MTUC deeply regrets that employers are dead set against the Employment Insurance Scheme that was tabled for first reading in Parliament.

Due to their intense lobbying and pressure, the government has deferred the second reading to obtain more discussion and feedback.

The Human Resource Ministry has been undergoing a series of discussions with the participation of the major stakeholders. These discussions are not new at all, they started more than 10 years ago.

Given their objection to the minimum wage, even the minimum retirement age, employer’s objection to the Employment Insurance System (EIS), is not surprising nor is their usual fear-mongering that EIS will make businesses unsustainable.

MTUC recalls that in their bid to stop the minimum wage, they claim that 600,000 businesses will go bankrupt. Their failed prophecy is quite embarrassing.

Cutting the nose to spite the face

What is sad is that some employers are ready to cut their noses to spite their faces as some employers' group want to amend the Companies Act to give priority to payments of retrenchment benefits to workers ahead of all creditors, to try to stop the EIS.

If the Company’s Act is indeed amended to replace retrenchment benefit - which is a contingent liability, priority over all creditors, not banks, creditors or suppliers will never want to extend any loans, credit lines or buy any company bonds.

Credit and loans are the bedrock of any business. Such proposals will kill the Malaysian economy. It just shows how some employers in Malaysia are so paranoid when it comes to any scheme that may bring some protection to workers who have lost their jobs.

This paranoia is the stumbling block to the country’s drive towards a high income, and highly productive nation. Of course, any new scheme will not be perfect and all stakeholders must work together to ensure that the rates of contribution (0.5% of wages each for employers and employees) are manageable and that benefits are reasonable.

Equally important, the fund itself must be managed in a professional and transparent manner to minimise leakages.

Debunking 

Employers essentially have three reasons for their objections. MTUC debunks some of the employers' reasons for objecting:

REASON 1 - Unemployment insurance is an unfair cost burden on employers

The proposed rate is just 0.5% of wages from employers and employees with a cap of RM4,000. With average labour cost of 45% the average increase in total operating cost is just 0.2%. Yet businesses are claiming that they will go bankrupt because of this.

Workers are also contributing to the EIS. It must be remembered that ultimately it is the employees who are contributing, as the employers’ contribution actually represent the employees’ value to the company i.e the employer will ultimately can “claim” back this cost but proportionately not increasing salary, for example.

Reason 2 - There are already sufficient provisions in the labour legislation to take care of retrenched workers.

Malaysia’s social protection system is still evolving and with gaps and inefficiencies, particularly for the protection of workers. Multiple problems have been encountered with the present system of paying retrenchment benefits which only covers those earning less than RM2,000.

Businesses have closed without meeting retrenchment obligations leaving workers high and dry; especially in the case of insolvency where usually there are no funds left to pay retrenchment benefit claims.

There also have been cases of workers turning up for work and finding the factory gates locked and all assets of the company stripped bare.
The current system has also been cited as one of factors affecting our country’s competitiveness by the World Bank. Therefore employers seem to maintain their claim that they want pro-growth policy!

Reason 3 - Penalising good and well-managed companies by adding unnecessarily to their cost of doing business when they are forced to contribute to a scheme which is to bail out delinquent companies, and encouraging irresponsible management behaviour.

One needs to understand the impact of economic conditions on businesses. I would like to believe that all companies want to be good employers and are well managed
However good employers may not remain good in a rapidly changing world of work.

Severe economic downturn may turn good employers into bad ones. The 2001 Tsunami in Japan caused the company that runs the nuclear power plant to face multi billion lawsuits and it has to retrench its workers, as the plant has to be permanently shut down.

Even world-renowned financial institutions have collapsed in the aftermath of the last financial crises.

The hallmark of a well-managed company is the ability to constantly evolve and change its business and production process to meet the rapidly changing world of work and economic conditions. It may need to close down absolute production lines, invest in new pro productive ones and produce new products.

Workers who are not able to be trained in new production methods have to be retrenched. A UI will facilitate this restructuring as workers will be more open to job change, with the protection of a UI.

UI would enable the risks from job market anomalies to be pooled and provide for payouts when needed, similar to any insurance model - like the current SOCSO scheme where workers in lower risk occupation (banks) are paying for those in high-risk industries where there are more claims of employment injury, such as the timber industry.

Reason 4 - We don’t need UI in the last recession where only 5% of retrenchment benefits were not paid. Malaysia is already at full employment and facing high levels of labour shortages.

The best time to introduce UI is when we are not in recession, companies are doing relatively well, as the scheme needs time to build up sufficient funds to meets its objective during the recession.

It would be useful to recall that The New Economic Model (NEM) advocate bold, strategic, comprehensive revision of labour legislation with the purpose of reducing the costs to business and to remove the impediments that have deterred investment and fostered workplace complacency. This will result in more flexibility in the hiring and separation of workers.

As the economy transforms under the NEM, there will some degree of frictional unemployment and EIS can help ease the transition for workers and cushion the impact of workers who may lose their jobs as the economy transforms.

As part of the UI, it is also necessary to have an effective and efficient labour market that allows workers to quickly find new jobs matching their skills. There must be upskilling and retraining programmes, employment services, effective job search and placement services tailored for retrenched workers.
By encouraging such transformation, it will reduce reliance on millions of foreign workers.

I call on all employers to be professional and forward looking in this endeavour and don’t cut their noses to spite their faces.

ANDREW LO is secretary, MTUC, Sarawak division