Brief overview of unemployment insurance and challenges
One can breathe a little easier knowing the fact that one loses the job. He/she will still have an income by way of unemployment Insurance. Unemployment Insurance is the most common public income support program for the unemployed in developed countries, where it typically offers enough income protection. It usually covers the majority of employed persons, irrespective of the nature of occupation or industry. Increased exposure to foreign markets and fearing the future global crisis, more and more developing countries are contemplating to introduce unemployment insurance. It is often argued that removing excessive job protection would not only boost the creation of more and better jobs, but also improve job prospects for the vulnerable. Reducing job protection is an extremely sensitive task that can often be implemented only if accompanied by introducing for workers Unemployment Insurance being one of them.
Unemployment insurance can be a great social security measure. How to tackle the situations in case of temporary or seasonal employments. While providing an excellent opportunity to bolster both workers protection and economic efficiency the introduction of unemployment insurance in developing countries poses major challenges. When is a country ready to introduce an unemployment insurance program?
Which factors influence whether Unemployment Insurance program operates successfully and how can such programs design be adjusted within respect to coverage, eligibility rules and the generosity of benefit structure of incentive and monitoring?
Brief Traces of Unemployment Benefits and History
Unemployment benefits were introduced in Germany in 1927 and in most European countries in the period after Second World War with the expansion of the welfare state. Unemployment Insurance in the USA originated in Wisconsin in 1932 through The Social Security Act of 1935 the fed government of the USA effectively encouraged the individual states of US to adopt Unemployment Insurance plans. The Unemployment Insurance Act 1920 created the dole system of payment for Unemployed workers. The dole system provided 39 weeks of up to over 11 million workers practically the entire civilian working population except domestic services, farm workers, rail/road men and civil servant.
Unemployment Insurance applicability
- Retrenchment
- Closedown/shut down
- Layoff
- Downsizing etc.,
Following circumstances may disqualify you from collecting the Unemployment Insurance benefits depends on states law
- Quit without a good cause
- Fired/ Loss of employment due to employee’s proven code of Misconduct
- Resigned because of illness (sometimes can be backed up by An Accident and Disability Policy to provide the Disability benefits)
- Self employed
- Involved in serious labour dispute
- Employee opting for sabbatical for career progression or higher education.
Unemployment Insurance related measures in India
- According The Industrial Dispute Act (IDA) of 1947 a permanent worker can be dismissed only for proven misconduct or habitual absence. Also companies employing more than 100 workers must get government approval before they can lay off workers or shutdown in practice such approvals are very rarely granted. The IDA also stipulate that severance payments must be given to the fired worker set as 15 days average pay for each completed year of continuous service such regulations are lumped together under the broad term employment protection. As a part of labor reforms the government should lay less emphasize on job protection and it should focus and strengthen on employee protection. While India currently lacks a comprehensive social security database to monitor the work history and benefit received by the workmen’s.
- The current eligibility condition of 3 years of prior contribute in ESIC to get Unemployment Insurance allowance is too stringent and tedious.
- MNREGA provide insurance to rural workers along with small unemployment insurance component in ESIC. There are no such Unemployment Insurance program exits for urban workers in India.
- Rajiv Gandhi Sharmik Kalyan Yojana (RGSKY) is the only form of traditional unemployment insurance (supported by ESIC) in India under this scheme, an insured person who loses his job after contributing premium for at least 3 years is eligible for unemployment allowance equivalent to 50% of wages per month for a maximum period of one year.
Unemployment Insurance benefits
- Regular benefits are paid for a max of 26 weeks in most countries. Few countries restrict it to fewer weeks
- The compensation will behalf of previous earnings up to a maximum amount certain limit
- Benefits are subject to income taxes and must be reported in income tax return.
- Vocational Training provided for upgrading skills
Unemployment Insurance should indemnify the current earnings with Indexation for certain specified months. If in between the claimant gets a job then such cover seize to exist. Unemployment insurance due to disability certain accidents policies will cover the disability benefits. How such scheme help disabled employee to compensate his livelihood. For self-employed probably a business interruption policy will be a choice which should have a feature of unemployment insurance.
Who should contribute?
Employers complying with the various labour laws have to contribute towards the unemployment insurance the premium contribution can be claimed as expenses. With such initiatives the employer ensures that they have strong human practice management towards an employee in place. Even employees along with the Employers contribution with a supporting contribution by government will also be an effective and responsible mode.
Introduction of Payroll tax on firms’ borne by the employers or providing the same through GST can also be an option.
Enhanced Role of Government to Implement Unemployment Insurance Scheme effectively, the government must setup a comprehensive unemployment insurance program for urban workers which can be funded by contributions from both firms and employees and possible supplemented by revenues from general taxation and utilities and the subsidy amount. Government agencies should be in place to monitor the activity and implementation of the scheme. Enough and efficient awareness programs have to be initiated through various government machineries and Insurance Companies.
International Labour Organization (ILO) has adopted the employment promotion and protection against Unemployment convention 1988 for promotion of employment against Unemployment and social security including Unemployment Insurance benefit.
Below is the recent projection made by ILO on Expected Unemployment Rate
The global unemployment rate is expected to rise modestly from 5.7 to 5.8 per cent in 2017 representing an increase of 3.4 million in the number of jobless people, a new ILO report shows. The number of unemployed persons globally in 2017 is forecast to stand at just over 201 million – with an additional rise of 2.7 million expected in 2018 – as the pace of labour force growth outstrips job creation, according to the ILO’s World Employment and Social Outlook – Trends 2017.
Unemployment, vulnerable employment and working poverty trends and projections, 2016-18
Unemployment Unemployment
(millions) rate (per cent)
2016 2017 2018 2016 2017 2018
World 197.7 201.1 203.8 5.7 5.8 5.8
Developed countries 38.6 37.9 38.0 6.3 6.2 6.2
Emerging countries 143.4 147.0 149.2 5.6 5.7 5.7
Developing countries 15.7 16.1 16.6 5.6 5.5 5.5
Vulnerable employment working poverty rate
rate (per cent) (per cent)
2016 2017 2018 2016 2017 2018
World 42.9 42.8 42.7 29.4 28.7 28.1
Developed countries 10.1 10.1 10.0
Emerging countries 46.8 46.5 46.2 25.0 24.3 23.7
Developing countires 78.9 78.7 78.5 69.0 67.9 66.7
It was also been often heard that by 2035-2040 many of the Employment/Occupation which exists today will soon become redundant & Obsolete. Along with Considering the ILO’s Expected Unemployment rate the entire world economy should introspect and arrive at an apt and satisfactory social security cause to support the issues which may arise in future.
