Setback on tourism cuts into job numbers

The surge in tourist arrivals to Iceland has reversed, and fewer visitors have come to the country year-to-date than in the same period of 2018. This inevitably brings with it a lull in the tourism labour market — one that has already begun.


In the past few years, the tourism industry has been the source of strong job growth and has radically increased its imprint on the Icelandic economy. The number of jobs in Iceland grew by 46,000 between 2011 and 2018, with over third of the increase (about 17,000) occurring in the tourism sector. Tourism has played an important role in lowering unemployment since the beginning of the decade.

In 2018, nearly 29,000 people were employed in the sector, and in the past ten years the tourism labour force has grown from 7.5% of the total to 14.8%. Clearly, the tourism sector has become one of the largest sectors in the economy. In terms of proportional growth in jobs directly related to tourism, Iceland ranked sixth in the world in 2017.

Tourists per employee have doubled in a decade

Labour productivity is a measure of the value created per hour worked. The number of tourists per employee in the sector more than doubled between 2008 and 2018, resulting in a productivity growth rate of 41%, making tourism the second-most productive sector in the economy.

Tourism labour market already cooling

The surge in tourist arrivals to Iceland has reversed, and fewer visitors have come to the country year-to-date than in the same period of 2018. This inevitably brings with it a lull in the tourism labour market — one that has already begun.

Job numbers fell steeply with WOW collapse

After WOW Air collapsed, the Directorate of Labour received 1,450 applications for unemployment benefits, 740 of them from employees of the airline. It can be assumed that most of the remaining applications were from tourism employees whose jobs depended indirectly on WOW Air. Since the airline failed, the number of jobs in the tourism industry has declined by an estimated 5%.

Further layoffs in the cards?

A further decline in job numbers can be expected in the coming term. According to the Gallup survey among Iceland’s 400 largest companies, the share of respondents planning redundancies exceeds the share planning to add on staff. About a fourth of companies surveyed are planning to reduce staffing levels in the next six months, whereas only 14% are planning to recruit. In the transport, transit, and tourism sector, only 3.3% of firms are planning to hire workers, while nearly a third are planning to downsize — a higher proportion than in any other sector.

With increased uncertainty and reduced activity, the tourism industry has begun to shrink and appears likely to continue doing so in the near future. It will be interesting to keep abreast of developments and see how the sector adjusts to the changed environment after the meteoric rise of the past several years.

Author


Bergþóra Baldursdóttir


Analyst

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