An Overview of Social Inclusion Developments in Iceland,
from 2007 to 2012
by
Stefán Ólafsson
Working Paper no. 2: 2012
Þjóðmálastofnun – Social Research Centre,
University of Iceland
Executive summary
Up to 2008 Iceland had a good position on social inclusion and poverty alleviation. For a long
time it had had one of the very highest employment participation rates amongst the advanced
nations, very low unemployment, high employment participation of females, the elderly, single
parents and people with disabilities. Its relative poverty rates were also amongst the lowest, as
generally applied to the Nordic nations.
The financial collapse of 2008 changed that to some extent, but not as drastically as might have
been expected given the extent of Iceland’s financial crisis. Even though Iceland’s unemployment
rate tripled in a period of a few months it still remained below the EU average. The at risk of
poverty and social exclusion increased from about 11.5% of households to about 13.7%, but still
remained the lowest within the European community. While the rate for Icelanders however did
not increase at all it increased quite drastically for immigrant workers, particularly immigrants from
Poland. As it turns out the group of immigrants are the single groups most at risk of
unemployment, poverty and social exclusion in Iceland now.
The social inclusion policy development in Iceland since 2008 was not particularly shaped by the
Commission’s recommendation on active inclusion. The main policy formation from 2008 and
through the crisis was determined by the crisis logic and quite clearly formulated already in the
government’s manifesto from the spring of 2009.
The general policy goal was to shelter the lower and middle-income groups from the worst
consequences of the crisis, with a touch of Nordic welfare policy mix. This was of course
restrained by the appalling condition of public finances and the tough requirement of balancing
the budget in a period of 4 years. The strategy of the government was to strategically redistribute
the welfare expenditures and pursue an egalitarian policy on income support and facilitating reinclusion of individuals excluded from the labour market by the crisis.
Benefits were targeted at lower income groups, tax burden on them was also relieved (while
raised on higher income groups) and active inclusion measures in the labour market were greatly
stepped up, including the use of the unemployment benefits fund to finance some of the
activation measures, for example by paying unemployment benefits to individuals in some
educational activities and by allowing for “part benefit-part paid work” and other similar options.
The ALMP policies seem to be quite successful in getting individuals back to work.
In terms of the three strands of active inclusion policy as defined in the Commission’s
recommendation from 2008, the services part was the hardest hit with expenditure cuts in
Iceland, since the policy gave priority to transfer payments in the interest of saving jobs.
Rationalizations and increased efforts were pursued in services, such as in health and education.
On the whole Iceland’s policy mix seems to have facilitated positive reactions against the crisis,
resulting in less relative burdens on the lower income groups and a lower unemployment rate
than became typical of the countries that were hardest hit by the financial crisis. Young families
with children were however disproportionately hit by debt burden, but the government has now
announced an increase in expenditures on child benefits by about 30% in 2013, which should
serve that group particularly well.
The group most at risk of exclusion in Iceland are immigrants, particularly immigrants from
Poland. It is recommended that immigrants in general should be specially targeted with new
efforts on the social inclusion front.
Table of Contents
Executive summary
Part 1.
The Inclusion Position and Strategies
1. Inclusion Strategies:
1.1
1.1.1
1.1.2
1.1.3
1.1.4
2.
2.1.1
2.1.2
2.1.3
Integrated comprehensive strategies
Comprehensive policy design
Integrated implementation
Vertical policy coordination
Activeparticipation of relevant actors
Description and Assessment of Impact and Cost Effectiveness
Adequate income support
Inclusive labour market
Access to quality services
Part 2.
3.
3.1.1
3.1.2
Resources, Evaluations and Recommendations
Financial Resources
National resources
Use of EU structural funds
4.
Monitoring and Evaluation
5.
Recommendations
5.1.1
5.1.2
5.1.3
Priority actions for the comprehensive active inclusion starategy
Prioritiesfor each of the three strands
Priorities for the EU level
Appendix I: Extra data
Appendix II: Overview of debt relief measures
References
Part 1.
The Inclusion Position and Strategies
It is useful to outline briefly the position of social inclusion issues in Iceland as of 2008, that is
before the onset of the financial crisis, before we map the developments from then on.
Iceland had had a very high level of employment participation for decades leading up to the crisis.
The employment ratio was generally in the region of 83-85% of people at working ages, the
highest amongst the advanced nations. Similarly unemployment had been amongst the lowest for
decades. The overall level of unemployment had however increased from the early 1990s
onwards, yet still remaining amongst the very lowest until 2008.
This high employment participation rate is often associated to a positive work ethic amongst the
Icelanders but rapid economic development from the 1960s onwards produced a work intensive
labour market with a high level of demand for labour (Ólafsson 1996; Ólafsson and Stefánsson
2005). Hence ample opportunities for work tended to be the rule except for short recession
periods. Both various supply and demand conditions favoured a high employment participation
rate.
Such a high participation rate could not have been upheld for longer periods unless some social
groups that tend generally to be marginal in labour markets had been highly included in the
Icelandic labour market. This has indeed been so.

Employment participation of women has been at a very high level for a long time
(Ólafsson and Stefánsson 2005).

People retire from the labour market generally late in Iceland. According to recent OECD
statistics the average age of effective retirement (age at exit from labour market) is 69.7
for males and 66.4 for females (OECD 2012- http://www.oecd.org/statistics/; see also
The Finnish Centre for Pensions 2008:2).

People with disabilities have one of the highest employment participation rate within the
OECD, or around 60% (Hannesdóttir et.al. 2010). Many of them are however in part-time
work. The average for the OECD-countries is significantly lower, or close to 45%.

Sickness absence rates are generally lower than in the other Nordic nations (Ólafsson
2008).

