Ravi Philemon
Selena Ling an economist at Overseas Chinese Banking Corporation feels that the government could have been more generous in terms of helping individuals directly. She says, “A lot of measures (in Budget 2009) were biased towards helping companies because they expect that what helps companies will help individuals. They have prioritised saving jobs as the key theme this year, so they are thinking that as long as you have a job, you are okay”.
How right her observation! Could the Budget have initiated measures that would have targeted workers directly? Is this an opportune time to have initiated measures like unemployment insurance; which will be a means of temporary income for eligible workers who become unemployed through no fault of their own and who are ready, willing, and able to work?
The International Labour Organisation (ILO), a United Nations agency, says in a recent report, “Improving social protection systems and providing immediate relief to workers and families are essential complementary interventions to employment growth strategies. Extensions of unemployment insurance and of health care coverage are essential measures to help people face the crisis. Unemployment insurance systems not only provide time to seek new opportunities and to reskill, but they also serve to maintain an adequate level of consumption in society”.
It cannot be deduced that Unemployment Insurance (UI) is not appropriate for a highly industrialized Asian ‘tiger economy’ like Singapore. South Korea the first country to be identified as a ‘tiger economy’ has a (un)employment insurance scheme which was first put into place in 1 July 1995. The unemployment scheme was further extended rapidly in the wake of the unprecedented economic crisis in 1997. In March 1998, the ILO reported that South Korea is the only sizable Asian economy that appears to be pulling out of the economic crisis and urged other Asian countries to create unemployment insurance, and to increase spending on social assistance.
In January 2009, an unprecedented number of 128,000 Koreans applied for UI. But early anecdotal evidence suggests that the unemployment insurance payouts have helped to ensure that workers were not forced to sell their homes or even cars. The system protects not only the unemployed, who can continue to pay their mortgages and interest, but also indirectly the banks, because their loans to households are repaid even in times of recession.
Benefits fall into two broad categories in the South Korean Employment Insurance Act and are calculated using different rates. The first category is ‘Unemployment Benefits’ which is calculated at a rate of 0.9% of the employee’s total annual wage; of which both the employer and employee must pay 0.45% each. The second category is described as ‘Employment Security and Vocational Development’ and it is paid by the employer only. The amount paid by the employer ranges from 0.25% (for a company with less then 150 employees) to 0.85% (for companies with more than 1,000 employees) and the percentage is applied to the year’s total wage of all employees.
Singapore
During this economic crisis, Budget 2009 should have funded such an unemployment insurance scheme from government surpluses. This will not be an exception because government surpluses have been handed out in the past, as Central Provident Fund (CPF) top-ups and as Singapore shares. When the economy picks up, the hand-out from the surpluses should be discontinued; and the employers should be mandated to contribute (between) an additional 0.7% to 1.3% towards such a scheme.
CPF employer rates have been revised down during each crisis and never restored to the initial rate before the crisis:
- In 1986 (cost outpaced productivity), employer rate was cut from 25% to 10%.
- In 1998 (Asia Financial Crisis), employer rate was cut from 20% to 10%.
- In 2003 (SARS), employer rate was cut from 16% to 13%.
- In 2007, the employer rate was only raised back to 14.5%
Employer CPF contribution rates should be restored; to at least to the ‘pre-SARS’ rate of 16% after this economic crisis ends; and the increase in the rate of contribution should be used for needful social protection schemes like unemployment insurance.
Credit Suisse forecasts that as many as 300,000 may become unemployed in Singapore this year. The Development Bank of Singapore said this crisis could claim 99,000 workers. There is an imperative need to study and implement a national unemployment insurance scheme. In fact, besides the civil societies’ call for our social safety net (including unemployment insurance) to be enhanced, the governing party’s MP, Mr. Inderjit Singh, also called for unemployment insurance, way back in the Budget 2006 debate. He suggested providing more retrenchment protection (by) having a national unemployment insurance scheme.
Government’s no-go
But Prime Minister Lee Hsien Loong shot down this suggestion and said:
“Who is to pay for this protection? Who is to pay for this unemployment insurance? If you raise employee contributions to CPF, then you reduce workers’ take home pay. Are you prepared to do that?”
But simple logic will show that the employee’s take home pay need not be affected by the UI. The UI must be settled in principle before practicalities are worked out; and not the other way around. In fact, the government of Singapore has adopted many policies in principle (like the means-testing for healthcare subsidies), before practicalities were worked out.
