COMMENT | Dewan Rakyat sitting will resume on 24 July 2017. The Human Resources Minister Richard Riot Jaem said the Employment Insurance Scheme (EIS) will be tabled in the coming Parliament sitting.

On 23 March 2016, Prime Minister Najib Abdul Razak said that the government agreed to implement the EIS for 6.5 million local workers in the private sector. The purpose of the EIS is to help working class people who lost their jobs to obtain financial aid and find a new job.

The workers will get a temporary financial aid and find a new job through employment service programmes which cover jobseekers’ aid, career counselling, and job matching. Besides that, workers who lose their jobs will be given training either in the form of retraining or skill enhancement in order to enhance their job ability.

Later, the Human Resources Ministry said that the implementation of the EIS is to help those who are unemployed due to involuntary loss of a job. Under this programme, they can receive a certain amount of unemployment allowance (based on their salary before unemployment) while it is compulsory for them to join a job seeking programme.

The EIS will be administered by the Social Security Organisation (Socso) which is an agency under the Human Resources Ministry.

According to the Human Resources Ministry, although this employment insurance is similar to the unemployment insurance in some other countries, an unemployment insurance focuses on unemployment benefits, while employment insurance is attached with an active labour market programme which helps the unemployed to find a job, while they are receiving unemployment benefits.

Therefore the EIS should not be seen as encouraging people to be lazy to work, but pressuring them to work.

According to the proposal of implementing EIS by the Human Resources Ministry, the participation is
compulsory for all employees who are Malaysian citizens and protected by the Socso. One must have contributed for a minimum of 12 months within 24 months in order to enjoy the benefits under EIS.

Those who voluntarily resigned, those whose employment contract has expired, and those who are mandatorily retired, are ineligible.

The think-tank Political Studies for Change (KPRU) wishes to emphasise in this article that the Social Security (Minimum Standards) Convention, 1952 (No 102) of the International Labour Organisation (ILO) stated that there should be monetary benefits given to the unemployed who are capable and available to
work.

While the EIS proposal by the ministry limits the scope of unemployed to those who lost their jobs, KPRU is in the opinion that the concept of unemployed within the EIS should be extended to those who are jobless due to other factors. Such wider concept should be taken into account and given a clear definition so that workers will not face problems in enjoying the benefits under the EIS once this scheme is being in force.

Just as contributing to Socso and Employment Provident Fund (EPF) as usual, the employers and employees are required to contribute for the EIS. Each of both is required to contribute 0.25 percent of the employee’s salary.

While an unemployed is enjoying the benefits under EIS, he or she is required to participate in a job seeking service and career counselling. They must frequently report themselves on their efforts in job findings.

It is understood that while receiving the unemployment benefits, a person is qualified to receive a job search allowance (JSA) of 30-80 percent of the monthly salary for three to six months. The salary limit of JSA is RM4,000 per month. If they manage to get a new job before the end of the period of receiving JSA, they will continue receiving 25 percent of the JSA for the remaining period, similar to South Korea (which is 50 percent).

At the same time, except those with multiple employers, they are also qualified to receive a training allowance (TA) of 25 percent of the salary before unemployment, this allowance is at a minimum of RM300 and the maximum is RM600, and just as the JSA, the payment for TA is also three to six months.

In order to prevent laziness in job finding and abuse of this system, all benefits under EIS will be suspended for those who defy the orders and instructions by the authority, such as refusal of suitable job placement service and vocational training order.

The period of receiving benefits under EIS is determined based on the period of the contribution being done, as below:

  • Three months of allowance: contribution of 12 months
  • Four months of allowance: contribution of 16 months
  • Five months of allowance: contribution of 20 months
  • Six months of allowance: contribution of 24 months

The JSA is reduced over time of a recipient:

  • First month: 80 percent of the last salary
  • Second month: 50 percent of the last salary
  • Third and fourth month: 40 percent of the last salary
  • Fifth and sixth month: 30 percent of the last salary

Retrenchment is happening under this poor economy

Recently, we keep receiving news about workers losing their jobs due to the decline of certain industries. There were also factories being forced to shut down due to certain factors.

Therefore, it is imperative to help the unemployed to face their difficulties in their lives as in their loss of income, and help them find a new job in order to carry on with their lives.

According to a news report on May 2, 2016, the executive director of the Malaysian Employers’ Federation (MEF), Shamsuddin Bardan warned that if the Mininum Wage Order 2016 (MWO 2016) comes into force on July 1, 2016, there would be about 30,000 employees (especially on the lower level) being retrenched.

This is because employers had to bear a high cost and have to retrench some employees before July in order to save cost and compensations for termination.

According to Shamsuddin, the workers who would be terminated would be from sectors such as the oil and gas (O&G) sector, banking and finance sector, insurance sector and retail sector. He also said that in 2015, many big companies faced a loss of income by 30 percent to 40 percent and caused 38,000 people to be retrenched.

On February 23, 2017, MEF reported that 44,000 employees lost their jobs in 2015, while as for 2016, up to September there were 40,000 employees losing their jobs.