Long-term unemployment rates have generally been low and so have youth
unemployment rates (Andersen et.al. 2011).
So prior to the crisis which started in 2008 Iceland had a generally quite good social inclusion
position as regards labour market participation.
Before we start profiling the strategies applied during the crisis we give a short account of how
Iceland seems to be doing on a few strategic indicators of social incusion from immediately
before the crisis and during 2010, which is the time point at which the depth of the recession
effects was reached (by mid year).
Eurostat figures on risk of poverty or social exclusion for 2010 indicate that Iceland is the country
with the lowest risk on these combined factors, or 13.7%. The average for the EU was 23.5%.
Iceland’s rate had gone up from about 11.5% in 2007, yet it kept its place at the top of the league.
That indicates that Iceland had a relatively good success in containing poverty and exclusion
risks during the crisis. Given the size and severity iof the Icelandic financial crisis that seems to
be a rather remarkable outcome.
% of low income households (lowest quintile)
In figures 1 and 2 we show similar indicators for sub-groups of the population that are particularly
prone to exclusion and poverty risks. First, in figure 1, we show the risk of poverty and social
exclusion for lowest income group (the lowest income quintile).
110
100
90
80
70
60
50
40
30
20
10
0
2007
2010
Figure 1: At risk of poverty or social exclusion: Low income households (lowest quintile), 2007
and 2010.
25
22.9
Iceland increased the rate of this risk for this group only marginally from 2007 to 2010 and shares
the top position (with the lowest risk rate) with the Czech Republic, just above Netherlands,
Norway, Austria and Sweden.
5
4
5.5
4
5.9
5.6
6.8
6.4
7.3
6.9
7.5
7.3
7.9
7.7
8.2
7.9
8.6
8.4
9.1
8.9
9.8
10
9.8
10.3
11.8
12.6
11.1
10.2
9.2
10
12.2
15
13.1
% of households
20
0
2007
2010
Figure 2: People living in households with very low work intensity, 2007 and 2010. Iceland and EU
countries compared.
In figure 2 we show the proportion of people living in households with very low work intensity,
according to Eurostat definition. Iceland’s rate more than doubled, from the very lowest in Europe
in 2007 to 5.6% in 2010, which puts Iceland in the fourth lowest seat. Unemployment went from
1-2% before the crisis to 7-8% when it topped, so that was a big change, even though Iceland’s
rate remained lower than the EU average through the crisis. As figure 2 shows this happened
without dramatically changing the number of households with very low work intensities. The high
employment participation rate of females, and hence the high rate of dual-earner households,
provede to be a significant asset during the crisis. For about 9 out of 10 persons that were landed
in unemployment there was another earner in the household that kept his/her job.
So the indication is that while Iceland was falling into the crisis from a good position of low
poverty and social exclusion risk, it also seems to have succeeded relatively well in containing or
counteracting increasing poverty and exclusion, despite the severe blow to the country’s finances
and economy that the crisis inflicted.
One significant problem however has emerged during the crisis. That concerns the position of
immigrants. Af seen in figure 3 the risk of poverty or social exclusion amongst immigrants has
increased significantly, while the same thing has not happened amongst Icelandic nationals.
% at risk of poverty or social exclusion
35
30
25
20
15
10
5
0
2005
2006
2007
Iceland - foreigners
2008
2009
2010
Iceland - nationals
Figure 3: Proportion at risk of poverty or social exclusion: Icelanders and immigrants compared, 2005 to
2010.
This is an issue of great significance not least since the number of immigrants increased greatly
during the years of the bubble economy (2003 to 2007).
Now we turn to the account of the inclusion strategies
1. Inclusion Strategies:
1.1
Integrated comprehensive strategies
Since Iceland was not a member nor an applicant for membership of EU in 2008 the
Commission’s recommendations from 3rd October 2008, on active inclusion of people excluded
from the labour market, has not figured specifically in Icelandic policy-making. Application for
membership in 2009 has not changed that. The policy environment for inclusion of marginal
groups in Icelandic society is however quite comparable to the spirit of the Recommendation.
This is due to the fact that the Nordic welfare policy emphasis which has to a considerable extent
prevailed in Iceland longer-term has to some extent a similar emphasis on a number of issues
relating to adequate income support, inclusive labour market and access to quality services.
While the Icelandic welfare state has had some deviant characteristics, mainly as regards
extensive use of income-testing of benefits in the social security system, it shares many of the
Scandinavian features of welfare services. Iceland has also for a long-term had an outstanding
success in the area of inclusive labour market (Ólafsson 1999).
1.1.1 Comprehensive policy design
The general policy design in the area of social and economic inclusion has thus been developed
in the context of an emhasis on general welfare policies. From 2008 the context has further and
more specifically been defined by the financial crisis which hit Iceland during 2008 and
culminated in the collapse of the major banks in October of that year. In the wake of that followed
a major economic crisis with great cuts in real disposable earnings, increasing unemployment
and increased debt burdens for government, firms and households.
While it would be too much to say that there has been formed a comprehensive and integrated
policy on social inclusion in Iceland the policy environment still has many characteristics of a
comprehensive nature. This is due to the fact that even though progress on individual fronts
concerning issues of social inclusion (adequate income, inclusive labour market and quality
services for all) has generally been done in a piecemeal fashion over time, the policy environment
is neither ignorant nor aversive to the importance of coordination in policy-making. This is
particularly important since the policy environment in Iceland is characterized by a very high
degree of consultations and corporatism (Andersen et.al. 2011; Ólafsdóttir 2008).
The policy package formed to combat the crisis in Iceland was defined by the incoming
government of the Social Democratic Alliance and the Left-Greens, which got a majority in the
election of April 2009. The same government had served as an interrim minority government from
February 1st to the election. The government was in fact the first Scandinavian-type of a social
democratic government since Iceland’s independence in 1944. Previous left governments had all
been coalitions across the center and usually under the leadership of the right of center
Progressive Party (formerly the farmers’ party).
So the incoming government defined itself as a Nordic Welfare Government, aiming to shelter in
particular the lower and middle income groups against the worst vagaries of the crisis as well as
resurrecting the financial system and getting the society up and running again. The policies
already defined in the governmental manifesto, which was a contract between the two governing
parties, referred to some issues of prime relevance for issues of social inclusion, in addition to the
major program for combating the huge deficit in governmental finances in cooperation with the
IMF.
The government also pledged itself to change course from the pre-crisis emphasis on
unrestrained financial capitalism to a more marked emphasis on equality and social justice,
sustainability, feminist goals, reaffirming good morality and democracy. This was referred to in the
context of a general societal goal of reaffirming a Nordic Welfare Society in Iceland. Top priority
of course was the resurrection of public finances after the collapse, which led to a massive deficit
of about 14% of GDP. This was done in accordance with a joint program with the IMF aiming to
balance the budget by 2013.
The policy issues of major relevance for our task were the following.

Sheltering the lower income households against the reduced level of living, by redirecting
welfare expenditures and making them more effective





Changing the tax burden, lowering the burden og lower groups while increasing the
burden of the higher income groups.
Relieving the debt burden of households as far as public finances allow (freezing of
repayments; resceduling; strategically cutting debt levels relating to modest homes for
families unable to service their debts; increasing debt relief by use of tax rebates on
mortgage interest costs).
Securing the housing position of the general public, thus avoiding foreclosures.
Strengthening activation of the unemployed, which reached an unprecedented level in
Iceland (even though remaining below the EU average for most of the crisis).
Providing foundations for increased job creation, including by use of the occupational
pension funds, which had capital amounting to about 125% of GDP after the collapse
which resulted in a loss of some 20% of its assets.
Specifically the government stated that all changes in the area of social security and health would
be directed by the goals of equality, accessibility, quality, security and efficiency. The aim was
also to extensively cooperate and consult with stakeholders in central government, municipalities,
the social partners of the labour market and independent interest groups.
Previous goals of moving some welfare services from central government to local governments
were reiterrated. Strengthening of the health care centers as the first stop in the health care
system (Iceland has been one of the few Western countries with rather unlimited access to
specialist doctors in the public health care service). Strengthening the health care centers was
thus connected with the goal of increasing surveillance and restricting the use of the more
expensive specialist services.
Also were reiterrated the goals of providing facilities for elderly people to stay as long as possible
in their own homes into higher ages, by improving home services and home help. Similarly the
goal of building more nursing homes in the country was stated and in fact that became an
important feature of economic stimulus activities. These could be financed with occupational
pension fund capital and throughout the crisis they have provided important jobs for the very
hardly hit construction industry.
The already started work on simplifying and restructuring the social security pension system was
also to continue to a close. Similarly various goals of increasing rehabilitation and activation of
previously excluded pensioners and sick persons dropping out from the labour market were to be
continued.
New more varied options in family housing were also to be promoted, such as relating to options
of rented housing, some of which are prominent in the other Nordic countries.
The government also placed a great emhhasis on maintaining the educational system.
On issues of employment the government stated the aim of greatly strengthening activation and
educational measures, as well as for increasing availability of jobs. This was also related to the
goal of formulating a comprehensive employment policy for Iceland in cooperation with the labour
market partners and the academic community.
In addition the government announced a short-term program of job creation and a number of
other employment-promoting initiatives:




Facility to hire individuals from the unemployment registry with partial temporary support
from the unemployment benefits fund (part-benefit with work)
Strengthening innovation and start-ups
Emphasis on labour-intensive operations with allocations of public funds to job creation
Tax benefits (rebates) for investment in innovation and for R&D






Government purchases aim at supporting national productions and jobs
Government emphasizes maintenance work on public buildings, with the aim og creating
or maintaining more jobs
Public services jobs maintained, especially in welfare services and education
Increased cooperation with local governments, interest groups and the Labour
Directorate for creating summer jobs for young people, including green jobs and tourismreleted jobs
Facilitate provision of study loans to individuals coming to study from the labour market
or from the unemployment registry
Place a particularly great emphasis on combatting long-term unemployment
The government pledged itself also to formulate a stratagic national developmental plan, which
then emerged as the „Iceland 2020“ plan by the end of 2010, after extensive consultations with
stakeholders in all regions of the country.
1.1.2 Integrated implementation
Given that the general character of policy implementation in Iceland is target-focused, often done
in a piecemeal fashion and with a trial-error developmental procedure, one should not expect to
find much systematic concern with integration across diverse policy fields. The outcome may
however well be an integrated implementation, due to the extensive consultations and
cooperative policy tradition. The small-society context also helps to achieve that outcome in
general.
As a part of the crisis containment program the government aimed at reducing the number of
ministries (from 12 to 9, which is already achieved by this year) as well as to reduce the number
of public institutions, with the aim og reducing public expenditures and achieve greater efficiency
at the same time. Larger and fewer institutions, larger and fewer ministries were the order of the
day. This was done to some extent, while not all the proposed mergers were effected.
One important feature of this merger-and-greater-efficiency development was the creation of the
Ministry of Welfare on the 1st of January 2011. Thereby the Ministry of Social Affairs and the
Ministry of Health were merged. An important argument for that, in addition to the economizing
and synergy achieving arguments, was the improved condition for coordinating policy
implementations on welfare and work issues.
At the same time there was talk about also merging the Social Security Administration and the
Directorate of Labour to further the same goal. This was talked about also with reference to the
Norwegian system, were similar institutions were merged into the new NAV institution during the
last decade. This plan did not materialize however, partly it seems due to opposition from the
labour unions, which have made their own claim to operate the labour market institutions related
to unemployment. Hence they were in favour of merging the Directorate of Labour with the
Institute of Occupational Health into one labour market institute. That plan is a part of a general
ambition that the labour market partners have of privatizing this part of the public welfare system
into their own costody. That has however met with opposition and hence nothing further has
happened on that front to date.
On the whole the implementation of policies on adequate incomes, inclusive labour market and
quality services have thus since 2011 been coordinated within the Ministry of Welfare, usually in
close consultation with major stakeholders. The Ministry of Finance then also comes to play when
issues of expenditures arise. Due to the very difficult state of public finances and the tough
program for balancing the budget this has continually meant that big compromises hava had to be
made. As we show below the government generally tried to shelter welfare expenditures from
cuts or rather to cut less in that area than in other areas.
Primary emphasis was on cutting administrative expenditures, higher pay in the public sector was
lowered and in general the welfare expenditures were redirected so as to prioritize the middle and
lower income groups. Transfers to households were prioritized and more cuts were implemented
on expenditures for services (Ólafsson and Kristjánsson 2012; Ólafsson, Kristjánsson and
Stefánsson 2012).
1.1.3 Vertical policy coordination
There is generally a close coordination between different regional levels in the Icelandic public
administration. Due to the small size of the population in Iceland the role of government is
significantly larger in provision of welfare services than prevails in the other Nordic societies.
There the municipalities or regional organizations have a prime role, such as in operating the
health care system and hospitals.
In the last decade the operation of the primary schools was transferred from the state to the local
municipalities. Transfer of further service provisions from central government to local
governments is still a policy priority and that has continued during the crisis period since 2008.
Hence transfer of home nursing has moved to local authorities and from the first of January 2011
the operation of services for disabled individuals was transferred from central government to local
governments.
The general policy prevails that the local authorities should provide larger parts of services to
households, i.e. the services which are of particular relevance for the micro context where
proximity of provider to service recipient is of major importance. The operation of the last stop in
the society’s social protection system, the social assistance provision, has of course for a long
time been in care of local authorities. They have independence in deciding on provisions and
service levels within the framework of general legislation on welfare rights.
The central government does however issue at the beginning of each year recommendations to
local authorities for what is considered an adequate amount provided in the means-tested
financial assistance. This has prevailed for about 5-6 years to date. Previously there was a
tendency for the social assistance benefit to lag behind other benefits in the public social security
system, such as the disability benefit and O-A pensions (Herbertsson 2005). While the local
authorities can deviate from the recommendations most comply to them.
1.1.4 Active participation of relevant actors
We have argued that there are particularly good conditions for exerting individuals’ voices in
Icelandic society for the improvement of social inclusion conditions and poverty reductions,
through the interest group and NGOs channels, and through unions and political parties. The
small scale of Icelandic society, the openness and informality of social relations and generally
good conditions (in media and personal relationships) for individuals’ and interest groups’ voices
to be heard provide for that. This is particularly effective when matters are of common concern
and touch issues of equity and fairness, as well as compassions. This means that governments of
differing partisanships (both to the right or left) give in to such pressures, even though the left
have had a greater propensity to give in to demands from the lower income groups and unions.
This makes for a pragmatic and equitable social inclusion environment, which increases the
likelihood of problems of hardship being tackled by various coalition governments. We believe
that this is one of a few factors that explain the generally good outcome of Iceland in the area of
social inclusion and poverty reduction. Thus the Icelandic society is quite amenable to a high
degree of social capital that provides a fertile ground for pragmatic and positive solutions to
immediate issues of concern to the public.
True to this tradition the present government has extensively consulted and coordinated with the
labour market partners, local authorities and special interest groups. Hardly any major decision in
the area of inclusion and welfare is taken without such consultations. In fact in the governmental
manifesto from May 2009 there was already a reference to a major Stability Pact between
government and the labour market partners, which was then finalized in the latter part of June. So
in effect the government was already consulting with the social partners during the negotiations
between the governmental parties.
The Stability Pact (Stöðugleikasáttmálinn) involved all the major federations of the labour market,
employers’ federations, the federation of employees in the financial sector, and the federation of
local municipalities. In effect all the most influential standing organizations of the society, except
for pensioners organizations (disability pensioners and old-age pensioners). The pact had the
major aim of facilitating the imminent and pressing resurrection job of government and it involved
a continuation of the bargaining contract from 2008 through to November 2010 without any
general pay rises (minimum pay was however increased a little). It was stated in the pact that the
task of balancing the budget should involve a mixed approach of expenditure cuts and tax
increases. Cuts should amount to 55% of the deficit reduction and tax rises about 45%. It was up
to the government of course to work out the specifics and how the burdens were to be distributed.
Instead of pay rises there was a long list of goals to be reached during the pact period, some of
them of financial and macro-economic nature, and in fact some of these were beyond the
governing role or influence of the partners to the pact, such as goals about interbank interest
rates (solely the responsibility of the independent Central Bank), currency controls and value of
the currency, and investment goals. In hindsight the pact had an importance for regaining stability
in the society, since major influential organizations joined hands with the government to aid the
resurrection task. However the substantive aspects were in many cases trivial and not very
consequential and in fact the following year the partners, particularly the employers’ federation
and the private sector unions’ federation (ASÍ) blaimed the government for not honoring some of
its promises. That was however contested by government.
Prominent goals relating to households were concerned with debt relief measures and activation
and job creation goals.
2.
Description and Assessment of Impact and Cost Effectiveness
2.1.1 Adequate income support
Given the above mentioned policy goal of sheltering the lower and middle-income groups with the
effects of the crisis on living standards it is useful to survey the major changes that were
implemented to achieve that goal.

