Crisis Policies in 2012 and Challenges Moving Forward

by

Stefán Ólafsson

Working Paper no. 3: 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 re-inclusion 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

Introduction: The State of Affairs

1. Horizontal overview: Policy developments in 2012

1.1.1 Employment and activation1.1.2 Adequate income measures1.1.3 Access to quality services 1.1.4 Child poverty and child care1.1.5 Housing exclusion and homelessness1.1.6 Migrants and ethnic minorities1.1.7 Old and young workers

2. Main gaps and challenges for reaching 2020 targets

3. Main drivers for reaching poverty and social inclusion targets

Appendix I: Extra data

References

Introduction: The State of Affairs at the Outset of 2012

Iceland’s crisis started with the decisive fall of the Icelandic Krona from end of 2007 throughout 2008. The collapse of the banking system in October 2008 is however the main symbolic event marking the start of the crisis. The GDP had stopped growing early in 2008 and went into contraction by third quarter. Unemployment went up from about 2% in the summer of 2008 to a top of about 8-9% (depending on surveyed or registered data) in 2009-10. The contraction of GDP was 6-7% in 2009 and another 4-5% in 2010. Real wages declined from March 2008 and bottomed out in April 2010. Real earnings declined more than real wages, due to added effects of reduced work volumes and increased debt burden also added to the financial difficulties of Icelandic families.

As can be seen from figure 1 real wages started to rise from May-June in 2010, then came down again in early 2011 but have continually climed up from then on.

Janu

ary

Febr

uary

Mar

chA

pril

May

June

July

Aug

ust

Sep

tem

ber

Oct

ober

Nov

embe

rD

ecem

ber

Ann

ual a

vera

geJa

nuar

yFe

brua

ryM

arch

Apr

ilM

ayJu

neJu

lyA

ugus

tS

epte

mbe

rO

ctob

erN

ovem

ber

Dec

embe

rA

nnua

l ave

rage

Janu

ary

Febr

uary

Mar

chA

pril

May

June

July

Aug

ust

Sep

tem

ber

Oct

ober

Nov

embe

rD

ecem

ber

Ann

ual a

vera

geJa

nuar

yFe

brua

ryM

arch

Apr

ilM

ayJu

neJu

lyA

ugus

tS

epte

mbe

rO

ctob

erN

ovem

ber

Dec

embe

rA

nnua

l ave

rage

Janu

ary

Febr

uary

Mar

chA

pril

May

June

July

Aug

ust

Sep

tem

ber

Oct

ober

Nov

embe

rD

ecem

ber

Ann

ual a

vera

geJa

nuar

yFe

brua

ryM

arch

Apr

ilM

ayJu

neJu

lyA

ugus

tS

epte

mbe

r

2007 2008 2009 2010 2011 2012

95

100

105

110

115

120

125

Rea

l wag

e in

dex

(200

0=10

0)

Figure 1: Real Wage development by months, from 2007 through 2012 (September). Index: 2000=100.Source: Statistics Iceland

By September 2012 about a half of what was lost in real wages has been regained, more so in the private sector than in the public sector.

So Iceland touched bottom by mid year 2010 and has been recovering since then. Average debt levels of households have also come down since 2009, due to strategic write-offs. Debt relief has also been greatly increased by means of a tax relief for interest cost of mortgages, amounting to about a third of the interest cost in 2010 and 27% in 2011 (Ólafsson, Kristjánsson and Stefánsson 2012).

As can be seen in figure 2 unemployment climed up quite drastically, from a very low level before the crisis, to a top in 2009-10 and has declined again and more sharply during the summer of 2012 leading up to September this year. The previous top unemployment level had been in 1992-5. The crisis, the cuts in real living standards and the unemployment, along with highly elevated debt problems, led to greatly increasing hardships for households in Iceland.

The government did however succeed in alleviating the worst consequences of the crisis for the lower and middle-income households, thus avoiding great increases in poverty rates and hardships, which might have been expected due to the severity of the crisis.

On the left hand side of figure 2 we show the proportion of households receiving social assistance from local authorities’ social services, as a proportion of all households (tax units). In general there has been a relatively close relationship between unemployment levels and the numbers of social assistance receivers, when unemployment goes up so does the number of social assistance receivers. Since social assistance is greatly means-tested the allocation of its benefit is only delivered if conditions are proven to be quite sever. So the proportion of S-A receivers can be taken as a good indicator of absolute poverty in Iceland.

