This chapter examines the extent to which immigrants are finding work and using their skills on the labour market. It focuses first on the employability of migrants, comparing the situations of EEA migrants with their non-EEA counterparts. It then looks at job quality, with a focus on skills mismatches, a key issue in Iceland. It proceeds with a discussion on the rising share of migrants in unemployment, concluding with an examination of ways to combat discrimination.
Skills and Labour Market Integration of Immigrants and their Children in Iceland
Working Together for Integration
4. Leveraging the skills of immigrants in Iceland
Abstract
Employability and access to work
As already mentioned, at over 80%, employment rates of immigrants in Iceland are among the highest in the OECD, and this holds regardless of origin (Figure 4.1). In spite of this, attachment to work among migrants can vary over time and depending on their duration of stay in the country. During periods of economic bust, they tend to be among the first to become unemployed. A study on the impact of the COVID‑19 pandemic in Iceland found that immigrants’ access to work and job security was considerably lower than that of their native‑born counterparts (Karlsson, 2022[1]). This, along with high overqualification rates, implies a need to ensure that migrants have opportunities to not only find work quickly upon arrival, but also providing pathways to make sure that immigrants are sustainably integrated into the labour market, and in jobs that make proper use of their skills.
Figure 4.1. Migrants in Iceland exhibit high employment rates
Employment rates in selected European OECD countries, 15‑64 year‑olds, pooled 2021‑22
Note: For Iceland, 2021 data were not available. 2020 data were used instead.
Source: EU-Labour Force Survey 2021‑22 pooled (2020 instead of 2021 for Iceland).
Non-EEA migrants fare comparatively well on the labour market
In most European OECD countries, EEA-born immigrants exhibit higher employment rates than their non-EEA counterparts. While the former have mainly come for employment, the latter arrive predominantly for family and humanitarian reasons in most countries. Yet, as seen above, employment rates among non-EEA migrants in Iceland remain comparatively high, at rates similar to those of their EEA-born counterparts.
What is more, whereas non-EEA migrants with a low level of education typically exhibit low employment rates, with an EEA average of 59%, in Iceland their employment rates are the highest among European OECD countries, at 78% (Figure 4.2).
Figure 4.2. Migrants coming from outside the EEA are highly active on the labour market, irrespective of their education level
Employment rates by education and origin, pooled 2021‑22
Source: EU-LFS 2020‑22.
In fact, low educated non-EEA migrants in Iceland exhibit similar employment rates to that of their low educated EEA-born peers, and the same applies to medium educated migrants. However, there is an employment premium associated with being an EEA migrant for highly educated migrants. In Iceland, highly educated EEA migrants exhibit employment rates of nearly 90%, 10 percentage points higher than that of their non-EEA counterparts. Both rates are at similar levels as the EEA average (87% and 78%, respectively).
The high employment rates among non-EEA migrants in Iceland is partly explained by the group’s composition. Iceland has in recent years seen a large increase in humanitarian arrivals, with a total of 3 455 permits granted in 2022, up from 160 in 2018. This rise has primarily been driven by an uptick in arrivals from Venezuela since 2019, and Ukraine since 2022. These are two groups with high levels of educational attainment and employment rates compared to other humanitarian migrants. Figure 4.3 shows the status of humanitarian arrivals in tax data by year of arrival, since 2010.
Figure 4.3. Recent humanitarian arrivals have integrated quickly
Employment status of migrants on humanitarian permits in Iceland, by year of protection granted, 2010‑22
Note: Employment status is shown as of year’s end 2022. “Not in income tax data” refers to any of the following: individuals in education; individuals who are recipients of social services via the co‑ordinated reception of refugees scheme; and individuals who are dependent on their spouses.
Source: Ministry of Social Affairs and Labour (2023[2]), Grænbók í málefnum innflytjenda og flóttafólks: Stöðumat og valkostir.
Humanitarian migrants who arrived in 2018‑22 have exhibited favourable outcomes on the labour market despite their short stay thus far. Arrivals granted protection in 2018‑19 were 10 percentage points more likely to be in employment than those granted protection between 2010‑17. Among arrivals from 2020 and 2021, a large part of whom came from Venezuela, 3% were unemployed in late 2023, 59% were in employment, while a third was still in the co‑ordinated reception of refugees scheme or in education. The group of arrivals in 2022, most of whom were Ukrainians, have high participation on the labour market as well, with 38% already in employment a year later, 60% being in the reception scheme or in education, whereas only 0.5% were in unemployment (Ministry of Social Affairs and Labour, 2023[2]; Directorate of Immigration, 2024[3]). Many of those receiving social services will enter the labour force in the coming years as the three‑year support provided by the co‑ordinated reception of refugees comes to an end. It is likely that the employment prospects of humanitarian migrants will remain high in the short term, given the group’s composition. However, this outlook also hinges on various factors, most notably labour market conditions.
The quick integration of these groups into the labour market is partly attributable the high formal education levels of migrants from Ukraine and Venezuela, and one must be careful when drawing conclusions from this experience regarding future non-EEA migrants. Given the profiles of these groups and the likelihood that their share among humanitarian arrivals will decrease in coming years, it is unlikely that such high levels of employment among humanitarian arrivals will be sustainable in the long-term.