In 2006, the government also dismissed the unemployment insurance. Most workers already have some form of retrenchment protection, it said. The Ministry of Manpower (MOM) did a survey in 2004 and found that 96 percent of private sector establishments with at least 25 employees paid retrenchment benefits to their local employees who had at least three years of service. This suggests that there is already some kind of unemployment protection which is in the retrenchment benefits scheme. But questions remain. What is the total percentage of Singapore companies with 25 or more staff? What about those who lose their jobs before completing 3 years of service (especially the new entrants to the job market) in this economic crisis? What about the companies who fail to deliver retrenchment benefits even for employees who have worked for three years or more because of bankruptcies and/or closure of their enterprise?
Dr. Yap Mui Teng, Senior Research Fellow of The Institute of Policy studies recommends as much in his report entitled, “Employment Insurance: A Safety Net for the Unemployed”. Dr. Yap concludes in this report,
“The Korean (Employment Insurance System) EIS embodies many of the principles Singapore holds dear in its employment and welfare policies. It is worthy of study, and perhaps even emulation, for the way it combines the social safety net with active measures to promote employment, thus providing welfare without dependency. The system is also self-funding, without being a drain on government coffers. Perhaps and EIS-type scheme providing for employment security can be introduced as another component of the CPF (Central Provident Fund)…with premiums paid from the CPF Ordinary Account”.
An economic stabilser
The UI has its roots in the Great Depression. It was first instituted during that period to encourage spending and help the poor economy. Unemployment insurance is the quintessential economic stimulus: and it is the first line of defense in a recession. Unemployment Insurance helps laid-off workers maintain consumption and search for a job that matches their skills. Kenneth Jeyaretnam the son of the late JB Jeyaretnam says,
“And the point about unemployment insurance is, apart from any justification on equity grounds, is that it acts as an automatic stabiliser to maintain consumption and prevent the economy deteriorating further. Boosting domestic consumption is something Singapore …will have to do in future as they have reached the end of the road as far as depending on the US for export-led growth.”
In a recent CNBC report titled “Financial Crisis Sees Suicide Rates Rise in Asia”, Paul Yip, a mental health and suicide prevention specialist in Hong Kong says,
“Work is very important to the Asian because we don’t have very good social security and losing one’s job is associated with the loss of ‘face’. So the trauma can be great”.
Unemployment Insurance can give the needed assurance to the traumatised retrenched, that they need not drastically cut back on things like education or healthcare or insurance; and therefore it enhances economic security.
It is essential for Singapore to develop a workable unemployment insurance system amidst the globalizing economic environments where jobs in general become more flexible and less secured and workers become more vulnerable to any economic turbulence which easily threatens job securities of workers. Even Thailand has introduced unemployment insurance since 2004; and countries like Malaysia, Sri Lanka and Nepal are also considering the possibility of introducing employment/unemployment benefits in the near future.
Singapore Budget 2009, the ‘Resilience Package’ should have shown greater empathy and concern for the resident workers of Singapore by ensuring economic security, by announcing an initiative like unemployment insurance, which would surely provide social protection and the means of being truly resilient, in this economic crisis never before seen in post-independence Singapore.
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Such a scheme should have been implemented when times are much better. Then at least when a crisis like this is thrown up, it would have kicked in place.
Trying to implement one in this free falling economy is going to be tough, if not impossible. In any case, even economically speaking, if a scheme was implemented now, it will not resolve the urgency of those who are currently unemployed.
Politically, nothing short of a complete PAP make-over either in the form of a complete change of mindset in the cabinet or more drastically, an revolutionary overthrow of the PAP (including high level civil servant/GLCs) is there going to be any meaningful policy change. Given the lack of appetite for revolutionary change not only in the PAP but also the voters, it will be business as usual.
I am in favour of unemployment insurance. The Government has been afraid of abuse of this scheme, i.e. malingers will go unemployed to receive the benefit, but this can be managed. The advanced countries have learned how the abuse could be minimised.
If unemployment insurance could not be implemented soon, I wish to suggest that a relief loan be provided by the government to the people who are retrenched or suffer a drop in earnings due to shorter work week.
