This article first appeared in The Edge Malaysia Weekly on April 17, 2017 - April 23, 2017

AS many as 600,000 Malaysians are expected to be unemployed this year while the jobless rate is projected to rise to a 24-year high of 3.8% — above the 3.7% seen here in 2009 following the September 2008 collapse of Lehman Brothers. Under such a scenario, a jobless or retrenchment safety net would be welcomed by potential beneficiaries.

Yet, could the sudden announcement of such a scheme also be a sign of choppy waters ahead?

After all, household debt remained high at RM1.09 trillion or 88.4% of GDP in 2016 while a recent Bank Negara Malaysia survey found that 75% of Malaysians would have trouble coming up with RM1,000 to meet emergency needs.

However, Datuk Dr Mohammed Azman Aziz Mohammed, CEO of the Social Security Organisation (Socso), which has been tasked with implementing the Employment Insurance Scheme (EIS) from January 2018, is quick to allay such concerns.

He recounts how Malaysia recognised the need for such a scheme during the 1997/98 Asian financial crisis and has finally reached a “landing point” after years of studies and engaging with stakeholders. “The cycle of economic downturn will happen. So, we had better prepare an umbrella before it starts to rain. But at the end of the day, it’s not only because of [a potential] economic downturn but it is also to stabilise the economy.

“If workers lose their jobs, they will burden everybody ... crime rates will increase. There could be so much social impact on the country. So, you need some form of comfortable replacement of income for the rakyat,” Mohammed Azman tells The Edge.

He points out how EIS helped lower a GDP loss of up to 18.3% in the US and ease South Korea’s unemployment rate to 3% from 7% at the peak of the economic crisis.

Addressing criticism on the mismatch between the pool of wage earners and employers who are to pay to EIS and the pool of potential retrenchment recipients, Mohammed Azman says Socso’s data indicates that as many as 300,000 could possibly benefit from EIS and that the number of people laid off could be a lot higher than the 25,917 to 44,343 let go a year over the past five years.

For one, employers with fewer than five workers were only recently required to report layoffs to the labour department and, interestingly, 70% to 80% of employers fall into this category.

Additionally, official data shows that 11% or RM650 million in compensation due to laid-off workers covered by the Employment (Termination and Layoff Benefits) or ETLB — because they earned less than RM2,000 a month — has remained unpaid in the past decade despite a court order due to their past employers’ inability to pay.

It is worth noting that 50% of the 6.5 million wage earners registered with Socso are covered by the ETLB.

“[While people may not have been motivated to register a layoff before], when we implement EIS … they will come and claim it … I expect that in three to four years, more than 100,000 people will come forward and make a claim,” Mohammed Azman says, adding that the 138,000 to 300,000 estimate is based on the number of active job seekers and the 40% to 70% non-contributing Sosco members with previous employment records.

To be sure, some of them may have resigned and would not be entitled to layoff benefits but the Socso chief stresses the importance of having a social safety net in place to provide temporary replacement income or job search allowance (JSA) to those who have lost their jobs. “When we talk about a social safety net, you want to act fast. You want to make sure that if they lose their jobs today, they don’t have to go through a legal process like the industrial court and so on. You may not need the money after six months or a year, by when you would have another job, but what will happen to you and your family tomorrow [if you were retrenched]?” he asks.

He also points out Socso’s commitment to handle payouts “as fast as possible”. The organisation’s current client charter states that payouts for funeral benefits will take three days while short-term payments for injuries will take seven days.

“We deem all claims to be genuine unless proven otherwise. We’re not an insurance company. We are a statutory body and at the end of the day, our job is to take care of the workers, providing them with a safety net. But if we notice that people are taking advantage of us, we will not condone it. We will come down hard on them,” he warns.

While EIS is expected to start in January 2018, the first potential payout will likely only be in January 2019 because a contributor would only be entitled to claim layoff benefits or JSA after having contributed to the scheme for at least 12 months. He or she would only enjoy the maximum six months of JSA after having contributed for 24 months.

