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Signs of Expansion and Brain Drain

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Signs of Expansion and Brain Drain

Photo: Ian Prince.

Specialists see clear signs of expansion in the Icelandic economy, according to Vísir. The Directorate of Labor expects unemployment to decrease next year and reach 2.7 percent on an annual basis. Inflation is expected to increase, as will the import of foreign labor. The Central Bank of Iceland has increased short-term interests rates twice this year, and the government plans to decrease taxes and cancel tariffs on many goods.

New reports from the Directorate of Labor reveal that demand will exceed supply of unskilled labor and tradesmen in the next few years. Therefore, labor will be imported in greater numbers. At the same time, we can expect less demand for educated people than supply. The educational level of Icelanders in the labor market has increased considerably in the last few decades. As a consequence, unemployment will increase among the educated who will leave the country in greater numbers. More and more frequently, we’ll see educated people taking jobs below their level of education.

MP Árni Páll Árnason, chairman of the Social Democratic Alliance, worries that we will “import labor for low-paid jobs in expanding sectors, such as the hotel industry, while educated Icelanders emigrate who could create a lot of value in the knowledge sectors.” The proportion of educated people among the unemployed has been gradually increasing in past years.

Þórólfur Matthíasson, professor of economics at the University of Iceland, sees many signs of expansion in the economy. Still, he says it’s impossible to claim the situation in the job market is similar to what it was before the 2008 financial crisis. “We still have capital controls, so we don’t have the same influx of capital as we had before the crash. In that sense, the situation is different.” He believes the authorities, along with the Central Bank of Iceland, must make stronger efforts to prevent too much expansion. “SA-Business Iceland has already pointed out that the planned lowering of taxes is inadvisable,” he says.

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