The relief loan can be for a period of up to 24 months, and can cover the drop in earnings. It can carry an interest rate of 2.5% per annum (sum as CPF savings). It is like a way of early withdrawal of CPF savings, but with the requirement that it should be repaid from future earnings.
There will be some people who cannot repay back the loan, due to inability to find a well paying job. If they are honest in trying their best, it should be possible for part or all of their loan to be written off, subject to proper assessment.
A relief loan is a loan, and is not unemployment benefit. It can help to alleviate hardship, without getting people to abuse the scheme.
Read my proposal on the relief loan in an earlier article in The Online Citizen:
http://theonlinecitizen.com/2008/12/helping-singaporeans-cope-with-the-recessio/
3) Tan Kin Lian on March 2nd, 2009 7.37 pm :
I am in favour of unemployment insurance. The Government has been afraid of abuse of this scheme, i.e. malingers will go unemployed to receive the benefit, but this can be managed. The advanced countries have learned how the abuse could be minimised.
Indeed. The problem is not just confined to the Government too. But in Singapore we have this pathological fear of “abuse” that we often end up with some much bureaucracy to eliminate “abuse” that the cost of avoiding “abuse” ends up costing more than the cost incurred by the abuse in the first place.
Take my personal example of a company I encountered in Singapore where they made everyone sign a forms in triplicate just to draw out one (NOT a box but one) pencil lead to refill a mechanical pencil from the company’s stationary store!
If you extend the attitude to even a wider debate about policies the fear-of-abuse leads often to even more waste. Consider examples of so many scheme to help to poor, like GST rebate, how much of that simply end up being recycled to people who do needs it?
As for the unemployment benefit/insurance/call-it-what-you-like-scheme, some of the Scandinavian countries have even use that kind of scheme to make businesses flexible and competitive. By having the unemployment benefit and allowing companies to hire-and-fire easily, they fulfil two goals. Help the unemployed (albeit with some “abuse”) but also help businesses!
Tan Ah Kow @ #4: You are a funny guy…lol…
Wonderfully written.
If Employer’s CPF Contribution in 1986 was 25%, it should never be a problem if Employer’s total contribution to CPF and UI is less than 25%. In another words, LHL’s argument against UI is no more than a moot point.
I question his competence and his ability to lead the cabinet and whether he commands the unity in PAP, if there is any.
Great article, Ravi..
I think one reason why the govt is reluctant to institute this UI scheme is a political one. The govt prefers to give out ad hoc handouts because it means people have to depend on them. With the UI, less people would have to depend o the govt for help. This would be politically unfavourable to the incumbent govt. I mean, govts would no longer be able to stay relevant if they’re not needed.
Look at the way the govt helps the poor and low-income. It’s ad hoc handouts – progress package, singapore shares, gst rebates. All are short-term and totally dependent on the govt.
Of course the real catch is election time, when such help are most impactful.
UI will be instituted only if the govt feels the ground has moved and wants it. There is only one language the govt understands – the language of the vote.
there will be more unemployment as more companies closed down or being retranched.
hey got this political/economic game;
http://www.erepublik.com
it only need 5mins daily to play.
you are being elected as a president or build up lots of companies there…
come and try
Why didn’t the scholar come out with such brilliant plan, We can utilise our CPF savings to pay premium for UI. The insurance companies will benefit too and that brings back liquidity into the finance industry. The retrenched are secured and do not need to rely on the govt, the working people continue to pay the premium whose money is used to help the retrench until the retrenched finds his jobs and continue to pay the premium to help other retrenched.
The pool of money can be quite large if UI is made compulsory, for a small premium, from all working Singaporean.
In fact, the money used to pay UI is more profitable to the workers than paying membership to labour union.
woshiempire,
Stop spamming http://www.erepublik.com here
I mostly agree with Ravi, but would like to offer some comments.
First, I think the government is right to highlight the issue of who ends up paying for unemployment insurance. In most countries where this is implemented, enrolment is compulsory and the premium is deducted directly from your salary. Would Singaporeans welcome another ‘tax’? Yes, it is possible to do this without affecting take-home pay, such as using CPF to pay for it, but in the end, the cost is still borne by taxpayers.
Second, any unemployment insurance scheme has to be short-term, in order to encourage people to return to work. There must also be rigorous safeguards to prevent people from ‘gaming’ the system. As an example, in Canada, the logging industry would hire workers for 6 mths then fire them when winter approaches. These people then live on insurance payouts for the other 6 months. Taxpayers effectively ended up subsidizing the logging industry.
