OSLO—For the town of Glomfjord in Norway’s Arctic, the country’s oil boom has turned into a curse.

Unemployment has more than doubled, people are moving out and schools now risk being shut after solar-energy component maker Renewable Energy Corp. closed a 200-person plant in March before moving production abroad to cut costs.

“It’s an earthquake — a catastrophe,” said Per Swensen, the mayor of Meloey, a district of 6,600 people scattered across 755 islands that includes Glomfjord. “It has dramatic consequences.”

Glomfjord and towns like it are victims of a deepening economic divide sparked by an oil rush that’s transformed Norway into Europe’s second-largest producer.

While the boom has turned some fishing villages into affluent towns, it has also turned Norway into Europe’s most expensive place to do business. That’s hobbling the ability of towns and regions far from Norway’s oil resources to keep up.

“I would like to have a bit more than one leg to stand on today and in the future,” said Hilde Bjoernland, an economics professor at the Norwegian Business School. “What we’re doing now is cutting away at one of the legs.”

Average manufacturing labour costs are about $57.50 an hour, 31 per cent more than in Germany and 65 per cent more than the United States, according to the U.S. Labor Department.

Complicating life for exporters, Norway’s krone has surged 24 per cent against a basket of currencies from its trading partners in the past 3.5 years as investors seek an oil-rich haven from the global financial crisis.

That’s making it hard for companies outside the oil industry to evolve and thrive even as the economy expands amid a contraction in the euro area.

Annett Kildal, an engineer, found herself part of that trend this year after she lost her job at the REC plant, Glomfjord’s largest employer at the time. “People were angry and frustrated,” said Kildal.

“We’re sitting on easy street,” said Arne Joakimsen, who owns 22 restaurants and bars on Norway’s west coast and in the city of Stavanger, the nation’s oil capital. “I feel we are very, very lucky.”

The oil dividend is nevertheless causing problems for the welfare state as the cost-of-living climbs. In Stavanger, a town that has shed its reliance on the sardine cannery and fishing to become a city crammed with expats and upscale restaurants, local authorities can’t find enough health-care workers who can afford to live there.

House prices in Stavanger have tripled since 2000 to 40,000 kroner ($6,740) a square metre as employees from Exxon Mobil, Total and other oil giants pour into town, according to the Association of Real Estate Brokers. That compares to about $8,589 for the top 10 most expensive London areas.

The city is the fifth-most expensive in the world, beating Geneva and Zurich and coming in 35 spots ahead of Manhattan, according to an ECA International’s Worldwide Cost of Living Survey from March. Oslo was the second-most expensive city after Tokyo.

In Meloey, the mayor is now counting the people moving away and dreading the lost revenue.

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“We hope to prevent as many as possible from moving away and get them into jobs here, but if that many leave then our finances will not allow us to have so many schools and such a decentralized community,” he said.

Josiane Kremer is a reporter for Bloomberg News based in Oslo.