The lesson of the data is that while the S-A receivers’ rate generally goes up with increased unemployment there is a significant divergence during the present crisis, with the S-A receivers’ rate not rising as fast as might have been expected from the steep climb of the unemployment rate. We take this as an indication of successful governmental policies for alleviating poverty and financial hardships at the lowest level with crisis-countering policies aimed at the lower income groups.

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

1.9 2.0 2.4 2.7 3.0 2.8 2.7 2.3 2.1 2.1 2.2 2.7 2.8 2.4 2.1 1.9 1.7 1.9 2.2 2.6 3.0

Receivers of Socia Assistance (% of households)Unemployment (% labour force)

Figure 2: Receivers of social assistance (% of households) and unemployment rates (% of labour force – left diagram) and poverty rates (%) before and after social transfers (right diagram).Source: Statistics Iceland

This poverty alleviation effort can be detected in the diagram on the right hand side of the figure, showing the 60% poverty level for the total population before and after social transfers. The pre-transfer poverty rate went from 26% in 2006 up to 35% in 2010, but the after-transfer rate actually came down after the onset of the crisis, from about 10% to 9.2%. So without the extra effort at poverty alleviation the relative poverty level would have doubled, but instead came down by about 1 %-point.

In figure 3 we show both development of 60% and 40% relative poverty rates and some indicators of financial hardship. The 60% poverty rate came down a little as already indicated but the 40% poverty rate increased from 2.2% to 3.1%. So there was an increase in the size of the group of the very poor. But when we look at the picture of financial hardships we see a much larger increase in the number of households finding it very difficult to make ends meet (from 6% in 2007-8 to 13.7% in 2010 and 13.3% in 2011. So the rate more than doubled. Similarly we see a doubling of the proportion of households saying payments of other loans (i.e. consumer loans) is a heavy burden and arrears on such loans went from 5.5% in 2008 to 13.1% in 2010. The climb in arrears on mortgages or rent payments did not increase as fast.

2003 2004 2005 2006 2007 2008 2009 20100

5

10

15

20

25

30

35

40

10 9.7 9.6 10.1 10.1 10.2 9.8 9.2

28.6 28.4 27 26.2 26.9 27.4

33 34.6

With all social transfers includedWithout all social transfers

60%

pov

erty

rat

es f

or t

he t

otal

pop

ula-

tion

% under 40% poverty line

% under 60% poverty line

Arrears on mortgage or rent payments

Arrears on other loans

Payments of other loans is a heavy burden

Very difficult to make ends meet

0 5 10 15 20 25

0

0

10.2

12.4

15.2

13.3

3.1

9.2

10

13.1

19.1

13.7

3

9.8

7.1

10.3

15.5

8.2

2.5

10.2

5.5

5.5

10.3

5.9

2.4

10.1

5.8

8.4

11.5

5.6

2.2

10.1

5.7

5.8

7.6

5.8

200620072008200920102011

Figure 3: Poverty and financial hardship developments through the crisis.Source: Statistics Iceland

Another interesting feature of the indicators on financial hardship is that they generally show a decline again in 2011. That development is in line with the messages we are getting from wage development, economic growth and private consumption indicators, refecting the turnaround that was effected from late 2010 and consolidated in 2011 and 2012. We should accordingly expect the indicators of financial hardship for 2012 to be lower, in line with the recovery.

1. Horizontal overview: Policy developments in 2012

On the whole we can say that the policy development in the field of active incusion, poverty alleviation and social protection and services during 2012 primarily involved a fine-tuning of the policies already in place to deal with the consequences of the financial crisis on the level of living of households. One major change however is that the general expenditure cuts for 2012 were significantly lowered from 2010 and 2011 and some welfare expenditures seem set to continue increasing in 2013.

Total public expenditures on welfare increased from 2011 to 2012 by 7.6% and by 2.5% from 2012 to 2013 (according to the budget). Education expenditures increased by 8.1% from 2011 to 2012 and by 5.0% and the budget for 2013 has an increase of 5.0%.

Within public welfare expenditures there was an increases of about 20% on social security benefits and pensions for 2012 and the budget for 2013 provides for another 8.5% increase. Expenditures on sickness insurance increased by 13.7% in 2012 and will be cut by -1.9% in 2013. Expenditures on unemployment declined by 11% in 2012 and a further decline of 14.4% is expected for 2013, due to the significantly lowered level of unemployment.

So welfare expenditures increased quite significantly in 2012 with the increases in benefits and pensions and some further increases are expected in 2013.