Employment among migrant women is high by international standards…
Migrant women in Iceland exhibit particularly high employment rates in comparison with their peers elsewhere in the OECD (Figure 4.4). The gap in employment rates between foreign-born women and foreign-born men is low, at 2 percentage points, compared to an average of 14 points in the EEA. Similarly, the gap with their native‑born peers remains low at 1 percentage point, compared to an EEA average of 5 points.
Figure 4.4. Gender gaps in employment are very low in Iceland
Employment rates in selected OECD countries, by origin and gender, pooled 2021‑22
Source: OECD Secretariat calculations based on EU-LFS.
These findings suggest that there are relatively few structural obstacles preventing immigrant women from participating in the labour market, although the fact that many have arrived for employment rather than family certainly also plays a role. Women are still overrepresented among family migrants, counting 24% among all female migrants in the Workers in Iceland 2024 survey, against 15% of men (Figure 4.5).
Figure 4.5. Women are overrepresented among family migrants
Composition (share) of migrants by gender and reason for migration
Source: Varða (2024[4]), Workers in Iceland 2024 survey.
…although highly educated women with foreign diplomas face obstacles
Education naturally plays a large role in employment outcomes across OECD countries. However, it is not only the level of education which affects employment among migrants, but also the origin of their credentials. In Iceland as elsewhere, highly educated migrant women who received their degree outside of their host country face a much larger employment penalty than their male peers. On average, migrant women in European OECD countries who received their diploma abroad are 13 percentage points less likely to be employment than their counterparts who received their diploma in the host country (Figure 4.6). This is a trend that is apparent across all countries for which data is available, whereas there is no such association for men. While there are many factors that may contribute to this disparity, the most plausible is the different labour market situations of those women who arrived as family migrants versus those who did not. While the latter group sees high levels of employment, the former are more likely to give up work to take care of their families. Men are more likely to arrive as labour migrants, whose employment trajectories are more secure. Indeed, labour force survey analysis of European countries reveals that these effects on employment largely disappear when reason for migration and level of education are controlled for.
Figure 4.6. Like elsewhere in Europe, migrant women with a degree in the host country enjoy better outcomes on the labour market
Difference in employment rates between high-educated migrants, by gender and country where diploma was obtained, pooled 2021‑22
Source: OECD Secretariat calculations based on EU-LFS.
Remedies for the observed disparity in employment include access to affordable childcare and ensuring that highly educated family migrants – which in the case of Iceland are a relatively large and growing group due to the high numbers of Ukrainians and Venezuelans – have an opportunity to get their credentials recognised. For many family migrants arriving from a different culture to a new country, the availability of such services is not readily apparent. In response, many OECD countries have begun offering counselling and referral services for newly arrived family migrants, especially at sub-central government levels (Box 4.1). While such community services do exist in Iceland, notably with the Bridge builders programme (see Chapter 5) in Reykjavík, they are generally not available outside the capital city.
Box 4.1. Referral services for newly-arrived family migrants
In the German federal states of Baden-Württemberg and Berlin, so-called “family visitors” or “welcome visitors” visit families at their homes and inform them about the services available in their neighbourhood. The objective is to motivate parents to use these services, including early childhood education and care. Visitors work on a full-time paid or part-time voluntary basis and are previously trained and informed about all local social services available for families and children.
Italy relies on intercultural and linguistic mediators as a key feature of its integration activities. Such mediators often target family migrants, either directly or indirectly. They are often migrants themselves and work to facilitate relations with public bodies, such as schools, hospitals, and police. The training of cultural mediators has now been enshrined in law and formalised, although the guidelines are not binding. Training courses for mediators have emerged in all branches of the education system, including in provincial vocational training courses and the university system.
Korea runs a network of local Multicultural Family Support Centres, which provide counselling to support family migrants’ early settlement and adjustment to life in Korea. Counselling covers a broad range of topics including residence, finance, employment, language training, child education, childcare, family affairs and domestic violence. Counselling is offered at centres and via home visits in 12 languages with the help of trained translators, themselves former marriage migrants.
Source: OECD (2017[5]), Making Integration Work: Family Migrants, Making Integration Work, https://doi.org/10.1787/9789264279520-en.
Migrant mothers in particular have low employment levels and face structural obstacles to employment in many countries (OECD, 2023[6]). Unfortunately, data on the situation of mothers on the labour market is not available in Iceland. Unlike all other participant countries in the EU-LFS, Iceland does not collect data on the presence of children in households as part of their labour force surveys. This makes it impossible to analyse the specific labour market situations of migrant – and native‑born – mothers, who often face different obstacles than their male and child-free peers.
Data on part-time employment show that migrant women are more than twice as likely to work part-time than migrant men, although not as much as native‑born women (Figure 4.7, Panel A). However, migrants are more likely to work part-time involuntarily than their native‑born peers – meaning they would work full-time if they could – although not as much as migrant men (Figure 4.7, Panel B). Many migrants are thus trapped in involuntary part-time work, a trend seen across OECD countries. The share of recent migrants in involuntary part-time jobs is twice that of the native‑born in the EEA, and settled migrants remain more likely than the native‑born to be working part-time involuntarily (OECD/European Commission, 2023[7]).
Figure 4.7. Migrants are more likely to work part-time involuntarily
Share of part-time workers by sex and place of birth, 2024 (left panel) and share of involuntary part-time workers by sex and place of birth, pooled 2021‑22 (right panel)
Source: Varða (2024[4]), Workers in Iceland 2024 (left panel); EU-LFS (right panel).
