Iceland

   

Social Policies

#8
Key Findings
With good general outcomes despite some lingering crisis-era concerns, Iceland scores well (rank 8) with regard to social policies. Its score on this measure has declined by 0.2 points since 2014.

After years of underfunding, universities have received several successive budgetary increases. The country’s PISA scores are the lowest in Western Europe, prompting concerns about school quality.
A recent policy change shortened upper-secondary education from four to three years.

Income inequality dropped significantly in the financial crisis’ wake. Poverty levels are low. Pensions and welfare benefits were cut in the crisis, and have not yet been fully restored. Substantial increases in housing costs have put particular pressure on young people in Reykjavik.

The generally high-quality health care system has suffered from cutbacks, though public concern has led to some new funding. Paternal and maternal leave is provided, and women’s labor-market participation rates are high. Labor-market conditions for immigrants have become less favorable since the 2008 collapse.

Education

#15

To what extent does education policy deliver high-quality, equitable and efficient education and training?

10
 9

Education policy fully achieves the criteria.
 8
 7
 6


Education policy largely achieves the criteria.
 5
 4
 3


Education policy partially achieves the criteria.
 2
 1

Education policy does not achieve the criteria at all.
Education Policy
6
Public expenditure on education increased prior to 2008, but has since been cut. In 2012, public expenditure on high schools, colleges and universities was significantly less in proportion to GDP than in 2008. Since then, the ratio has gone down further and was almost 12% lower in 2016 than in 2008.

Municipalities are responsible for primary schools. After the 2008 collapse, considerable cutbacks and rationalization measures were introduced, including a shortening of the school year. Upper secondary schools and public universities are the responsibility of the central government. The government cabinet during 2013-2016 managed to shorten the duration of upper secondary matriculation from four years to three. This means that students now enter university at the age of 19 rather than 20.

Iceland’s universities have been seriously underfunded for a long time. However, the cabinet of Jakobsdóttir, which came to office in late 2017, revised the state budget and raised funding for universities by 3%. In the state budget for 2019, universities received a 5% raise compared with the year before.

There are seven universities: two private universities supported by state grants and five public universities, including two agricultural colleges. In the first few years following the 2008 economic collapse, several initiatives to rationalize the university sector were considered, while several steps were taken to improve cooperation between institutions. Two attempts to merge universities were discontinued during the mandate period 2013 – 2016. The previous cabinet (January 2017 – September 2017) did not introduce any measures to merge universities during its brief tenure and the current cabinet of Katrín Jakobsdóttir (November 2017 – present) has not announced any further initiatives.

The same dire situation prevails at music schools, once the pride of Iceland’s education system due to their unique model of private and public funding. In 2018, Iceland’s music schools continued to fight for their survival, with no end to the struggle in sight.

The OECD, among other institutions, has long highlighted the relatively low proportion of the labor force of Iceland with secondary or tertiary education qualifications – a key factor in explaining Iceland’s low productivity, long working hours and high rates of labor force participation. Though Statistice Iceland recently published new statistics that purported to show that Icelanders do not work longer hours than workers in neighboring countries, these new figures have been met with skepticism.

Iceland’s low PISA scores, the lowest in Western Europe, remain a source of concern. Though the sensitivity of Iceland’s PISA scores to students’ socioeconomic status is the lowest in the OECD region.

Citations:
Statistics Iceland, www.hagstofa.is. Accessed 22 December 2018.

Frumvarp til fjárlaga fyrir árið 2018. (Lagt fyrir Alþingi á 148. löggjafarþingi 2017–2018.) (State budget 2018).

OECD: Education at a Glance 2017, Paris.
http://www.oecd.org/edu/education-at-a-glance-19991487.htm. Accessed 21 December 2018.

Social Inclusion

#4

To what extent does social policy prevent exclusion and decoupling from society?

10
 9

Policies very effectively enable societal inclusion and ensure equal opportunities.
 8
 7
 6


For the most part, policies enable societal inclusion effectively and ensure equal opportunities.
 5
 4
 3


For the most part, policies fail to prevent societal exclusion effectively and ensure equal opportunities.
 2
 1