Now we look at specific policy developments during the later part of 2011 (which shaped developments in 2012) by the main areas of active social inclusion.

1.1.1 Employment and activation

By the summer of 2012 it became evident that the deep recession in the construction industry had ended and a large part of previously redundant construction workers were getting jobs again. There were also other programs of job creation that were turning in new jobs, even though on the whole the job growth was slow, probably because there was a slack in the labour market in the form of underemployed workers (workers that had gone from full-time to part-time and workers with overtime that went to workers without overtime). Such underemployed workers have in many cases increased their work volumes before opportunities are opened to those on the unemployment register. It also seemed that the activation measures implemented from 2010 onwards were producing positive effects as well (Ólafsson 2012 – second SI-report). Here are some of the specific policy measures that were implemented in 2011 and through 2012 to date:

7th September 2011: Participation in ALMP amongst the unemployed does not reduce right to unemployment benefit.

New educational positions for about 8% of those on the unemployment register available from autumn 2011 (Nám er vinnandi vegur-program/Education is a working way).

Collaborative program with government, local authorities and labour market partners to provide jobs for about 10% of the registered unemployed (program connected to the collective bargaining pacts of May 2011 – TIL VINNU program).

Contract between government and labour market partners for an experimental new project for increased employment services.

Jobs forum – a new initiative for young job seekers implemented in Reykjavik, Hafnarfjord and Reykjanesbæ (where the unemployment problem is most serious).

Working Way Program (for long-term unemployed) implemented on 23rd February 2012 (run by Directorate for Labour) – two thirds of target already achieved by 26th March.

New legislation on immigrants, improving services and information sharing, implemented on 23rd February.

A program of 900 new summer jobs for students will be on offer from spring. Government investment program for 2013-2015 announced in the budget for 2013. This

is aimed at job creation and innovation promotion.

The specific job creation programs and eductional initiatives have been important in gradually reducing the numbers on the unemployment register. But the investment program for 2013-2015 is probably the most important single such effort aiming to provide new jobs by way of an economic stimulus.

1.1.2 Adequate income measures

The strategic policy of partly sheltering the lower and middle income groups from cuts in living standards has been in effect up to now and will continue more or less intact in 2013. Rebates on interest cost of mortgages may lower somewhat since improved real earnings of households may affect the income-testing formula of the rebate – and so does the average reduction of household debt level by about 20% since 2009 (Ólafsson, Kristjánsson and Stefánsson 2012). Reduced

unemployment improves of course the finances of the concerned households, as does the generally more favourable economic situation. Here is an overview of the major specific policy measures, from the collective agreement of spring 2011 up to September 2012:

Collective bargaining May 2011: pay rise; social security benefits rise equally. Reduced income-testing of rental rebates from late 2011 (increases subsidy to people in

rented housing, partly at the cost of subsidies to those living in own accomodation). This change is a part of a development of a new housing benefits system covering both owner and rented occupied housing.

Expenditures on social security increased by 23% from 2010 to 2011 (mainly due to rise of social security benefits on June 1st).

1st July 2011: Last date for application for 110% debt relief. Reduced income-testing relating to social security and occuational pensions for disability

pensioners passed in Althingi 5th Sept. 2011 (improves earnings of low-income pensioners).

Minimum social security pension raised from 1st January 2012 by some 7%. Has increased by 61% from 2007.

New rules for user charges for prescribed medications implemented on 23rd November 2011 (puts a roof on individuals’ cost, which favours individuals that are in great need of medications; previously there was no roof, but only proportional subsidy for elderly and disabled individuals).

Budget for 2013 promises an increased expenditure for child benefit of about 30% .

The proposed rise in the amount of the child benefit from 2013 along with the proposed new system of housing benefits are the two most important innovations in this policy area.

1.1.3 Access to quality services

On the whole it appears that while the health care sector has been heavily affected by cuts in expenditures in 2009 and 2010 the system as a whole has stood up to the test in most respects. Deliveries and qualities of services seem to have been mostly maintained and that is in the context of a service standard which prior to the crisis was at a very high level. The universality of rights to services has been maintained and equitable standards maintained, but user fees have clearly gone up and these are born by households that have generally faced sever reductions in their purchasing power (cf. Andersen, Hougaard and Ólafsson 2011; Ólafsson and Kristjánsson 2012).

