Foreign citizens receive nearly 60% of unemployment benefits

Foreign citizens received more than 13.2 billion Icelandic krónur in unemployment benefits during the first seven months of 2026, compared with nearly 10.2 billion paid to Icelandic citizens, according to data from the Directorate of Labour reported by mbl.is.

Foreign nationals account for about a quarter of Iceland’s workforce, but represented 56.7% of people receiving unemployment benefits during the period. The government’s cost per individual is generally the same regardless of citizenship, but total payments to foreign citizens are higher because more of them are registered as unemployed.

Total unemployment benefit payments reached about 23.5 billion krónur in the first seven months of the year, an increase of 3.5 billion krónur from the same period last year.

The Directorate of Labour said it does not have the government’s costs broken down by citizenship. However, it said the figures could be roughly assessed by comparing the number of Icelandic and foreign citizens receiving benefits.

An average of 3,980 Icelandic citizens were unemployed during the first seven months of the year, compared with 5,210 foreign citizens. Icelandic citizens therefore accounted for 43.3% of people registered as unemployed, while foreign citizens accounted for 56.7%.

People receiving unemployment benefits must confirm each month that they are seeking work. They are generally not allowed to travel abroad while receiving benefits, although an exception applies to job searches within the European Economic Area, according to Sverrir B. Berndsen, the Directorate of Labour’s chief legal officer.

Berndsen said the main way the authorities monitor whether people remain in Iceland is by regularly summoning them to participate in employment measures. About 4,000 people were summoned in June, with just over 24 hours’ notice.

Those who fail to attend without a valid reason face sanctions: a two-month waiting period for benefits after the first offence, three months after the second, and loss of benefits after the third.

Berndsen said there were many cases of people staying abroad while receiving unemployment benefits, sometimes for weeks or months, before the authorities discovered it. About 2,500 sanctions were imposed during the first half of the year, although they were not all related to being abroad or failing to attend employment measures.

Unemployment stood at 4.5% during the first seven months of the year, up from 3.9% during the same period last year. The Directorate of Labour said employment had declined year on year in construction, other industry and tourism, as well as in retail, freight transport, information technology and telecommunications.

Employment increased in public administration, education, health and social services, and financial and insurance activities. The directorate expects unemployment to continue rising in the coming months and forecasts a rate of 5.4% to 5.5% during the first months of next year.