Unlike in Thailand and Vietnam, the Malaysian government would not be contributing a defined sum to EIS with employers and employees. Nonetheless, notes Mohammed Azman, it allocated RM80 million to assist retrenched workers under the 10th Malaysia Plan, and Socso has grown the RM52 million that was disbursed in 2011 to RM64 million.

He acknowledges that wage earners who stay with the same employer for over five years stand to benefit more from the ETLB, as stipulated in the Employment Act. He says the ETLB will continue post the implementation of EIS, although the South Korean experience shows that it is becoming irrelevant because workers are switching jobs more often.

To those who see EIS as another pool of money for the government to tap into, Mohammed Azman says: “It should be emphasised that Socso’s board has a strong governance and accountability policy. Its members include representatives of employers and workers. It also has a representative of the Ministry of Finance as does its investment panel, thus enhancing the accountability of how the fund is being managed.”

He adds that any utilisation of the fund will be specified and guided by the law. Sosco also needs to submit its annual report to the Cabinet and Parliament every year.

Mohammed Azman gives the assurance that the EIS contribution rate will be set at a level that can provide wide enough coverage sustainably without overburdening workers or businesses. Socso pays out RM1.36 for every RM1 collected for work injury claims without needing to revise upwards the contribution rate.

He also says the administrative cost for EIS will not exceed 10% of the annual collection, similar to the administrative cost incurred for such schemes the world over, because the scheme will leverage Socso’s existing resources. The only area that will be labour-intensive, he says, will be employability services — counselling, training and job placement — where case managers will be assigned to help the retrenched return to the workforce.

“It is not our intention to burden anyone,” reiterates Mohammed Azman.

The case for and against the scheme

The Federation of Malaysian Manufacturers says only 60,000 people or 0.6% of the workforce lost their jobs, and RM30 million (simple average: RM500 each) was paid as compensation, during the 1997/98 Asian financial crisis.

For private sector employees, this is less than one month’s contribution:

•    Assuming an average salary of RM2,000 for the 6.5 million people in the workforce, a 0.25% monthly contribution works out at RM5 per person. The total collection pool from employees would be RM32.5 million a month and RM390 million a year (RM780 million a year, if employers contributed a matching 0.25%).

•    Assuming an average salary of RM4,000 for the 6.5 million people in the workforce, a 0.25% monthly contribution works out at RM10 per person. The total collection pool from employees would be RM65 million a month and RM780 million a year (RM1.56 billion a year, if employers contributed a matching 0.25%).

As at end-2016, the Social Security Organisation (Socso) received RM3.17 billion in contributions and its fund size stood at RM24.68 billion. (As a comparison, the Employees Provident Fund’s investment assets stood at RM731.1 billion at end-2016.)

Why Socso says the Employment Insurance Scheme is necessary and sees a bigger pool of potential claimants for the retrenchment benefit:

•    Based on the Labour Department’s records, the amount of compensation payable to laid-off workers was RM5.67 billion from 2007 to 2016. Of that, RM5.01 billion (89%) has been paid to the workers, with about RM650 million (11%) still unpaid. This means that an average of RM65 million a year is owed to (an unspecified number of) laid-off workers — despite there being court orders — due to employers’ inability to pay.

•    During the Asian financial crisis in 1997 and 1998, a total of 121,222 local workers lost their jobs.

•    Another 154,000 local workers were laid off during the 2007/09 US subprime crisis.

•    In 2015, 44,343 workers lost their jobs due to the automation in the financial sector, restructuring of Malaysia Airlines Bhd, fall in crude oil prices and volatile ringgit, among others.

•    Last year, 37,699 workers were laid off, with the majority of them from the manufacturing, wholesale and retail trade, finance and insurance/takaful, and mining and quarrying sectors. However, the exact number of workers who were laid off are estimated to be higher because not all employers or retrenched workers filed a report with the Labour Department.

•     Based on internal data (on non-contributing members with previous employment records, which may include those who resigned and are not entitled to retrenchment benefits), Socso says between 138,000 and 300,000 employees may be entitled to unemployment benefits each year — much higher than the official statistics of 25,917 to 44,343 persons retrenched a year between 2012 and 2015.

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