Relative to its population, Iceland experienced the largest inflow of immigrants over the past decade of any OECD country. Four out of five immigrants in Iceland have come from EU and EFTA countries, although there has been a recent increase in humanitarian arrivals. Employment rates are the highest in the OECD, for both men and women, reflecting the recent and labour market oriented nature of most immigration to Iceland. However, immigrants’ skills are often not well used, as witnessed by the high rate of formal overqualification. What is more, immigrants’ language skills are poor in international comparison and there is evidence of growing settlement of immigrants. Against this backdrop, Iceland is at a turning point in its integration framework, and seeks to develop a comprehensive integration policy for the first time. This review, the fifth in the series Working Together for Integration, provides an in depth analysis of the Icelandic integration system, highlighting its strengths, weaknesses, and potential areas for improvement. Earlier reviews in this series looked at integration in Sweden (2016), Finland (2018), Norway (2022) and Flanders (2023).
Skills and Labour Market Integration of Immigrants and their Children in Iceland
Abstract
Executive Summary
Iceland has witnessed the greatest relative increase in the migrant population among all OECD countries over the past decade. In 2013, migrants accounted for 8% of the total population, and by 2023 this share had increased to more than 18%. The migrant population is relatively homogenous, with 80% of migrants coming from the European Economic Area (EEA). Since the start of the current decade however, humanitarian arrivals have increased significantly, reaching a peak in 2022 and slowing down since then, but still far above pre‑2022 levels.
Immigrants in Iceland exhibit the highest employment (83%) and participation (89%) rates in the OECD. The participation rate of migrants exceeds that of the native‑born. Unlike in other European countries, the differences in employment between EEA and non-EEA migrants are minimal, and gender gaps in employment are also small. Despite these positive outcomes, the rapidly rising share of migrants among the unemployed is a cause for concern. Migrants now account for more than half of the unemployed – up from 15% a decade ago – while accounting for a quarter of the workforce.
Against the backdrop of an increase in the arrival of humanitarian migrants, Iceland has invested substantially in the integration of refugees and their family members. This includes the Co‑ordinated Reception of Refugees scheme, whereby the central government supports municipalities in meeting integration expenses for refugees, notably for counselling, administrative, and housing support.
However, integration policy has not yet focused on the overwhelming majority of EEA migrants in the country, many of which are recent arrivals with a high likelihood of permanently settling down. In 2023, more than half (61%) of all migrants in the country had arrived within the preceding five years. EEA migrants seem to exhibit higher settlement rates than EEA migrants in many other Western European countries, with over half of them remaining in the country for more than five years.
Despite high employment rates, migrants’ skills are often not well used. More than a third of highly educated migrants in Iceland work in a job which requires a lower skill level than their own, against 10% of the native‑born. This difference in overqualification between migrants and the native‑born is among the largest in the OECD. While formal recognition of qualifications could mitigate this to some extent – with evidence suggesting that many migrants are not aware of the existence of recognition procedures – the main contributing factor seems to be labour market opportunities, with plenty of jobs available in lower skill sectors, such as tourism.
The Icelandic language plays a key role in integration into Icelandic society and can break down many of the barriers migrants face on their integration journey. Among migrants who experienced difficulties finding a job in Iceland, nearly half of survey respondents mentioned a lack of language skills as the main reason why. Proficiency in the Icelandic language also has a significant positive association with reducing both overqualification and perceived discrimination, suggesting that learning the language can support social and labour market integration. Despite these benefits, very few migrants learn the language. Self-reported host country language proficiency among migrants is in fact the lowest among OECD countries, at 18% compared to an average of 60%. While effort is needed on behalf of migrants to learn the language, there is scope to improve the supply of publicly subsidised language training. Public funding for language training is minimal in comparison with other Nordic countries, and fully subsidised training is restricted to refugees and the unemployed. The rising number of family migrants are a group that would particularly benefit from language training, given their higher risk of labour market exclusion. Language training provision could also be improved by encouraging the use of curriculum guidelines and implementing a standardised language exam to ensure comparability across providers.
The ultimate predictor of the long-term success of integration measures is the outcomes of the descendants of immigrants. In Iceland, the educational outcomes of native‑born children with migrant parents are concerning. Over half of these are low performers in the PISA exam, meaning they struggle to do tasks such as interpreting simple texts. Again, language seems to play a predominant role in the differences between groups. In fact, the difference in PISA reading scores among those foreign-born who speak Icelandic at home and those who do not amounts to 81 points – the largest difference in the OECD. Language proficiency and development are currently not systematically assessed in the Icelandic education system, and addressing this shortcoming could go a long way in improving school performance for children of immigrants.
Children of migrant parents particularly benefit from attending pre‑primary education, but preschool attendance is much lower among children of migrant parents and has been declining in recent years. One possible explanation for this trend is the increasing adoption of cash-for-care benefits by municipalities, which have been shown to negatively affect the labour market integration of migrant women and the educational outcomes of their children.
Although Iceland has a highly developed register system, key information on integration is missing. Publicly available datasets often lack breakdowns by origin, a crucial variable for analysing the situation of migrants. The national labour force survey inadequately represents the migrant population, with only 8% of respondents being foreign-born, despite them comprising a quarter of the labour force. Additionally, final results from the annual survey on income and living conditions have not been published since the 2018 wave, making it difficult to evaluate inequality outcomes since that time.
In conclusion, the Icelandic integration framework is in its early stages and currently caters to a limited group among the foreign-born population. While aggregate employment outcomes are favourable, there are a number of issues which need to be addressed, notably regarding job quality, language skills and data collection. The exceptionally high employment and participation rates may also not be sustainable, in light of experiences from other OECD countries. Investment into integration measures going forward must be well targeted, taking due account of stay prospects and intentions. A comprehensive and co‑ordinated set of actions should thus be considered.
