Cushioning a painful fall

  • Opinion
  • Saturday, 14 Oct 2017

If managed well, the Employment Insurance System will be a much-needed safety net

UNLESS we’re trapeze artists, we rarely think about safety nets. That is, until we fall.

The thing is, only the luckiest among us never fall. The rest know how it is when we lose control and gravity takes over to send us on a quick and often painful trip downwards.

Sometimes, we fall from great heights. It may not be in the literal sense but it can be equally crippling, such as when we unexpectedly lose our livelihood. If there’s nothing to stop us from crashing to the ground, the body count will rise to the point that everyone will be affected, even the most sure-footed.

That’s the argument for social safety nets, which are also known as social protection or social security systems.

According to the World Bank, social protection systems help the poor and vulnerable cope with crises and shocks, find jobs, invest in the health and education of their children, and protect the ageing population.

Proclaimed and adopted by the United Nations General Assembly in 1948, the Universal Declaration of Human Rights says that everyone, as a member of society, has the right to social security.

The Government explains that its proposed Employment Insurance System (EIS) is a social safety net that will help workers who have suffered a loss of employment.

When the system is in place, the beneficiaries are promised immediate financial assistance to cover living expenses while they’re in between jobs. It will also provide employment services – job search, career counselling, job matching and placement, and reskilling and upskilling training.

But businesses opposed the tabling of the EIS Bill in Parliament in August. So much so that the second reading in the Dewan Rakyat was put on hold so that the Government, represented by four Cabinet members, could engage with bodies representing employees and employers.

The objection had been made known months before the Bill was presented to the lawmakers.

On March 23, Prime Minister Datuk Seri Najib Tun Razak said in a statement that the Government would implement the EIS for the 6.5 mil Malaysians working in the private sector, with employers and employees contributing to the scheme. The new Act was targeted to come into effect in January 2018.

On the same day in March, over 90 industry bodies and chambers of commerce go together to say they rejected the proposal to set up the EIS.

Among them were prominent national-level organisations such as the Malaysian Employers Federation, Federation of Malaysian Manufacturers (FMM), Associated Chinese Chambers of Commerce and Industry of Malaysia, Malaysian International Chamber of Commerce & Industry, and Malaysian Associated Indian Chamber of Commerce and Industry.

The joint press release claimed that the EIS had “obvious flaws” that would be detrimental to employees and employers. The organisations argued that “only a few employees and recalcitrant employers will benefit at the expense of other employees and responsible employers”.

They also warned that if businesses continued to be burdened with additional costs, more enterprises would fail and this might lead to unpaid retrenchment benefits.

They countered the proposed system with this point: “In this regard, if indeed the Government is concerned about the adverse effects of retrenchments, the Government should NOT allow such loading of costs. A viable business will not see any retrenchment, and on the contrary, the employees will have job security as well as enhanced rewards as the business prospers.”

At the time, the business community believed that the contribution rate for the EIS would be 0.5% of monthly wages, split evenly between employees and employers. They must have been taken aback when they saw that the Bill specified a 1% rate instead.

It’s definitely a matter that demands some discussion because the International Labour Organisation (ILO), which was brought in to assist with the design of the EIS, recommended that the combined contribution rate should not exceed 0.3% to 0.4%.

“The higher rate of 0.4% cent could be chosen if a safety margin is desired, and to provide for start-up costs,” said the ILO in a 2015 report.

After the tripartite engagement in August following the deferment of the second reading of the Bill, the Government has agreed that rate be lowered from 1% to 0.4%.

There’s no indication of how deep a compromise that reduction is, but the Government has made it clear that it would not accommodate other requests for amendments to the Bill. The plan is to continue with the second reading during the next Dewan Rakyat meeting, which begins on Oct 23.

The employers may still be unhappy about some aspects of the system, but they will have a say in how it’s run because employers and workers are represented on the board of the Social Security Organisation (Socso), which will be administering the EIS.

In addition, the EIS Act will provide for an Employment Insurance Committee to advise the Socso board on “all matters relating to the system including the rates of contribution, benefits and the employees to be insured under this Act”. Members of bodies representing employers and employees will be on the committee.

The employers were not wrong when they pointed out that Malaysia’s retrenchment trend has been relatively benign and that few people were denied their retrenchment benefits. But there’s no guarantee it will stay this way, especially when technology leaps are disrupting many industries.

Consider what the ILO said in its 2015 report: “Currently Malaysia has a low rate of unemployment. Therefore there is scope to establish an unemployment protection system at a comparatively low cost.

“As Malaysia progresses, achieving a higher standard of living and moving towards becoming a high-income country, an unemployment protection system will need to form an essential part of its social security system, as is the case in other developed countries.”

The Government says the EIS is based on the “solidarity fund, pooling of resources and sharing of risk” concept. It’s a mouthful, but it essentially means many Malaysians are paying to provide protection during the times when some of us will really need the support.

Yes, some of us and our loved ones will be fortunate enough to never have to claim for EIS benefits, but how do we know for sure that we belong in that category?

Those of us employed in the private sector will feel better when there’s a safety net below us. But that sense of security has to be matched with sturdy and responsible governance of the EIS. Otherwise, some of us may still plunge all the way to the ground.

  • For some reason, executive editor Errol Oh keeps hearing in his mind the chorus of Tom Petty’s Free Fallin’.
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