Worker shortages in the construction industry

Demand for labour is strongest in the construction sector, where, according to SI, there are nearly 1,500 job openings, or 8% of total construction industry vacancies. Job vacancies in construction have increased by 2.4% year-on-year. The outlook is for continued growth in a number of sectors, including construction, where the shortage of workers is perhaps the most pronounced. According to the recent Gallup survey conducted among Iceland’s largest companies, 53% of respondents report worker shortages, led by construction companies, 78% of which say they are understaffed.

The second-largest shortage is in retail and wholesale trade, where 63% of firms consider themselves short-staffed. Worker shortages in tourism tend to fluctuate more: 29% of firms reported being understaffed in December, but this figure can be expected to rise again as the peak season approaches.

Job numbers will rise in the near future

Job numbers look set to increase further in the coming term, and a large share of the newly created positions will probably be filled by foreign workers. There are currently just over 46,000 foreign workers in Iceland, or around 22% of the labour market, an all-time high. This percentage can be expected to rise further in the near future, if the need for workers in many of Iceland’s key sectors is any indication.

The labour market has recovered remarkably quickly post-COVID, and job numbers are now above the pre-pandemic level. Unemployment averaged 3.9% in 2022 and was therefore close to the 3.6% seen in 2019. For the sake of comparison, it hovered around 8% in 2020 and 2021, excluding recipients of part-time unemployment benefits.

According to our macroeconomic forecast, published at the beginning of this month, year-2023 unemployment will be broadly at the Q4/2022 level – i.e., around 3.3%, on average – and will rise marginally in 2024 as tension in the labour market eases. We forecast average unemployment at 3.7% in 2024 and 3.8% in 2025.