Unemployment insurance is often associated with sloth and the decay of a society’s work ethics. We are told how it discourages people from taking on a job, and if implemented in Singapore, will result in the higher unemployment rates common across many European countries.
But is unemployment insurance really just a populist handout that feeds off the sentiments of people?
1. Rainy day fund
According to the Retrenchment Benefits 2015 report from the Ministry of Manpower, there has been a slight fall in the proportion of companies paying retrenchment benefits from 94% in 2012 to 91% in 2015. A separate survey back in 2013 revealed that 36% of young Singaporeans have no savings at all.
This is concerning because people may be retrenched without a severance package sufficient to tide them through the ensuing period. These people could be pressured to forgo the chance to look for jobs that offer better prospects at a higher pay appropriate for their skills and experience. Such underemployment is detrimental to their career and consequently their financial health in the long term.
Research by NUS Professor of Management and Organisation Vivien Lim has shown that without financial support, job search fatigue quickly sets in among the unemployed. Those more drained by the job search essentially compromised by agreeing to be re-employed in jobs that offered less attractive salaries and fewer career opportunities. These individuals were also less committed to their new employer and more likely to look for other employment within a year.
By serving as a rainy day fund, retrenched individuals who have joined our Unemployment Assurance Community can receive a payout comprising three months of their salary spread over five months, capped at a total of $18,000. We believe that this will relieve the financial burden of the retrenched so that they can focus on finding a suitable job.
2. Fostering a more vibrant economy
Knowing that you have short-term financial support if you lose your job encourages risk-taking by individuals. Many of our brightest minds have chosen to go into safer and still relatively well-paid occupations, such as doctors. Certainly, we need capable people in our medical industry. However, this has led to a disproportionately small number of people willing to embark on more risky ventures.
If we want Singaporeans to go into industries in the new economy that are risky but could potentially create huge value for Singapore in the long term, we need to ensure they do not suffer excessively should they fail. In explaining how unemployment insurance would have encouraged people to be more enterprising, University of Cambridge Professor Ha-Joon Chang even went as far as saying that the welfare state is the bankruptcy law for workers.
Under the bankruptcy law, owners of failed businesses are generally protected and not implicated by the liabilities of their companies should they go under. By providing an unemployment insurance payout to the workers of these companies, we ensure that they also they do not fail with the companies they are working in, as they would be appropriately compensated.
3. Generate demand in a bad economy
Our income is a result of others spending on goods and services we provide, be it whether we are employed in a company or running our own businesses. If there is a severe recession whereby a large proportion of workers are retrenched and left with no income, everyone will tighten their purse strings and cut back on spending. A severe recession could easily turn into a depression.
In fact, unemployment insurance in the United States has its roots from the Great Depression of the 1930’s. With demand on a downward spiral, policy makers eventually concluded that the most effective way to stimulate the economy and alleviate financial hardship of the people was to put money into their pockets directly.
With Singapore’s economic structuring still a work in progress, we need to be ready should the current global uncertainty spills over into an economic downturn here. Bandboo hopes that through our ground-up community movement in enabling unemployment insurance, we can do our part to contribute to the social security of Singaporeans.
A unique Singapore model of unemployment insurance
Unemployment insurance is certainly not without its flaws. However, we should not neglect the benefits it can bring us. NTUC Deputy Secretary-General Patrick Tay, a Member of Parliament who passionately champions workers’ rights, has also been looking into a unique model of unemployment insurance tailored to Singapore’s needs.
Bandboo believes that our Unemployment Assurance Community follows the same principles Mr Patrick Tay has laid out. We enable Singaporeans to reap the benefits of unemployment insurance without the strain on public finances common in the systems of other countries.