Skills and Labour Market Integration of Immigrants and their Children in Iceland

1. Assessment and recommendations for immigrant integration in Iceland

Abstract

This chapter synthesises key policy issues and recommendations identified in the main areas covered by the OECD review: the context for integration in Iceland; developing and assessing migrant skills; leveraging migrant skills; and integrating youth with migrant parents.

Assessment

Iceland has the fastest growing foreign-born population in the OECD, with four out of five migrants coming via free mobility

In late 2023, more than 18% of Iceland’s population was foreign-born, compared to 8% a decade earlier. This represents the single largest increase in the share of the foreign-born among OECD countries over the past decade. There are few signs of decline, particularly for free mobility arrivals from the European Economic Area (EEA) who account for 75% of new arrivals and 80% of resident immigrants, according to register data. In 2022, Iceland registered the highest relative increase in flows within the EEA, with a jump of 56% compared to the year before.

An unprecedented rise in humanitarian arrivals has tested existing integration infrastructure, and authorities have had to respond quickly

Recent years have seen a surge of humanitarian migrants arriving in Iceland, mostly coming from Ukraine and Venezuela. 2022 saw a record number of 3 455 individuals granted protection – up from 350 in the year before. Of these, 2 300 were Ukrainians receiving temporary protection and 700 Venezuelans receiving subsidiary protection. In 2023, 1 970 individuals were granted protection, lower than in the year prior but still far above pre‑2022 levels.

In response to these developments, the government established the Co‑ordinated Reception of Refugees scheme, whereby the central government supports municipalities in meeting integration expenses for refugees. As of April 2024, 14 out of 64 municipalities have participated in the scheme – most of which are large municipalities – covering 3 450 refugees.

Social partners play a major role in service provision for immigrants

The Ministry of Social Affairs and Labour is the main player in integration policy, being responsible for the primary legal act on integration. Its Directorate of Labour – the Icelandic public employment service – funds key services, including language training, counselling, lifelong learning, and more, free of charge for the unemployed and refugees.

A unique characteristic of the Icelandic labour market is its tripartite nature, with both employers and unions playing a key role in integration service provision. In particular, lifelong learning centres – which are the providers of most language courses for adult immigrants – are in many cases owned by the social partners and costs are generally reimbursed for union members, but only after having paid union fees for a period usually between 1 and 30 months, depending on the union. This hampers access to language training for recent arrivals.

Iceland has impressive employment outcomes, driven by a favourable mix of migrants and good labour market conditions…

Iceland’s migrant population exhibits employment and participation rates (83% and 89% in 2022, respectively) that are the highest in the OECD. This applies not only to migrants coming for work-related reasons – largely through free mobility from the EEA – but also other groups such as non-EEA migrants on humanitarian permits. A potential explanation for this, in addition to good economic and labour market conditions, lies firstly in the high share of migrants from the EEA among the foreign-born population; and secondly in the composition of the non-EEA migrant population. The latter has traditionally consisted mostly of immigrants from the United Kingdom, the United States and the Philippines, who have also come for employment. This has changed with the arrival of Ukrainians and Venezuelans, who are the dominant non-EEA groups since 2022, accounting for the vast majority of inflows from outside the EEA, although these too tend to be relatively highly educated and show high employment rates. Humanitarian migrants who arrived in 2020‑21 – mostly Venezuelans – already exhibit higher levels of employment than currently observed for cohorts with more than five years of residence – an unusual situation. Among the arrivals in 2022 – most of which were Ukrainians – nearly 40% were in employment by the end of 2022.

Given the recent and largely labour market-oriented nature of most migration, experiences of other OECD countries suggest that current levels of employment outcomes may not be sustainable in the long term. Persons who arrive with a job offer upon arrival may lose their employment later on and are joined by family members with weaker attachment to the labour market. The rapidly rising share of immigrants among the unemployed – from one in ten at the beginning of the last decade to more than one in two currently – is an indication of this development.

…although migrants’ skills are often not well used

Migrants in Iceland are often overqualified for their jobs. The gap in overqualification rates of 25 percentage points between the native‑born (10%) and the foreign-born (35%) in Iceland is the largest among OECD countries. A key contributing factor to this high percentage is the labour-intensive and primarily low-skill tourism industry, where migrants represent half of all workers. Migrant women are also more likely to be overqualified than their male peers, and their average education level is also considerably higher.

