Go ahead with employment insurance

MTUC Sarawak regrets that many employers are against the Employment Insurance Scheme (EIS) that was tabled for first reading in Parliament. Due to intense lobbying and pressure, the government has deferred the second reading to obtain more feedback.

The Human Resource Ministry to its credit has been holding discussions with stakeholders for more than 10 years.

Some employer groups want to amend the Companies Act to give priority to payment of retrenchment benefits ahead of creditors to try to stop the EIS.

If the Companies Act is amended to place retrenchment benefit – which is a contingent liability – priority over all creditors, no banks, creditors or suppliers will want to extend loans, credit lines or buy company bonds. Credit and loans are the bedrock of any business. Such proposals will kill the economy.

It shows how some employers are paranoid when it comes to any scheme that may bring some protection to workers who have lost their jobs. This paranoia is the stumbling block to the country’s drive towards a high-income and high productive nation.

Of course, any new scheme will not be perfect and all stakeholders must work together to ensure that the rates of contribution (0.25% of wages each for employers and employees) are manageable and that benefits are reasonable. Equally important, the fund itself must be managed in a professional and transparent manner to minimise leakages.

Employers give four reasons for their objections:

» Unemployment insurance is an unfair cost burden on employers.

The proposed rate is just 0.25% of wages from employers and employees with a cap of RM4,000. With average labour cost of 45%, the average increase in total operating cost is just 0.2%. Yet businesses are claiming that they will go bankrupt because of this.

Workers also contribute to the EIS. Ultimately, it is the employees who are contributing, as the employers’ contribution actually represent the employees’ value to the company ie the employer will ultimately “claim” back this cost.

» There are already sufficient provisions in labour laws to take care of retrenched workers.

Malaysia’s social protection system is still evolving with gaps and inefficiencies, particularly for protection of workers. Multiple problems have been encountered with the present system of paying retrenchment benefits which only cover those earning less than RM2,000.

Businesses have closed without meeting retrenchment obligations leaving workers high and dry; especially in the case of insolvency where usually there are no funds left to pay retrenchment benefits.

There also have been cases of workers turning up for work and finding the factory gates locked and all assets of the company stripped bare.

The current system has also been cited as one of factors affecting our country’s competitiveness by the World Bank. Therefore employers seem to maintain their claim that they want pro-growth policy.

» Penalising well-managed companies by adding unnecessarily to their cost of doing business when they are forced to contribute to a scheme which is to bail out delinquent companies; and encouraging irresponsible management behaviour.

One needs to understand the impact of economic conditions on businesses. I believe all companies want to be good employers and are well managed.

However good employers may not remain good. Severe economic downturn may turn good employers into bad ones. The 2001 Tsunami in Japan caused the company that runs the power plant to face billion-dollar lawsuits and it had to retrench its workers, as the plant had to be shut down. Even world-renowned financial institutions have collapsed.

The hallmark of a well-managed company is the ability to evolve and change its business and production process to meet changes and economic conditions. It may need to close down production lines, invest in new ones and produce new products. Workers who are not able to be trained in new methods have to be retrenched. An EIS will ease this restructuring as workers will be more open to job change, with the protection of a insurance scheme.

EIS would enable the risks from job market anomalies to be pooled and provide for payouts, similar to any insurance model like the Socso scheme where workers in low-risk occupation (banks) are paying for those in high risk industries where there are more claims.

» We don’t need EIS as in the last recession only 5% of retrenchment benefits were not paid. Malaysia is already at full employment and facing high levels of labour shortages.

The best time to introduce EIS is when companies are doing relatively well as the scheme needs time to build up sufficient funds to meets its aim during recession.

The New Economic Model (NEM) advocates bold, strategic, comprehensive revision of labour laws to reduce costs to business and to remove impediments that have deterred investment and fostered workplace complacency. This will result in more flexibility in the hiring and separation of workers.

As the economy transforms under the NEM, there will be some frictional unemployment and EIS can help ease the transition and cushion the impact of workers who may lose their jobs.

As part of the EIS, it is also necessary to have an effective and efficient labour market that allows workers to quickly find new jobs matching their skills. There must be up-skilling and retraining programmes, employment services, effective job search and placement services tailored for retrenched workers.

Andrew Lo
MTUC Sarawak