For reference the price index rose by 41% from 2007 through 2010

Minimum pensions (i.e the minimum pension guarantee) in the social security system
were raised by 40.8% in the same period

Social assistance benefits were raised by 32.4%

Minimum wages were raised by 31.7%

Unemployment benefits were raised by 30.9%

The general wage index increased only by 17.8% in the same period

Subsidies for mortgage interest costs were increased by 108% while the interest cost of
the same loans increased by 40.6%
On this list are many benefits that specifically accru to the lowest income groups and some also
go in significant amounts to middle income groups (suh as interest cost subsidies). In addition the
personal tax allowance in the income taxation system was increased by some 45% in the same
period. That significantly reduced the tax burden of lower income groups (Ólafsson and
Kristjánsson 2012).
All of these changes relating to adequate income support while the worst of the crisis unfolded
(bottom was reached by mid year 2010) had a significant effect on sheltering the lower and
middle-income groups against reduced living standards. Hence the real disposable incomes
declined less in those groups than it did in the higher income groups, as can be clearly seen in
figure 4.
0
Changes from 2008 through 2010 in %
-5
-10
-9
-9
-15
-13
-13
-14
-14
-14
-15
-17
-20
-25
-30
-35
-40
I
II
III
IV
V
VI
VII
VIII
IX
-38
X
Figure 4: Change in real disposable earnings from 2008 through 2010, by income deciles.
Source: Icelandic tax data, calculation by the Social Research Institute
The cut in living standard of the lowest two deciles was about 9%, the median groups got a cut of
14% and the second highest decile had a cut of 17% while the top decile lost about 38%. This
outcome was both due to the redistribution effect of government policy and reduced financial
earnings that had the greatest effect in the top income group.
As we have shown in former reports the relative poverty rate did not increase in Iceland during
the crisis. In fact the overall 60% at risk of poverty rate for the population went from just over 10%
to 9.2% in 2010. If we specifically look at the old age pensioners their poverty rate went from
about 18% in 2006-7 down to 4.5% in 2010. That was primarily a result of decisive increase of the
minimum pension in the social security system as well as the lowering of tax burden in the lowest
income groups. At the same time the poverty risk of immigrants rose as was shown in figure 3.
In figure 5 we see that a group that generally is at a significant risk of poverty, the lowest
educated individuals in the society, were not incurred for higher relative poverty rates during the
crisis. Given the enormity of the financial collapse that seems to be a significant achievement in
averting increased poverty at the depth of the crisis. Financial hardships were however increased
for all (given the 9% reduction in real earnings of the lowest groups) and therefore one should
interpret the figures on relative poverty rates with due caution. Absolute poverty measures would
be more realistic in a situation such as the present financial crisis. The relative measures do
however indicate that the lowest groups were sheltered to a higher degree and hence the income
distribution did become more equal during the crisis (Ólafsson and Kristjánsson 2012a and
Ólafsson and Kristjánsson 2012; also Statistics Iceland 2011 and 2012).
% of low educated people at risk of poverty
40
35
30
25
20
15
10
5
0
2005
2006
European Union (27 countries)
2007
2008
Ireland
2009
Iceland
2010
Norway
Figure 5: People with low education level at risk of poverty (60%), 2005-2010. Iceland, Ireland, Norway
and the EU average.
Figure 5 also shows that Iceland did particularly well in sheltering this highly vulnerable group,
basically maintaining its favourable position on that account during the crisis, in comparison to the
EU average and Ireland and Norway, to mention two neighboring countries (one in a similar crisis
as Iceland, i.e. Ireland, and Norway which was hardly affected by the crisis at all).
In the appendix we also show poverty rates for selected groups before and after social benefits
and transfers, indicating that the social protection system raised about 16% of the population
above the 60% poverty level in 2006. That figure was up to 25% in 2010, clearly showing that the
strategic application of the social protection system averted a significant increase in the relative
poverty level during the dark days of the crisis.
2.1.2 Inclusive labour market
On the whole there has been an increase in public expenditures on labour market activation and
inclusion measures by about 60% from 2008 through 2011. Prior to the crisis Iceland did not have
a large array of measures to activate individuals, since the participation rate was generally very
high and unemployment level were generally low and primarily short-term. After the crisis this was
widely seen as a field for a major increase in efforts and this was indeed done. The following are
some of the main public measures put in place from 2009 onwards, both in the form of special
strategic efforts (Átaksverkefni) and more varied ongoing measures on offer by the Directorate for
Labour and the Public Employment services.
Special strategic programs (see further on www.vinnumalastofnun.is):

Ungt fólk til athafna (Youth to Action). This program is aimed at young people at ages
16-29. The program promises to offer any individual at those ages that becomes
registered as unemployed either a job, educational opportunity, training for specific skills
or any other accepted measure on offer by the Directorate within a period of three
months. This started in February 2010 and is still running. In relation to this access to
various educational options were extended, both in the labour market program for lifelong learning (Starfsmenntastöðvar atvinnulífsins) and in the formal public educational
system. All registered unemployed in those age groups were to be covered (or reached
with offers) by 1st September 2010. We assess the success of that program in section 4.