While overqualification seems primarily driven by labour market opportunities, the issue of recognition of qualifications also merits attention. A large share of migrants in Iceland are not aware of the possibility of formal recognition of qualifications. As in other countries, the system for recognition in regulated professions is complex. There are currently few avenues which would allow migrants to progress into further education or attain full recognition of their credentials, notably in the form of bridging courses with a language component, and their wider provision should be considered.

A lack of Icelandic language skills is a notable barrier to integration and finding quality employment…

Migrants in Iceland exhibit the lowest host country language proficiency among OECD countries with available data, with 18% claiming advanced proficiency compared to an OECD average of 60%. While this may partly be explained by the shorter length of stay in the country compared to other countries and the high number of labour migrants – who are less likely to learn the language than other migrant groups – it is not the sole explanation. Among migrants that have stayed more than five years but less than ten years, only 7% report advanced proficiency in the language. Among those who have stayed at least ten years, the share is 38%, still significantly below the OECD average.

Learning the language can play a role in alleviating some of the obstacles migrants face on the labour market, including overqualification and perceived discrimination. 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.

…and language course offerings need to be further developed, making sure that all migrants in need get appropriate support

While effort is needed on behalf of migrants to learn the language, the supply of language courses must also see improvement. Public funding on language courses for adult immigrants is low in comparison to other Nordic countries, and foreseen expenditure increases do little to bridge the gap. Language course offerings are heterogenous in both quantity and quality across the country, as standards are absent. University language courses, which are the most effective courses offered in terms of attaining a high proficiency level, are not available to low-educated migrants – due to the requirement of an Icelandic matriculation examination or its equivalent for entry into university. Yet, low-educated migrants report higher willingness to stay and learn the language than their higher-educated peers.

Refugees and unemployed migrants are the only groups who have access to fully subsidised language courses, and the number of hours offered to the latter is low in an international comparison. Unemployed migrants are entitled to two fully funded courses – equivalent to 80‑120 hours of classroom training, roughly equivalent to the A1 level of the Common European Framework of Reference for languages (CEFR). There are no statutory provisions which regulate the amount of hours to which refugees are entitled. Language courses are provided by lifelong learning centres, and there is little differentiation along learning needs. The placement of students with highly divergent skill levels in the same courses can have a negative effect on both the progression of students with a higher ability and those with a lower ability to learn the language.

Migrants rarely use active labour market policies

The active labour market policies (ALMPs) offered to the unemployed by the Directorate of Labour do currently not seem to be well adapted to the needs of immigrants. Wage subsidies, a particularly effective measure against migrant unemployment, were a major emphasis during the COVID‑19 pandemic, but have since then declined to previous levels. At the same time, language courses remain used less and less by unemployed migrants. It is not clear whether this is due to Directorate of Labour counsellors not proposing these courses or to limited take‑up by migrants. Evidence on the impact of ALMPs is also lacking, as employment outcomes are not even monitored. The scarce and partial evidence suggests that most measures have not only much lower take‑up among unemployed immigrants than among the native‑born, but that they are also less effective in getting migrants out of unemployment. The reasons behind this are unclear. Finding out what works best for migrants in unemployment, and why current measures seem to be both less effective for migrants and less frequently used, will be key going forward given the rising share of migrants among the unemployed. For this to be possible, data, monitoring and profiling of the unemployed population need to improve and to better reflect the large share of migrants.

Data, monitoring and evaluation of migrant outcomes are largely lacking, and addressing this shortcoming should be an urgent priority

Indeed, perhaps the most fundamental shortcoming is the inadequate data infrastructure on integration, with even basic information that is available virtually everywhere else in OECD-Europe currently not available. This is surprising given Iceland’s data register system that would in principle allow for a solid monitoring and requires policy makers to navigate somewhat blind in integration policy making. While this reflects in part the recent nature of immigration and the good outcomes thus far, with little need for targeted monitoring and intervention, addressing this shortcoming should be an urgent priority. In particular, key variables for assessing the situation of immigrants, most notably place of birth/background, are lacking from relevant public datasets – including data on household composition, living conditions and housing, to name a few examples. Given the rising share of migrants in Iceland, place of birth should be seen as a variable of similar standing to age and sex, both of which are streamlined through all government-issued datasets.

