EURES Mobility Conference, June 2007 Praca Islandia Increased inflow of foreign workers on the Icelandic labour market

Small homogenous society in the outskirts of civilisation

Greatly increased flow of workers to Iceland How come? One of Europe´s most overheated labour markets by the time of EU enlargement. The large projects in East Iceland: construction of Karahnjukar hydroelectric project and Fjardaal Aluminium smelter. New conditions in the credit market, increased credit supply. State Housing Financing Fund raised it´s loan to value ratio, the banks followed in competition with the fund in order to keep their share on the credit market. Mortages issued by banks increased by 340% > increased appartment buildings, increased demand and consumption. The fact that housing construction demands labour with similar skills as does the construction of power-intensive industry projects exaggerated the impact of the latter on the labour market.

Greatly increased flow of workers to Iceland Variations in immigration completely coinside with fluctations in the economy and the demand for labour. The inflow from EU-8 started before the transitional restrictions were repealed > labour demand mainly directs the flow By the end of 2006 foreign citizens constituted 9% of the population and 10% of the labour force.

Economic consequences of the inflow Positive impact on the economy. Without foreign workers contribution the inflation would be higher (up to 1,5%), as would the policy interest rates, economic growth up to 2,5% lower, private consumption up to 6% lower, business investments lower and purchasing power up to 4,5% lower. Because of the foreign worker´s contribution the average family gained € in 2006, also if not for the inflow their debts would have been € higher. But difficult to say what would have happened without the inflow; less economic activity, less tension and negative effects thereof?

Fears have not materialized Unemployment has decreased Labour participation increased No signs of increased demand for benefits Unemployment lower and labour participation rates higher amongst immigrants. Salaries rose by 10,3% in average 2006, for skilled construction workers only by 8,8%. Without the inflow of foreign workers, the wage drift would probably have been greater. On the other hand because of the inflow the immense tension last years has not caused serious imbalances on the labour market.

Race to the bottom? Impregilo: for the first time we witnessed social dumping because of a foreign contractor. Impregilo also paved the way for TWA. The conditions offered by Impregilo seem to have influenced salaries in general in the construction industry. Enlargement increased the supply of low-cost labour force and service import (not least through TWA) enabled strategic circumvention of rules and collective agreements. Indications of a submarket with service import and increase in illegal practises. Social dumping and distortion of competition. Still every reason to be optimistic as the authorities and the social partners have managed to adjust well to new conditions on the labour market. Laws on TWA and other service import has decreased service import.

Race to the bottom? Icelandic labour market is sensitive to social dumping due to the market wage system; market salaries 30 – 40% higher than union rates. Dual labour market - general attitude developed that it is acceptable to pay foreign workers according to union rates, while Icelandic workers get market salaries. According to Icelandic laws 55/1980 it is illegal to discriminate workers on grounds of nationality but not illegal to pay according to union rates. Important to narrow the gap between union rates and market salaries.

Current debate in Europe Demographic change > labour shortages Foreseen competition of labour Immigration from third countries Not an issue yet in Iceland Young population Foreign workers still regarded as a short term solution to temporary labour shortages Stricter rules for granting work permits to 3-rd country nationals Though certain demand for specialists from 3rd countries

EURopean Employment Services Set up in 1993, EURES aims to facilitate and promote the free movement of workers to counter regional imbalances on the EEA. All 30 countries of the European Economic Area + Switzerland take part in EURES. Partners in the network include Public Employment Services, Trade Unions and Employer Organizations. The partnership is coordinated by the European Commission. EURES has a human network of more than 700 EURES advisers across Europe. EURES started it´s operation in Iceland in 1995 under the Directorate of Labour.

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