Thirdly, no matter how you look at this, this is socialism. Society as a whole bears the cost of a few. I am not against a bit of socialism but too much of it can make society less productive.
That said, unemployed individuals do need a safety net in times of crisis. I think that a ‘loan’, as proposed by TKL, is a better idea, and that it should come out from the individual’s CPF. Essentially, you should be allowed to borrow from your CPF to tide you through bad times, but have to top it up again when you find a job.
11) Panache on March 2nd, 2009 11.52 pm :
Second, any unemployment insurance scheme has to be short-term, in order to encourage people to return to work. There must also be rigorous safeguards to prevent people from ‘gaming’ the system. As an example, in Canada, the logging industry would hire workers for 6 mths then fire them when winter approaches. These people then live on insurance payouts for the other 6 months. Taxpayers effectively ended up subsidizing the logging industry.
No matter what system you devise there is going to be “abuse”. People (beneficiaries) will find ways to get round the rules. Or alternatively you could devise a system that is so onerous to access that people who needs it give up. And worst of all, people who don’t need it gets it. Many of the so-called scheme to help the poor ends up with people who don’t need but able to play the scheme to gain from it.
You see if you are going to formulate any policy scheme the starting point is not to formulate one from a view point that is “abuse” proof. The starting point is to make sure that your policy can be efficiently targeted as practicable, abuse not withstanding.
7) Andrew Loh on March 2nd, 2009 10.33 pm
Fully agree with this view point.
9) David on March 2nd, 2009 11.43 pm :
Why didn’t the scholar come out with such brilliant plan, We can utilise our CPF savings to pay premium for UI. The insurance companies will benefit too and that brings back liquidity into the finance industry. The retrenched are secured and do not need to rely on the govt, the working people continue to pay the premium whose money is used to help the retrench until the retrenched finds his jobs and continue to pay the premium to help other retrenched.
I have always thought that CPF ought to have been used primarily for old age and unemployment. I remember long before the internet and (real) coffee shop talk some people were already advocating such thoughts. But the government in its wisdom decided to let CPF be used to buy property.
I suppose the thinking, whilst seemingly logical, is that when you transfer money from cash to property money is not lost. Whereas, if you let people use it for UI that is cash gone. Again, the assumption based on the fact that property value can be unlocked easily in times of crisis, which as this recession has shown is not true.
Of course, if the UI were to be implemented now, you have the difficult task of having to reform the CPF. Considering how intrinsically link CPF and the property market and in turn the construction industry are.
So the question is not whether the UI is a good thing or not. But how do you do it in the face of a sinking economy?
Yes, drawing on the cpf now would be the right move for the jobless issue.
Talking about unemployment insurance now is as practical as building a fire brigade when there’s already a fire raging and spreading furiously.
Anyway, I would not expect any fair deal from the bunch of insurance companies who seems to be operating a cartel over here.
One of PAP’s biggest plunders so far is to allow citizens to use their CPF monies to buy HDB flats. Even when you retire, you still need a home to live in, while not taking in account of the fact that one needs a monthly income for subsistence in Singapore. CPF should never be used to finance housing at all.
7) Andrew Loh;
If You(citizens) are made to rely on me(leaders) for survivals then You will have to depend on me and be sublimally subjugated to me(the Government), a foxy scheme.
to insure the whole of china is tough.
but to insure tiny singapore?
how difficult can it be?
Technically, UI is not an insurance, as in having a company like AIG bearing the risk. It is simply a pooled fund that distributes payouts to retrenched members. The difficulty of starting UI now is in convincing people to sacrifice, say, 2% of their salary to help retrenched workers. I don’t mind myself, but some people will, especially since it has to be compulsory for everyone to keep premiums low.
The election may be coming or it may not. 1 thing for sure, it will come.
The question is, I know many of you want more voice to speak up for mere mortals. But how is that gonna be realised given the mentality of the people has been the same for more than 4 decades?
I am not even talking about winning the whole election overall. I am talking about how can the alternative parties (so many of them! united or disunited?) Really, as in Really Really win 1 more seat in parlimon? juz 1 more seat at least.