Job quality
Within a highly skilled economy, migrants are overrepresented in jobs below their qualification levels
Iceland has a highly skilled economy, with over half of all jobs classified as high-skilled. However, migrants in Iceland tend to concentrate in the lower skilled sectors of the economy (Figure 4.8). These include namely construction, fisheries, tourism, and manufacturing. These are all sectors of significance to the Icelandic economy, with manufacturing accounting for nearly half of all goods exports and manufacturing over a third in 2021, while tourism accounted for a third of services exports in the same year. The construction sector has also seen rapid growth in the past decade, growing at an annual rate of 0.5% in terms of employment – to a large extent driven by immigration (OECD, 2023[8]).
Figure 4.8. Migrants are overrepresented in low-skilled sectors
Share of foreign-born in employment by economic sector of activity, 2023 or latest year available
Note: The public and manufacturing sectors data are from 2023, the rest from 2022. The dotted line represents the share of foreign-born in the labour force.
Source: Statistics Iceland.
Indeed, the tourism and construction sectors, both key sectors in the Icelandic economy, have seen reforms to improve the business climate in recent years and regulations have been eased (OECD, 2023[8]). This may have contributed to a further over-representation of migrants in these sectors.
The employment of immigrants in high-skill sectors is considerably lower than that in the sectors mentioned above. The information and communication technology (ICT) sector is a striking example, where immigrants account for less than 10% of workers in the field. With a recent amendment to the Foreign Nationals’ Act, this may change. Residence permit regulations have now been relaxed for foreign experts, extending the time limit to four years instead of two, in addition to making their permits less dependent on their employer. Upon graduation from an Icelandic university, foreign nationals may now renew their residence permit for the purpose of seeking employment for up to three years, up from six months previously (Althing, 2023[9]).
Immigrants also remain underrepresented in the public sector. Iceland’s public sector accounts for nearly a third of all employment in the country, among the highest shares in the OECD. While the public sector is rarely an entry sector for new arrivals, the underrepresentation has negative implications. First, migrant employment in the public sector enhances diversity within public institutions, making them more representative and likely also aware of the needs of the communities they serve. Second, how the wider public perceives immigrants and their children depends in part on their visibility in public life and the contexts in which they become visible. Through professions such as teachers, police officers, or public administrators, they can act as role models to their younger peers (OECD, 2021[10]).
Public sector employment among migrants stood at 14% in 2023 (versus 30% for the native‑born), compared with 16% in 2013.1 Migrant public sector employment remains below that of its Nordic neighbours, most of whom have adopted strategic policies to foster immigrant employment in the public sector. For example, Denmark and Norway have benchmarks in place to ensure a roughly proportional representation of people with a migrant background in jobs at the state and municipal levels. Denmark has set up a regular employment statistics watch for employment in the public sector, not dissimilar to the dashboard of gender statistics operated by the Icelandic Government – but including statistics on persons with a migrant background (OECD, 2023[8]). In Iceland, there has not yet been specific action targeted at improving immigrant employment in the public sector.
Migrants are dependent on their social networks in finding employment
Migrants often struggle finding quality employment due to a lack of social networks in the host country (OECD/European Commission, 2023[7]). In Iceland however, only 7.5% of surveyed migrants who experienced overqualification claimed a lack of social networks as the primary reason for not finding a job that fits their skill level. In fact, regression results indicate that migrants are 64 percentage points more likely to find employment through their social networks relative to the constant, the largest coefficient among characteristics included in the model (Figure 4.9). However, most jobs acquired through social networks are of a lower skill nature – getting a job through social networks is associated with an increase in the chance of finding low-skill employment by 22 percentage points relative to the constant, while it is associated with a decrease in the likelihood of finding high-skill employment by 35 points.
Figure 4.9. Dependence on social networks may contribute to migrant overqualification
Observed association (in percentage points) between various characteristics and finding a job through social networks
Note: Stars next to labels indicate statistical significance.
Source: Varða (2024[4]), Workers in Iceland 2024 survey microdata.
Language skills are key to finding decent work
Among survey respondents who self-assess to be overqualified for their job, 18% claimed discrimination to be the primary reason for not finding employment suitable to their skill level, while 14% noted their overqualification as voluntary. However, a full 36% noted a lack of language skills as the primary reason for their overqualified status.
There is a potential link between migrants’ established social networks in the country – often predominantly with other migrants – and their lack of language skills. Because they can find jobs easily, there is less of an incentive to learn the language. The fact that most people can speak English is another. As a result, they are at increased risk of overqualification, which can threaten long-term career prospects, waste potential, and prevent social mobility. These effects may not be readily apparent in the early years following arrival, but raising awareness of them can be an important component in getting people to learn the language.
Public support and re‑integration efforts
Immigrants are overrepresented among the unemployed, accounting for nearly half of unemployed persons in 2023 (Figure 4.10). The share of immigrants among the unemployed has nearly tripled in the decade prior to 2023, while immigrants’ share among the total population rose from 10% to 20%. The general decline in the labour market situation of immigrants merits special attention, requiring targeted public support and re‑integration efforts.
Figure 4.10. Immigrants’ share among the unemployed has steadily increased in the last decade
Unemployment register composition by place of birth, annual average 2011‑23
Note: *Numbers for 2023 are from January to October.
Source: Directorate of Labour.