Some merging of institutions has been effected and improved division of labour, but more could have been done on that front. The political environment has however been very difficult, with the load on government and specific ministries unusually high. The merging of the Ministry of Health to the Ministry of Social Affairs into a new Ministry of Welfare has no doubt delayed further activities in implementing rationalizations in the institutional structure of the welfare sector. But a part of the rational for creating the new ministry was to make such rationalizations and mergings of institutions easier as well as to utilize resources better across the board. We might therefore expect more rationalization initiatives and mergers in the next few years (Ólafsson 2012b; OECD 2011).

In general the long-term services situation for the elderly seems to be relatively good in Iceland and to some extent comparable to what is found in the other Nordic countries. What is perhaps most lacking are more detailed evaluation studies of the various aspects of the services. While there is notable concern in Iceland that the need for long-term care services is set to increase greatly with demographic changes, there are lacking more formal studies of this and prognoses for planning need to be better founded (Ólafsson 2012b).

Here are some relevant policy initiatives undertaken in late 2011 and through 2012:

Construction of new nursing homes in Isafjord and Reykjanesbær passed in government on 16th September (important for job creation and improved services). Construction of new nursing homes has in fat been a joint policy of welfare improvement and economic stimulus throughout the crisis, often financed by occupational pension funds and in effect also providing much needed jobs.

Task force on improved health care services for young people at ages 14-23 delivered a report to the Ministry of Welfare (6th October)

Special free dental services for children of low-income families run during summer and through 2011

OECD Health at a Glance 2011 finds that 80% of Icelanders are in good health, as against OECD average of 69%

Task force for user-directed services for severely disabled or handicapped individuals introduces ideology, organization and planning of such services, which are planned to be increased in the future

State Surveillance Authority finds that services in nursing homes have maintained their standards despite reduced financing, between 2008 and 2010 (http://www.-rikisendurskodun.is/index.php?id=44).

On the whole the data in the table indicate that the user-provider ratios remained in many cases similar throughout the crisis. The numbers of inhabitants per dental hygienist increased though significantly in 2009 and for exam pharmacists (indicating fewer providers). Conversely the number per occupational therapists declined, as was the case with physiotherapists and social workers, indicating presumably increased numbers of practitioners in these fields. So the development goes both ways, but surely not indicating any major change in the service environment.

In table 1 we see how the relationship between number of inhabitants per health care personnel in Iceland has developed through the crisis.

Table 1: Inhabitants per health care personnel, by type of service, 2005 through 20112005 2006 2007 2008 2009 2010 2011

Dental hygienists 11996 16193 16603 17743 22688 22747 21305

Dentists 1038 1076 1073 1061 1080 1065 1129

Environmental health officers

5767 5805 6067 5807 5993 5897 5918

Exam. pharmacists 9088 10609 10878 11828 14438 13846 13895

Midwives 1293 1282 1288 1277 1271 1274 1150

Nurses 118 120 116 117 118 120 116

Occupational therapists 1922 1865 1867 1736 1663 1642 1500

Pharmacists 1003 986 965 971 951 931 895

Pharmacy technicians .. .. .. 1846 1836 1841 1775

Physicians and surgeons 280 281 280 276 272 278 285

Physiotherapists 714 724 701 672 676 673 680

Practical nurses 187 192 193 160 145 161 ...

Proprietary pharmacists 5355 5594 5633 6142 5882 5587 5417

Radiographers 3296 3496 2948 2985 2811 2769 2708

Social workers .. .. 1052 965 892 808 845

Veterinary surgeons 3060 2987 2868 2877 2738 2676 2641

Source: Statistics Iceland

1.1.4 Child poverty and child care

Child poverty rates did not on the whole increase but single parents had a somewhat higher rate during the crisis, with considerable fluctuations though, while the rate for families with three or more children came down in 2010 (2011). It has been argues that the families with children were the weak part oft he government’s strategy of protecting the lower and middle-income huseholds, since many of the young families with children went deep into debt if they had bought a flat between 2004 and 2008 (Ólafsson and Kristjánsson 2012; Ólafsson and Vignisdóttir 2012). The government’s plan to increase the child benefit by some 30% from beginning of 2013 can be seen as a response to such considerations. This is likely to lower child poverty rates from 2013 onwards.

Table 2: Proportion of children attending pre-school, by age groups, 2005-2011 Total First year 1 year 2 years 3 years 4 years 5 years

2005 80 1 30 89 94 95 942006 81 1 33 91 96 96 922007 81 1 31 92 96 96 942008 82 1 36 92 95 96 912009 83 1 37 93 95 96 932010 82 1 35 93 95 97 942011 82 1 29 94 96 96 95

Source: Statistics Iceland

As seen in table 2 the child-care services (pre-school services) have been at a very high level and that level has been maintained fully throughout the crisis up to 2011. Hence we can confidently state that the general level of child care/pre-school services remained through the crisis at the high level they were at before the crisis.

