1 Hands –on training Designing and implementing unemployment benefits integrated with ALMP’s In Malaysia: MTUC Proposal K.Soma Malayian Trade Union Congress Paper to be presented at the NATIONAL TRIPARTITE WORKSHOP FOR UNEMPLOYMENT INSURANCE IN MALAYSIA 24 May 2012, PWTC

2 Rationale Table 1 Population Size & Age-Structure, (mil persons) Note: 1 Includes expatriates and foreign workers 2000% 2005%2010%2015% Average Annual Growth Rate Total Population Citizens Non-citizens Age Structure 0 – – and above Dependency Ratio (%) Median Age

Statistics of Foreign workers in Malaysia Statistics PLKS by Citizenship and Sector, February 2010 Source: Immigration Department

4 Introduction During the Asian Financial crisis of , urban households suffered badly because: o Retrenchments went up by 143% in 1997 & 345% in 1998 to reach 83,865 o Crisis revealed inadequate formal social safety nets. MTUC had presented a memorandum to the government in 1998 to consider the establishment of the unemployment insurance (UI) scheme. Many workers were not paid any compensation or severance pay when their contracts were terminated.

Case for Change - NEAC Recommendation  An appropriate labour safety net would include an unemployment insurance scheme supported by up-skilling and retraining programmes, and upgraded employment services. Unemployment Insurance (UI) would alleviate reliance on retrenchment benefits to cover income loss from a job loss. UI would enable the risks from job market anomalies to be pooled and provide for payouts when needed, similar to any insurance model. It would need to be simple to minimise administrative costs. Benefit payouts should be of limited duration to preserve the financial integrity of the fund. Payouts should represent partial income replacement to force beneficiaries to actively seek a replacement job. Laid-off workers must also participate in up-skilling or retraining for continued access to UI benefits.  Safety net management must address issues surrounding access, extent and duration of benefits, and the obligations of recipients. Funding issues also have to be considered.  Another element of the labour safety net would provide relocation allowances, encompassing moving and transport costs, housing search assistance, and family essential needs.  Best practice calls for UI funding through contributions on employers and workers. This would add to the costs of doing business, but should be treated as a normal cost of business. Policy – Enhancing the Labour Safety Net 5

Case for Change - NEAC Recommendation 6 Context Revisit the existing arrangements relating to the labour safety net within which the proposed establishment of UI is a critical element. The functioning of an UI fund would be complemented by measures to strengthen employment services such as re-training, job search and job placement. Size of Price Stability in the labour market will be underpinned by the effective functioning of an UI which will facilitate sustain economic growth to reach the high per-capita income target of USD15,000 by 2020.

7 ARGUMENTS FOR UI SHORTCOMINGSGLOBAL PRACTICESMITIGATION MEASURE SHORTCOMINGS under Retrenchment Benefit System Payout may be exhausted within a shorter period of time. Coverage limited to certain workers. Some employers abscond. Not part of active labour market employment services. Risk to employees from severe economic downturn in global context. ADOPT GLOBAL PRACTICES to integrate into the INTERNATIONAL SUPPLY CHAIN Labour, environment and other global standards. Coverage will be extended to wider segment of workers. Within an integrated labour safety net, incorporating active re-employment policies. More efficient MITIGATION for economic instability Providing adequate income relief and employment services will help sustain the economy through the consumption and re-training expenditures of the unemployed. Best time to introduce UI is when economy is strong or during recovery from economic downturn. ARGUMENTS AGAINST UI Adds to business cost Upfront cost unfair to well managed enterprises Perceived to encourage unemployment Create dole mentality Arguments for & Against Unemployment Insurance

8 Case Study: Example of reputable employers in the face of a closure of business The above examples form the notion that “good” employers may not remain free from a crisis situation for an infinite duration of time. In certain cases, deep crisis may be brought about by factors not within the control of mankind (e.g. natural disasters). Under these circumstances, the unemployment insurance will stand in to protect both employees and employers.

9 Introduction The objective of this presentation is to present the consolidated MTUC position on the design of the UI after learning the experience of selected countries and involving in five satellite meetings in: o Subang Jaya o Penang o Johor Bahru o Kuching o Kota Kinabalu, and a final integrated meeting in Petaling Jaya. MTUC also decided to refer to the UI as Unemployment Scheme (US). Moreover, the scheme should not in any way compromise the security of tenure and the proprietary rights of the employees of his/her job or in any way reduce the existing benefits as embodied in the Employment Act 1955 and the CAs.

10 UI Experiences in Selected Countries COUNTRY EMPLOYEEEMPLOYERGOVERNMENT Bahrain111 China12Discretionary, irregular Japan0.60.9Discretionary, irregular South Korea ~1.3No contribution Chile for permanent, 3% for temporary USD10m annually in real term Thailand Viet Nam111 Taiwan Contribution Rates and Sources of Funding Except for Bahrain & Vietnam, in all other countries shown employers contribution exceeds employees’ contribution.