Active labour market policies can be better tailored to immigrants’ needs
As mentioned, the Directorate of Labour is the public employment service in Iceland, providing general services to jobseekers, in addition to registration, skill assessment, counselling and job placement as well as co‑operation with other service providers on resources and labour market measures (see Chapter 2). The Directorate of Labour is also in charge of providing active labour market policies (ALMPs) to jobseekers.
The ALMPs offered by the Directorate of Labour vary and can be split into five categories. General programmes encompass several courses and trainings offered by both the Directorate of Labour and lifelong learning centres, such as job search and motivation courses, workshops and various clubs. Short courses include Icelandic language courses, commercial driving tests, and as of 2023, computer courses. Training periods are composed of longer, more formal trainings. These include evening courses or part-time education in upper secondary institutions, university or university gateway programmes, usually for one semester. Vocational training includes on-the‑job training, rehabilitation courses, and business concept development. Lastly, wage subsidies are offered to employers that are willing to offer individuals job placements under certain conditions, with the Directorate of Labour covering part of the worker’s salary.
Immigrants’ participation in ALMPs by category varies widely and has changed considerably over time (Table 4.1). Most foreign-born registrations in ALMPs between 2011‑21 were for short courses, most of which were language courses (which unfortunately cannot be distinguished from other short courses), with general programmes and wage subsidies also constituting significant shares. Training periods, in the form of more formal educational offers, and vocational training remained mostly unused among job seeking migrants. Patterns of use among the native‑born population were more diverse, with vocational training being the only category sought by less than 10% of those seeking a job during the period. Wage subsidies were a substantial part of the ALMP offer during the COVID‑19 pandemic in 2021, but tentative figures for 2023 suggest that they have since then converged to previous usage levels.
Apart from the COVID‑19‑related uptake of wage subsidies, immigrants are largely underrepresented in the main measures, especially once considering that the majority of short courses are language‑related. The reasons for the low take‑up of ALMPs among migrants is unclear. It should be a priority to assess the underlying reasons, and to take remedial action.
Table 4.1. Migrants account for a rising share of ALMP users
Share of users of active labour market policies (ALMPs) by place of birth and ALMP category, 2011 and 2021
Source: Directorate of Labour.
Data on outcomes by category are unfortunately only available for unemployment status and not for employment. These suggest that measures tend to be less effective in getting migrants out of unemployment than the native‑born, as shown in Figure 4.11. Data for all categories of ALMPs was not available, such as for language courses, having been lumped under the category “other courses”. They can however be expected to account for a large part of the category for the foreign-born. General programmes, such as job-search training seem to have a limited impact on employment among the foreign‑born, at least in the short term. For the native‑born, 6% of individuals taking such courses were unemployed 90 days after concluding the course, and 12% after 180 days – against 8% and 27%, respectively, for the foreign-born. Vocational training seems to have a stronger effect on employment among the foreign-born, however. A roughly equal share of those taking such courses were unemployed after 90 days compared to 180 days, at 15%. Other courses, most of which include language courses for migrants, have the highest shares of unemployment after 90 and 180 days. This is not surprising given the long-term investment that language courses are, and the benefits are more likely to be reaped over time. Looking at outcomes after 90 and 180 days of taking such courses will thus tell little about their impact.
Figure 4.11. Vocational training sees the best outcomes among ALMPs for migrants in Iceland
Share of ALMP users in unemployment 90 and 180 days following the measure’s completion
Source: Directorate of Labour data.
Language courses merit further monitoring and evaluation, especially given the Directorate of Labour’s recently expanded role. Since 2023, the Directorate of Labour is not only charged with providing language courses for the unemployed, but also to humanitarian migrants receiving assistance through the co‑ordinated reception of refugees scheme. Given this enlarged role, and the potential impact of learning the language on factors such as finding quality employment and overall integration into society, it seems appropriate to start evaluating the outcomes of language learning services provided by the Directorate of Labour, something currently not done.
Unemployment numbers of those on wage subsidy programmes – 27% after 90 days and 36% for the foreign-born – remain high, in relative terms. An extensive study on the impact of ALMPs on immigrant employment has suggested that wage subsidies are the only type of ALMP that has a significant impact – although language courses were not included in the study (Butschek and Walter, 2014[11]). In Iceland, wage subsidies remained a small part of the ALMP offer before the COVID‑19 pandemic, with 12% of native‑born and 8% of foreign-born jobseekers making use of such schemes in the decade leading up to the pandemic. In 2021, the Icelandic Government rolled out a large wage subsidy scheme which was used by half of all jobseekers in the year, from which the native‑ and foreign-born benefitted equally. However, by 2023, use of wage subsidies had dropped to 19% of all ALMPs used in the year.2
Although immigrants were more affected by the COVID‑19 shock, the large‑scale public response proved relatively inclusive
While the COVID‑19 crisis was unique in nature, it provides several lessons. The Icelandic economy recovered relatively slowly from the COVID‑19 crisis. Between Q4 2019 and Q2 2022, the cumulative growth in GDP (1.9%) was smaller than the OECD average (2.8%). Iceland recorded one of the slowest recoveries in employment rates among all OECD countries, linked to a particularly large initial fall as the key tourism sector shut down. Immigrants, who are overrepresented in labour-intensive service sectors such as the tourism sector, were among the most affected by the increase in unemployment.
