateful after the day today.”

Ball in their court

Kristján Þórður Snæbjarnarson, the director of the The Electrical Industry Association of Iceland, was more guarded in his response to the contract.

While saying that it was indeed good news that their workers had gotten new wage agreements, a pay rise is not the only thing that affects economic stability and keeping up with the cost of living.

“It is also extremely important that interest rates and inflation reduce,” he told reporters, adding, “The ball is in the court of the Central Bank, companies in this country, and state and local authorities to hold back on tariffs and participate in this project with us. That, of course, is what matters. We send the ball their way.”

More negotiations to come

The next major round of labour negotiations is to take place between SA and VR, which is the labour union of employees in commerce, services and offices.

Talks between SA and VR have been contentious, and were recently broken off, but talks between the two parties are set to resume tomorrow.

Efling Union Workers to Vote on Strike

Strike efling hotel workers union

Janitorial staff in Efling Union will vote on strike action starting this Monday. If approved, cleaners in the Reykjavík capital area would strike on March 18. Efling representatives say the Confederation of Icelandic Enterprise (SA) breached trust in ongoing collective agreement negotiations by reopening salary negotiations with other unions.

Efling is Iceland’s second-largest worker’s union. Efling’s negotiating committee did not attend a meeting at the State Mediator’s office yesterday and are not expected to attend today’s meeting between negotiating parties. Efling representatives assert that SA offered other unions with the Confederation of Labour (ASÍ) higher salary hikes than previously negotiated without consulting with Efling.

Read More: Unions Split on Wage Negotiations

If approved, the strike would involve around 1,000 workers, according to Sólveig Anna Jónsdóttir, chairperson of Efling.

Wage Negotiations Advance, Media Ban Imposed

State Mediator Ástráður Haraldsson

Union and business representatives have restarted wage negotiations after a break of almost a week, Vísir reports. The parties have agreed on a basis for the negotiations, according to State Mediator Ástráður Haraldsson. One union leader said IKEA’s price reductions are a good contribution to the negotiations.

Media ban imposed

The negotiations impact the working conditions of some 93% of workers on the general labour market in Iceland. After signs of progress in the negotiations appeared, Ástráður banned all parties from speaking with the media, a move often instituted when an agreement seems nigh.

Price reductions and freezes a positive contribution

Vilhjálmur Birgisson, Chairman of the Federation of General and Special Workers in Iceland, did, however, speak to a Vísir reporter on the price reductions announced by IKEA in Iceland, calling them a positive contribution to the negotiations. The reductions could help in bringing down inflation and interest rates, “which are making Icelandic households miserable,” he stated.

Vilhjálmur pointed out that BYKO has also decided to freeze prices for six months, and encouraged other businesses to follow the two companies’ example.

Cabinet to Receive 6% Raise Amid Inflation and Interest Hikes

Prime Minister of Iceland Katrín Jakobsdóttir

Iceland’s government ministers and top officials are set to receive a 6-6.3% raise from July 1, RÚV reports. Union leaders and opposition MPs have called for the salaries to be frozen to show solidarity with the public, who is facing a cost-of-living crisis. Prime Minister Katrín Jakobsdóttir says there are no plans to reduce or stop the pay hikes to ministers, which are laid out in legislation.

Food prices in Iceland have risen sharply over the past few months, as the Central Bank has raised interest rates on mortgages and loans, putting many households in a tight spot. Union leaders have called on the government to respond with measures to help low-income families whose finances are strapped.

In light of the approaching salary hikes, the President of Iceland’s Confederation of Labour (ASÍ) has called on the government’s top officials to show responsibility by not accepting higher raises than workers received in the newly-negotiated collective agreements. The highest wage hikes among workers this year amount to ISK 66,000 per month [$475, €442].

“I very much understand the discontent within society because of this,” stated opposition MP Þorhildur Sunna Ævarsdóttir, member of the Pirate Party. “Especially because the message from those in power in this country have time and time again been that the public needs to accept poorer conditions and bear the costs due to inflation.”

Cancelling raises would require an amendment bill

Speaker of Alþingi Birgir Ármannsson has stated that legislation would need to be amended in order to stop or reduce the salary hikes. With Parliament set to recess for summer vacation on June 9, Birgir says it would be possible to amend the law, but only if there were broad agreement on the issue. No amendment bill has been introduced at this time.

