The Icelandic labour market is from a regulatory point of view usually characterized as flexible as compared to the labour markets on mainland Europe. The workforce is considered adaptable due both to varied skills and high level of education to new demands brought on by changes in the marketplace for products and services, introduction of new technologies and other factors. Labour participation is also very high for both genders.
The labour market is for the most part regulated by means of collective bargaining. The social partners play therefore an important role in setting wages in different sectors of the economy, working time arrangements and various employment rights of workers. Collective agreements cover approximately 88% of the workforce.
Wages and other terms of employment concluded in collective agreements are by law minimum terms, applying to all workers in the applicable occupation within the geographical area covered by each agreement. Minimum terms set by collective agreements do not stand in the way of higher wages and/or better terms negotiated between workers and their employers, if the economic situation in the relevant sector warrants it.
Labour law enacted by the Parliament supports this system by providing the social partners with a legal framework which deals with certain aspects of collective bargaining, the right to strike and dispute resolution. In addition there are a number of employment laws in areas such as equal rights of men and women, pensions, maternity and paternal leave and health and safety at the workplace.
The Constitution of the Republic of Iceland requires that everyone shall be equal before the law and enjoy human rights irrespective of sex, religion, opinion, national origin, race, colour, property, birth or other status.
Iceland is a member of the European Economic Area (EEA) which unites the EU Member States and the three EFTA States (Iceland, Liechtenstein and Norway) into one Single Market governed by the same basic rules in the area of free movement of goods, capital, services and persons
Iceland is also a member of various international organizations such as the International Labour Organization (ILO), the World Trade Organization (WTO) and the Organization for Economic Co-operation and Development (OECD).
Employers on the general labour market organize themselves in a similar manner as ASI, the most representative being The Confederation of Icelandic Employers (SA).
Collective bargaining is governed by Act No. 80/1938 which empowers trade unions to negotiate agreements with employers concerning wages and other terms of employment of their members.
Collective agreements are according to Act No. 55/1980 automatically binding for all workers and employers operating within its occupational and geographical area. It is not a condition for the applicability of a collective agreement that the workers concerned are members of the signatory trade union or that those who employ them are members of the negotiating partner on the employers side. This law affects both domestic and foreign undertakings operating on the Icelandic labour market.
Each national federation negotiates at least one general collective agreement with SA which applies to wages and other terms of employment. Additional agreements are negotiated by individual trade unions where local conditions are taken into account.
Content of collective agreements
The content of general collective agreements can be divided into three parts. In the first part are provisions on wages and working time, meal and coffee breaks and minimum hours of daily and weekly rest.
The second relates to holiday payments, health and safety at the workplace, payments in cases of sickness and work-related accidents, working clothes, trade union and pension fund fees, rules on notice of dismissal, selection and duties of trade union representatives etc.
The third part concerns the term of the agreement and in some cases dispute resolution of the negotiating parties and how do deal with changes that occur in underlying economic factors, such as inflation, which affect the expected outcome of real-wages during the validity of the agreement.