Iceland’s response to the crisis included a broad emphasis on job retention schemes and wage subsidies with broad eligibility, rather than explicitly targeted support for vulnerable groups (OECD, 2023[12]). Like other countries, Iceland operated a major job retention scheme – the so-called hlutabótaleið (partial reduced unemployment) – between March 2020 and May 2021. The scheme allowed employers and employees to enter into an agreement in which the employee reduces their working hours, and in turn, the employee received unemployment benefits corresponding to the reduction in hours. The main purpose of the scheme was to allow the employer and the employee to maintain an employment relationship during the recession (Directorate of Labour, 2023[13]). While take‑up of job retention support remained slightly lower than the OECD average (18% of dependent employment compared to 20%), it was nearly twice that of the average in the other Nordic countries, mostly due to less onerous financing requirements for firms (OECD, 2023[12]).
Take‑up among the foreign-born population was higher than among the native‑born. While accounting for 17% of those in employment during the period, foreign-born individuals received 27% of job retention payments. This was associated with the concentration of migrants in heavy-hit sectors.
Eligibility requirements for job retention support were widened early on in the pandemic, to the benefit of foreign-born workers. The receipt of unemployment benefits while on job retention support was not subject to standard eligibility requirements, allowing migrants to use the scheme indiscriminately. That included notably non-EEA citizens on temporary work permits, who are not covered under the Act on Unemployment Insurance. Without these changes, migrants would have fared worse as many working in the weakened tourism sector would have entered unemployment. Furthermore, job retention support for migrants may have contributed to the strong recovery of the tourism sector after the pandemic.
The second major component of the Icelandic labour market recovery was a substantial emphasis on wage subsidies. The “Let’s Get to Work” (Hefjum störf) wage subsidy programme was introduced in April 2021 and ran until end of December 2021, with public funds covering the majority of wage costs for up to six months per employee under the scheme. Most of the subsidies went to private sector employment, although the scheme also covered jobs in the public and non-profit sectors. Like in the other Nordic countries, workers using the scheme were also entitled to unemployment benefits (OECD, 2023[12]). By end of year 2021, 7 900 jobs had been created on the basis of wage subsidies, with the Let’s Get to Work scheme accounting for 40% of the total and other wage subsidies accounting for the rest. A total of ISK 15.1 billion (EUR 120 million in 2023 prices) was allocated to wage subsidies in 2021 and 2022, exceeding earmarked funding due to high demand. Demand for wage subsidies under the Let’s Get to Work scheme had been twice as high expected, and demand for regular wage subsidies had increased 20‑fold compared to other years (Althing, 2021[14]).
The Directorate of Labour estimated that 20‑25% of those employed under a wage subsidy in 2021 went back into unemployment as their contract expired (up to six months). Although information by nationality or country of birth are not available and evaluations are absent, aggregated unemployment data provides some insights. As wage subsidies became available in Q2 2021, unemployment quickly plummeted for the native‑ and foreign-born alike, with slightly higher reductions in unemployment among the latter group (Figure 4.12). In the second half of 2021, changes in unemployment became less favorable for the foreign-born and unemployment for the group increased for three successive months at the end of the year. A partial explanation for the observed disparity may be that migrants were less likely to be kept on as their initial contracts under the scheme expired. There is a clear divergence in changes in unemployment around five months following the scheme’s launch, suggesting that immigrants may have struggled keeping their jobs following the wage subsidy. However, after the scheme ended, migrant unemployment saw a greater decline than that of the native‑born, which could partially be explained by those entering work who were initially laid off from their wage subsidy contracts around year’s end.
Figure 4.12. Foreign-born unemployment rose quicker as wage subsidies expired
Change (%) in the monthly unemployment rate by place of birth, Q4 2020–Q2 2022
Note: Dotted lines mark the start/end of the Let’s Get to Work wage subsidy scheme.
Source: Directorate of Labour monthly labour market reports.
For future crises, and for the general development of ALMPs and other policies, impact evaluations of major government programmes will be necessary to ensure the efficient use of public funds. This requires up-to-date data, breakdown by country of birth, and systematic data exchange between relevant institutions. Denmark, Norway and Sweden have all undertaken such analyses with success, while Iceland and Finland remain the only Nordic countries not to have done so (OECD, 2023[12]), in spite of the existence of a register data system which would in principle be capable of providing such information.
Language courses for jobseekers require tailoring
During the pandemic, Iceland prioritised job retention schemes and wage subsidies over other ALMPs, decreasing the share of spending on ALMPs compared to 2019 levels (OECD, 2023[12]). While there is strong evidence of the positive effect of wage subsidies on immigrants’ employment outcomes, the heavy reliance on wage subsidies during the pandemic may have come at the cost of developing other ALMP schemes which could have benefited immigrants, such as language training.
Although thorough analyses of the effect of language training on immigrant employment are scarce, research has revealed significant and positive long-term effects on employment (Clausen et al., 2009[15]; Kennerberg and Åslund, 2010[16]). The impacts of language training are particularly pronounced for those with the lowest language skill levels and the weakest labour market attachment (Kiviholma and Karhunen, 2022[17]). However, while the effect of wage subsidies on employment outcomes is also strong, particularly in the short term, negative lock-in effects may arise when participating in both language courses and wage subsidies simultaneously (Clausen et al., 2009[15]). Accordingly, offering wage subsidies and quality language learning to jobseekers may each help alleviate foreign-born unemployment, with the appropriate option being dependent on each individual and their circumstances.