Like other European countries, Iceland conducts annual surveys to analyse the labour market outcomes and living conditions of its population. One key survey is the labour force survey (Vinnumarkaðsrannsóknin), a highly important tool for data collection on migrants as it covers areas where administrative data for migrants may be missing, such as level of education. Currently however, the labour force survey does not adequately reach the migrant population in the country, as migrants represent only 8% of respondents while accounting for nearly 20% of the general population and an even higher share of the labour force. Another important survey, the survey on income and living conditions (Lífskjararannsóknin), collects key information on wages, inequality, housing and other relevant indicators – but microdata from the survey has not been released since the 2018 wave. Since then, the number of migrants in Iceland has nearly doubled.

What is more, policy evaluations have been mostly absent in the integration policy making process. While they can be costly, Iceland could leverage its rich administrative data, linked through the central register, to better understand the effectiveness of measures used and derive lessons for the future. This will require a better flow of information between relevant institutions – notably Statistics Iceland, the Directorate of Labour, and the Directorate of Immigration.

The needs of EEA migrants merit more consideration, notably regarding language training, although investment should depend on stay prospects

Migrants in Iceland stay for longer in the country than in other OECD countries. A cohort analysis of migrants who arrived in 2012 revealed that 51% of EEA migrants were still in the country five years later, and 41% of non-EEA migrants. As in other OECD countries, integration policy has hitherto focused primarily on the few humanitarian migrants – a justified emphasis, given the challenges associated with their integration into society – but the needs of migrants from the EEA warrant further consideration, given their omnipresence within the migrant population and their relatively high likelihood of staying. Among recent arrivals from the EEA, half of those who have decided their length of stay plans to settle down permanently in Iceland, while a third of the group remains undecided about their stay prospects.

What is more, unlike in other European countries, migrants from the EEA do not exhibit lower unemployment rates than their non-EEA counterparts, both with an unemployment rate of 8% compared to 3% for the native‑born in 2022. The resulting unemployment ratio between EEA migrants and the native‑born of almost three to one is the highest in OECD-Europe.

Given the predominance of immigrants from the EEA, and the indications regarding their growing settlement and labour market difficulties as witnessed by their high unemployment levels, Iceland faces the rather unique challenge of proposing integration measures for migrants who benefitted from free mobility. Given the large budgetary implications, support should be targeted to those who are both in need and exhibit settlement prospects.

The integration of family migrants has not been an issue of concern, but should be monitored closely

The question of integration measures for EEA migrants is further compounded by the arrival of EEA migrants with weaker labour market attachment. While the bulk of migrants from the EEA has arrived for work reasons (more than 80%), the share of migrants arriving for family reasons from the EEA is also likely to grow along with the growing permanent settlement of this group. Indeed, being joined by family members is a key determinant of longer-term stay.

More generally, family migrants have specific integration challenges, as many of them are women with their children who have fewer links with the labour market. This is the case even when they have completed medium or high levels of education – although women who earn their diploma after arriving in Iceland exhibit significantly higher employment rates. Migrants who have arrived for family reasons – mainly from the EEA but increasingly also from non-EEA countries – are a group that would particularly benefit from access to integration measures, including language training, which is available at no cost only to refugees and unemployed migrants. Barriers are not only financial however, also taking the form of childcare responsibilities, which partly explains the high take‑up of cash-for-care benefits among migrant women. It is important to address these barriers, including by providing adapted hours and facilities for language training.

Migrant women and mothers seem to be doing well but analysis needs to be improved

Migrant women and mothers in Iceland exhibit high employment outcomes in an international comparison, and the gaps in employment rates between migrant women and migrant men are the lowest among European OECD countries. The same applies to the gap in employment rates between migrant and native‑born women. These exceptional numbers suggest that few structural barriers remain in terms of access to employment. Other employment indicators, namely pertaining to job quality, are less favourable however, with migrant women more likely to work part-time involuntarily and to be overqualified for their jobs.

Previous OECD work has shown that migrant mothers tend to be at strong disadvantage in the labour market. Yet, monitoring the situation of migrant mothers in Iceland is currently not possible. Iceland does not record questions on the number of children in the household in labour force surveys – a crucial variable to analyse the situation of migrant mothers – the only EEA country to not do so.