ÞOR – Þekking og reynsla (Dare – Knowledge and experience). This is a program
that is aimed at long-term unemployed individuals, defining long-term unemployment as 3
months or more. It was started on August 1 st 2010 and participation was made
compulsory for all concernd registered unemployed individuals. When the call comes the
respective individual has to go and see an advisor at the Directorate and register for
some of the about 70 specific measures on offer (ranging from jobs to education or skill
training). Failure to comply can lead to ceisure of benefits payment. This is also tied to
continuing efforts to seek jobs.

Nám er vinnandi vegur (Education is a Working Option). This is a special effort to
channel registered individuals into education, started in the autumn of 2011 and
continued in 2012. Specific educational offers were made available. Individuals
transferring from the unemployment registry to education can continue receiving
unemployment benefit to the end of the respective year. Then they qualify for study loans
(from the public students study loan fund – LIN). Those who do not qualify are eligible for
a study grant from the unemployment benefits fund. The study options ranged from
access to university to formal study in the secondary educational system as well as in
shorter-term courses.
Routine labour market activation measures (see further on www.vinnumalastofnun.is)







Educational opportunities of various kinds
Charity work, in connection with formal charity organizations (such as the Red Cross, the
Church etc.)
Employment-related rehabilitation
Start-up initiatives, for example in cooperation with incubation centres
Special support for entrepreneurial activities
Specific skills training programs
Subsidized employment – retainment of unemployment benefit plus pension insurance
contribution while employed and paid by union contracts.
All of these measures are formal and usually involve contracts and monitoring of progress.
As figure 6 shows the registered unemployment rate for Icelanders and immigrants did not just
reach differeing heights but the recovery is also divergent.
25%
% unemployed
20%
15%
10%
5%
0%
2000
2001
2002
2003
Icelanders
2004
2005
Immigrants
2006
2007
2008
2009
2010
2011
Polish immigrants
Figure 6: Registered unemployment 2000-2011: Icelanders and immigrants compared.
Directorate of Labour, direct contact (Karl Sigurðsson).
While the registered unemployed Icelandic nationals reached a top of 8.1% in 2009 the immigrant
population in general topped at 14.5% in 2010 and Polish immigrants specifically topped at just
over 20% also in 2010. The reason for higher unemployment rate amongst Polish immigrants is
probably due to the fact that they have been very prominent as workers in the construction
industry, which was particularly badly hit.
But another important message from figure 6 is the fact that progress towards lower registered
unemployment seems to be the sole prerogative of Icelandic nationals, at least to the end of year
2011. This is in line with the higher rate for risk of poverty or social exclusion amongst foreigners
in Iceland, shown on figure 3 above. This clearly raises the question of whether the measures
implemented for reducing unemployment are sufficiently reaching the immigrant population. The
pattern of unemployment before the crisis does not indicate a direct discrimination at that time,
since the Polish immigrants had the lowest unemployment rate from 2000 through 2007. If the
higher unemployment rate amongst them during the crisis is due to construction industry effect
then the indication is that labour market measures are not reaching them sufficiently. Education
options may also be a special hindrance for them. Hence this issue seems in need of great
consideration in order to avoid the creation of a longer-term problem and a divide between
Icelandic nationals and the immigrant population. Given the situation as it is now this should be a
priority policy goal.
2.1.3 Access to quality services
Even though the government pledged to preserve welfare services in its manifesto this proved to
be a difficult feat to optain, given the poor state of public finances and the toughness of the task
for balancing the budget. Even though welfare expenditures got less cuts overall than other
categories of public expenditures there were quite drastic cuts in some areas of welfare services.
Figure 7 shows how the welfare expenditures faired when disaggregated for overall expenditures
on transfers and services. On the whole social protection expenditures increased (in fixed prices)
from 2007 to 2010 by 4.2%. Transfers increased much more, or by 11.6% while services
expenditures declined by 2.8%.
Social Protection expenditures
total
4.2
Transfers total
Services total
11.6
-2.8
-4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
Figure 7: Development of social protection expenditures from 2007 through 2010 (% change): Services
and transfers.
Statistics Iceland
This reflects the governmental priorities which were concentrated on softening the reduction of
real earnings of lower and middle income households. Administration and services got the largest
cuts (see further a figure on public expenditures in Appendix).
While hospital services received quite extensive expenditure cuts it is interesting that indicators of
service quality and waiting lists did not seem to be affected until 2010. In fact waiting lists for
many important operations in the hospital services were in fact shortened from 2007 to 2010, but
since 2010 they have increased somewhat again. Thus by 2012 there is considerable strain being
felt in the health care and hospital services, both as regards manning and maintenance and
renewal of medical equipment. The budget for 2013 is promising some increases for purchase of
specialized equipment and while the public sector is in general burdened with a further 0.5%
rationalization order for 2013 the health care sector is relieved of that request.
So on the whole one can say that access to health care services has been fully maintained but
the quality of services may have had some setback due to more restricted manning levels and
decline of equipment qualities (OECD 2011; Diretorate of Health 2012).
In education expenditure cuts were also extensive, despite the government’s manifesto claim
about its importance and the intention of sheltering children. The educational system got
expenditure cuts disproportionally at lower levels (primary and secondary levels) while the
university level got a slight increase. The reason for the latter is the fact that the number of
students at university level increased largely, providing some increases in student-tied
expenditures. Yet expenditures per student fell quite a lot.
Since many of the labour market measures involved facilitating entry to university level education
as well as to secondary level institutions, without correspondingly increased funding there is likely
to have been an increased strain on quality of educational services. The increasing number of
students however indirectly sheltered the university institutions from sacking full time pesonel.
Part-time teaching was however significanty reduced and the average number of students in
courses increased. It remains to be seen if this development has compromised quality standards.
As regards the University of Iceland it managed to enter the rank of the 300 best universities in
the world (according to the Times Higher Educational Supplement) in 2011. In 2012 it managed
to improve its position a little. The ranking of educational services is still að drawback for the
university so the strength comes more from research than from quality of teaching services.
