The proposal to set up Unemployment Insurance Scheme (UIS) by Ministry of Human ResourceS to manage retrenched workers in this country is completely out of touch with today’s economic and employment realities. Here’s why.
First, the UIS makes leisure more attractive than employment.
This, however, is not to say that the retrenched workers will deliberately prolong their search for new job but with a pool of several thousands of retrenched workers, surely the scheme will draw people into a dependency relationship with the government, will have potential abuses or fraud, for example, a person who knows he is eligible for it is more likely to leave his current job more readily and once unemployed, he will not actively search for new job and preferring to live on the insurance money a while longer.
Suppose you win RM20 million ringgit Magnum 4D Jackpot today. What happens to your willingness to working at current job? You start taking work for granted and feel like to quit right? Because you think the money is more than enough to cover your expenses. The same result applies when you are receiving the UIS!
Second, the scheme is said to promote and opportunities for re-skilling and upskilling.
Contrary to this belief, it encourages preservation of old skills and discourages new learning and new skills.
How to do re-skilling and upskilling the retrenched workers while they can afford to be choosy in searching for new job?
If they insist on getting high wages, and if they are not offered high wages, they will stay unemployed as long as possible.
When this happens, as times goes by, they not only lose hope but also suffer erosion of their work skills and attitude.
Working on any level usually broadens skill and ability and adds valuable experience that improves productivity.
Unfortunately these retrenched workers who are relatively weak economic actors and are willing to work for lower wages cannot get employed since their ability is stripped away by the government namely, minimum wage.
How to employ them when the scheme puts extra financial burden on employers who already suffer business downturn which keeps their labour costs up and their demand for labour down?
Whether it will give incentives to workers to work less or discourages employers from hiring more workers, the result will be the same, higher unemployment.
Lastly, if the UIS is so great, why not let the insurance companies to provide it?
To assess risks inherent in every conceivable set of conditions for every specific pool of workers effectively is not the job of any minister. It’s impossible.
The minister could argue that private insurers would assume that unemployment is an uninsurable risk and would have created some sort of moral hazard.
It’s like giving insurance for the risk of not feeling good in the morning and not getting out of bed to work.
If I were insured against the risk and getting paid whenever I don’t feel good I would spend far more time in bed.
If insurance companies created such perverse incentive structure which I believe they won’t, the result is bankruptcy.
And he would be absolutely right. But so does the government!
The bottom line here is the UIS being advocated by government and unions to subsidise the retrenched workers will keep them stay off the job.
MEDECCI LINEIL
