Redundancy insurance can lead to long-term unemployment: Minister

SINGAPORE — How Singapore protects its workers against unemployment is crucial but if done wrongly, this could lead to undesired repercussions, such as more redundancies and higher long-term unemployment, Second Manpower Minister Josephine Teo cautioned on Monday (May 8).

She was responding to a motion for adjournment on redundancy insurance tabled by Workers’ Party (WP) Non-Constituency Member of Parliament Daniel Goh. Mrs Teo, who is also a Minister in the Prime Minister’s Office, stressed that employment support was “still the best way forward”.

“We must try to do it right in Singapore. We’ve built up many schemes to help workers keep their jobs, and help those who lose their jobs find new ones,” she said, citing wage support to encourage firms to hire workers and training subsidies as among the examples.

The opposition party is no stranger to the issue, which it raised as early as in 2011 in its manifesto for the General Election that year. Most recently, the party published its proposal on the matter in November, followed by a “modest” public consultation exercise, as Dr Goh put it. Under the WP’s proposed scheme, workers would receive a monthly payout of up to S$1,200 for half a year, based on the 2014 median monthly gross income, excluding employer Central Provident Fund contributions. To help low-wage workers, it proposes that the monthly payout be S$500 at a minimum.

Redundancy insurance, said Dr Goh, aims to ease the financial pressure on workers, so they can focus on retraining and finding employment, and help them land jobs again without depending on government cash assistance.

In line with the principle of “risk-pooling”, the party proposed, for instance, that workers channel 0.05 per cent of their monthly wage into an employment-security fund, to be matched by employers.

Workers who are laid off will get a payout of 40 per cent of their last-drawn wage for up to half a year, capped at 40 per cent of the prevailing monthly median wage of workers who are citizens and permanent residents.

Dr Goh said the party decided to move the motion because “a risk-pooling scheme” takes time to build up for the “rainy days”. Citing Manpower Minister Lim Swee Say’s warning late last month that unemployment could rise further, Dr Goh said “the window of opportunity for implementing a redundancy insurance scheme is closing fast”.

Dr Goh said such a scheme was not meant to replace help given to the needy, since most workers who are laid off “don’t fall into the needy category”. Rather, it is a preventive measure that helps those who lost their jobs avoid the poverty trap and maintain financial independence.

The scheme would also complement government retraining schemes, with payouts after the first disbursement tied to the condition that workers are seeking work through the National Jobs Bank or retraining actively. With the rise of the gig economy, it would also cover the self-employed, including entrepreneurs.

The insurance would prevent workers being distracted by the financial strain, Dr Goh added. It would provide “a safety net” for all workers who are laid off, allowing them to find a new job with relative ease of mind, failing which they could turn to government assistance, which kicks in only six months after a white-collar jobseeker under 40 years old, for example, is laid off at the earliest, he added.

Responding, Mrs Teo acknowledged that many developed countries have had unemployment insurance in some form for years, but “their unemployment rates are, generally, significantly higher than ours”.

Singapore, by contrast, was “not in the same position”, Mrs Teo said, noting the Government’s focus on training and re-skilling workers with “full support” of firms and unions which other countries find tougher to achieve.

Automatic insurance payouts also reduce the incentive to find work, she said, pointing to studies in Denmark, which showed that while many people landed jobs while receiving payouts, “many more wait until just before the benefits expire to take on available jobs”. “This is a real pity because the longer a person stays out of a job, the harder it is to find work. As a result, long-term unemployment goes up,” said Mrs Teo.

She also shot down WP’s projected salary contribution to the scheme as “too good to be true”. More realistic assumptions, she said, put it at 1 to 2 per cent of wages at least.

This may also raise costs for employers, a worrying prospect for small and medium enterprises, said Mrs Teo, who also questioned whether employers will offset the premiums by paying workers less, for instance. “All things considered, we should persist with our present approach: Do everything possible to help displaced workers find … jobs,” she said.

Labour MP Patrick Tay (West Coast GRC) asked Dr Goh if he was suggesting firms need not pay retrenchment benefits, since they would be contributing to the premiums. “Wouldn’t … insurance make it even harder for unions to negotiate … higher retrenchment packages?” he asked.

In response, Dr Goh said that while that risk stands, “in no way am I suggesting that retrenchment benefits should be replaced … by redundancy insurance”. “My take is that in our… kind of tripartite, stable industrial relations … the unions have a certain kind of moral suasion, and the Government too has a hold on employers, and they will not just easily let go of retrenchments benefits.”