Panache at no. 19: The writer has already answered your concern in his write-up when he said, “During this economic crisis, Budget 2009 should have funded such an unemployment insurance scheme from government surpluses. This will not be an exception because government surpluses have been handed out in the past, as Central Provident Fund (CPF) top-ups and as Singapore shares. When the economy picks up, the hand-out from the surpluses should be discontinued; and the employers should be mandated to contribute (between) an additional 0.7% to 1.3% towards such a scheme.”
If we use the South Korean model, most employees will not have to pay more than (between) $15 – $20 per month. Anyway, being an Indian Singaporean, I am contributing $7 to SINDA, which is deducted from my CPF; and what does SINDA do for me? I do not mind the deductions by SINDA, if it benefits those that are lesser-off than me.
But most are discussing practicalities here. As much as practicalities are important, it is even more important to ask, “Is UI essential to protect the workers of Singapore (Who are people like you and me), who may become jobless through no fault of their own?” If it is, then, we must accept it in principle; practicalities could be worked out later.
The best insurance, in my view, is the Auto Insurance :
1. car owners pay and pay but never would want to claim the insurance even when got reasons to do so. Of course some do, that is when its really serious accident but generally most don’t for less serious accidents. A wonderful business to get into. ‘Self-regulated’ :P
once claimed, they pay and pay more next in next premium. What is the diff?
Then is this UI to be compulsory? I think some employees and employers may wish to opt out.
Quoting Panache on March 2nd, 2009 11.52 pm:
“Yes, it is possible to do this without affecting take-home pay, such as using CPF to pay for it, but in the end, the cost is still borne by taxpayers.”
Can Panache or anyone else who agrees with the statement above please explain to me how is the cost borne by taxpayers, preferably with a simple example/illustration please. Thanks.
After reading this article, I am gonna think of putting FD into OCBC. I mean, i am impressed by the economist in the bank for being outspoken and providing a voice for the alternative citizens.
by the way, I feel that another kinda insurance is needed for passengers on buses, especially those that ply expressways. I mean, accidents which do can happen on expressways due to whatever reasons. in a small car, 1 to 4 passengers can get flung away if they not wearing safety belts. Even with belts, severe injury is possible. In a large bus, where up to more than 80 can sit and stand, what happens when such a bus is involved in an accident in the expressway?
I am aware that any kind of passenger can take the expressway bus – old, weak, handicapped, on crutches, children 1-10 years old, teenagers, pregnant women, partially blind, etc etc…. when the bus captain applies the emergency break, what CAN happen?
Da Questione : Why no Safety belts on buses? Convenience over safety? If not safety belts, is there any other solution or safety in place ?
It does not take an accident to cause the captain to jam break all of a sudden. Many scenarios can result in that.
#25
Hi Ted,
I used the term ‘taxpayers’ very loosely here. But generally, if you work and pay taxes, you will have to contribute to this UI fund, hence taxpayers. The temporary solution proposed by Ravi also involves drawing money from the government budget, and all government budget comes from taxes.
#25
To clarify further, you can think of the UI premium as an extra 1-2% ‘tax’, except that every worker has to pay it, even the low-wage workers, in order to be fair. Yes, you may be paying the premiums using your CPF, but that just means that the ‘tax’ is paid with your CPF instead of cash.
Looking at this another way, it is equivalent to the government increasing taxes on workers to fund an unemployment benefits scheme. Different name, same animal.
“Looking at this another way, it is equivalent to the government increasing taxes on workers to fund an unemployment benefits scheme. Different name, same animal”
Right you are, Panache. I think this proposal won’t go down well with many workers. It’s very obvious this UI is meant to help workers who are very likely to be retrenched i.e. low-skilled, aged, low-wage etc. Workers who believe they are unlikely to be retrenched, esp. in boom times, may dislike the idea of funding a scheme which they may never enjoy.
The major problem with the UI is fairness. If the govt wishes to implement it nation-wide, then ‘premiums’ must be different for different groups of workers to ensure it’s fair. I suppose those who are likely to be retrenched has to pay a higher premium than those not likely to be.
If the UI were funded from budget surpluses, fair enough. But the govt might as well give handouts directly to the unemployed, which seems easier than a complicated system of UI.
I wonder if any new policies will be implemented after or during this crisis?
that needs a renewed mandate right which would be useful right?
i almost can sense more good year liao.
Dear eternalhap,
As Panache has pointed out, the premiums have to be compulsory in order to keep the amount low. The UI is essentially a redistributive scheme, since it’s likely to benefit the lower-wage workers more.
