Unemployment in Iceland in International Comparison
10. November 2025Unemployment in Iceland in International Comparison – Findings from ASÍ’s New Labour Market Report
A new report published by the Confederation of Icelandic Labour (ASÍ), The Icelandic Labour Market 2025, (PDF Icelandic) shows that Iceland’s labour market remains strong in international comparison. Labour force participation in Iceland is among the highest within OECD countries, unemployment is low, and long-term unemployment is among the lowest observed in Europe.
The development of unemployment has followed the economic cycle, but the Icelandic labour market has recovered rapidly from setbacks. In 2024, average unemployment stood at 3.5%, compared with 6% on average in the European Union and 5% among OECD countries.
Long-term unemployment remains limited – only one-fifth of the unemployed have been out of work for more than twelve months, and fewer than 3% for more than two years.
The report shows that unemployment affects a diverse group of people – both Icelandic and foreign nationals – without any single group standing out in particular. The proportion of foreign citizens registered as unemployed has, however, increased in recent years and was around 56% in August 2025. Despite this, the incidence of long-term unemployment remains similar between Icelandic and foreign workers.
Educational attainment does not appear to have a major impact on how long people remain unemployed. University graduates represent the largest group among the unemployed, but this proportion has remained relatively stable in recent years.
Both ASÍ and LÍV point out in their official statements that the government’s proposed changes to the unemployment insurance system have been introduced without sufficient analysis of their effects.
According to both organisations, it remains unclear how reducing workers’ rights is expected to encourage greater labour market participation, while such changes risk increasing pressure on other welfare systems and weakening people’s connection to the labour market.
The report emphasises that unemployment insurance is the result of decades of trade union struggle and has evolved in line with labour market developments. It is therefore vital that the future of the system continue to be based on consultation, sound analysis, and the active involvement of the social partners.
Source: Vinnan