Prime Minister Katrín Jakobsdóttir has stated there are no plans to cancel or reduce the raises and called the current legislation on raises for government officials an improvement from the previous arrangement. “I think that the legislation we have, which is based on ideas developed in a working group under my leadership at that time, I think it’s a good system,” Katrín told RÚV. “This system is transparent and it guarantees that we do not lead salary development, but follow the salary development of government employees. And it’s completely predictable, too, which it was not with the old system with the old wage council.”

Those who are set to receive a raise on July 1 according to the current legislation are Iceland’s President, government ministers, ministry secretaries, judges, public prosecutors, police commissioners, the state mediator, the governor of the Central Bank of Iceland, and members of parliament.

According to the legislation, the current salary of Iceland’s President is ISK 2,985,000 [$21,450, €20,000] per month. Members of Parliament receive a monthly salary of ISK 1,101,194 [$7,910, €7,375]. As Prime Minister, Katrín Jakobsdóttir currently receives a monthly salary of ISK 2,021,825 [$14,530, €13,540]. Recent figures from Statistics Iceland stated that the median income in the lowest income quintile was ISK 343,000 per month [$2,460, €2,300].

Why are the prices so high in Iceland?

Why is Iceland so expensive?

Iceland is relatively expensive compared to many other countries but on the other hand, the average salary is higher than in most other countries. There are several reasons for Iceland’s high prices, including a small market, oligopoly, high reliance on imports, geographical isolation and high import taxes and tolls. Not everything is expensive in Iceland, however, the most notable exception is energy, including electricity, water and geothermal power, which is relatively cheap. That is an advantage for Iceland during the current global energy crisis.

Iceland’s geography means that most goods are imported and products need to be transported on container ships or by air. The small market only has a handful of companies handling imports to Iceland. Two companies take care of most shipping and the air cargo transport industry also has limited competition. The climate doesn’t help, as harsh weather conditions in winter can negatively impact transportation. 

Oligopoly is a wide-ranging issue across sectors. Most Icelandic grocery stores are run by one of two companies, Hagar and Festi with a single location of American Costco as their main competitor. The same two companies own most gas stations and Costco runs one station, which also happens to be the cheapest alternative for car owners. And the list goes on.

Taxes in Iceland are high, including import taxes, and again, it’s due to Iceland’s small market and population. However, the state maintains a strong infrastructure, e.g. a wide-ranging welfare system and an extensive road network. When fewer people shoulder those costs, it means higher taxes per person. The state also levies heavy tolls on imports in order to maintain local production, for environmental, social, and safety reasons. Local production, e.g. food production, does not have the same economies of scale as producers in other countries and therefore cannot keep the prices down to the same level. In order to support local production, protective tariffs are used on imports. These reasons seemed validated e.g. during the Covid pandemic when global supply lines were disrupted.

Iceland’s small population leads to a small market making it less attractive to global companies. A good example is from the global financial crisis in 2008 when the exchange rate of the local currency ISK plummeted. McDonald’s no longer considered Iceland a feasible market to operate in, so they shut down all McDonald’s locations in the country. A side note: Some Icelanders were happy to see the American burger chain leave the country while others missed it immediately, some to the extent that the first thing they do when visiting other countries is to grab a McDonald’s burger. In a similar vein, some Icelanders have regularly complained about the lack of Starbucks, but the café chain has never seen a reason to open a branch in Iceland due to the small size of the market. 

When Costco opened a store in Iceland in 2017, there was great excitement in the air, as Icelanders were only used to local grocery stores like Bónus and Krónan, where the variety is limited compared with other countries and prices are also significantly higher. The hype was so great that a large part of the population joined a Facebook group for sharing photos and prices of products bought in Costco. When this is written, roughly 25% of Iceland’s population are members of the group (97,482 members while the population of Iceland was 387,800 at the end of 2022).

Tourism has raised prices in certain categories, most notably the housing market where the explosion of Airbnb rental availability has limited the supply of housing available for locals to rent and pushed up prices. During the pandemic when tourism dried up in Iceland temporarily, the prices of rental housing unexpectedly went down after several years of steep increases, ever since the tourism boom around 2010. The government has taken initiatives to mitigate the Airbnb effect by setting a maximum of 90 days for short-term rental per year on the same tax level as other housing rentals. If people want to rent their apartments for more than 90 days each year, they’re taxed as if they were a business in the hospitality industry.

