Categories: Business NewsSustainability

Iceland Embraces Shorter Work Week, Boosting Economic Performance

Iceland’s shift to a shorter work week has resulted in notable economic benefits, positioning the country ahead of many European counterparts, as indicated by recent research. Between 2020 and 2022, around 51% of the workforce adopted shorter hours, including four-day weeks. This proportion is likely even higher today, according to studies by the UK’s Autonomy Institute and Iceland’s Association for Sustainability and Democracy (Alda).

The country experienced faster economic growth than most European nations last year, with a low unemployment rate that ranked among the lowest on the continent. Gudmundur D. Haraldsson of Alda praised the initiative as a “real success story,” with shorter work hours becoming widespread while the economy remains robust across various measures.

Iceland’s Economy Outperforms Peers

The groundwork for this transformation was laid between 2015 and 2019, when two significant trials involving public sector workers were conducted. Participants, representing over 1% of Iceland’s workforce, reduced their weekly hours to 35-36 from the standard 40 without any pay cuts. The trials aimed to maintain or boost productivity while enhancing employees’ work-life balance. Findings revealed that productivity was either sustained or improved across most workplaces, while workers reported significant improvements in areas such as stress levels, burnout, health, and overall work-life harmony.

Following the success of the trials, Icelandic labor unions secured reduced working hours for tens of thousands of members nationwide. The International Monetary Fund’s further underscored the benefits, with a growth rate of 5% in 2023, the second-highest among wealthy European economies, trailing only Malta. This figure starkly contrasts with the country’s historical average growth of nearly 2% between 2006 and 2015.

Slowdown in growth

However, the International Monetary Fund (IMF) has predicted a slowdown in growth for Iceland in 2024 due to diminishing domestic demand and a decline in tourism revenue. The unemployment rate, which stood at 3.4% in 2023—significantly below the average for advanced European economies—may rise slightly to 3.8% in the coming years.

Iceland’s success adds to a growing global interest in shorter work weeks, including a notable trial in 2022 involving 33 companies across the United States and Ireland.