1.1.5 Housing exclusion and homelessness

Housing exclusion and homelessness used to be a non-issue in Iceland for decades. But during the last two decades it has become more visible and apparently growing in extent. During the last September a careful study of homelessness in the Reykjavik area was published (Erla Björg Sigurðardóttir 2012; also Elín S. Gunnsteinsdóttir and Erla Björg Sigurðardóttir 2009).

The conclusion of the 2012 study is that 179 individuals are homeless and using services provided by Reykjavík city council, the Red Cross, Samhjálp-Help Organization or the Police. This amounts to about 0.09% of the Reykjavik area population. Males were 63% of the group and they were fairly evenly distributed by age groups from 20 through 60. It is interesting that about 11% of the homeless are of foreign origin, the largest group being Polish immigrants, which rhymes with the fact that unemployment problems have been much greater amongst immigrants than amongst Icelandic nationals during the crisis, as we showed in our report no. 2 2012. Polish immigrants also had the highest unemployment rate of immigrants, nearly three times the rate for Icelandic nationals.

About 38% of the homeless had been homeless for more than 2 years. About 12% say they are living on the streets, a third stay in public shelters, another 12% recently came out of an institution

and some 16% had longer-term shelter options. On the whole more than a half of the group said they had insecure accommodation options.

Most of the homeless are dealing with alcoholism problems (63%) and other drug abuse (62%) and close to a third are suffering from mental problems. Compared to the earlier study from 2009 there was some increase in the extent of the homelessness problem (from 121 to 179) and the proportion of women has increased from 24% to 36%. The number of immigrants went also up from about 5% to 11%.

The studies referred to above were undertaken for the Reykjavik City Council Welfare Services and aim to map the situation, conditions and needs of the respective individuals for the purpose of improving services and guidance. As such this is primarily a local issue and not much on the desks of central government.

1.1.6 Migrants and ethnic minorities

We dealt considerably in our last report with the especially vulnerable position of immigrants during the crisis in Iceland, particularly the Polish immigrants who have been particularly badly hit by the unemployment problem. There we indicated that the immigrants had to some extent been excluded from labour market and educational measures for the unemployed and recommended that a special effort should be initiated to reach them much better. This remains an active recommendation on our behalf.

1.1.7 Old and young workers

Our previous analysis of the unemployment problem shows that elderly workers are not as hard hit as the youngest, including the school leavers. The ALMPs that were stepped up in 2010-2011 and that are still in place are firmly concentrating on the younger age groups, both with job options and educational options and these seem to be effective. The above mentioned proposed investment plan of the government 2013-2015 should facilitate the job situation for the young unemployed.

It is also interesting that Iceland’s traditional late effective retirement age does not seem to have been eroded during the crisis. This indicates that senior labour force members have not been in any great extent forced out of the market to make room for the younger ones. We think it important to maintain the high retirement age, since the long-term prospects of pension systems in many countries call for higher effective retirement ages. Hence Iceland’s position on that front is really worth preserving through the crisis with the long-term goals in mind. The present ALMPs are thus in our opinion well directed with their great emphasis on the younger age groups.

2. Main gaps and challenges for reaching 2020 targets

Iceland is in the fortunate position of having already achieved most of the integrated guideline 10 targets. Hence all the EU 2020 targets on employment, poverty, low-work intensity and material deprivation have been reached in Iceland some time ago. Iceland is however below the targets on greenhouse gas emissions and early leavers from education. Despite the high drop-out rates from secondary schools Iceland still has a relatively high rate of tertiary educational attainment, which indicates that of those who graduate from secondary schools a quite high proportion goes on and finishes university level education.

So in that sense there is not much to say about bridging gaps to the EU 2020 targets.

However, due to the crisis, there has been some setback, in the sense that Iceland’s outcome rates have in three areas deteriorated slightly. This applies to risk of poverty or exclusion, proportion of households with low-work intensity and proportion of households with sever material deprivation. In all cases the changes are small and Iceland still remains well within the EU 2020 target levels.

Firstly, the risk of poverty or social exclusion rate went from 12% to 14% of households, from 2008 to 2010 and 2011. As can be seen from figure 4 this is solely due to increased risk of poverty or social exclusion amongst immigrants. The rate for Icelandic nationals has lowered slightly from the top rate achieved in 2005.

