Iceland: Icelandic rural regions outperform Nordic neighbours

Thanks to a dynamic labour force, rural regions in Iceland have up until recently performed strongly in Nordic comparison, and the pace of population ageing is slower than in the neighbouring countries. Iceland and Norway are the only two Nordic countries that have increased their greenhouse gas emissions since 1990.

Top four rural regions are in Iceland

State of the Nordic Region 2020 ranks all regions in the Nordic countries in the Regional Potential Index, comparing them on a range of demographic, economic and labour force indicators.

The four highest-ranked rural regions in this year’s index are all in Iceland. Suðurnes is the best performing rural region, placed 8th in the overall ranking, closely followed by Norðurland eystra, Suðurland and Vesturland. Despite a recent increase in unemployment, partly caused by the collapse of WOW Air, Suðurnes has the highest GRP per capita of Nordic rural regions. The area, which is home to Iceland’s international airport, Keflavík Airport, has benefitted greatly from the net migration of labour, both from abroad and from the capital region. Austurland made the biggest jump upward in the ranking, twelve spots, mainly thanks to the boom in tourism.

With one of the highest employment rates, Höfuðborgarsvæðið (Reykjavík Capital Area) is ranked 4th, below the capital regions of Oslo, Copenhagen and Stockholm. Höfuðborgarsvæðið has seen considerable net migration and also has one of the lowest demographic dependency ratios in the Nordic Region, i.e. the ratio of children and elderly against the working-age population.

Iceland goes against Nordic trends

Iceland and Norway have increased their greenhouse gas emissions in the period between 1990 and 2017. The increase reflects the significant impact that transport and energy-intensive industries, notably the smelting industry and the oil and gas industry, continue to have on total GHG emissions. Iceland is currently the top emitter of CO2 per capita in Europe.

Iceland’s per capita energy consumption for transport increased by 57% between 2000 and 2017, in part due to the expanding tourism sector, and the per capita building energy consumption increased by 22%. According to the report, these trends in energy consumption and greenhouse gas emissions could pose a challenge to Iceland’s ambition of achieving carbon neutrality by 2040.

All Nordic countries have increased their share of renewable energy in gross final consumption between 2004 and 2017. Iceland increased its share by 13% and Denmark saw the largest relative increase, 21%, although starting from a lower baseline. Iceland still leads the way with the largest share of renewables, 72% of gross final consumption, followed by Norway at 71%, Sweden at 54%, Finland at 41%, and Denmark at 36%.

Population and labour market changes

While children still outnumber people aged 65 or over, the population structure in Iceland is ageing. One of the reasons is that the country’s fertility rate, traditionally among the highest in the Nordic Region, has dropped from 2.2 in 1990 to 1.7 today, which is the lowest ever recorded.

34 municipalities in Iceland are among the Nordic municipalities with the lowest prospective old-age dependency, measuring the proportion of people with a remaining life expectancy of less than 15 years as a portion of the remaining population over 15 years of age. This share is only 14% in Iceland, whereas the Nordic average is 21.2%.

Looking at the labour market, an estimated 32% of Icelandic jobs are at high risk of being automated by 2040, which is similar to the Nordic average. Projections indicate that 64% of Icelandic municipalities will see a decrease in the size of their working-age population by 2040.

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