The Icelandic labour market is very well educated with compulsory ten-year school education. More than 55% of the labour force has educational backgrounds beyond compulsory schooling, in the form of vocational training or university degrees. 

Collective bargaining between the main labour and employers' organizations sets the general pattern for wage agreements. Some companies have introduced workplace wage agreements, rather than separate agreements for each union.

An important characteristic of the Icelandic economy is its large degree of labour market flexibility. According to the OECD, real wage flexibility is greater in Iceland than in any other member country. By international comparison, wages and wage cost in Iceland are very competitive relative to most Western countries. In manufacturing, they are less than half those in Germany, for example. Indirect wage cost is relatively low in Iceland at 35-40% (including vacation and sickness provisions, payroll taxes and contribution to a pension fund).