Cash-for-care subsidies should be reconsidered, and the money saved invested into expanding preschool places

Children with migrant parents are less likely to attend preschool than their peers, and the gap is widening. Children in Iceland, unlike in the other Nordic countries, are not entitled to a place at a preschool after reaching 12 months in age. The supply of preschool places has not kept up with demand in recent years, and in response, several large municipalities have begun offering cash-for-care subsidies to households. Immigrant families disproportionately take up this benefit, and the resulting detrimental impact on employment among migrant mothers and the educational outcomes of their children is well documented from other countries. Indeed, preschool constitutes a linguistic environment where children with migrant parents can learn to speak Icelandic – which is not the case at home, and PISA data suggest that attending preschool early in Iceland provides particular benefits for children of immigrants in Iceland.

Children with migrant parents require language support in school based on systematic language assessments

Half of children with immigrant parents in Iceland classify as low performers in the PISA assessment, far above the OECD average of 30% and surpassed only by Mexico. What is more, native‑born children with immigrant parents exhibit similar, if not worse, outcomes than their peers who arrived in Iceland as children. This applies not only to PISA scores but also dropout rates in upper secondary education, where higher dropout rates are observed for native‑born children to foreign-born parents compared with foreign-born children who arrived in Iceland before the age of six.

This largely seems to be due to the language difficulties of this group. While the sample size for native‑born children of immigrants is too small for analysis, the difference in PISA reading scores between those foreign-born who speak Icelandic at home and those who do not amounts to 81 points, or more than three years of schooling, the largest difference among all OECD countries.

Language assessments are not systematic in the Icelandic schooling system. Experiences from other OECD countries, and a longitudinal study on the impact of preschool language assessments on academic achievement in Iceland, suggest that assessing language skills can go a long way in improving school performance for children of immigrants.

A high share of migrants feel discriminated against…

There has been no systematic study of discrimination against immigrants in the Icelandic labour market thus far. While not necessarily strongly linked with actual discrimination, survey data suggest that perceived discrimination – a strong indicator of social cohesion – is high among migrants. Over half of foreign-born respondents in the Workers in Iceland 2024 survey, and a third of native‑born individuals with foreign-born parents, stated they had felt discriminated against on the labour market in the two years prior to taking the survey. Asked about the manifestation of the discrimination, the most common cause was that they felt that they were offered a job at a lower salary or skill level than expected.

…and anti-discrimination policy needs to focus more on the needs of this group

Anti-discrimination policy in Iceland has until now primarily emphasised anti-discrimination against women and LGBTI+ individuals. The Directorate of Equality has been in charge of discrimination on the grounds of racial or ethnic origin since 2018, but less than a handful of cases are put forward each year to the Equality Complaints Committee. The limited use of anti-discrimination measures among migrants may be attributable to lack of awareness of the measures that are available to them, which should be better conveyed upon arrival in the country. Trade unions play an important role in countering discrimination on the labour market, providing recourse through formal wage complaints, for instance, and this may also contribute to the low numbers reported through the equality body. However, there seems scope for increased co‑operation between trade unions and the statutory anti-discrimination bodies – including through raising awareness of their respective roles.

Despite favourable labour market conditions, integration needs to be higher on the policy agenda

In summary, Iceland’s integration policy was built during a period in which the immigrant population was widely different than what it is now. With the fastest growing migrant population in the OECD and a rising number of humanitarian migrants, policy needs to be adapted to a new reality. Around half of migrants working in Iceland would like to stay permanently in the country, with another third remaining undecided, but few measures are currently in place to support their integration. While most migrants up to now have arrived for work reasons, as reflected by high employment rates, their long-term integration outcomes – such as their career mobility and overqualification – are less favourable and so are the schooling outcomes of their descendants. It is also conceivable that employment rates will not necessarily remain on such high levels in the long run. Against this backdrop, integration policy needs to better identify and support those who stay, notably through enhancing the offer and quality of language training, which has not only been shown to contribute at least partly to better outcomes in terms of job quality and perceived discrimination, but would also contribute to social cohesion.

However, existing data and are currently not up to the task to monitor the outcomes of immigrants. It is imperative to systematically address this shortcoming, to identify emerging issues and guide policy making.

Recommendations

Improve data and monitor outcomes

• Ensure that country of birth is a variable included in all relevant datasets, especially those used by ministries and agencies directly involved in integration policy.

• Include a question on the number of children in the household and their age in labour force surveys.