According to Socso, in the past 10 to 20 years there were 30,000 to 40,000 being retrenched (employers with 5 employees and below are not obligated to report their retrenchment figures to the government), and according to the unemployment rate (up to 13 April 2017) at 3.5 percent or 500,000 people, the EIS willbenefit 137,000 to 300,000 people.

Among the most shocking news was the sudden closure of the High-5 bread factory on June 23, 2016, and had to vacate their premises by July 3, 2016 due to the court order obtained by AmanahRaya Real Estate Investment Trust (Amanahraya REIT) as the owner of the property.

This sudden closure of the factory caused 60 workers there to lose their jobs. The workers claimed that their employments were terminated immediately with merely a notice being issued 24 hours before hand, and they only received half of their monthly salary as compensation.

However this claim was denied by the factory, that the date of termination was July 22, 2016, and the other half of their salary would be paid before Hari Raya Aidilfitri.

Anyway, it was reported that High-5 had not fulfilled their responsibilities in contributing for some employees into their EPF accounts for eight to 12 months.

It seems that even after nearly a year, these terminated High-5 workers’ problem is yet to be solved. On May 20, 2017 11, Mohd Manaf Mansor, a former worker who had been working there for 14 years, claimed that he had not received his compensation.

Probably due to his age (45 years), he had difficulties in finding a new job and being only able to survive by his wife’s income as a bank clerk, while he himself became an Uber driver in order to earn extra income whenever he has the time to do so.

Another former High-5 worker, Mohd Dhani Yusoff, also faced difficulties in finding a job due to his age (45 years) as well and had to sell his house. He has seven children.

It was reported that in 2015 for the banking sector, Standard Chartered Bank retrenched 11 percent of their manpower, CIMB Group Holdings Bhd retrenched 3,599 employees who were 11 percent of their manpower, and RHB Capital Bhd retrenched 2,700 employees who were 15 percent of their manpower.

According to a news report on Jan 8, 2016, as for the O&G sector, 10 companies were planning to retrench 2,700 employees. It was said that Shell Malaysia wished to retrench 1,300 in two years, there were seven other companies wishing to retrench 80 to 600 employees each, and 2 more companies intended to implement a voluntary separation scheme (VSS).

After that, according to another news report on Jan 21, 2016, Petronas was considering to retrench 51,000 employees, as part of their measure to cut capital and cost by RM50 billion in four years time.

According to a news report on July 6, 2015, JVC had to close down their factory in Shah Alam while relocating their operation to Thailand. This affected 300 employees here. Among the reason for the relocation was the low value of the ringgit.

According to a news report on March 1, 2016, Samsung Electronics Display (M) Sdn Bhd had to close down their television manufacturing plant in di Seremban on April 2016, due to challenging business environment and an unstable market. This resulted in 620 employees (475 Malaysians and 145 foreigners) affected.

Advantages of implementing EIS

As opposed to the claim of “becoming lazy”, KPRU wishes to bring into attention upon a statement by social media manager of the American Federation of Labour and Congress of Industrial Organisations (AFL-CIO), Jackie Tortora that an unemployed person who is enjoying benefits under an unemployment insurance programme would be more active in finding a job, as compared with one who does not enjoy such benefits.
The allowance paid would also protect them from poverty due to loss of the source of income.

Furthermore, it was reported in the United States that such unemployment benefit is able to enhance economic growth, by generating US$1.64 in demand out of every US$1 spent on the unemployment benefit, because the recipients can spend their allowance to buy their daily goods.

Studies by the Congressional Budget Office (CBO) showed that every US$1 billion spent in this programme created 19,000 jobs, and without this assistance, market demand would decline, and retailers might have to retrench their employees, resulting in an increasing unemployment.

It was reported in the final quarter of 2008 that US$34.9 billion was spent to benefit eight million unemployed people, and enhanced economic growth by US$57 billion. Even though each month would cost US$10 billion from the taxpayers, this generated US$16.4 billion in economic growth.

The implementation of such unemployment benefits would enable unemployed people to spend more time in finding a job suitable for themselves, rather than getting an unsuitable job in a hurry.

In fact, in our opinion, such unemployment benefits would give participants a chance to learn new skills, in order to have more choices in the labour market, instead of being restricted to their own working experience or what they have learned in their educational institutions.

Although the MEF claimed that the compensations under the existing legislations, which are the Employment (Termination and Lay-Off Benefits) Regulations 1980 (for Peninsular Malaysia), Labour (Termination and Lay-Off Benefits) (Sabah) Rules 2008, and the Labour (Termination and Lay-Off Benefits) (Sarawak) Rules 2008 are sufficient for the terminated and retrenched employees, we do not agree with this, because the compensation can be easily run out, especially under this situation where the value of the Ringgit is dwindling and goods prices are on the rise.

