Iceland has experienced a significant demographic transformation over the past decade, with immigrants now constituting a substantial portion of the population and workforce. This shift has profound implications for the country’s labour market dynamics and economic development.
Demographic Shifts and Workforce Composition
As of January 1, 2024, immigrants made up 18.2% of Iceland’s population, totaling 69,691 individuals. This marks a steady increase from previous years, reflecting the country’s growing reliance on foreign-born residents to meet labour demands. Notably, the majority of these immigrants originate from the European Economic Area (EEA), with Poles representing the largest group at 32.1%, followed by Ukrainians and Lithuanians.
In the labour market, immigrants have become indispensable. They fill roles across various sectors, including tourism, manufacturing, healthcare, and retail. For instance, in 2022, over 10,000 immigrants were employed in the tourism industry alone, highlighting their significant role in sustaining this sector.
Employment Rates and Economic Contributions
Iceland boasts one of the highest employment rates among OECD countries, with immigrants exhibiting particularly strong labour force participation. In 2024, the employment rate for immigrants stood at 83%, surpassing the 81.3% rate among native-born Icelanders. This high level of engagement underscores the significant economic contributions of immigrant workers.
Moreover, immigrants contribute to economic growth through increased productivity and consumption. Research indicates that in a typical OECD country, a 0.1% increase in the immigrant population raises GDP per capita by 0.25% in the first year, peaking at a 0.31% increase one year after the migration. In Iceland, the OECD estimates that migration will result in a 6.5% increase in GDP by 2030 and a 10.4% increase by 2040 compared to a scenario without migration.
Challenges in Labour Market Integration
Despite these positive indicators, challenges persist in fully integrating immigrants into the labour market. A significant issue is the underutilization of skills, with more than a third of highly educated migrants in Iceland working in jobs that require a lower skill level than their qualifications. This overqualification rate is among the highest in the OECD and suggests a mismatch between immigrants’ skills and the opportunities available to them.
Language barriers further complicate integration efforts. Proficiency in Icelandic is essential for accessing higher-skilled positions and for social integration. However, many immigrants struggle with language acquisition due to limited access to language courses and the complexity of the language itself. This lack of proficiency can hinder career advancement and contribute to feelings of social isolation.
Employer Initiatives and Integration Strategies
Some Icelandic employers have proactively addressed integration challenges. For example, Kronan, a grocery chain with 26 stores, employs a workforce where approximately 40% have an immigrant background, representing 42 nationalities. Kronan offers ‘welcome to work’ courses, language training, and managerial programs to facilitate integration and promote a culture of respect and diversity within the workplace.
Such initiatives demonstrate the potential for private sector involvement in supporting immigrant integration. By providing training and support, employers can help immigrants overcome barriers and fully participate in the labour market.
Perspectives from Jon Purizhansky, CEO of Joblio
Jon Purizhansky, CEO of Joblio, emphasizes the importance of structured and ethical recruitment processes in facilitating successful labour market integration.”Ethical hiring practices and comprehensive support for immigrant professionals are essential for maximizing their potential and ensuring their successful integration into the Icelandic economy.”
Jon Purizhansky also highlights the role of language proficiency in enabling immigrants to access opportunities that match their skills:”Proficiency in the local language is a key factor in unlocking the full potential of immigrant workers. Investment in language training is an investment in the country’s economic future.”
Finally, he underscores the need for recognition of foreign qualifications:”Streamlining the process for recognizing foreign credentials can help address the issue of over qualification and ensure that immigrants can contribute effectively in roles that align with their expertise.”
Immigrants have become an integral part of Iceland’s labour market, contributing significantly to various sectors and the overall economy. While high employment rates among immigrants are encouraging, challenges such as skill underutilization and language barriers need to be addressed to fully harness their potential. Collaborative efforts between the government, employers, and organizations like Joblio are essential in creating an inclusive labour market that benefits both immigrants and the broader Icelandic society.
