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2022 unemployment lower than expected

The Directorate of Labour published December 2022 unemployment figures yesterday. Registered unemployment averaged 3.9% during the year, broadly as in 2019. It is safe to say that the labour market has rebounded quickly after the pandemic, and the jobless rate looks set to fall still further in the coming term.

According to recent figures from the Directorate of Labour (DoL), registered unemployment weighed in at 3.4% in December, around the same as in November, when it measured 3.3%. The DoL also revised June through October 2022 figures upwards, as unemployment proved higher in those months than was indicated in previously published figures.

Unemployment rose all over the country in December, except in Northwest Iceland, where it fell by 0.2%. As before, it is highest on the Suðurnes peninsula, at 6%, and second-highest in greater Reykjavík, at 3.5%. It is lowest in Northwest Iceland, or 1.1%.

Labour market reminiscent of 2019

In 2022, unemployment averaged 3.9%, its lowest since 2019, when it measured 3.6%. Given the outlook at the onset of the pandemic, the labour market has recovered rapidly, as registered unemployment (excluding recipients of part-time unemployment benefits) was around 8% in both 2020 and 2021.

There are signs that the jobless rate will fall even further in 2023. The outlook is for significant growth in sectors such as construction, where staffing problems have been perhaps greatest. According to the recent Gallup survey among Iceland’s 400 largest firms, 53% of company executives consider themselves short-staffed, slightly less than in September but historically high nevertheless. With the exception of Q2 and Q3/2022, this percentage has only once been higher – in 2007.

Staffing woes are most pronounced in the construction sector, where 78% of executives say need workers, followed by retail and wholesale trade (63%). Remarkably, the shortage of workers in the transport, transit, and tourism sector measures only 29%, a steep decline relative to the previous survey. This is mainly because the tourism industry is busiest by far in the summer, and the staffing shortage percentage is all but certain to rise swiftly as the peak season approaches.

What’s next for the job market?

In our macroeconomic forecast from September, we projected that unemployment would average 3.8% in 2022. That forecast turned out reasonably accurate. The labour market is tight at the moment, and job vacancies will probably be filled increasingly by foreign workers. In our forecast, we projected that unemployment would average 3.2% in 2023 and 3.6% in 2024, and we are still convinced that this is the likely outcome.

Author

Bergthora Baldursdottir

Economist

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