Through the years, Iceland has had numerous vicious circles of relatively steep salary increases followed by price increases, inflation and increased interest rates. At the time of writing, we are going up with the rollercoaster, as ongoing labour talks have proven tricky to resolve. Some workers are striking in an effort to get higher wages and the Central Bank just increased the interest rates for the 11th time in less than two years to combat inflation, which will in turn increase interest rates on people’s mortgages and increase the pressure on higher salaries. 

The other side of the coin is that Iceland offers higher salaries and a relatively high purchasing power despite the high cost of living. In times of crises and rapid inflation, locals tend to do what they can to minimise such effects by reverting back to traditions from a time when tough times necessitated a more frugal way of life. For example, when the financial crisis hit in 2008, people started to buy and even make their own slátur (an Icelandic speciality from the innards of sheep, similar to the Scottish haggis). The innards of sheep also increased in popularity as the main ingredients for dinner, e.g. hearts, liver and kidneys. In times of crises, people also tend to buy more wool and the popularity of knitting goes up. Not only are woollen hats, mittens, and sweaters great for keeping out the winter cold, but the knitting itself is a pleasant, relaxing activity. Recipes for a classic fish stew (plokkfiskur) start to appear more frequently, and baking and bringing lunch packs to work or school become commonplace.

For tourists in Iceland, there are various ways to save while enjoying a great trip. For breakfast, you could get ingredients from the low-cost grocery stores such as Bónus (the cheapest supermarket in Iceland) and Krónan instead of more expensive convenience stores , e.g. oats, raisins, skyr, bread, butter, cheese, vegetables, coffee and juice. If you are taking a road trip, you can save time (and have more time to explore the country) by packing lunch to have on the way instead of eating in restaurants. When you want to eat out, these are among the more economical options in Reykjavík:

  • Mandi offers Syrian food like shawarma and falafel and is probably the most popular lunch place in Reykjavík (it has a branch downtown and in Skeifan)
  • The Noodle Station in Reykjavík is also widely popular and offers noodle soup available in three variations: chicken, beef and vegetable, along with a mix of secret ingredients
  • Café Loki downtown Reykjavík offers a nutritious and filling Icelandic lamb meat soup and fish stew with rye bread 
  • Ramen Momo produces organic fresh noodles. Most of the ingredients in their dishes are locally made
  • 101 Reykjavík Street Food specializes in local food as well as international favourites, e.g. fish & chips, Icelandic fish stew and lamb soup (kjötsúpa)

In short

To sum up the points above, these are the main reasons for high prices in Iceland:

  • Geographic isolation
  • Oligopoly with very few companies dominating various sectors
  • High taxes and import tolls
  • Small population, hence a small market
  • Many global companies don’t see the market as feasible (e.g. McDonalds, Burger King and Starbucks)
  • Tourism has increased demand in some sectors and thereby the prices, most notably in housing, with Airbnb rentals 

Despite high consumer prices, salaries are also high, which makes for a relatively high purchasing power in international comparison. Then there are various ways for people to save, including buying food in supermarkets rather than restaurants.

See also our ASK IR on the cost of living in Iceland.

Cost of Living in Iceland

Last updated in Nov. 2022. The original question is from Dec. 2015.

Q: I’ve recently been offered a job in Iceland and have been looking into the cost of living, which is quite high compared to many other European countries. Is a salary of ISK 700,000 (USD 4,800, EUR 4,600) a month enough to cover the basics?

Derek, Ireland.

A: According to Iceland Statistics, the average salary in Iceland is ISK 635,000 (US 4,370, EUR 4,200) before tax per month, so the offer you received is well above that. Income tax is 31.45% for income up to ISK 370,482. For income in the range ISK 370,483 to ISK 1,040,106, the tax is 37.95%, and for income above ISK 1,040,106, the tax is 46.25%. The personal tax-free allowance is ISK 53,916 monthly or ISK 646,993 annually. For more on taxation, visit skatturinn.is.

The average rent for a centrally located one-bedroom apartment in Reykjavík is ISK 185,000 (USD 1,270, EUR 1,220) per month. This website offers information on the cost of renting an apartment. The figures show the price per square meter in various parts of the country.

A single person can expect to spend ISK 195,000 (USD 1,340, EUR 1,290) a month on food, clothes, medical services, recreation, transport, communication, and other services. For comparable figures for families check this website.

Here is the website of Statistics Iceland that shows average household expenditure.