2005 2006 2007 2008 2009 20100

5

10

15

20

25

30

35

12.711.4 11.9 11.2 11.4 11.9

16.819.3

15.1 15.7

24.1

31.2

Iceland - nationals Iceland - foreigners

% a

t ris

k of

pov

erty

or

soci

al e

xclu

sion

Figure 4: Risk of poverty or social exclusion: Icelanders and immigrants compared, 2005 to 2010 (income years).Source: Eurostat

So this outcome is tied to the crisis effect on the immigrant groups, particularly Polish immigrants, since this was not nearly as decisive before the crisis. Policy wise the issue should be dealt with within the framework of active labour market policies, social inclusion into education and stronger bargaining position in the labour market, since even though the immigrants do generally not get less wages than the bargained minimum, they often rank disproportionately low in the wages hierarchy.

The second setback issue for Iceland is the fact that the proportion of households with very low-work intensity went from 2-3% before the crisis up to 6% in 2010 and 2011. While it is still one of the lowest rates within the EU context this is a setback that should recover when the economy returns to full employment. The proposed investment plan for 2013-2015 should help in regaining this outstandingly good position. Again, the active labour market policies should facilitate that development as well as other job creation programs.

The last setback we mention is the proportion of households experiencing severe material deprivation, which went from 1% up to 2%. This, again, is still one of the very lowest rates within the EU zone and the change is probably within the margin of error.

Regarding the long-term target for reducing poverty amongst the elderly we reported in our last report (no. 2, 2012) that the poverty rate for O-A pensioners went from 13-14% in 2006-7 down to 4.5% in 2011. This was achieved with one of the measures that were designed to shelter the lower income groups against reductions in real earnings, i.e. the very large increase in the minimum pension guarantee. That in effect lifted significantly more O-A pensioners above the poverty line, while higher earning pensioners were exposed to cuts in their public social security pensions.

It should be expected that the improved financial position of old age pensioners will be a target issue in the coming years, at least in the form of regaining what was lost during the crisis. A conference for pressing that message has already been organized for November 15 th by pensioners’ organizations and the Federation of Labour (ASÍ).

Disability pensioners were on the other hand relatively well protected through the crisis, even though some of them were hard hit with debt burden. We have already dealt with the issues of the immigrant workers and the homeless.

3. Main drivers for reaching poverty and social inclusion targets

Given Iceland’s favourable position on the EU 2020 targets there is a limit to our discussion under this section. We will however focus on two target issues that in our opinion should be priorities.

The first is activation and inclusion of immigrant workers into the labour market and society. The second is reducing early school leaving.

Regarding the first the first thing to achieve is better language inclusion of immigrants, especially the Polish immigrants. This is a precondition for success with inclusion measures, both regarding job opportunities and educational measures. It seems quite clear that this group is particularly badly placed in the society, suffering disproportionately unemployment and consequential financial hardships. This group lacks the network support that Icelanders generally have in their groups of relatives and friends and immigrants are quite prominent as receivers of food from charities (Félagsvísindastofnun 2010).

The second issue, reducing the relatively high rate of early school leaving, has been a concern of educational authorities for many years (Óskarsdóttir 2005; Ólafsson and Arnardóttir 2008). As emerges from the table in the appendix the dropout rate has in fact declined from 26% in 2006 to 20% in 2011. Given the same speed of decline it seems to be in the balance whether Iceland will reach the target of 10% by 2010 – it might do so, or it might fail. One important factor for this goal is the fact that some of the measures aimed at young unemployed individuals actually facilitate the reaching of this goal, especially the educational measures. Many of these programs aim to re-recruit early dropouts back into education and other measures aim to retain individuals longer in the educational system.

At the root of the high dropout rate problem in Iceland has been the fact that there have generally been ample job opportunities, often with rather good earnings opportunities, especially in the provincial regions. The best examples of this are jobs on fishing boats that often have tempted young males. On the other side, the educational system has been rather week as regards opportunities for vocational and occupational education, and that educational stream has also enjoyed significantly lower status than the general educational stream leading to universities. Hence technical and scientific educational options have often been rather weak. This needs to be improved, with greater selection of options and more opportunities for cross cutting educational streams, for example opening the vocational streams better up to university-level options.

So the task will both need increasing educational options, better integration within the educational system, improved status of vocational streams and more incentives for young students, especially male students, to stay on longer, all the way up to tertiary level.

