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EACEA National Policies Platform


3. Employment & Entrepreneurship

3.1 General context

Last update: 28 November 2023
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  1. Labour market situation in the country
  2. Definitions and concepts

Labor market situation in the country

The Icelandic labor market is quite different when compared to neighboring countries.  Its most distinctive features are its small size and its homogeneity, with only about 180.000 people working. It has a large public sector funded by the state and municipalities, which includes health care and education.  Among other distinctive features of the labor market in Iceland is its high level of active trade unions to which most of the workforce subscribes. The labor market is quite deregulated in the sense that employers are free to hire and fire employees, react to an economic bust and adapt when jobs disappear (Aðalsteinsson & Hilmarsson, 2009).

The Ministry of Social Affairs and Labour is the responsible authority for the labor market and the government has quite an extensive role in regulating the labor market. I will make a short comment on each branch of labor law.  This list is not exhaustive, but will give a rough idea about the role of the state in regulating the private labor market:

Trade Unions

The Act on Trade Unions and Industrial Disputes No. 80/1938 recognizes the right of workers to form trade unions and federations of trade unions The purpose of these unions is to work jointly for the interest of workers in general. According to this Act, trade unions are made legal contracting parties for wages and terms of employment for their members (Norðdahl 2013). This power that trade unions have is termed collective bargaining or collective agreements.

Collective bargaining

Act No. 55/1980 stipulates that collective agreements are automatically binding for all workers and employers within their occupational area.  It is not necessary for the applicability of collective agreements that the workers be members of the trade union in question (ibid.). Collective agreements can be of various different types.  General collective agreements

Wages and working time

The state sets a framework around wages and working time as well.  According to Act No. 55/1980 wages and other terms of employment agreed upon between parties in collective agreements are minimum terms for all employees in the relevant occupation, regardless of gender, nationality, terms of employment, etc. (ibid).

Daily and weekly rest and maximum weekly working time

Working time and mandatory rest time are also put under state regulations. Act No. 46/1980 conditions all employers to respect minimum standards of safety and health requirements, organization of working time in respect of maximum weekly working time, which states that the maximum weekly working time over a four-month reference period shall not exceed 48 hours per each seven-day period, including overtime.  In addition, the Act regulates breaks during the day, organization of night work, and shift work (ibid).

Holidays and holiday allowance

The Holiday Allowance Act No. 30/1987 confirms the right of workers to a holiday and holiday allowance. The act specifies only the minimum rights, but further rights are agreed upon in the collective agreements of each sector based upon various factors such as age and duration of employment (ibid).

Absence from work due to sickness

The Act Respecting Labourers’ Right […] to Wages on Account of Absence through Sickness and Accidents No. 19/1979 secures minimum rights for workers who are unable to work due to sickness or accidents, occurring during the worker’s spare time. In such a case the worker is entitled to wages from his employer for a predetermined period of time during his recovery period. These minimum rights are further improved upon in a collective agreement.

Accidents at work and occupational diseases

Minimum rights of workers in case of work-related injuries are regulated in the Act Respecting Labourers’ Right […] to Wages on Account of Absence through Sickness and Accidents No. 19/1979.  According to the Act, workers who cannot hold their employers, their subordinates or others whom they are responsible for accountable for their injuries have a right to sick pay and in addition, day-time wages for up to three months. These rights are further improved upon in collective agreements (ibid.).

Equal status and equal rights for women and men

This principle is established in the Act on the equal status and equal rights of women and men no. 10/2008. According to it employers are not to discriminate between employers based on gender in regard to wages or other terms of employment (ibid).

Maternity and parental rights

According to Act No. 95/2000, parents that are active in the labor market have a right to receive maternity/paternity leave and parental leave.  The same applies to parents who are self-employed, parents who are not active in the labor market, and parents attending full-time education. The act aims to ensure that children have access to both their parents and to enable women and men to co-ordinate family life and work outside the home. When organizing maternity/parental leave, employers are obliged to make efforts in regard to their employee’s wishes (ibid). A new bill on parental leave was passed in Parliament and came into force on January 1. 2021.

Youth in the labor market

            Youth unemployment increased dramatically following the economic downfall in 2008 and was considerably greater than the labor market as a whole. The unemployment rate among people aged 16-24 increased from 7,4 % in January 2007 to 12,8 & in January 2009, reaching its peak at the end of the year at 16,7 %.  

            In recent years labor market conditions have improved causing a great decrease in unemployment rates among young people. In January 2012 the labor market showed improvement as unemployment rates of young people had dropped to 14,4 % and a year later the rate had declined to 11,5 %. In late 2015 the youth unemployment rate went below 8,0 % and had reached its pre-crisis level.  In 2016 the rate stood at 6,1 % (Statistics Iceland)


Definitions and concepts

There are no specific definitions of the labor market, as it is described in the Wiki, that might erode the comprehension of an external reader.