Based on these figures, you can accept the job offer, knowing that you’ll have more money to spare than the average person in Iceland.

VH

Government Employees Surprised by Paycheck Delay in Advance of Holiday Weekend

Merchant’s Weekend is coming up, but for many government employees, a surprising change to their payment schedule will leave them with a lot less to celebrate—or at the very least, less money to celebrate with. Fréttablaðið reports that the Financial Management Authority (FJS) has decided to exercise its right to pay salaries on the first working day of the new month, which has left numerous government employees—particularly younger individuals—in the lurch before many are planning to travel.

Merchant’s Weekend is a three-day holiday that overlaps with the first Monday of August every year. It is the biggest travel weekend in Iceland, and also a major festival weekend around the country, with the Westman Island’s Þjóðhátíð foremost on the schedule. But since Monday is a national holiday, strapped government employees’ paychecks will be delayed even longer: they will not be paid out until Tuesday, August 2.

FSJ certainly has the right, per Article 10, Act 70/1996, to pay wages on the first working day of the new month, but the authority has only exercised this right once before, that is, in May of this year. At the time, many employees thought the change in payday was a mistake. Public employees were not given much forward notice about the upcoming change in payment schedule, either—FSJ only announced the new payment date on Monday of this week.

Two Hundred and Sixty Officials Overpaid for Three Years

parliament Alþingi

Two hundred and sixty nationally elected officials, government ministers, and civil servants have been overpaid for the last three years, RÚV reports. The overpayment was a result of an error in calculating annual wage increases and amounts to a total of ISK 105 million [$785,928; €753,783], or roughly ISK 400,000 [$2,994; €2,871] per person. The recipients will be required to repay their excess salary.

Every year, the Financial Management Authority (FJS) updates the salaries of nationally elected individuals, government ministers, and civil servants in accordance with figures provided by Statistics Iceland and the Wage and Human Resources Administration. These increases are outlined in a law that was passed in 2019. However, in preparation for the wage increases for 2022, it was discovered that the wrong index has been used to determine the salaries of this group for three years, or ever since the law went into effect.

Instead of basing the wage increase for this group on the average increase in the regular wages of government employees from year to year, as is specified in the law, the benchmark for increases has been the wage index for government employees.

A total of 260 people—including President Guðni Th. Jóhannesson, members of parliament, judges, district attorneys, chiefs of police, and Central Bank director Ásgeir Jónsson—were overpaid as a result of this calculation error. They will be required to repay the excess wages, which will either be deducted in full from future salary or repaid via automatic payments over the course of 12 months.

Iceland’s Culture Industry Needs More Support

Iceland Airwaves 2018

The 2008 banking collapse and the coronavirus pandemic have impacted Iceland’s culture industry more negatively than other industries. There are 25% fewer people working in culture in Iceland today than there were in 2008. The data are from a report published by the Icelandic Confederation of University Graduates (BHM) today. BHM emphasised the importance of a government policy that increases support for the arts in order to avoid permanent damage from the pandemic.

Decrease in salary payments and employees

According to the report, there has been a sharp decline in wage payments and the number of people working in the creative industries in Iceland in recent years. There are 25% fewer people working in the culture industry now than in 2008, while the total decline in wage payments amounts to 40%. The creative industries began to decline significantly after 2013, and the contraction increased significantly after 2017.

While COVID-19 is an obvious factor, the development in Iceland’s culture industry precedes the pandemic. In the last four years, total salary payments in the media industry have decreased by around 45%; in the film industry by 41%; and in the music sector by 26%. While the development began earlier, the economic shock of the pandemic made the situation go from bad to worse, the report states.

Artists’ salaries among lowest on the market

BHM points out that most artists have a university degree under their belt. Despite their education, however, artists’ salaries were considerably lower than the average salaries of others working full time in 2020. Artists’ salaries have fallen far behind the general wage trend and now compare to the lowest salaries on the Icelandic job market. While the wage index has risen by 96% in recent years, artists’ salaries have risen by 49%.

Low wages could explain contraction in individual sectors, such as in the publishing industry. While in 2011, 5.2 books were published in Iceland per 1,000 inhabitants, that number fell to 3.4 in 2019. BHM says Iceland’s government can look to the Nordic countries as an example of how to increase support for the arts in the wake of the COVID-19 pandemic. “Otherwise,” the report states, “there is a risk that cultural industries will suffer permanent damage from the pandemic.”