Manning of social services increased significantly during the crisis years so one should perhaps
not expect a significant decline in that area, despite increasing need for such services (Ólafsson,
Kristjánsson and Stefánsson 2012).
3.
Financial Resources
3.1.1
National resources
While public revenues had been larger than expenditures between 2004 and 2007, i.e. during the
height of the bubble economy, the picture changed completely after the onset of the crisis. Public
expenditures rose drastically already in 2008 (with large one-time expenditures, such as related
to the collapse of the financial system and resurrection of the Central Bank and other banks as
well). Much of this extra crisis cost was turned into public debt. As figure 8 shows the real value of
expenditures per capital was lowered consecutively from 2009 through 2011 and further on
through 2012. The budget for 2013 is going to be quite close to balanced and fully balanced by
2014.
3500000
3000000
2500000
IKr.
2000000
1500000
1000000
500000
0
2001
2002
2003
2004
2005
Revenue per capita at 2011 prices, ISK
2006
2007
2008
2009
2010
2011
Expenditure per capita at 2011 prices, ISK
Figure 8: Public expenditures and revenues per capita in fixes 2011 prices, 2001 to 2011.
Statistics Iceland
So on the whole we can say that despite the setback the real expenditure level per capita is not
far from what prevailed in 2003-2004, which were no crisis years. That however underestimates
the extra strain on public finances since close to 20% of the public expenditures now are on
interest cost, an item that prior to the crisis was very small indeed.
Figure 9 shows a breakdown of real changes in welfare expenditures from 2007 to 2010,
disaggregated by major social protection areas.
Social Protection expenditures total
Transfers total
Services total
4.2
11.6
-2.8
1. Sickness and accidents
-11.4
1.1 Transfers -19.6
1.2 Services - health care
-9.7
2. Disability
2.1 Transfers
2.1.1.1 Social security
2.1.1.2 Occupational pension funds
2.2 Services
-1.1
3. Old age pensioners
-3.3
3.1 Transfers
-3.7
3.1.1.1 Socia security -20.2
3.1.1.2 Occupational pension funds
3.2 Services
5. Families and children
-0.3
5.1 Transfers
-3.9
5.1.1 Birth leave benefits
-11.0
5.1.3 Child benefits
5.1.4.3 Allemony
5.2 Services
7. Housing
7.1 Transfers
7.1.1 Rental subsidies
7.1.3 Mortgage interest subsidies
8. Other social assistance
8.1 Transfers
8.2 Services
-4.6
13.4
18.2
14.0
28.6
8.7
1.3
1.2
25.0
3.1
58.7
58.7
26.9
60.4
16.5
45.2
-30.0 -20.0 -10.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0
Change from 2007 to 2010 in %
Figure 9: Changes in welfare expenditures from 2007 to 2010, by major types and by transfers and
services. Change in fixed 2010 prices.
Statistics Iceland
Here we see how cuts in the area of sickness were quite extensive, both as regards transfers and
services. Most of the transfers in this area (sickness benefits) come from employers (retainment
of pay for 1 to 3 months in cases of serious sickness) and these were not significantly affected so
the figures only refer to public expenditure changes. In the field of disability pensions and
services there was a decisive increase on all fronts. Partly this reflects the large increase in the
minimum pension but some rehabilitation measures aimed at the unemployed may be counted
here.
For old age pensioners there were cuts in the public social security system. Even though the
lowest income groups of O-A pensioners were sheltered by the minimum pension guarantee
those with higher earnings got significanty increased cuts, since the basic pension of the social
security became income-tested against occupational pension fund earnings for the first time in
July 2009. Expenditures from the occupational pension funds however increased, since their
pensions are tied to the price index and inflation increased significantly in 2008-2010.
In the field of family and child benefits expenditures there were rather large cuts in birth leaves
benefits while the child benefits increased a little bit. The child benefit also became more targeted
at the very lowest income earning households. The government has now annunced in the budget
for the year 2013 that it will increase the child benefit by about 30%, which is a large step and
timely in the sense of better protecting a particularly vulnerable group, a group that also in many
cases sank deep in depth problems.
Then in the field of housing benefits there were very large increases in subsidies of mortgage
interest costs, by some 60% for owners and increased subsidies to families in rented housing
increased by 27%. Increases in social assistance were also quite large, in the region of 45%.
Lastly the expenditures on unemployment benefits increased by some 620%, with the
unemployment rate going from about 1-2% up to around 8%. Expenditures on services to the
unemployed, or various activation measures, increased by about 60%.
The areas of the largest increases in expenditures, unemployment and housing, can be further
examined in figure 10, which shows the development in real IKr. (in 2010 prices) from 2007
through 2010.
12.6
Total unemployment expenditures
19.4
83.5
79.6
10.6
Unemployment benefits/transfers
17.2
81.7
76.3
2
2.2
Services to the unemployed
1.8
3.2
32.2
35.9
Housing transfers total
47.6
51.1
6.7
5.5
Rental subsidies
8.4
8.5
23
25.2
Housing interest cost subsidies
34.1
36.9
0
10
20
30
40
50
60
70
80
90
Public expenditures per capita, in IKr. at fixed 2010 prices
2007
2008
2009
2010
Figure 10: Public expenditures on unemployment and housing, from 2007 to 2010 (IKr. per capita at fixed
prices).
Statistics Iceland
Housing expenditures (primarily subsidies for mortgages interest costs) were significantly larger
than unemployment-related expenditures before the crisis. The increases in the unemployment
expenditures were of course much greater but a 60% increases in the mortgage interest
subsidies on top of a large sum were quite large in the context.
So on the whole the welfare or social protection expenditures were redirected in a strategic
manner which emphasized transfer payment increases in some important areas while cuts were
larger on service provisions. The transfer expenditures were also in many cases directed or
targeted further at lower and middle income households, hence contributing to redistributive
effects on real disposable earnings, favouring those same households.
3.1.2
Use of EU structural funds
Since Iceland is not a member of EU it has not to any significant extent enjoyed contributions
from EU structural funds for financing policy measures in the area of welfare.
4.
Monitoring and Evaluation
On the whole we would argue that there is a lack of evaluation studies of how the various policy
measures have succeeded in reaching their goals in Iceland. While general data on poverty,
unemployment, earnings and on various consequences of the crisis on levels of living clearly
indicate that Iceland has succeeded reasonably in weathering a massive crisis after the collapse
of the country’s financial system in the autumn of 2008, we still know less about the effectiveness
of individual measures (Ólafsson and Kristjánsson 2012, Ólafsson, Kristjánsson and Stefánsson
2012; Central Bank 2012).
Still there have been some significant new efforts at improving monitoring of crisis development
and consequences and evaluations of specific measures. In general we would mention the
following:

Data provided by involved institutions, such as the Directorate of Labour; Social Security
Administration; Tax authorities; Ministries and interest groups

Data provided by Statistics Iceland and academic researchers

Monitoring activities of the Welfare Watch (set up in 2009)

