Wednesday, February 11, 2009
Malaysia Needs Unemployment Insurance
Our government has been postponing the need for unemployment insurance for too long. We do not have sufficient safety nets underpinning our country's social and economic systems. The concern has always been the cost side. The other argument is the incentive not to work. There is a bigger danger in having unemployment insurance - companies may be more "willing" to bite the bullet to lay off workers in such an environment.
We already have too many archaic rules pervading the economic life of Malaysians. Its quite debilitating really. Its a system that highly favours the corporations and banks in particular. We have little in safety nets, yet our bankruptcy laws are so archaic and put Malaysians at a huge disadvantage. Linked closely to unemployment is bankruptcy. First, the sum which can bankrupt a person is only RM30,000. Its high time that that be raised to a more realistic level, say RM50,000.
Secondly, the bankruptcy is technically life long till the debt is totally repaid (although the Insolvensi department can recommend a person to be cleared after 7 or 8 years if he/she has been diligent in making monthly payments). Most countries will discharge a person under bankruptcy after 4 or 5 years. I believe in HK its 4 years. We should make it standardised that all should be cleared and discharged after 4 or 5 years. Even prison sentences don't run that long. The banks have all written the bad debts off already, now we are just trying to put in a reasonable time to collect the debts. The current system is not fair at all.
Thirdly, the Immigration department mentioned recently that some 13% of all Malaysian passport holders have their traveling access restricted because of bankruptcy and/or income tax non payment. The restrictions are usually lifted when the parties has struck a payment scheme with the relevant departments. We have seen so many defaulting on study loans and unnecessary credit card debts. Worse are those who stand as guarantors naively for loans. Imagine standing as guarantor for a RM200,000 loan and the person is nowhere to be found and the departments and banks come and get you instead.
Fourthly, the 13% figure is alarming, we need to revamp the laws immediately as it affects a substantial portion of the population. Locking them under archaic laws prevent many from owning properties and even rebuilding their equity, and as such prevent them from re-participating fully in the economy.
We have no unemployment insurance, and every 7-10 years we will have a massive recession and many might not be able to honour their commitments owing to forces greater than them. We can take the pedestal and say they deserve it for not being able to manage their financial affairs properly, but seriously, even drug addicts and prisoners get a second chance to rebuild their lives. I am not here to justify reckless behaviour, but to ask that the laws be fairer to the normal person. When you unfairly penalises a person, it does not just affect the person alone, in Malaysia's culture, people also have to take care of their parents and extended families. Hence the social impact is substantial.
I am not an insurance guy, but I think we can come up with a semi government body to do this, or even be part of EPF to do this. EPF can do this role well as it already has the database for checks and balances. How about all employees contribute 1.5% to this Fund and the employer puts in another matching 1.5% of salary. Only employees who have contributed more than 1 year will be able to enjoy the benefits. If you are laid off, you will get 3 months full pay and 5 months of half pay of your last salary. These will be paid like normal salaries on a monthly basis, thus covering most expenses for at least 8 months. This will be in additional to the normal notice pay and severance pay. Once you have taken the unemployment benefits, you will need to be working for at least another year before being qualified to obtain the benefits again.
Like I said I am no actuary, but all things being equal, the monthly 3% to the fund basically means 1 person is covered for every 33 employees. All thing being equal again, in a downturn the Fund should be more than able to carry a 300 basis point jump in unemployment (e.g. if unemployment rate jumps from 3.5% to 6.5%, technically speaking we are better equipped to deal with it. EPF has the database and will be able to verify when a person has found new employment. In any system there will be bad hats trying to find loopholes - heavy penalties should be meted out to discourage bad behaviour by employers and employees.
During good times, the Fund will be able to accumulate surpluses, thus covering the outflows during bad times. It is not meant to be a crutch but part of a developing structure for a developing nation, that seeks to minimise social costs, where we can grow and shoulder the good and bad together. Any major shortfall will be borne by the government, which won't be necessary if the calculations are made properly.
I will send this to Najib as well, I hope he will do something about this. Of course I will not send the photos along with it... hmmm... maybe I should??!!
p/s photos: Meisa Kuroki