Under all the three subsidiary legislations above, the compensation for employment termination is as the following:

  • 12 months of salary ÷ 365 days × term of service (year) × eligibility (10, 15 or 20 days per year)

In respect to this formula, the “eligibility” is:

  • 10 days per year: Those who served for less than two years
  • 15 days per year: Those who served for two years to less than five years
  • 20 days per year: Those who served for five years and above

Imagine if a person had served for 5 years and only earned the minimum wage of RM1,000 in Peninsular Malaysia, the compensation obtained would be:

  • RM12,000 ÷ 365 × 5 × 20 = RM3,287.67

Those who are terminated might not be able to rely on this compensation, because there are also companies which are accused of not fulfilling their responsibilities to pay the compensation, such as High-5 mentioned before.

Besides that, Rayani Air which ceased operation out of a sudden after operating for merely three months,
was accused of not paying their staff salary. It is hard for us to blame these employers for their failure in fulfilling their responsibilities if they were really in financial difficulties.

Therefore, even without termination compensation, the terminated employees can still enjoy the JSA under the EIS, where employers and employees only need to make a small contribution, as compared with the large amount of money which needs to be prepared by the employer as the compensation for the terminated employees.

Perhaps many do not know or do not realise that the Employment Act 1955 only protects employees with a monthly income of RM2,000 and below, and various high-risk workers such as manual labourers, transport operators, workers in vessels, domestic servants, and so on.

The Labour Ordinance (Sabah Cap 67) and Labour Ordinance (Sarawak Cap 76) are protecting employees with a monthly income of RM2,500 and below, as well as high-risk workers as in the Employment Act 1955.

Note needs to be taken that the three legislations regarding termination and lay-off benefits are subsidiary legislations of these three Acts and Ordinances. However, the EIS will assist workers who meet the definition of unemployment with a salary ceiling up to RM4,000.

This means that those who earn more than RM4,000 per month will also be benefited based on the calculation up to RM4,000. With this, more unemployed will be protected under EIS, as compared with the existing job loss compensation.

Workers will become lazy?

Again, regarding the rhetoric against the unemployment benefits with the claim that this benefit will encourage employees to become lazy and choose not to work, in order to survive by merely the unemployment allowance paid by the government, we are in the opinion that the EIS in other countries have taken many measures to reduce or prevent such abuse of the system by the “lazy bums”.

As mentioned, the EIS will only be carried out up to six months per participant. Therefore it is impossible for a lazy bum to attempt relying on the EIS for the rest of their life, as in Australia.

Most of the countries implementing such unemployment insurance generally impose a limit of six months to two years.

Even in Australia where they do not impose a term limit, the reality is that it is quite hard
for the unemployment benefit over there to be abused by unemployed people, because each recipient must report themselves to the authority regarding their own job searching progress, and the authority has to be satisfied that the recipient has done their best in finding a job but failed, in order to continue giving them the benefits.

Furthermore, a participant of the EIS is required to follow whatever order such as attending job training and accepting job offers.

Other than that, the EIS is actually learning from the system in South Korea where participants are encouraged to get a new job as soon as possible, by paying them part of the JSA until the end of the benefit receiving period.

The EIS requires each person to work and contribute to the EIS fund for 12 months before being qualified for the benefits upon loss of a job. Therefore we believe that the EIS might pressure each “lazy bum” to work, in order to be able to contribute to the fund for their future, instead of continuing being lazy and rely on others, or worse, committing a crime.

The concept of contribution has been implemented in most of the countries having unemployment benefits, except Australia 22 23 where the unemployment benefit is funded by the collection of the value added tax (VAT), known as goods and services tax (GST) in Malaysia.

Therefore in Malaysia, there will not be the issue of “feeding the lazy bums with the taxpayers’ money”, but the qualified unemployed under the EIS will only be fed with contributed money by themselves, their own employers, other employees, and other employers, just as the existing protections by EPF and Socso.

Furthermore, the monthly contribution for the EIS (which is 0.25 percent each for employer and employee) is quite low, compared with other countries. While the contribution rate in Malaysia is 0.25 percent each for both parties, the rate in France is four percent for an employer and 2.4 percent for an employee.

The Socialist Party of Malaysia (PSM) even suggested that the contribution can actually be reduced to 50 cents for each party, as they find the rate of 0.25 percent being high.

As mentioned, the allowance under EIS is reduced over time from 80 percent to 50 percent (of the last drawn monthly salary). Therefore, as an example, one who earned the minimum wage of RM1,000 in Peninsular Malaysia will start receiving RM800 as the JSA for the first month, RM500 for the second month, RM400 for the third and fourth month, and finally RM300 for the fifth and sixth month.

The JSA is lower for those who were receiving their respective minimum wage in Sabah, Sarawak and Labuan, which is being lower that is RM920.

With such a little allowance, it is better that if an unemployed gets a new job as soon as possible, for the sake of a higher income.

Other than that, the EIS provides job training for the recipients. Probably due to lack of education, experience as well as other factors, we are not equipped with sufficient job skills, or we do not even realise our own skills and talents.

Hence the job training should give us more opportunities to learn more skills and get to know ourselves better, thus increasing our own self-confidence into the labour market.

OOI HENG, ELIJAH KHOR & YASMIN are with Political Studies for Change (KPRU or Kajian Politik untuk Perubahan).

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.