Icelandic Financial Market Digest 10. ágúst

Publisher: Íslandsbanki Research • Resp.Editor: Ingólfur Bender

Labour market: tensions easing?

There are clear signs that the Icelandic labour market is softening.  A slower increase in total hours worked suggests that GDP growth eased in Q2 and will measure somewhat less this year than in 2017. 

According to recent Q2 labour market statistics from Statistics Iceland (SI), just over 198,000 individuals in the 16- to 74-year age group were employed in the Icelandic labour market during the quarter, giving a labour participation rate of 80% of the total population in this age group. The participation rate reached a second-quarter peak of nearly 82% two years ago but has subsided steadily since.

 Unemployment measured 3.6% of the population in Q2/2018, according to SI’s survey. As the chart shows, the unemployment rate appears to have reached a temporary equilibrium in the past two years, after falling rapidly in 2012-2016.

Indication of softer GDP growth

Developments in total hours worked give a good indication of where the supply side of the economy is headed. In all, total hours worked increased by 0.8% in year-on-year Q2/2018. The number of employed persons rose by 1.3% YoY, whereas average hours worked per week declined by 0.5%.

Developments in total hours worked plus labour productivity growth reflect developments in GDP growth. Unless productivity growth for Q2 turns out that much stronger, GDP growth during the period will prove relatively modest.

In sum, SI’s labour market data indicate that the market is approaching some sort of equilibrium after a period of swift job creation and rising tensions during the first half of the decade. Iceland’s labour participation rate remains one of the highest in among developed countries, however, and its labour market is robust.


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