Policies exacerbate unequal opportunities and exclusion from society.
Social Inclusion Policy
7
From the mid-1990s to 2008, income inequality in Icelandic society increased dramatically. This was driven by a regressive tax policy, which in real terms reduced the income threshold at which households are exempt from paying income tax, and a rapid increase in capital income. High inflation further increased the tax burden of low-income wage earners, although the rate of inflation fell to around 2% in early 2014 and has since remained at a low level. The left-wing cabinet of 2009 – 2013 made the tax system more progressive by imposing the smallest tax increases on the lowest income groups. Consequently, according to Statistics Iceland (which failed to publish any information on income distribution until after the crash of 2008), the Gini coefficient for Iceland, excluding capital gains, rose from 24 in 2004 to 30 in 2009, before falling back to 25 in 2015 and 24 in 2016. Including capital gains, however, the Gini index for total disposable income in Iceland rose by one point a year from the mid-1990s onward until the crash of 2008, an unprecedented development (Gylfason, 2015, based on data from Internal Revenue Directorate; Ólafsson and Kristjánsson, 2013). Little is still known about the distribution of wealth and whether it became more skewed after the 2008 crash. The huge amount of hidden household financial wealth in tax havens, equivalent to 10% of world GDP in 2008 according to one estimate, casts doubt on official estimates of income and wealth inequality.

The Organization of Disabled in Iceland (Öryrkjabandalagið) has argued for years that their members are being left behind as wages increase. Significant cuts in public expenditure followed the 2008 economic collapse. For example, pensions and social reimbursements were cut, and have not yet been fully restored to their former level. In October 2016, just before the elections, the government announced an increase in pensions to the same level as minimum wages in 2018. In their September 2017 budget proposition, the government announced a further increase in pensions and social reimbursements. The result was a modest increase, far below recent wage increases. In the state budget, presented in autumn 2018, pensions and social reimbursements continue to lag behind wages.

After the crash, many families were dependent on food aid offered by volunteer organizations, a phenomenon not seen in Iceland for decades. Even so, Iceland performs quite well in international poverty comparisons, suggesting that social policies after the economic crisis were reasonably successful. For some households, however, the economic situation remains difficult but is gradually improving. In the past, young Icelanders could take housing for granted. However, house prices have become unaffordable for many because residential construction in the Reykjavík area has not kept up with demand and the tremendous influx of tourists has led to a substantial increase in rents. An ongoing effort by the city authorities in Reykjavík to build more housing is intended to improve this situation by lowering house prices and rent costs over the coming years.

Citations:
Gylfason, Thorvaldur (2015), “Social Capital, Inequality, and Economic Crisis,” Challenge, July.

Internal Revenue Directorate (2016), http://www.rsk.is/. Accessed 21 December 2018.

OECD website, http://www.oecd.org/els/soc/income-distribution-database.htm. Accessed 21 December 2018.

Ólafsson, Stefán, and Arnaldur Sölvi Kristjánsson (2013), “Income Inequality in Boom and Bust: A Tale from Iceland’s Bubble Economy,” in Gornick, Janet C., and Markus Jäntti (eds.), Income Inequality Economic Disparities and the Middle Class in Affluent Countries, Stanford University Press, Palo Alto, 416-438.

Ólafsson, Stefán, and Arnaldur Sölvi Kristjánsson, Inequality in Iceland, University of Iceland Press, Reykjavík, 2017.

Statistics Iceland (2015), Gini index, quintile share ratio and At-risk-of-poverty threshold 2004-2015.

Zucman, Gabriel (2015), The Hidden Wealth of Nations: The Scourge of Tax Havens. Chicago and London, England: University of Chicago Press.

Health

#18

To what extent do health care policies provide high-quality, inclusive and cost-efficient health care?

10
 9

Health care policy achieves the criteria fully.
 8
 7
 6


Health care policy achieves the criteria largely.
 5
 4
 3


Health care policy achieves the criteria partly.
 2
 1

Health care policy does not achieve the criteria at all.
Health Policy
6
On average, the health care system in Iceland is efficient and of a high quality. Iceland has one of the highest average life expectancy rates in the world. However, there is considerable variation across regions. For example, health care services in Reykjavík and its surroundings as well as the northern city of Akureyri are much better than in more peripheral areas where patients have to travel long distances to access specialized services. After the 2008 economic collapse, substantial cutbacks for a number of regional hospitals were introduced, closed departments, and centralized specialized care facilities. In addition, smaller regional hospitals and health care centers have consistently faced serious problems in recruiting doctors.

