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The controversy over the Employment Insurance Scheme

August 7, 2017

Article weighs pros of EIS benefits to employees against cons to national economy and market liquidity.

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By Sin Chew Daily

Human Resources Minister Richard Riot Jaem tabled the Employment Insurance Scheme (EIS) Bill 2017 at the Dewan Rakyat on Tuesday for first reading.

Under the scheme, a retrenched worker is entitled to four different types of allowances, namely job search allowance, early re-employment allowance, reduced income allowance and training allowance.

Under the job search allowance, an unemployed worker can get 80% of assumed monthly wages for the first month, 50% for the second month, 40% for the third and fourth months, and 30% for the fifth and sixth months.

The allowance will serve as a timely assistance to a person who has lost his or her income due to any downsizing exercise or a company being closed for whatever reason.

From the macroscopic perspective, indeed the EIS will help ensure the well-being of workers, providing them better protection and a more comprehensive social safety net in an unstable market economy.

However, the EIS is a highly controversial thing in this country, and there are individual issues that need to be looked into before the scheme is implementated.

Firsly, the unemployment rate has always been low in Malaysia, from 2.9% in 2014 rising marginally to 3.2% in 2015 and 3.5% last year.

Despite the upward trend in more recent years, the number of jobless people in the country has never reached an alarming level. Moreover, the government has anticipated that the unemployment rate will moderate to 3.2% this year.

By OECD standards, a country is in full employment if its unemployment rate is below 4%. As such, unemployment is not really a big issue in this country, and the number of people involved is relatively low.

Against such a backdrop, the rationale for introducing the EIS will invariably elicit skepticism.

Under the scheme, employers and their workers must each pay half of the contributions ranging from 10 sen to RM29.65 each month, to an employment insurance fund, which will be managed by the national social security organisation (Socso).

This means employers’ operating costs will increase, and this may have a negative impact on the country’s economy.

Even though the monthly contributions for each worker is very low, given the fact there are some 6.8 million privately hired employees in Malaysia, the annual contributions could come up to billions of ringgit. Removing such an immense amount of liquidity from the market will definitely leave a mark on market vitality.

In addition, as mentioned earlier, the unemployment issue is not that serious in this country and it is questionable whether such an enormous fund is required to help retrenched workers.

Before the EIS is officially implemented, it is utterly important for the government to outline the details and strictly vet all applications to ensure that the benefits will not be abused.

There is no doubt that the EIS provides more comprehensive protection to employees and should become a symbol of positive progress in social security. Nevertheless, the scheme must be planned carefully so as to minimise the impact on employers as well as the market in general.

Sin Chew Daily is a local vernacular publication

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