Editorial | Consider redundancy in unemployment insurance

That the Government, as reported by Finance Minister Nigel Clarke, has completed substantial studies on the possibility of introducing unemployment insurance (UI) in Jamaica is an important and welcome development. This newspaper is nonetheless concerned, based on the minister’s limited disclosure, that the administration might miss the opportunity for broader reforms to help deliver on one of Dr Clarke’s aims of such a scheme: macroeconomic stability during difficult economic times.

For as we have noted before, bad times in labour markets do not only affect workers. Sometimes the negative impact on employees is the result of the problem faced by the firms for which they work. Further, upheavals are not always the consequence of systemic failures or crises, like the COVID-19 pandemic. They can be issues concerning a single company impacting a large number of workers. Yet, the difficulties faced by these companies, in the right environment and the appropriate consideration, may be fixable.

That is why, while championing the idea of unemployment insurance, we have advocated that it be accompanied by more fundamental reforms, including a review of the redundancy laws.

The COVID-19 pandemic, as Dr Clarke observed, “exposed a glaring gap” in Jamaica’s social security arrangements. Within a few months of the onset of the coronavirus pandemic, the economy shed 150,000 jobs. Mostly, workers were sent home on no-pay furloughs. Most of those employees had no social safety nets, except for those in a handful of sectors that received government salary support.

ESTABLISHING UI SCHEME

It is against this backdrop that the Government’s COVID-19 Recovery Task Force, in line with this newspaper’s long advocacy of more than a dozen years, recommended that Jamaica look seriously at establishing a UI scheme. We, however, felt that the arrangement should go further, to include redundancy coverage.

This newspaper appreciates the conceptual and social basis within which the redundancy laws were framed, and the protection they seek to provide to workers who are asked to forfeit their jobs without being accused of poor performance, breach of contract or mis or malfeasance. Most often, redundancies happen when companies are faced with changed market conditions and/or bad economic times and need to adjust in order to survive. In other words, redundancies tend to happen when companies are at their financially most vulnerable.

Yet, firms in these conditions, where survival may depend on downsizing, have, by law, to compensate severed staff at a rate of two weeks pay for each year of employment, up to 10 years. The redundancy payment, thereafter, rises to three weeks’ salary per year. The potentially perverse effect of this, at times, is that it undermines the prospects of rescuing a company in which there is value. Unable to meet the cost of redundancy payments, they, rather than restructure, limp along until they go belly-up. The jobs that are then lost are not only those of the workers who would have been severed, but also those who would have remained. Usually, the demise of the company is a net loss to the economy.

That, in part, is the background to our position that an unemployment insurance scheme should be so structured, and appropriately funded, to be capable of offsetting redundancy obligations, even if employees do not get lump sum payments.

CONTRIBUTE ADDITIONAL AMOUNTS

In this scenario, firms might be required – beyond what they share with employees for irregular unemployment insurance – to contribute additional amounts for the redundancy element of the fund. The Government might, to compensate for this additional contribution, consider scaling back the size of some of the existing payroll taxes, such as contributions to the vocation training agency, HEART/NSTA Trust, and the National Housing Trust.

According to Minister Clarke, reviews have been done on the labour market; Jamaica’s institutional capacity to administer unemployment insurance; the potential cost of the scheme; and of existing legislation dealing with the termination of employment. While these studies have been shafted in consultations with so-called stakeholder groups, they have not been made public and, therefore, subject to wider scrutiny and analysis. That should happen.

A final phase of studies, dealing with the legal framework and operational road map for an unemployment insurance scheme, will be completed by mid-year, Dr Clarke said. “On completion, the findings and recommendations will be submitted to Cabinet for a decision on implementation,” he added.

We like the fact that events seem to be moving at pace. It won’t, it appears, require another half a century to get to the payment of unemployment benefits, as was required to get to this point from the establishment of the National Insurance Scheme. However, it would be good to have a handle on what is being considered for an unemployment insurance scheme before the Cabinet’s decision on implementation.