Category: Current Affairs
Published on Monday, 19 December 2016 00:00
Written by Shawn Danker
The following is a conversation about unemployment insurance overheard at a coffee shop. The names have been changed to protect the conversationalists' identity but here's the gist of their conversation.
Lup Cheong: Oh Johnny. Can you explain to me what the deal unemployment insurance is?
Johnny: I see that someone's been reading the WP unemployment insurance policy proposal...
Anyway, unemployment insurance or unemployment benefits as it is known in some countries, is a kind of social safety net or welfare. It's a payment that either the state or an authorized organization pays to unemployed people as a form of income replacement while they're looking for a new job. It's something that we don't have in Singapore to help protect the vulnerable.
Lup Cheong: How come we don't have this in Singapore?
Johnny: Because our tjeng hu likes to say that we are not a welfare state. That the best kind of welfare we can provide for our people is a job to help us be self reliant.
But did you know that the tjeng hu, or at least tjeng hu linked bodies HAVE experimented unemployment insurance in some form despite its bluster?
Lup Cheong: What? Seriously?
Johnny:Ya, NTUC Income introduced some kind of unemployment policy in early 2000s but it was withdrawn because of low takeup rate amongst Singaporeans.
Lup Cheong: Why was it withdrawn?
Johnny: The thing about insurance is that:
1. People always think that nothing bad could ever happen to them.
2. Those that really need it feel that they can't afford it.
You see in any insurance scheme, you need those who don't claim to subsidise those who do. So we need to draw in those who are unlikely to lose their jobs (civil servants for example) to subsidise those who are in precarious jobs (this is made up of mostly lower skilled workers). This is what people in the business call risk pooling.
Now if private insurers are left to their own devices without some form of regulation guiding them, the insurers will precisely refuse to insure or charge high premiums to those who need it. Like the low skilled and the low educated. The insurers will deem people within these brackets to be high risk and thus uninsurable, leaving them in the lurch to be vulnerable to any changes within the economy.
That's why unemployment insurance is something that's worthy of a national discussion, as long as the potential insurance scheme is fiscally conservative and mostly paid for by risk-pooling of premiums. In fact, a well executed unemployment insurance scheme could be less costly to the tax payer, if it saves on handouts. But we should also keep in mind that any potential unemployment insurance scheme shouldn't replace any existing schemes that we already have in place to help displaced workers. A multifaceted approach is always much better than putting all your eggs in one basket.
Lup Cheong: But why talk about creating an unemployment safety net now? Isn't our unemployment rate low? Also isn't it too late to create one now thanks to the looming recession?
Johnny: Social safety nets by their nature are meant to be used in bad times. We might not be able to create and use a viable one for this coming recession but it definitely would help our people out for the next recession.
Think about it. If we are ever in a situation with 10% unemployment, we would likely be in a depression. $133 million
(a number floated within that WP proposal) pumped into the economy each month during a depression could prove to be a useful stimulus to the economy, as this could lift aggregate demand. The downside though is that this effect could be somewhat diluted due to our open economy. But these are details for the number crunchers amongst our policy makers to haggle and sort out.
Lup Cheong: I see. You know it feels kind of funny to me that you're agreeing with the WP.
Johnny: I'm not anti WP per say. I'm for whatever is good for the country. I like this WP proposal over the previously one that the SDP proposed one for 2 reasons:
1. The SDP's scheme proposes 18 months of payouts. An average pay of 50% of last drawn salary with the first 12 months at 75% of last drawn salary!
Moral hazard would tell you that such a scheme would provide people with an incentive to not look for a job! The WP's scheme however, is much more fiscally conservative. 40% of your last drawn salary for 6 months.
2. The SDP scheme proposes that unemployment insurance would be 80% funded by Government! The WP's scheme is self funded through a very very modest one tax.
It's also fiscally conservative as under most scenarios, and doesn't require government top ups.
You know bro, it's refreshing to finally the party that is supposed to represent the working man actually fighting for workers. I think the Government should seriously consider this proposal and iron out the kinks for the good of the nation instead of having their proxies publicly poo poo the idea. The next decade is going to be tumultuous thanks to global conditions so anything that could help us survive should definitely be considered. Every little bit helps.