An example of an initiative combining language and other training was the Directorate of Labour’s “Education as an Opportunity” (Nám er tækifæri) initiative, on offer from early 2021 to mid‑2022. The initiative allowed long-term unemployed individuals to take part in one semester of full-time study at vocational, higher education and lifelong learning institutions while continuing to receive unemployment benefits. The initiative was expected to engage around 3 000 participants, but take‑up proved far lower, with less than 1 500 taking part in the scheme. The majority of participants were migrants taking part in Icelandic lessons at lifelong learning centres, upper secondary and higher education institutions – such as the University Gateway programme at Bifröst University. However, feedback from stakeholders involved in the courses indicated that dropout was common, partly because of very heterogenous skills levels among participants.
Indeed, heterogenous course grouping in language training may increase course dropout rates for those at either end of the skills scale. Migrants are a diverse group with different starting points, influenced by several different factors such as age, gender, family situation, language level, and category of migration. This heterogeneity translates into diverse needs with respect to language and other forms of learning, and it is important to be able to operate different policy levers so that each type of migrant has the potential to succeed. Most countries have recognised that no “one‑size‑fits-all” trajectory exists, and 28 OECD countries now offer programmes specifically tailored to migrants’ needs, with varying offers for different groups (OECD, 2023[18]).
In the past, many unemployed migrants participated in language courses – 89% of unemployed migrants in 2011 had taken courses in Icelandic (Wojtynska, Skaptadóttir and Ólafs, 2011[19]). This somewhat dated study also found that the courses did not provide unemployed migrants with the language skills needed to sustainably integrate into employment. As the structure has not changed much since, this puts into question the quantity and quality of language courses offered to unemployed migrants. Jobseekers are referred by the Directorate of Labour to a relevant language provider, from which they are entitled to two language courses (80‑120 lesson hours in total) free of charge – only sufficient to reach an A1 level of Icelandic, assuming a beginner’s starting point.
While the system is a modular one – insofar as courses are split according to the CEFR framework – other countries have implemented more advanced and personalised language courses. Germany provides an example, offering publicly funded, specialised schemes with catch-up and intensive courses as well as the possibility to attend additional lesson-hours if participants fall behind. An evaluation of the scheme found significant improvement in terms of language skills, employment, and other integration outcomes linked to differentiated training (Schuller, Lochner and Rother, 2011[20]). In Denmark, each individual sets a target level of Danish which increases as the migrant’s education level increases. For example, those migrants in Danish 3 aim to achieve a level of C1, which is necessary to access higher education in Denmark. Successful learners in the lower tracks have the opportunity to progress to the next track if they choose (OECD, 2023[18]).
Self-employment among immigrants is still rare, but entrepreneurial initiatives have recently become available to migrants
Self-employment can serve as a means to avoid marginalisation in the job market. Moreover, when successful, it can offer significant economic opportunities for both immigrants and the host country’s society. In spite of some increase over the past decade, Iceland has still one of the lowest self-employment rates for immigrants in the OECD, well below the rate of the native‑born which is also not high in international comparison (Figure 4.13). This reflects the recent and work-related nature of most migration to Iceland, as most immigrants have a job as a wage‑earner upon arrival, and self-employment only becomes an option later, often with a view of avoiding marginalisation in the labour market following unemployment.
Figure 4.13. Self-employment is uncommon in Iceland, particularly among migrants
15‑64 year‑olds in self-employment, excluding those in the agricultural sector and those in education, by place of birth, 2021
Source: OECD/European Commission (2023[7]), Indicators of Immigrant Integration 2023: Settling In, https://doi.org/10.1787/1d5020a6‑en.
Iceland is one among several OECD countries which offer start-up incentives to jobseekers. Start-up incentives provide support to jobseekers interested in starting their own business and becoming self-employed. However, these account for a very small fraction of overall ALMP expenditure. While initially limited to nationals, as the pandemic hit, the Directorate of Labour expanded the target group of start-up incentives to include jobseekers with foreign nationality. The use of start-up incentives counted on average 6 500 and 6 000 individuals in 2020 and 2021, respectively, up from 2 600 in 2019 (OECD, 2023[12]). Detailed data with disaggregation by country of birth is unfortunately not available.
The Directorate of Labour, in co‑operation with the Ministry of Higher Education, Science and Innovation, also offers so-called Innovation Grants (Nýsköpunarstyrkur), which are wage subsidies for innovative employers such as start-ups. Employers are entitled to a grant corresponding to that of the basic unemployment benefits and an additional pension fund contribution, for 6 or 12 months. To qualify, employers must not have made any layoffs from the intended position within the previous six months. The subsidy amount is progressive, with longer periods of unemployment (six months or more) resulting in higher benefits for the employer. However, Innovation Grants are not widely used, totalling 27 grants in 2022, only 3 of which were granted to migrants. In 2023, 11 were used, one of which was used by a migrant.
In Sweden, where such grants are used more widely, a 2017 study from the public employment service concluded that start-up wage subsidies had a significantly higher transition rate into employment than regular wage subsidies, or 37% for native‑born participants and 23% for non-western participants – versus 7% for regular wage subsidies (Nordic Council of Ministers, 2019[21]).