The University Hospital in Reykjavík (Landspítalinn Háskólasjúkrahús), by far the largest hospital in Iceland, has for several years been in a difficult financial situation. The 2013 – 2016 government did not provide adequate additional public funds nor did it allow the hospital to independently raise funds through, for example, patient service fees. The resulting shortage of nursing and other medical staff increased the work pressures on existing staff, including their hours of work. One of the issues in the 2013 election campaign was the question of how to finance a redevelopment of the University Hospital in Reykjavík and the health care system in general. In the 2016 election campaign, this question appeared to be the most important issue for both political parties and voters. This has already led to a modest increase in public health care expenditure. A considerable amount of money has also been granted to renovating old houses around Reykjavík University Hospital over the last decade.

Opinions remain sharply divided among political parties as to whether partial privatization of hospital services would be desirable. The current minister of health, Svandís Svavarsdóttir (Left-Green Movement), took several significant steps from thistoward partial privatization in 2018.

Life expectancy in 2016 was 82 years, the 13th highest in the world, up from 73 years in 1960 when life expectancy in Iceland was second only to that of Norway (World Bank, 2016). Even so, life expectancy was the same in 2012 and 2016, a four-year stagnation that has occurred only twice before in Iceland. On both occasions, the period of stagnation followed an economic shock: in 1967 – 1971 following the collapse of herring fishing; and in 1984 – 1988 following double-digit inflation, and the restoration of positive real interest rates and introduction of financial indexation.

Citations:
Government budget (Fjárlagafrumvarp), https://www.stjornarradid.is/media/fjarmalaraduneyti-media/media/frettatengt2016/Fjarlagafrumvarp2017.pdf. Accessed 22 December 2018.

World Bank (2016), World Development Indicators, http://data.worldbank.org/indicator/SP.DYN.LE00.FE.IN.

Families

#3

To what extent do family support policies enable women to combine parenting with participation in the labor market?

10
 9

Family support policies effectively enable women to combine parenting with employment.
 8
 7
 6


Family support policies provide some support for women who want to combine parenting and employment.
 5
 4
 3


Family support policies provide only few opportunities for women who want to combine parenting and employment.
 2
 1

Family support policies force most women to opt for either parenting or employment.
Family Policy
9
Family policy has long supported female participation in the labor force. Iceland’s rate of female participation in the labor force, between 75% and 80% since 1991, has long been among the highest in the world. Family policy has also encouraged a more equitable distribution of the burden of child rearing between genders. For example, in 2005, almost 90% of eligible fathers utilized their right to take parental leave of three months.

However, as a consequence of the economic collapse, maximum state payments during parental leave were reduced from ISK 535,000 in 2008 to ISK 300,000 in 2010 per month and, despite increasing to ISK 370,000 in 2014 and 2015. In January 2018, the amount was almost restored in nominal terms (ISK 520,000) but not in real terms as prices rose significantly after the 2008 economic collapse. Furthermore, average wages for men are higher than for women. This discourages men from taking parental leave, especially since the 2008 economic collapse. Following the raise in 2018, however, this may be changing.

Citations:
Gender Equality in Iceland 2017. The Center for Gender Equality (Jafnréttisstofa).
http://faedingarorlof.is/files/Upph%C3%A6%C3%B0ir%20f%C3%A6%C3%B0ingarorlofs%20og%20f%C3%A6%C3%B0ingarstyrks%202018_826789392.pdf. Accessed 22 December 2018.

Pensions

#4

To what extent does pension policy realize goals of poverty prevention, intergenerational equity and fiscal sustainability?

10
 9

Pension policy achieves the objectives fully.
 8
 7
 6


Pension policy achieves the objectives largely.
 5
 4
 3


Pension policy achieves the objectives partly.
 2
 1

Pension policy does not achieve the objectives at all.
Pension Policy
7
Iceland’s pension system is a fully funded one rather than pay-as-you-go. Pension policy is based on a tax-financed, means-tested social security program supported by tax incentives to encourage participation in occupational pension funds and voluntary savings schemes. The pension funds, which are based on employee contributions of 4% of total wages and employer contributions of 8%, are designed to provide a pension equivalent to 56% of an individual’s average working-life wage. In addition, employees can opt to pay a further 4%, with a further employer contribution of 2%, into a voluntary savings program. There is a large number of pension funds, currently 27, although this is down from 50 in 1997. Pension funds’ average annual returns on investments range from 1.2% to 6.2% in real terms (i.e., adjusted for inflation). Under the period capital controls 2009 – 2017, pension funds, which before the 2008 crash had gradually increased their foreign holdings, were confined to domestic placements.