The Iceland 2020 program and its monitoring of identified strategic targets

Special evaluation studies
In general there is considerable transparency in Icelandic society and, as we have argued in a
former report, considerable responsiveness of governments to concerns and voices from the
grassroot. This sometimes has the effect of drawing out information and statistics from concerned
institutions. An example of that is the data in table 1 which was provided to us by the Directorate
of Labour that administers the unemployment benefits fund and many of the ALMP measures.
The data refer to participation of unemployed individuals in the Directorate’s measures during the
year 2011 and success in cutting numbers of individuals on the unemployment registers.
Given that on average about 13.000 individuals (some 8% of the labour force) were registered as
unemployed in every month of 2011 and given the flow in and out of the registry in every year it
seems that the nearly 15.400 individuals that took part in the ALMP measures during the year
must be close to everybody that has been unemployed for more than three months in that year
(see table 1). In that sense the coverage of interventions and measures must be quite high by
international standards in proportional terms.
The table shows the numbers of participants in individual measures or programs during the year
and the position of the individuals after the respective program was finished (i.e. number and
proportions still unemployed or having exited from the unemployment registry).
The biggest participation is in various educational measures, with some 55% of the unemployed
registering in those, the second largest group (about a third) only takes basic measures primarily
aimed at facilitating job search and some 8% take measures which involve leaving the
unemployment registry and taking up training or a job supported by transferring the
unemployment benefit to the employer concerned.
This last group, i.e. those that enter work places, have the highest success rate, ranging from
54% to 82% leaving the unemployment registry within three months of the program ending. So
this seems in majority of cases lead to a more permanent jobs. Those who enter vocational
training or rehabilitation while still on unemployment benefit (some 2-3% of the unemployed) have
quite good results, ranging from 31% to 53% leaving the unemployment registry within three
months of termination of the program.
Table 1: Participation in Active Labour Market Programs and their Outcomes in 2011
Position 3 months after
program - numbers
Unemployed Off UE- registry
Basic measures
1 Short courses for job search etc.
1 Longer support with job search
2 Self enhancement courses
3 Work smiths/artwork/craft work
464
2,561
807
1,408
Educational measures
4 Basic educational courses
4 Icelandic language courses
5 Computers/bookkeeping/office tasks
6 Vocational training Starfst. nám/námsk.
99 Educational participation general
9 Educational contract NEVV
9 Educational contract short course
9 Educational contract longer studies
753
2,497
1,313
1,148
474
939
1,194
235
Vocational measures while on UE-benefit
604 Vocational rehabilitation
607 Voluntary work (organized)
608 Work place training
7 Innovation with own business plan
84
116
26
162
5,240
321
1,898
615
1,044
143
663
192
357
69%
74%
76%
75%
31%
26%
24%
25%
570
1,933
1,011
775
326
126
709
155
183
564
302
373
148
813
485
80
76%
77%
77%
68%
69%
13%
59%
66%
24%
23%
23%
32%
31%
87%
41%
34%
58
54
14
107
26
62
12
55
69%
47%
54%
66%
31%
53%
46%
34%
16
149
199
71
176
595
18%
46%
25%
82%
54%
75%
10,080
5,300
66%
34%
8,553
388
Occupational training, special program, entrepreneurial-UE benefit to
employer
7 Innovation/entrepreneurial work
87
8 Special programs
325
8 Occupational training, experimental hire, on-job guidance
795
Total
Position 3 months after
program - %
Unemployed Off UE- registry
15,388
1,207
15,388
Source: Directorate of Labour, direct contact; data provided by Karl Sigurðsson
Those who go in for educational measures, the largest group, have also reasonable success
rates, ranging from 23% to 87% leaving the registry. Though the group only taking part in basic
measures has lower success rates on average the difference between that group and the general
educational measures group is not significant. The success rates for the basic group range from
24% to 31%.
So on average about a third of all the registered unemployed individuals have left the
unemployment registry within three months of finishing some of the measures on offer by the
Directorate of Labour during 2011.
Of other evaluation and monitoring activities various statistics and reports from Statistics Iceland
are of importance, especially statistics from the EU-SILC surveys that relate closely to some of
the social inclusion and poverty issues. The participation of Statistics Iceland in Eurostat program
since 2004 has thus been a very important step in imporving information access in this area.
Various other SI publications of routine data are also of use for monitoring these issues.
The Welfare Watch (Velferðarvaktin) which was set up in 2009 has continually monitored welfare
and social problem developments during the crisis years and voiced concerns and given
recommendations to stakeholders, institutions and government, with the aim og facilitating early
responses to imminent or emerging problems related to the crisis. The Welfare Watch has had a
special focus on issues relating to children (see our more extended survey of the activities of the
Welfare Watch in the first Social Inclusion Network Report for 2012 – Iceland’s Way out of the
Crisis).
One important innovation that the Welfare Watch initiated was the compilation of a compendium
of social indicators with a special focus on short-term changes (mont-to-month; quarter-toquarter). These are planned to be updated regularly and hopefully facilitate swift reactions to
imminent problems. This was done in cooperation with a wide array of concerned public
insitutions and the academic community, as well as Statistics Iceland.
The strategic program Iceland 2020, which involved a wide-ranging consultation and cooperation
with stakehoders from all over Iceland in 2009-2010 defined some 20 measurable goals which
are monitored regularly as data becomes available on the web site of ther Prime Minister’s Office
(http://www.forsaetisraduneyti.is/2020/maelikvardar). Amongst these are important social
inclusion measures such as relating to unemployment, disability pensioners, equality, drop-out
rates from secondary schools.
In April of 2012 the Prime Minister’s Office also published a monitoring report about the progress
of the various issues aimed at in the Iceland 2020 program, i.e. other issues that the directly
measurable ones (http://www.forsaetisraduneyti.is/frettir/nr/7150). This report surveys the
progress on an all fronts relating to different ministries and institutions.
Specific evaluation surveys are rather few and far between and improvement on the evaluation
front should perhaps be focused on producing more of those, undertaken by independent
institutions or researchers. The Social Sciences Research Institute of the University of Iceland
undertook an evaluation of the size and characteristics of the group of people seeking food
donations from emergency help organizations (http://www.velferdarraduneyti.is/rit-og-skyrslurvel/nr/32519) towards the end of year 2010, when the risis was at its deepest level. The receivers
of food donations were primarily at ages 20-59, most of them unemployed or disability
pensioners. Immigrants were also quite prominent in these groups, particularly Polish immigrants.
