Editorial | Road to an unemployment insurance scheme

The imminent launch of an unemployment insurance (UI) scheme is a welcome development with, as Nigel Clarke observed, profoundly positive implications for Jamaica’s socio-economic development.

Such schemes, as the finance minister noted in the Budget Debate, are at once social safety nets and fiscal cushions that can help to keep economies afloat, particularly during periods of extreme labour-market shocks, like what Jamaica experienced during the COVID-19 pandemic.

But they can also be useful to individual firms that fall into trouble even during periods of relatively economic stability and may need to restructure themselves to survive. That is why this project should be undertaken as part of a broader reform of the labour market, including a review of the laws on redundancy payments.

In that context, the Government should open a national discussion on the labour market reform report presented five years ago by a commission chaired by the late Marshall Hall. Perhaps the labour and social security minister, Pearnel Charles Jr, should retable Professor Hall’s report and cause Parliament’s Economy and Production Committee to open hearings on it.

Concomitant with all this, Mr Charles should undertake an aggressive campaign of enrolling eligible people into the Government’s National Insurance Scheme (NIS), which is estimated to cover less than half of the employed labour force.

POTENTIAL UTILITY

An unemployment insurance scheme has been on Jamaica’s agenda for decades. Its potential utility, however, became stark during the coronavirus pandemic when over a four-month period between March and June 2020, 150,000 people (a figure equivalent to nearly 11 per cent of the current labour force) lost their jobs. Of that number, 55,000, or 37 per cent, received emergency, short-term support from the Government.

According to Dr Clarke, Jamaica’s macroeconomic stability now makes it possible to proceed with a UI scheme, for which a study was done with the support of the International Labour Organization.

The report, he said, revealed that depending on the chosen parameters, it could cost between 0.8 per cent and 1.5 per cent of the value of salaries, plus a “capital contribution from the Government of a few billion dollars”, to operate a UI scheme. Of the existing schemes in the English-speaking Caribbean, Barbados pays unemployed workers 60 per cent of their average weekly wages for up to half a year. In The Bahamas, the benefit is 50 per cent of average wages for three months.

Significantly, the finance minister said that by consolidating the existing payroll taxes – National Insurance Scheme (NIS), National Housing Trust, Education Tax, and HEART (vocational training) – into a single payment, it was potentially possible to introduce the UI “without increasing the headline consolidated statutory deduction rate and with no additional cost for up to 95 per cent of persons enrolled in the National Insurance Scheme”.

COVERED BY NIS

The law says that all workers between the ages of 18 and 70 should be covered by the NIS. But it is estimated that less than half a million people are enrolled out of the labour force, which, last October, stood at over 1.377 million, of whom 1.32 million were in jobs. Only 154,000 workers are in private-pension schemes.

Currently, in addition to income tax, employees pay up to another 7.25 per cent of their wages in these statutory deductions. The cost to employers is potentially 12.5 per cent of their wage bills.

This, on its face, is good news. So, too, was the minister’s announcement that the Government is soon to sign a US$20-million loan agreement with the World Bank to finance the technical support for the launch of the UI scheme.

This, though, ought not to be an issue only for technocrats. The Government must, and sooner rather than later, bring all stakeholders into a national conversation on this matter under the broad rubric of labour market and social safety net reform.

For example, a UI scheme might allow the Government to lower, or in some circumstances remove, the requirement of companies to make redundancy payments to workers – a demand that usually comes at a time when firms are less capable of meeting those costs. There must be an honest debate on this question.

Further, too many people in Jamaica, as the statistics show, have no pension coverage whatsoever. The post-employment prospects for a large number of them is a miserable old age. Aggressively bringing people into the NIS is imperative.