Eligibility criteria and Benefits COUNTRY QUALIFYING PERIODLEVEL OF BENEFITS DURATION OF BENEFITS Argentina12 months in last 36 months50% for 1st 4 months, lower afterwards4 to 12 months (18 for > 60) Bahrain12 months or 1 st time jobseekers60% and flat amount for 1st-time jobseekers 6 months Canada3 to 4 months50%3.5 to 11 months ChileISA: 6 or 12 months depending if temporary or permanent SI: 12 months in last 24 months (3 cont.) IUSA & SI: Decreasing monthly rate (50 to 20%) for permanent workers, SI: 35 to 30% for temporary workers 5 months (2 for temporary) China12 monthsFlat rate (< mini. wage)12 to 24 months Denmark12 months in last 36 months90%24 months France4 in last 28 months if younger than 50, or 4 in last 36 months if older 75% at low income, grading down to 57% at high income 4 to 24 months Germany12 months in the last 36 months60% (higher if with children)6 to 24 months (age) Japan6 months in the last 24 months50 to 80% (digressive with level of past earnings). 3 to 11 months (reason) Mongolia24 months (last 9 continuous) (adjusted to 6 during 2009) 15 to 17% depending on contribution length 18 months (increased to 24 months during 2009) South Korea6 months in last 15 months50%3 to 8 months Thailand6 months in last 18 months50% (30% for voluntary quitters)6 months (8 during 2009) USA12 months in last 15 months50%6 months Viet Nam12 months in last 24 months60%3 to 12 months

12 Based on the information and the experience of various countries, the MTUC members have come to a decision on the design of the UI for Malaysia Discussions on the detailed questions on the design and other important issues were discussed and the findings are as follows

13 Who should be covered? ITEMSMTUC’s POSITIONREMARKS Types of contracts All workers To comply with ILO standards & be part of the global supply chain Economic sector All sectors, including domestic maids No discrimination against any worker Types of enterprises All enterprises- Self- employed Should be covered in principle, but concern with mechanism to control Concern with lack of infrastructure on registration, collection & enforcement New entrantsMust work firstUnemployment should be linked to employment

14 Types of Protection? ITEMSMTUC’s POSITIONREMARKS Income replacement linked with previous earnings 100% of the last drawn pay; in addition to whatever the employee is entitled in the contract or CA; payment to be paid for 12 months + 12 months Relatively wage level in M’sia is very low & income replacement of < 100% may not be sufficient; it may be necessary to extend for those unable to find a job Flat rate income replacement X- Lump sum under individual savings acc. X-

15 Types of Protection (cont’d) ITEMSMTUC’s POSITIONREMARKS Measures supporting return to work Yes, but not to be financed by UI funds To ensure sustainability of the funds for providing income replacement Measures supporting the creation of businesses Yes, but not to be financed by UI funds To ensure sustainability of the funds for providing income replacement Measures to maintain employment Yes, and to have discussions between workers and employers under the Code of Conduct (CoC) Currently, despite labour legislation, employers prefer to retrench locals under the guise of VSS & replace with FW directly in conflict with CoC for industrial harmony

16 Types of Protection (cont’d) ITEMSMTUC’s POSITIONREMARKS UI + maintain severance pay at same level Yes Current (severance pay) scheme is a contingency scheme. Proposed scheme is contributory, with workers also contributing UI + maintain severance pay at lower level X- Replace severance pay by UI X-

17 Eligibility ITEMSMTUC’s POSITION REMARKS Min. duration of employment All workers who have worked for at least 3 months in the last 12 months To ensure sustainability of funds Reasons for contract termination Involuntary & dismissal UBs are income replacement for the unemployed, so the reason for losing a job is immaterial; there are other eligibility control mechanism Min. level / ceiling of earnings No ceiling-

18 Financing ITEMSMTUC’s POSITIONREMARKS Tripartite contributions Employee= 0.5% Employer’s portion to be det. after actuarial study, but at least 2X of employee’s contrib. Govt. rate same as employers’ contrib. + other costs of providing the elements of US Effectively, employers’ contribution is employees’ money because that is the employees’ value to the business Employers and Workers only X- Other optionsX-

19 Registration, collection of contributions, payment of benefits & other services, monitoring ITEMSMTUC’s POSITIONREMARKS Role of SOCSO OSC. Manage UI but under separate unit To avoid additional cost of setting up another institution; has the experience, data base & infrastructure Role of Job Malaysia Mandatory & updating registration of employers and all job vacancies for Job placement As an integral part to support SSN; currently Job Malaysia only registers vacancies; need to be proactive

20 Registration, collection of contributions, payment of benefits & other services, monitoring (cont’d) ITEMSMTUC’s POSITIONREMARKS Role of Sectorial Ministries (Agriculture, Industry, etc.) To initiate proposals to extend the UI to informal sectors These are the ministries closer to the informal sector; towards long term objective of universal coverage Role of MOHR and technical departments Implement, monitor & enforce to ensure effective SSNs, including US Self-explanatory Role of Vocational Training Centres Training and retraining of all workers Self-explanatory

21 Governance ITEMSMTUC’s POSITIONREMARKS Role of MOHR Enactment of Act, enforcement, monitoring Self-explanatory Role of SOCSO Registration, monitoring, contribution collection, data collection, payment, administration Self-explanatory Role of MEFTo ensure employers remit both the contributions of employers & employees MEF to take more holistic view of employment and human resource development and CSR

22 Governance (cont’d) ITEMSMTUC’s POSITIONREMARKS Role of MTUC Monitor, right to access all data, must be represented in Tripartite Committee + whistle blower Self- explanatory Role of other ministries (eg. Finance) MoF guarantee the funds, draw investment guidelines & ensure Tripartite Investment Board with workers’ representatives govt. To borrow fund at market rate MoHE & MoE shd ensure syllabus & courses offered be matched with needs of industry better integration with training institutes under MoHR MITI to attract responsible capital intensive firms with the purpose of reducing dependence on FWs There shouldd not be a separate investment panel that bypass the tripartite structure

CONCLUSION TPC to consider the following: It has to be in conformity with ILO and other International Laws Non discriminatory Cover wider scope of workers both formal and informal economy e.g. fixed term contract etc. Stringent mechanisms to control abuse Choose what's best for Malaysian workers and not give in (kowtau) to the demands of Economic power to colonise us again. 23

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