In this regard, the UI does not necessarily contradict the principle of fairness. Rich folk, for example, pay a higher rate of income tax than poorer folk. The UI should be seen in this redistributive vein. A uniform rate of contribution is better, since it would be regressive to tax lower-wage earners a higher rate, and furthermore it is easier to implement a flat rate.
In fact, the fairness argument can be deployed in another manner, as the author has tried to show in his article. It is usually through little fault of the individual that he is retrenched – you might argue that it is the process of creative destruction where unproductive jobs or industries are weeded out as new jobs and firms take their place. The benefits accrue to society, yet the loss is the individual’s – not only the cost of losing his job, but the opportunity cost of having trained for the job, put in effort and accumulating experience on it, etc. Therefore, a measure of responsibility falls to society (and the firm, of course) to make up for the individual’s loss to a limited extent – which is largely the principle behind UI schemes in other countries.
Whether such an additional ‘tax’ would be acceptable to the public – I wouldn’t bet against it, given the current economic upheaval and the fact that jobs are increasingly insecure nowadays. Spending 1% of your income to guarantee yourself some benefits in the event of the unexpected happening seems like a rather good outlay. In fact, as the author has suggested in the Korean model, it is only half of that 1% – the other half should come from firms.
Panache @ #27 & #28: Thanks for admitting that you used the word ‘tax’ loosely…UI may be better classified as ‘group insurance’, where those ‘at-risk’ (in this case all employees) are pooled together to share the common risks (in this case being unemployment)…
Eternalhap @ #29: “I think” is not good enough. Have only the “low-skilled, aged, low-wage”, become unemployed in this economic crisis?”
If premiums are percentaged to wages earned, then of course those that earn more will pay a higher permium (although the percentage is the same). For example if the employee contribution is capped at 0.45%, then he who earns $400 per month will pay $1.80 per month, while he who earns $4000, will pay $18 per month. But the percentage and the burden remains the same.
Giving handouts makes the people feel ‘beholden’ to the government and does not reinforce the rights of the worker.
Don’t get me wrong. I am not against UI. In fact, I think it makes society more stable and less stressful. Same for socialised healthcare.
I have a story to share about my unemployment and the credits.
gst credits : 1 week ago, i called cpf , who sent me a letter about my gst credits. I realised from my neighbor they received much more for same house size. i enquired the check if the amount was correct.
I was told:
1. yes, $200 is correct.
2. how was that derived? based on your 2007 income. Yes, back then i was employed. So, that is how i got $200. they base on 2007 income. 1 of the reasons given was that self-employed people have yet to return the iras for 2008.
question :
1. compare 2007 and 2008, which year has normal low unemployment rate and which year has higher unemployment rate?
2. given there is difference between self-employed and employees, why the criteria was based on income for 2007 for BOTH groups of people? More are employees in my opinion and lesser are self-employed. why not based on 2008? The issuing of the credits was done on end feb 2009.
3. Here is the how the amount is determined, briefly :
a. for people earning less than 24K in the year, the credits can range from 400 to 1000 depending on age AND HDB size
b. those who earned between 24001 upto 100K gets between 400-800 depending on age and
c. those who earned more than 100K gets $100 regardless of age.
I feel that the unemployment problem started in 2008 and those unemployed then are not taken into account as the income checked is based on 2007 income.
Is it not that there are more employees than self-employeds? would the scheme be more useful if it considered those unemployed in 2008 instead of 2007?
just a few questions in my mind. any comments welcome.
Farquhar on March 4th, 2009 3.45 pm
“The UI is essentially a redistributive scheme, since it’s likely to benefit the lower-wage workers more”
This is a fallacy as even workers who are educated and qualified in technical fields are subject to early dismissal due to factors like a global slump in demand. Please check out some of the well qualified and well spoken taxi drivers we have here in Singapore.
And UI, as a social insurance program are not designed as a scheme with a income redistribution effect like a welfare program (See Martin Feldstein, “Rethinking Social Insurance”, pg 3).
With regards to Panache’s comments about UI premiums being another form of tax, I would disagree with that. Should look at the probable impact UI premiums have on the real disposable income of locals workers, for instance if we assume that the premiums can be financed from CPF, workers do not have to pay out from their pocket to participate in the scheme.