3.1. A new third sector initiative

Given that Iceland broadly speaking has a rather small poverty and social exclusion problem it is relevant to increase work on those issues in a more micro context, focusing more specifically on the differing conditions of special problem groups, such as foreign immigrants lacking means to find new jobs or lacking in language skills, or specific groups of handicapped people or the

homeless. Preconditions for success with such “fine-tuning” of policies targeted at further achievements should normally move closer to the micro contexts.

On those lines a new initiative was forthcoming recently in Iceland. A group of representatives from the major third sector organizations (such as the church’s help organization, red cross associations, pensioners’ federations, academics, Centre for multi-culture, Welfare Watch, Salvation Army, Samhjálp-help organization) started to meet and discuss problems of poverty and exclusion and worked on formulating new useful measures to tackle them. The produced a report in early October with their recommendations, which follow here in bullet form:

Increase education about the social and welfare contract, emphasizing the roles of human rights, social capital, empowerment and participation of all

Work against poverty on the basis of definitions of qualities rather than shortages

Organise a setup for mediating voluntary help-work, where concerned help organizations can reach wilful individuals to help with the work, thereby increasing opportunities for people to help

Have local authorities support such efforts and the help organizations in general (since they after all often take workloads of the authorities)

Government increases support for employers that give individuals with special needs employment opportunities (incentives etc.)

A general contract about sufficient social minima for subsistence should be concluded, securing that no individual or family should need to live in poverty leading to long-term damages

Define participation benchmarks, aiming at full participation of all. All should have equally the right and duty to participate

Increase the operations of synchronization within the welfare services, when families’ problems are multi-faceted

Set up a centralized “welfare calculator”, where everyone can get the correct information about their rights to the various welfare benefits or support measures

A position of a specialist in poverty issues should be set up, preferably within the Prime Minister’s Office, to collect information and mediate between various concerned organizations and institutions in the field. Should also work on better synchronization of welfare services.

Coordinate better the social security system, social assistance and taxation system with the aim of reducing negative income-testing for low income people

Provide families with children that live under the poverty line or under the basic subsistence allowance the right to continues child benefit (beyond the usual age limit) if the children are in school (on the basis of school certificates and continued activity in studies)

Health care services for children should be provided free of charge and also provided with regular check-ups, so poverty conditions do not hinder proper surveillance

Increase information diffusion about the Icelandic welfare system to foreign immigrants and their families

Survey specifically the children of foreign immigrants to secure that they are provided with the fullest rights and services

EAPN network should be set up in Iceland and it should be given the formal role of being a public spokesperson/ombudsman on issues of poverty

The report is called Well-being (Farsæld) and can be obtained here: http://kirkjan.is/2012/10/farsaeld-baratta-gegn-fataekt/. It is published by Hjálparstofnun kirkjunnar (The Church’s help organization) and the Reykjavik Red Cross.

The approach taken by these individuals is at the same time interesting and appropriate and speaks to the relevance of involving the individuals in policy-making that deal with problems of poverty and exclusion in their daily work.

Appendix I: Extra data

Table A1: EU 2020 Targets and Iceland’s Position, 2006 to 2011

2006 2008 2009 2010 2011TARGET

2020Employment rata -EU (27) 69 70 69 69 69 75Employment rate -Iceland 86 85 81 80 81 86 (implied)

R&D expenditrures - EU (27) 2 2 2 2 .. 3R&D expenditures - Iceland 3 3 3 .. .. 4

Greehouse gas emissions - EU (27) 92 89 83 85 .. 80Greehouse gas emissions - Iceland 125 143 134 130 .. Reduce

Share of renewable energy - EU (27) 9 10 12 13 .. 20Share of renewable energy - Iceland .. 81 .. .. .. Increase

Energy intensity - EU (27) 176 168 160 165 ..More

efficiency

Energy intensity - Iceland 358 .. .. .. ..More

efficiency

Early leavers from education - EU (27) 16 15 14 14 13 10Early leavers from education - Iceland 26 24 21 23 20 10

Tertiary educ. attainment 30-34 - EU (27) 29 31 32 33 35 40Tertiary educ.attainment 30-34 - Iceland 36 38 42 41 45 Increase

Pop. at risk of poverty or exclusion - EU (27) 25 24 23 23 .. ReducePop. at risk of poverty or exclusion - Iceland 13 12 12 14 14

Households w. very low work intensity - EU (27) 10 9 9 10 .. ReduceHouseholds w. very low work intensity - Iceland 3 3 2 6 6

Pop. at poverty risk after transfers - EU (27) 17 16 16 16 .. ReducePop. at poverty risk after transfers - Iceland 10 10 10 10 9

Severely materially deprived - EU (27) 10 8 8 8 .. ReduceSeverely materially deprived - Iceland 2 1 1 2 2Source: Eurostat; Grey areas: Iceland already above EU2020 target; Orange area: Iceland under EU202 target.

