Labour Market Performance in Iceland

This paper focuses upon the unique performance of the Icelandic labour market. It demonstrates, by using international statistics, that the activity rates of both sexes are very high in Iceland, the unemployment rate is low, a high proportion of the the labour force work part time, and labour legislation is unrestricted. Contrary to the competitive labour market–, and flexible models of neo– classic economic theory, the author argues for a historical and institutional explanation of the Icelandic case. Hence, the high labour market flexibility and the good performance of the labour market can to a large extent be explained by a fishing economy characterized by frequent economic fluctuations, a small domestic market protected from international trade until 1994, and a decentralized labour movement. In recent years, some changes have taken place in the Icelandic economy. These include mergers and acquisitions of firms, internationalisation, stricter labour legislation due to EU regulations and directives and economic stability. All these changes could move the Icelandic labour market performance closer to the European pattern in the near future. JEL classification: J20, J30, J40 Keywords: Labour Market, Iceland, Labour Legislation, Flexibilit