Opposition parties are really useless in taking advantage of the current climate to stir public opinion for the promotion of Unemployment Insurance among the public and in parliament. Where is their art of politicking?
What is the Reality of alternativity?
I’m just wondering:
If I were filthy rich and I choose to scatter money liberally on the unemployed, would I have committed any offence in the eyes of the govt?
Hi Farquhar,
“A uniform rate of contribution is better, since it would be regressive to tax lower-wage earners a higher rate, and furthermore it is easier to implement a flat rate”
Fine, I understand and accept your point. A uniform rate is easier to implement than creating rates for different risk profiles.
An unemployed worker A has previous monthly income of $7000, worker B has $700. Both pay equal premium rate. So when they are unemployed, they receive equal insurance payouts? Surely people should have a choice to determine their retrenchment risk profile.
“Therefore, a measure of responsibility falls to society (and the firm, of course) to make up for the individual’s loss to a limited extent – which is largely the principle behind UI schemes in other countries”
Heyhey I accept this argument too. Sounds like a ‘merit good’ argument.
“Whether such an additional ‘tax’ would be acceptable to the public – I wouldn’t bet against it, given the current economic upheaval and the fact that jobs are increasingly insecure nowadays. Spending 1% of your income to guarantee yourself some benefits in the event of the unexpected happening seems like a rather good outlay. In fact, as the author has suggested in the Korean model, it is only half of that 1% – the other half should come from firms”
Essentially the UI is a redistributive scheme, as you mentioned. “jobs are increasingly insecure” – I think NOT all jobs can be described as such. Furthermore ‘insecure’ depends on the person holding onto the job. These ‘insecure jobs’ are likely low-wage jobs (construction, service) which S’poreans shun, or jobs in uncompetitive industries. Only them will benefit from UI payouts, as they have a higher probability to be retrenched. Workers in the identified ‘growth’ industries may not think their jobs are insecure at all.
Telling them to make a half percent premium to an UI which they think they will never enjoy will draw objections. This may be for society’s and their own good, but their valuation of retrenchment risk may be so small it does not merit drawing a compulsory percentage of their income into an insurance pool.
It seems the UI seems to be too ambitious. I think a much more easier way is to simply give direct handouts to the retrenched, for a period of time.
“Giving handouts makes the people feel ‘beholden’ to the government and does not reinforce the rights of the worker”
Err…really? Getting political here.
Hi Farquhar
“A uniform rate of contribution is better, since it would be regressive to tax lower-wage earners a higher rate, and furthermore it is easier to implement a flat rate”
I understand and accept your point.
Unemployed worker A has a previous monthly income of $7000, worker B $700. Both pay equal premium rates. When both are unemployed, should both receive equal insurance payouts, considering that both have different financial considerations and ‘retrenchment risk profiles’?
I think Singaporeans should have a choice to choose their retrenchment risk profile, then pay premiums and receive payouts accordingly.
Heyhey your argument is interesting; can I take the liberty of publishing it on my blog, to further comment on it?
“Whether such an additional ‘tax’ would be acceptable to the public – I wouldn’t bet against it, given the current economic upheaval and the fact that jobs are increasingly insecure nowadays. Spending 1% of your income to guarantee yourself some benefits in the event of the unexpected happening seems like a rather good outlay”
“increasingly insecure” is dependent on the person holding onto a certain type of job. For example, a worker in a sunset, low-wage, low-growth industry will feel his job is highly insecure, as compared to a worker in an identified ‘growth’ industry. That worker’s valuation of his retrenchment risk may be so small it does not merit drawing even half a percent of his income into an insurance pool which he believe he may never enjoy at all.
The UI seems overly-ambitious. I think a simple, direct way to give handouts to the retrenched for a period of time will be a better ‘economic stabiliser’.
“Giving handouts makes the people feel ‘beholden’ to the government and does not reinforce the rights of the worker”
Hmm. Getting political here.
Dear ted,
While the UI is a social insurance scheme, it’s still redistributive in two ways. First, it’s likely that more lower-wage earners will draw benefits than higher-wage ones. You’re right in saying that there’s an increasing tendency for higher-wage workers to be retrenched, but it’s quite probable that the majority will still be lower-wage folk. Second, premiums are at a flat rate, but in this manner higher-wage folk will contribute a larger absolute amount into the UI pool.