In the past, Iceland’s pension policy appeared both conducive to poverty prevention and fiscally sustainable. However, Iceland’s pension funds experienced heavy losses as their investments in, among others, equities in Iceland’s banks depreciated substantially following the collapse of the banking system in 2008. These losses, which totaled about a third of GDP, caused most pension funds to reduce their payments to members and further reduced the living standards of pensioners. The pension funds have recovered since 2008 and once more have an overall assets-to-GDP ratio that is among the highest in the OECD group.

Two main issues confront the pension system. First, the Pension Fund of State Employees, the largest pension fund, has a huge funding gap that will have to be financed through future tax revenue. Second, given that pension funds have previously been used to fund social programs, as if supporting the government is more important than safeguarding the interests of retirees, there is a persistent danger that the government will seek to claim access to the funds to support its aims in a time of need.

In 2017, two major changes were made to the system. In March 2017, as part of the relaxation of capital controls, the central bank swept away restrictions on pension funds’ investments in foreign markets, which had been imposed following the 2008 financial collapse. The 2016 – 2017 government reached an agreement with the trade unions of state employees on their pension rights. The rights of those employees in the A-section of the Pension Fund of State Employees were changed from equal to age-related. At the same time, the state pension age was increased from 65 to 67 years.

Citations:
Ísleifsson, Ólafur (2012),“Vulnerability of pension fund balances,” Stjórnmál og stjórnsýsla, Vol. 8, No 2., 543-564.

Lifeyrismal.is Upplýsingavefur um lífeyrismál. https://www.lifeyrismal.is/is/frettir/breytingar-a-lifeyrissjodakerfi-opinberra-starfsmanna-taka-gildi-i-dag. Accessed 22 December 2018.

OECD Data. Pension funds assets 2015. https://data.oecd.org/pension/pension-funds-assets.htm. Accessed 22 December 2018.

Integration

#8

How effectively do policies support the integration of migrants into society?

10
 9

Cultural, education and social policies effectively support the integration of migrants into society.
 8
 7
 6


Cultural, education and social policies seek to integrate migrants into society, but have failed to do so effectively.
 5
 4
 3


Cultural, education and social policies do not focus on integrating migrants into society.
 2
 1

Cultural, education and social policies segregate migrant communities from the majority society.
Integration Policy
6
Civil rights legislation for immigrants is largely influenced by the Danish and Norwegian models, which also reflects Iceland’s obligations under the European Economic Area (EEA) agreement. Separate legislation for immigrants from EEA/EU countries and non-EEA/EU countries makes it difficult for citizens outside the EEA to move to Iceland. Legislation for non-EEA/EU countries focuses on the need for foreign labor and restricts non-EEA/EU migrants to temporary work permits. Authorities provide instruction in the Icelandic language for foreign nationals. Nationals from other Nordic countries with three years’ consecutive residency in Iceland are eligible to vote in local elections, while for other foreign national’s eligibility follows five years of consecutive residency. The right to vote in parliamentary elections presupposes Icelandic citizenship.

The center Alþjóðasetur in Reykjavík provides interpretation and translation services to immigrants. The Directorate of Immigration (Útlendingastofnun) – a division within the Ministry of Interior whose mandate includes processing residence permits, visas and citizenship applications – has repeatedly been criticized for expelling foreign nationals on weak grounds. The Directorate of Labor (Vinnumálastofnun) reaches out to foreigners by, for example, providing important information in English on its website. The Directorate of Labor is also responsible for running the European Employment Services office in Iceland.

A 2011 report on the social and labor market participation of immigrants following the 2008 collapse found that the economic crisis and subsequent rise in general unemployment resulted in lower labor market participation rates, a reduction in working hours, limited over-time and part-time employment, and lower wages. Immigrants are, for example, offered the same job as before but with lower salaries. Participants in the study also complained about increasing prejudice from Icelandic employers to foreign workers. Further, the authors concluded that labor market conditions following the 2008 collapse are much less favorable for immigrants compared with the previous period of economic expansion. One reason is that the industries that were the main employers of foreign citizens were particularly harshly hit by the recession.

In 2015, Iceland received and accepted 82 refugees. The government contributed further grants to the support of refugees in 2016. The number of refugees in Iceland increased from 111 in 2016 to 135 in 2017. Though the absolute number of refugees in Iceland is not large, the number of refugees nevertheless increased by 089% between 2015 and 2017.

In 2016 and even 2017, as earlier, the Directorate of Immigration repeatedly came under heavy media criticism for its insensitive handling of immigrants and refugees, especially for refusing to grant extensions to individuals who would face grave consequences if sent back to their home countries.