Family migrants are a group that might particularly benefit from entrepreneurship options. Migrant women and mothers are overrepresented among the inactive population, and often experience difficulties in taking up salaried employment. Entrepreneurship is an option that provides the possibility to combine with childcare or other family obligations, while allowing them to gain a foothold on the labour market. Only 3% of migrant women in Iceland are self-employed, the lowest rate among EEA countries and far below their native‑born peers (8%). Self-employment requires knowledge about administrative procedures and support structures, which remain particularly hard to come across for family migrants. It is thus important to reach out to and inform this group about viable options such as the grants listed above, in addition to providing them with counselling support to help them undertake such activities (OECD, 2017[5]).
Adult education is not widely used among migrants
Given the relatively high average skills level of the Icelandic labour market, re‑ and upskilling, through adult education and training, is a key component of labour market policy – in Iceland as elsewhere in the Nordic countries. Through union membership, most workers in Iceland have access to a certain amount of free‑to‑access adult education and learning courses per year. However, take‑up of such courses is relatively low, both among the native‑ and the foreign-born population. While around 20% of migrant workers in Denmark, Finland and Sweden are active users of adult education and learning, only 10% in Iceland are – also below the EEA average, at 13%. The share is particularly low for men, with only 8% being active users of adult education and learning (Figure 4.14).
The low use of adult education among migrants in Iceland may be explained by several factors. One is the lack of awareness of available courses, although both native‑born and immigrants should be aware of this given their high levels of union membership – as unions play a key role in the provision of adult education. A further migrant-specific reason may be the lack of courses suited towards migrants. Many migrants may not feel proficient enough in the language to attend a classroom course in Icelandic, and other forms of courses, such as those with a vocational language component, are not widespread – although some providers of adult education and learning have started offering such courses for select professions (see Chapter 3). Indeed, as seen in Table 4.1, the share of ALMP users using vocational training courses is minimal among migrants, with the native‑born observing a much higher share. Given the widespread availability and affordability of adult education and learning in Iceland, demand for such courses among migrants could be enhanced by increasing the supply of courses with a vocational language learning component.
Figure 4.14. Use of adult education remains far behind that of the other Nordics
Participation in adult education and training by place of birth and gender, selected European OECD countries, 2021/22
Note: Participation refers to the share of adults who participated in any courses, seminars or conferences, or received private lessons or instruction outside the regular education system within the four weeks prior to the survey taking place.
Source: EU-LFS.
Combating discrimination and supporting diversity
Limited evidence on discrimination shows high perceived incidence among recently arrived migrants
Discrimination is a key barrier to migrants’ economic and social integration. Quantifying and assessing discrimination is however difficult, and discrimination against migrants in Iceland has not been researched thoroughly, although several data sources exist.
Typically, the gold standard for assessing labour market discrimination is by way of field experiments with fictitious CVs of otherwise equivalent candidates where only the name indicates a foreign background. This has not yet been done in Iceland regarding employment, but one similar experiment from Iceland looked at opportunities in the rental housing market. Conducting an internet field experiment on two of Iceland’s largest websites for rental advertisements, the authors showed that Polish men were significantly less likely to receive an answer to their rental inquiry than were their native‑born counterparts (Björnsson, Kopsch and Zoega, 2018[22]). Given Iceland’s high housing and rental prices, discrimination against the foreign-born on the housing and rental market must thus be looked at as one of the barriers to integration into Icelandic society.
Another way to measure discrimination is via self-reported, or perceived, discrimination. While this is not necessarily related to actual discrimination, it is an indication of social cohesion. Two primary sources are available on perceived discrimination. The first source is the European Social Survey (ESS). Although sample sizes are small – making it necessary to pool yearly samples together – the main benefit of using the ESS to measure discrimination is that it allows for cross-country comparisons with other European countries.
In the period 2012‑20, 12% of immigrants considered themselves as a group that was discriminated against in Iceland based on the grounds of ethnicity, nationality or race (Figure 4.15). This figure mounts to more than 22% for recent immigrants, a high share in international comparison – especially considering the high share of immigrants who are from the EEA – a group that is generally less concerned by discrimination, both objective and perceived.
Figure 4.15. Perceived discrimination among immigrants is higher for recent arrivals
Share of foreign-born who consider themselves members of a group that is discriminated against on the grounds of ethnicity, nationality or race, by length of residence, 2012‑20
Note: Data was pooled over the years 2012‑20 to satisfy sample size restrictions.
Source: OECD Secretariat calculations based on data from the European Social Survey (ESS).
A second source on perceived discrimination in Iceland is the Workers in Iceland 2024 survey, which has the benefit of a large sample size.
In a regression analysis, several factors were found to be associated with changes in perceived discrimination. Being satisfied with one’s housing situation is associated with a reduction in perceived discrimination by 8 percentage points, and conversely those who consider housing expenses as a financial burden are 14 percentage points more likely to perceive discrimination (Figure 4.16) – compared with 7 and 5 percentage points for the general population, respectively. This may reflect perceived discrimination on the rental housing market, as reflected on above. Furthermore, a correlation exists between migrants’ health status and perceived discrimination. Those in good health perceive discrimination by 6 percentage points less than the constant, whereas the figure is 3 points for the general population. For mental health, the coefficient is the same as for the general population, at 16 percentage points.
Proficiency in the Icelandic language has a significant negative relationship with perceived discrimination. Having advanced or fluent proficiency in Icelandic – controlling for length of stay in the country and other factors – is associated with a reduction in perceived labour market discrimination by about 16 percentage points relative to the baseline. As in the ESS survey above, in contrast to most other countries, longer duration of residence is not associated with a decline in perceived discrimination. The worse outcomes displayed by recent arrivals in the ESS survey could thus be explained partly by their lower Icelandic language proficiency levels compared to more longstanding immigrants.