Dear eternalhap,
In fact, most UI schemes compute benefits as a proportion of last-drawn salaries up to a certain cap. For instance, 50% up to a cap of $1000 – under this scheme, A will get $1000, B gets $350, which is somewhat fair since A has always paid a larger premium and both are not disincentivised from actively seeking work.
I appreciate your point about giving the workers choice, which stems from a belief in economic liberty. However, in this case it would be more straightforward to administer a scheme with a uniform rate rather than allow workers to choose. Furthermore, the range of options is not really that great – how much more or less than 1% do you think a worker will be willing to contribute?
In any case, your arguments about choice might be better directed to our CPF policy, which demands a mandatory contribution of 20% of your salary. Compared with that, a contribution of 1% or less is negligible. It’s a good bet that a great number of Singaporeans would prefer to choose how much they prefer to save. The UI isn’t overly-ambitious because a means of collecting premiums and administering benefits already exists through the CPF system, and because such a scheme exists widely and can be copied relatively easily.
The problem with just giving handouts to the unemployed is that such a discretionary policy might not be timely enough. The point of an automatic stabiliser is to kick in when retrenchments happen, rather than to suffer from a lag. Furthermore, such a stabiliser introduces certainty and clear criteria for drawing on benefits, which is preferable to languishing in uncertainty while waiting for the government to decide whether it wants to give handouts. The ultimate purpose of the UI, as the author has pointed out, is to reduce economic insecurity.
Eternalhap @41: “Hmm. Getting political here”. – And what is wrong with that? We are all political beings as well.
“The problem with just giving handouts to the unemployed is that such a discretionary policy might not be timely enough. The point of an automatic stabiliser is to kick in when retrenchments happen, rather than to suffer from a lag”
Hmm of course, of course. I just hope to differentiate groups of the unemployed – making them seem like a homogenous group is simplistic. For example, the spending of an unemployed-cum-very-poor may have a smaller import leakage than an unemployed-cum-not-so-poor. This is significant considering the huge import leakage which renders an expansionary aggregate-demand management fiscal policy ineffective.
Philemon: “And what is wrong with that? We are all political beings as well”
No, I actually mean we should stick to economic arguments. Similarly I can say we are all economic agents (:
But yup, I think I also agree in principle the UI can be implemented, for all our sake.
Good article Ravi – incisive.
I am also a supporter of the unemployment system at least for a short period of between 6 to 12 months.
Due to a lack of safety net here, many middle income earners suffer and some even take on very low end work to survive.
I know a friend with a master’s degree who took up a security guard job paying just $1200 a month to survive.
In Australia, there is an unemployment benefit for those who are jobless. One gets around $230 a week and subject to certain conditions. There is a household incoem ceiling but it is far more generous unlike ours.
He has to also go for compulsory retraining and go for job interviews when called upon, failing which his benefit will be abolished.
In Singapore, I believe that there is unemployment benefit but pegged more for the low income. CDCs gave out allowances of between $300 – $500 a month to the breadwinners for a period of around 3-6 months.
He has to go for career counselling and interviews.
Once he skipped one or two interviews without valid reason, his benefit will be cancelled.
He has to also go for retraining if possible.
If you stay in a HDB 5 -room flat or private housing, it is very difficult for one to get the benefit as they believe that thsoe who stay in big houses don’t need welfare.
I advocate that CDCs try to come up with a hybrid kind of welfare system for the PMETs.who suffer the most right now.
If he stays in a private house and is the sole breadwinner for the whole family, he should be entitled to some welfare benefit.
It can be for a limited period until he found a job.
PMETs right now have a hourly allowance of around $5.50 – $6.00 when they attend PCP (professional conversion program) courses.
It is insufficient as if he attends a 9am to 5pm course daily, he gets less than $800 a month.
It is barely sufficient for himself let alone his family.
This is one big reason why PMETs avoid attending PCP courses unless he is financially stable.
I find that the govt may find implementation of the unemployment benefit system chaotic and cumbersome.
They always feel that even if they agree to the system they will find it difficult to implement.
The implementation of the ystem will hinder the govt search for relief for the people which is sad.
.
I don’t think the authorities will implement the insurance scheme fairly.
Have anyone ask if the payment for the CPL life is fixed once started?
If it is not and could fall outside of the band then what is the point of having the scheme?
What good could it do to people? compared to the old one… to help the govt to save monies?
Get the point.
It is better to keep the monies with yourself