Statistics Iceland has published a working paper with the results of an analysis of pay gap by background in collaboration with the immigrant council. The results show that for the period 2008-2017 immigrants had around 8% lower earnings on average than locals, after controlling for gender, age, education, family structure, residence, and various employment related factors. Correcting for these factors provides a clearer picture of the specific effect that background has on earnings.

Pay gap varies depending on occupation and educational level
Further calculations showed higher earnings for locals than immigrants in occupations where immigrants most commonly work according to the data. Thus, the conditional pay gap was 10% among cleaning staff and cafeteria assistants (occupation 9132), 11% among assembling labourers (occupation 9321), and 8% for child-care workers (occupation 5131). The results also show that immigrants in general receive lower wages for their education than locals, irrespective of the educational level.

Immigrants from the Nordic countries have higher earnings than immigrants from other regions
When examining the factors explaining variations in earnings among immigrants in the Icelandic labour force, it should be noted that immigrants born in the Nordic countries generally have higher earnings than those born elsewhere. For example, immigrants from Western Europe generally have 4% lower earnings than immigrants from the Nordic countries while immigrants from Eastern Europe have on average 6% lower earnings. Immigrants from Asia have the lowest earnings, or 7% lower on average than immigrants from the Nordic countries.

The results of the analysis also show that immigrants arriving in Iceland 6 to 9 years ago had 2% higher earnings on average than those who had stayed here for 5 years or less, and that those who had stayed for more than 10 years had 3% higher earnings on average.

About the study
In this study, immigrants are defined as individuals who are born abroad and have both parents and both grandparents born abroad. Local is used for everyone who cannot be defined as an immigrant. The term local covers a broad category with many sub-categories. For example, individuals are classified as locals if they have no foreign background, if they are born abroad but have an Icelandic background, if they are born in Iceland and have one parent who is an immigrant, if they are born abroad and have Icelandic grandparents, and individuals who have immigrant parents but are born in Iceland.

It is important to consider the advantages and disadvantages of the study when interpreting the results. The study is based on 215,000 observations of earnings by background from the years 2008-2017. The data come directly from companies’ payroll systems and are uniform and precise. The data are a sub-sample from the ISWEL survey, which is a stratified cluster sample survey of earnings among employers with 10 or more employees. Although the survey reaches most economic sectors on the Icelandic labour market, it does not have a complete coverage of all economic sectors, most notably it does not adequately cover the hotel and restaurant sector. This limits the generalizability of the findings. Since statistical results indicated that the pay gap is not fully explained by the current model, the methods should be developed further for example by adding a measurement of an Icelandic language skill.

Analysis on pay gap by background 2008-2017 - Working Paper