Figure 4.16. Icelandic language proficiency is correlated with reduced perceived discrimination
Changes in perceived discrimination among migrants on the labour market by population characteristics
Note: Point estimates refer to percentage point changes in perceived discrimination, reflecting the coefficients in an OLS regression with a constant of.57 (the constant represents an individual when all values in the model are set to 0, roughly described as a middle‑aged, medium-educated, and middle‑aged foreign-born male). Controls included in the model that aren’t visible in the graph include education and job level controls, and reason for migration.
Respondents were asked whether they had faced discrimination on the labour market in the two years prior to taking the survey.
Source: Varða (2024[4]), Workers in Iceland 2024 survey microdata.
The above findings suggest that successful integration into the host society, notably better Icelandic language proficiency, may make migrants perceive less discrimination. These results should nonetheless be interpreted cautiously as there may be many other factors not captured in the survey that can have an influence on perceived discrimination.
Migrants have made limited use of anti-discrimination legislation
Iceland has recently taken several important, albeit belated (Council of Europe, 2012[23]), steps towards improving anti-discrimination legislation for immigrants. In 2018, the Act on Equal Treatment of Individuals Regardless of Race and Ethnic Origin and the Act on Equal Treatment on the Labour Market were both adopted by parliament. They largely compare in content to two milestone directives on discrimination of the European Union: Council Directive 2000/43/EC to combat discrimination on the grounds of racism or ethnic origin, which covers all areas outside of the labour market; and Council Directive 2000/78/EC to combat discrimination on the grounds of religion or belief, disability, age or sexual orientation in employment and occupation.3
In 2019, anti-discrimination was firmly put on the government‘s agenda when the policy field was moved under the responsibility of the Prime Minister‘s Office. The transferral was made with a view to promote and streamline equality issues within public policy (Prime Minister’s Office, 2020[24]). A 2020 Act on the Administration of Matters Concerning Equality significantly strengthened enforcement and allows immigrants to seek assistance with the Directorate of Equality, which monitors and reports discrimination, and file a case to the Equality Complaints Committee, which acts as an independent and autonomous legal entity.
In 2022, adjustments were made to the 2018 anti-discrimination acts mentioned above. Both acts now prohibit multiple discrimination, which occurs when an individual is discriminated against on the basis of more than one protected ground.
In the years 2020‑22, the Equality Complaints Committee registered only 65 cases, 40 of which were brought on the grounds of gender discrimination. Only four were submitted on the grounds of ethnic origin – two of which were also submitted on other grounds of discrimination – one was submitted on the grounds of race, while one was submitted on the grounds of religion (Equality Complaints Committee, 2023[25]). This is low in an international comparison. For instance, the corresponding Norwegian Equality and Anti-Discrimination tribunal saw 27% of its 530 cases in 2021 brought on the grounds of ethnicity or religion (OECD, 2022[26]). The lack of cases brought to the Equality Complaints Committee in Iceland on the grounds of characteristics relevant to migrants could be explained by a lack of awareness of its expanded role, as for most of its existence the tribunal did not cover discrimination appeals beyond gender characteristics.
The Directorate of Equality has for years, along with several NGOs, published the brochure Your rights: important information for immigrants in Iceland, which contains important information about equality, rights and obligations in Iceland. However, it does not include adequate information on the services available to immigrants at the Directorate of Equality, nor does it mention the Equality Complaints Committee. The Directorate also publishes, in co‑operation with the Prime Minister’s Office and Statistics Iceland, a dashboard of gender statistics with indicators on the labour market, income, households, education and the composition of positions of influence. However, disaggregation by background or place of birth is not available.
Discrimination is also addressed through the actions of trade unions, which play an important role in raising awareness of migrants’ rights and assisting them in seeking their rights, notably on the labour market. The latter can be quantified through unpaid wage complaints issued by unions on behalf of their members. In 2022, 342 complaints were issued, counting ISK 250 million (EUR 1.67 million) in total. 200 of the complaints, or 60%, came from immigrants, most of which were from EEA countries (Icelandic Confederation of Labour, 2023[27]). These numbers stand in stark contrast with the negligible figures on the complaints issued to the Directorate of Equality and cases brought to the Equality Complaints Committee, where immigrants are vastly underrepresented. It is important to ensure that migrants are aware of the resources available to them not only with their unions but also the Directorate of Equality, and that both institutions refer to each other where relevant.
References
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Notes
← 1. A better indicator to measure public sector integration would be the public sector employment rate of the children of immigrants, but this data is not publicly available.
← 2. 2023 data is available for the months of January to October.
← 3. In the draft law that was presented to the Althing, it is noted that the two directives are not formally incorporated into the Agreement on the European Economic Area and Iceland was thus not obliged to implement the directives. The reasoning for the adoption of the acts was however to ensure that there is substantive consistency in Icelandic law and the law that applies within the European Union based on the directives in question. Their adoption was also in accordance with the Icelandic Government’s statement to ensure this consistency in January 2003 as well as a document sent to the EFTA Secretariat in February 2003 where it was announced that Icelandic legislation would be adapted to the content of the directives to ensure homogeneity in the Internal Market. Moreover, the United Nations Human Rights Council and the European Committee of Social Rights had also placed expectations on Iceland to implement legislation that reflected the two EU directives.