• Ensure the timely delivery of data from the Statistics on Income and Living Conditions (SILC) survey.

• Implement monitoring mechanisms and collect basic information, notably regarding language training for adults. A standardised assessment exam would be a welcome addition, allowing for the comparison of language training uptake and outcomes across language providers.

• Provide basic information on the employment outcomes of previous participants in ALMP, with breakdown by origin.

• Investigate the reasons behind the current low take‑up of immigrants of most active labour market policies (ALMPs) and the reasons behind the evidence of little positive impact. Consider a more substantive evaluation of the effectiveness of the most used ALMPs and their impact on migrants.

• Improve data on the educational attainment of migrants and enhance data-sharing and flow of information between the Directorate of Immigration and other relevant agencies (Directorate of Labour, Statistics Iceland).

• Adjust official data on upper secondary education dropout among migrants, accounting for biases caused by exchange students and different age profiles.

Enhance the scale, scope, and quality of language training

• Ensure suitable standards in language training provision across the country. Make public funding for accredited providers of adult education dependent on the use of standardised assessments and the curriculum guidelines.

• Considerably enhance public funding for language learning. Increase the scale and scope of free‑to‑access language learning for humanitarian migrants, and consider the extension to family migrants from outside of the EEA.

• Provide more affordable and flexible forms of language training for immigrants from the EEA who wish to stay in Iceland long-term and are interested in learning the language. Luxembourg’s Reception and Integration Contract, which is open for immigrants from the EEA, could serve as a model for such an offer, whereby the user pays a symbolic fee for up to three subsidised vouchers for language courses, totalling up to 300 hours of classroom training.

• Raise awareness among immigrants of the value of language learning in labour market and social integration. Consider language learning with programmes such as Luxembourg’s Linguistic Leave programme, where migrants can learn a language during work hours with part of wage costs covered by the state.

• Review the refund system for participation in language courses, whereby refunds are provided after having paid union fees for a certain period. This may present an obstacle to participation due to high upfront costs.

• Implement ability grouping to ensure that students with different kinds of needs can progress at a pace that fits their ability, notably for illiterate and very highly educated migrants.

• Create incentives to attract and retain language teachers, including by improving the working conditions of teachers with appropriate qualifications in teaching the Icelandic language and implementing some minimum qualification level requirement to ensure teaching quality.

Make better use of migrants’ skills

• Strengthen the role of career guidance throughout the integration process to ensure migrants are supported to find jobs that fit their skill level. Social partners can make the possibility of career guidance more widely known.

• Raise awareness about recognition procedures, particularly for groups prone to overqualification, including migrants from the EEA and women.

• Consider upgrading the digital case system for formal recognition of academic qualifications in the ENIC-NARIC office to reduce processing times.

• Enhance access to bridging programmes with a language component, which allow non-EEA migrants to get their qualifications recognised or progress to further education. Consider making such courses eligible for public subsidies to cover costs.

• Enhance the use of Recognition of Prior Learning services, particularly for humanitarian migrants without proof of their formal qualifications.

Strengthen efforts to integrate family migrants and migrant mothers

• Ensure that newly arrived family migrants are informed about and referred to available integration options in their area.

• Allow refugees and family migrants to continue using integration measures provided under the co‑ordinated reception of refugees after the initial three‑year period in cases where childcare responsibilities prevented parents from using them.

• Ensure that arrived family migrants are formally eligible to access key integration measures, including language training.

Tackle discrimination

• Place a stronger emphasis on the issue of discrimination against migrants in anti-discrimination policy.

• Make anti-discrimination instruments better known among all migrants and inform them about their rights, including in co‑operation with trade unions.

• Counter discrimination on the rental market, including by increasing the supply of social housing. Set an upper limit for the period on the waiting list for access to social housing.

Invest in the integration of children of immigrants

• Implement systematic language assessments beginning in pre‑primary education and continuing through primary education. Provide targeted language support for those assessed to lag behind. Provide clear national guidance for municipalities to conduct such assessments, along with national minimum standards and regular evaluation to incentivise the provision of quality language support.

• Ensure that the Equalisation Fund’s earmarked funds for targeted language support in schools are used for their intended purpose.

• Abolish cash-for-care benefits and use the money saved to further extend and promote free placement in preschools for low-income households, with a specific focus on immigrant families.

• Raise awareness about the benefits of participation for children of immigrants in preschool education.