This is thus another indicator of high risk position of immigrant in Iceland, in addition to their high
unemployment rates.
The Social Research Centre of the University iof Iceland undertook two surveys on the impact of
the crisis on the level of living of the population, for the Ministry of Welfare in 2011-2012. The
reports were published in 2012 (Ólafsson and Kristjánsson 2012; Ólafsson, Kristjánsson and
Stefánsson 2012). These reports surveyed various aspects of level of living consequences, such
as earnings developments, debt burdens, welfare provisions developments, unemployment and
jobs developments, emigration, poverty and financial hardships and attitudes of the general
population to their conditions and prospects.
The main conclusions of the reports were that the countervailing policy measures of government
were to a significant extent successful in softening the crisis effects on the population and also in
facilitating the resurrection of the economy. The main drawbacks were found to be low child
benefits and deteriorating position of old-age pensioners with average or higher pensions, who
received disproportionate cuts, while the lowest earning pensioners were well sheltered. Slow
growth of new jobs was also a drawback, which is primarily caused by high debt levels of firms
and businesses as well as government and households. Hence conditions for new investments
are difficult, as is common in the wake of deep financial crises (Jonung 2000; Kiander 2005a and
2005b).
The Central Bank of Iceland produced a very interesting study of debt burden and debt relief
measures from the beginning of the crisis to the end of 2010 (Ólafsson and Vignisdóttir 2012; see
also IMF 2012). It surveyed the major development of debt accumulation of households and
found that the main part of the debt problem was already in place before the collapse of the
banks and about 85% of serious debt burden problems of households were also in place before
the collapse (i.e. by the summer of 2008). The debt problems culminated in the autumn of 2009
and have improved significantly since then.
5.
5.1.1
Recommendations
Priority actions for the comprehensive active inclusion starategy
Directly addressing synchronization of the various social inclusion measures would be a useful
exercise for Icelandic authorities. This might lead to improved efficiency in utilization of resources
in the field.
5.1.2
Priorities for each of the three strands
Adequate income support:
a) I would recommend that the child benefit be increased by up to 50%. The main reason for that
is its long-term erosion from 1995 tol 2005 and inadequate use of that measure to combat
negative consequences of the crisis on families with children. Young families with children were
often also involved in purchasing flats during the period from 2004 to 2008, at the height of the
bubble economy. Housing prices at that time were highly elevated and hence the debt
accumulation of these families became unusually large. A significant increase in the child benefit
would help these families disproportionally, given the income-asset-and-family testing of the
benefit formula.
b) I would recommend reducing the income-testing of the basic social security benefit against
occupational pension earnings which was implemented in July 2009 (or increase the free income
bracket of the social security benefit), to improve the position of elderly pensioners who have
means above the poverty rate and towards the median earnings of this group.
Inclusive labour market:
I would recommend that better inclusion of unemployed immigrant workers should be outlined as
a special priority program. This group has much higher unemployment rates than the Icelandic
nationals and lacks a social support system in an extended family network, which commonly
plays an important role for Icelanders in dire need. This should specifically concentrate on Polish
workers who have almost threefold the unemployment rate of Icelandic nationals.
Access to quality services:
a) I would recommend an increased effort to ease access of foreign immigrants to labour market
and educational institutions, which should facilitate their improved use of ALMP programs and
further assimilate them to the society.
b) Increasing manning levels in health care and education should be prioritized as soon as public
finances allow.
5.1.3
Priorities for the EU level
Without wanting to be too self-centered or arrogant I think that some EU countries might find
some useful lessons from the Icelandic approach to tackling the crisis, such as the approach of
redistributing welfare exenditures and redistributing the burdens in favour of the lower and
middle-income groups. This seems to have reduced need for contractionary austerity measures
and helped in containing the unemployment problem.
Appendix II: Extra data
Difference in poverty rates before and after social
transfers (%-points)
80
70
60
50
40
30
23.2
20
18.6
18.7
17.4
16.1
16.8
17.2
2003
2004
2005
2006
2007
2008
25.4
10
0
Total
0-17
18-24
2009
2010
65+
Figure A.1: Poverty rates before and after social transfers (%-points). Total population and different age
groups.
Statistics Iceland (2012).
350000
300000
250000
200000
150000
100000
50000
2007
2008
2009
0
2010
Figure A2: Development of public expenditures from 2007 through 2010. Icelandic kronur at fixed 2010
prices.
Table A1: Expenditure profile for disability and sickness: Iceland and OECD countries compared.
Trends in expenditure on disability and sickness programmes, in percentage of GDP, 1990, 2000 and 2007,
and in percentage of unemployment benefit spending and total public social spending, 2007
Disability
Sickness
Disability and sickness
1990
2000
2007
1990
2000
2007
1990
2000
2007
2007
% Public
social spending
2007
Australia
Austria
Belgium
Canada b
Czech Republic
Denmark
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Italy
Japan
Korea
Luxembourg
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovak Republic
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
1.1
2.1
1.4
0.4
1.2
1.6
2.1
0.9
1.3
1.0
..
0.9
0.5
1.2
0.3
0.1
2.0
0.0
4.7
0.6
2.5
2.1
1.7
..
1.2
1.9
1.0
0.1
1.6
0.7
1.2
2.2
1.2
0.4
1.1
1.5
1.9
0.8
1.3
0.7
0.2
1.7
0.6
0.9
0.3
0.2
1.7
0.0
2.7
0.9
2.3
2.0
1.7
0.9
1.2
2.0
1.8
0.1
2.0
0.9
1.2
1.6
1.3
0.4
1.2
1.8
1.8
0.7
1.1
0.7
1.3
2.1
0.8
0.7
0.4
0.2
1.0
0.0
2.1
0.9
2.5
1.2
1.7
0.8
1.2
2.2
1.9
0.1
1.9
1.0
0.4
1.3
1.4
0.1
1.0
1.4
1.5
0.6
1.9
0.8
..
1.5
0.8
0.9
0.1
0.1
0.6
0.0
2.9
0.3
2.6
0.7
0.0
..
1.0
3.1
1.2
0.0
0.6
0.8
1.7
1.1
0.7
0.1
1.2
1.1
1.2
0.7
1.6
0.7
0.7
1.4
0.6
0.7
0.1
0.1
0.6
0.0
2.2
0.3
2.7
0.7
0.0
1.0
1.0
2.0
1.1
0.0
0.7
0.6
1.2
1.0
0.8
0.1
0.9
1.4
1.2
0.7
1.3
0.5
0.6
1.5
0.8
0.5
0.1
0.1
0.8
0.0
1.6
0.3
2.3
0.6
0.0
0.3
1.1
1.4
1.0
0.0
0.4
0.7
1.5
3.4
2.8
0.5
2.3
2.9
3.7
1.6
3.2
1.9
..
2.3
1.3
2.1
0.4
0.2
2.6
0.0
7.6
0.9
5.1
2.8
1.7
..
2.2
5.0
2.2
0.1
2.2
1.5
2.9
3.3
1.9
0.5
2.3
2.6
3.0
1.5
2.9
1.4
1.0
3.1
1.1
1.6
0.4
0.3
2.3
0.0
4.9
1.2
5.1
2.7
1.7
1.9
2.2
4.1
2.8
0.2
2.8
1.5
2.4
2.6
2.1
0.5
2.2
3.1
2.9
1.4
2.4
1.2
1.9
3.6
1.6
1.2
0.4
0.3
1.8
0.0
3.7
1.3
4.8
1.8
1.7
1.2
2.3
3.6
2.9
0.1
2.3
1.7
450
302
77
81
371
455
250
109
180
272
315
1,895
163
351
141
101
269
..
324
553
2,403
993
172
1,087
107
545
462
..
1,126
516
15
10
8
3
12
12
12
5
9
6
8
24
10
5
2
3
9
..
18
7
23
9
8
7
10
13
16
1
11
11
OECD
1.3
1.2
1.2
1.0
0.9
0.8
2.3
2.1
2.0
295
10
% GDP
a
% GDP
% GDP
% Unemployment
Appendix II – An Overview of Debt Relief Measures for Households
Source: Central Bank of Iceland (Þorvarður Tjörvi Ólafsson and Karen Áslaug Vignisdóttir 2012)
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