Unemployment in Iceland stands at 7.2% as reported by mbl.is. I wrote about the challenges related to company bankruptcies. What is troubling in these numbers is that age groups between 16-24, it peaked at 16.2% in 2010 and it is still at a very high and stubborn 14.6%.
Why is the unemployment level in Iceland still so high inspite of the GDP growth that has been touted by the Central Bank of Iceland, the Icelandic Government and the IMF? I have been asking the same question, if everything is fine and dandy, why are there not more jobs being created? What is another troubling trend is the number of people who have been unemployed for more than 6 months. That number is persistent and quite high 26% in 2011. I think the overall number is important but what is more important are the above numbers the unemployment of young people which tells me the labor market is does not employ people with limited skills and those who have not been employed are not able to find work. How should we be creating jobs? You know where I am going with this if you have been reading this blog… Entrepreneurs of course! I also believe there is a mis allocation of capital in the economy, a lot of the capital is NOT being allocated i.e it is sitting in banks. The capital that has been freed is being allocated to speculate on Real Estate, which is evident in the prices of housing in Iceland. I wrote about it yesterday, here are the numbers and graphs to support the argument… notice the clear upward trend.

If one takes only the month of January and see the trend it is quite evident that there is a huge capital push into the Housing sector. This is not a healthy trend. I think there is significant relationship between the unemployment level and what is happening in the price levels of housing. Capital is being deployed in speculating on Real Estate but not on productive entreprises that need capital. We have seen this movie before and we know how it ends and I am not the only one saying this.