Wage gap narrows in Iceland as lowest wages see significant increases

Recent years have seen a decline in the wage gap in Iceland, according to a new report from the wage statistics committee. The focus on fixed monetary increases rather than percentage-based salary raises has led to a significant relative increase in the lowest wages. Conversely, this approach has resulted in a relatively modest rise in purchasing power for high earners compared to others.

As of May, the average regular salary in Iceland was about 821,000 Icelandic krónur, with a median of 735,000 krónur. This indicates that half of the workforce earns above this median, while the other half earns below it.

The director of the statistics office noted a noticeable change following the implementation of the cost-of-living agreement in 2019, which led to a more concentrated distribution of income. The so-called decile coefficient has dropped from 2.6 five years ago to 2.4, indicating a narrowing of the wage distribution among top and bottom earners. The agreements aimed to boost the lowest wages, which have seen greater increases than others.

In a related development, the number of immigrants in Iceland has increased significantly, now constituting nearly one-quarter of the labor force. Their participation rate is among the highest in the OECD, though many work in roles that do not match their educational qualifications. A third of immigrants are better educated than required for their jobs, and despite being generally well-educated compared to international standards, their proficiency in Icelandic lags behind that of immigrants in other OECD countries.