“Financial crises are a fairly regular occurrence in market economies. The crisis that hit Iceland in 2008 is unique because the whole financial system collapsed; the currency market disappeared and a large portion of private companies became technically bankrupt” says Gylfi Zoëga, Professor of Economics. “This experience as a real life experiment in the collapse of financial systems is clearly a worthy subject for research,” he adds. Zoëga is currently working on a study of the collapse.
According to Zoëga it is important in a study of this kind to look for ways to deal with the negative effects of the crisis on society. “The results will hopefully contribute to solutions minimising the damage sustained by Icelandic families over the next decade,” he says.
Zoëga has been renowned in Iceland for his interpretation of the causes of the collapse and in his connected ideas for solving resulting problems. Zoëga says that part of his work now goes to analysing the crisis, its nature and development. “Such analyses may help to explain why unemployment stays high in the aftermath of crises. Unemployment remained high for more than a decade following financial crises in Finland and Sweden in the beginning of the nineties,” says Zoëga. Whether the employment situation will suffer such a long term downturn in Iceland remains to be seen.
Zoëga says that currently data is being accumulated concerning variables relating to the various dimensions of financial crises for Iceland, as well as other countries that have been badly hit, for example Ireland, Spain and other OECD-countries. This data is used to map the behaviour and correlations of miscellaneous variables. Patterns are then explained using economic models; and finally tested statistically.
Zoëga says that economic theory has hitherto not been able to sufficiently explain why employment rates do not improve faster in the aftermath of crises. “The Icelandic crisis provides a unique opportunity to analyse the effect of crises on the work market. Theories on unemployment have been developed in recent decades but have not provided knowledge on the influence of financial crisis on the work market. This project will focus specifically on the effect of the crisis on the work market with a view to improving unemployment theory in the light of new data,” Zoëga says.