References

ASÍ (Icelandic Federation of Labour), retrieved from: www.asi.is February 2011.

ANDERSEN, TINE, KARSTEN HOUGAARD AND STEFAN ÓLAFSSON, Assessment of the Labour Market in Iceland. Danish Technological Institute (DTI), 2011.

ATKINSON, A. B. AND ERIC MARLIER, Income and Living Conditions in Europe. Brussels: Eurostat and European Commission, 2010.

CENTRAL BANK OF ICELAND, Household’s position in the financial crisis in Iceland, by Þorvarður Tjörvi Ólafsson and Karen Aslaug Vignisdóttir. Working Paper June 2012, retrieved from www.sedlabanki.is

DIRECTORATE OF LABOUR (Vinnumálastofnun), Ársskýrsla, retrieved from: www.vinnumalastofnun.is .

DIRECTORATE OF HEALTH (2012). Statistical material (available at http://www.landlaeknir.is/).

ERLA BJÖRG SIGURÐARDÓTTIR (2012). Kortlagning á fjölda og högum utangarðsfæolks í Reykjavík (Mapping characteristics and conditions of homeless individuals in the Reykjavík area) (available at www.reykjavik.is).

EUROPEAN COMMISSION, EUROPE 2020 – A European strategy for smart, sustainable and inclusive growth (available at http://ec.europa.eu/europe2020/index_en.htm ).

EUROSTAT: EU-SILC data, retrieved from: http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/

FÉLAGSVÍSINDASTOFNUN HÍ (2010). Matarúthlutanir hjálparstofnana (available at http://www.velferdarraduneyti.is/rit-og-skyrslur-vel/nr/32519).

HAGSTOFA ÍSLANDS (APRIL 2012). Various statistics at www.hagstofa.is.

HANNESDÓTTIR, GUÐRÚN, SIGURUR THORLACIUS AND STEFAN ÓLAFSSON, Örorka og virk velferðarstefna (Disability and Active Welfare Policy – A Survey Amongst Disability Pensioners). University of Iceland, Social Research Institute, Report no. 1 2010 (www.ts.hi.is).

HJÁLPARSTOFNUN KIRKJUNNAR adnd REYKJAVÍK RED CROSS (2012). Farsæld (Report on new poverty and inclusion initiatives (http://kirkjan.is/2012/10/farsaeld-baratta-gegn-fataekt/).

OECD, Health at a Glance. Paris, OECD 2011.

OECD, Economic Survey - Iceland. Paris: OECD, 2011.

2008.

ÓLAFSSON, STEFAN. “In-Work Poverty and Labour Market Segmentation – Iceland”, Report to EU Network on Social Inclusion, 2010.

ÓLAFSSON, S., and Arnaldur Sölvi Kristjánsson (2012). Áhrif hrunsins á lífskjör þjóðarinnar – Skýrsla 1 (Level of living consequences oft he financial crisis-Report nr. 1). Reykjavík: Social Research Centre, University of Iceland.

ÓLAFSSON, S., Arnaldur Sölvi Kristjánsson and Kolbeinn Stefánsson (2012). Áhrif hrunsins á lífskjör þjóðarinnar – Skýrsla 2 (Level of living consequences oft he financial crisis-Report nr. 2). Reykjavík: Social Research Centre, University of Iceland.

PRIME MINISTER’S OFFICE (2012). Stöðuskýrsla Ísland 2020 (Progress report on Iceland 2020 program) (available at http://www.forsaetisraduneyti.is-/frettir/nr/7150).

STATISTICS ICELAND, Ráðtöfunartekjur heimilageirans 2010, Statistics on www.hagstofa.is).

STATISTICS ICELAND (2012). „Lágtekjumörk og tekjuskipting 2011“ (Poverty risk and income distribution 2011). Hagtíðindi, nr. 11, árg. 97.

VELFERÐARVAKTIN (Welfare Watch / Ministry of Welfare), Stöðuskýrsla vinnuhóps um fjárhagsvanda heimilanna, Júne 2011 (available at www.velferdarraduneyti.is).