What type of economic system does Iceland have? Iceland's economic system is a mixed economy that closely resembles a market economy, where individuals are free to work, produce, and invest as they please alongside a public sector. On the 2026 Index of Economic Freedom it scored about 73, among the most economically free in Europe, and 95/100 on Freedom House.
What is the economic system of Iceland? The economy of Iceland is based on a mixed economy, that resembles a market economy. The country’s economic system combines elements of a market economy and a planned economy, individuals are free to work, produce, consume, and invest in any way they please.
No country is purely capitalist or purely communist.
What do the freedom indexes tell about the economic system of Iceland?
For instance, according to the 2026 Index of Economic Freedom, which measures the ability of every human to control his own labor and property, Iceland scored approximately 73 and is ranked among the most economically free countries in Europe, indicating that the country has a mostly free economy.
In a similar way, the 2026 Freedom House index evaluates the state of political rights and civil liberties globally. Iceland gets a score of 95/100 (as of 2026), which qualifies it as Free. Iceland is a country where the government does not control what people do for political reasons, and people have the freedom to choose (what, how much, and how to produce, whether to buy or not, selling price, etc.)
The Link Between Public Sector Employment and the Economic System of Iceland
An indicator of the extent to which the State is involved in the economy is the number of public sector employees. In Iceland, according to ILOSTAT, the number of public sector employees as a percentage of the total workforce is 25% (2019). In the country, the public sector tends to be well-funded and efficient. As a result, the number of public sector employees as a percentage of the total workforce is relatively high compared to many other economies, reflecting Iceland’s Nordic welfare model.
What does the biggest company in Iceland say about the country’s economic system
The biggest company in Iceland should also be looked at, as well as whether it is a state-owned or private company. In this case, Embla Medical hf (formerly Össur hf, rebranded April 2024) is a leading Icelandic company by revenue and market capitalisation, headquartered in Reykjavik. The company designs, develops, and manufactures orthopedic prosthetics and bracing products. It is listed on Nasdaq Copenhagen (ticker: EMBLA) and had trailing revenue of approximately US$958 million as of 2025. Note: Marel hf, which was previously cited here, was acquired by US-based JBT Corporation and delisted from Nasdaq Iceland in January 2025; it is no longer a standalone Icelandic company.
The historical factors that have influenced the economic system of Iceland
Iceland’s mixed economy system is the result of a combination of factors, including the country’s natural resources, its small population, and its strategic location.
The country’s abundant natural resources, such as geothermal energy, have enabled it to develop a strong industrial base, while its small population has allowed it to remain relatively isolated from the rest of the world.
Additionally, its strategic location has enabled it to benefit from trade with other countries. These factors have all contributed to the development of Iceland’s mixed economy system with strong companies and a complete welfare state.
Sources
- List of countries by the public sector size
- ILOSTAT — Iceland country profile
- 2026 Index of Economic Freedom — Iceland
- Freedom in the World 2026 — Iceland
- Embla Medical hf
Last updated: June 20, 2026
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