Citations:
Lög um kosningar til sveitarstjórna nr. 5, 1998 (Law on local government elections no.
5 1998).

Tölfræði hælismála 2015 http://utl.is/files/Tlfri_yfirlit_2015.pdf. Accessed 22 December 2018.

Tölfræði hælismála 2016 http://utl.is/files/Tlfri_hlismla_2016.pdf. Accessed 22 December 2018.

Tölfræði hælismála 2017 https://www.utl.is/images/t%C3%B6lfr%C3%A6%C3%B0i%202017/Allt_2017/T%C3%B6lfr%C3%A6%C3%B0i_%C3%A1rsins_2017.pdf. Accessed 22 December 2018.

Wojtynska, A., Skaptadóttir, U. D., and Ólafs, H. (2011), The participation of immigrants in civil society and labor market in the economic recession, University of Iceland, Faculty of Social and Human Sciences.

Safe Living

#10

How effectively does internal security policy protect citizens against security risks?

10
 9

Internal security policy protects citizens against security risks very effectively.
 8
 7
 6


Internal security policy protects citizens against security risks more or less effectively.
 5
 4
 3


Internal security policy does not effectively protect citizens against security risks.
 2
 1

Internal security policy exacerbates the security risks.
Internal Security Policy
8
Iceland has always been a secure place to live, with relatively few assaults, burglaries, or other crimes. However, some changes have occurred since the 2008 economic collapse. The 2007 – 2009 government was undermined by a series of protests, which – though largely peaceful – did lead to clashes between protesters and riot police in early 2009. While these events led only to minor injuries and some 20 arrests, they were the first serious riots since March 1949’s protests against a parliamentary decision to bring Iceland into NATO. Similar riots have not occurred since then. The main policing priority has been Iceland’s internal security. The police force has long suffered from a manpower shortage, exacerbated by low pay.

The incidence of drug-smuggling has been on the rise for several years. This trend reflects a related increase in the prevalence of violent attacks by individuals under the influence of alcohol or other drugs in Reykjavík, especially on weekends. Organized foreign gangs are considered responsible for the repeated waves of burglaries.

During 2017, four murders were committed in Iceland. Consequently, the country had a rate of 1.2 murders per 100,000 inhabitants in 2017 – the same rate as in Sweden, lower than in Finland (1.6), but higher than in Denmark (1.0) and Norway (0.6).

Global Inequalities

#16

To what extent does the government demonstrate an active and coherent commitment to promoting equal socioeconomic opportunities in developing countries?

10
 9

The government actively and coherently engages in international efforts to promote equal socioeconomic opportunities in developing countries. It frequently demonstrates initiative and responsibility, and acts as an agenda-setter.
 8
 7
 6


The government actively engages in international efforts to promote equal socioeconomic opportunities in developing countries. However, some of its measures or policies lack coherence.
 5
 4
 3


The government shows limited engagement in international efforts to promote equal socioeconomic opportunities in developing countries. Many of its measures or policies lack coherence.
 2
 1

The government does not contribute (and often undermines) efforts to promote equal socioeconomic opportunities in developing countries.
Global Social Policy
6
Iceland is a founding member of the United Nations.

The Icelandic International Development Agency (Þróunarsamvinnustofnun Íslands, IIDA) is a public institution associated with the Foreign Ministry, established in 1981. Its mandate is to cooperate with and assist developing countries. Recently, IIDA reduced the number of countries in which it ran projects (bilateral cooperation) from six to three: Malawi, Mozambique, and Uganda. Additionally, the IIDA is involved in a regional project on geothermal power in East-Africa. In late 2015, the Gunnlaugsson cabinet decided to merge the IIDA with the Ministry of Foreign Affairs.

In 2009, Iceland’s contribution to development aid amounted to 0.3% of GDP. This was reduced to 0.2% in 2012, well below the U.N. target of 0.7%. In 2014, the contribution rate was 0.24% of GDP, but increased to 0.29% in 2016. At the time of writing, Iceland’s contribution is still less than half of the U.N. target. In 2013, parliament resolved to meet the U.N. target, but has so far failed to implement this resolution. In 2013, Iceland joined the OECD’s Development Cooperation Directorate.

Apart from its rather limited development assistance, Iceland has not undertaken any specific initiatives to promote social inclusion in the context of global frameworks or international trade.

Citations:
Ministry of Foreign Affairs, Development Cooperation (Þróunarsamvinna). https://www.stjornarradid.is/verkefni/utanrikismal/throunarsamvinna/. Accessed 22 December 2018.
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