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Editorial | Put unemployment insurance on the agenda

Published:Wednesday | June 17, 2020 | 12:15 AM

The labour ministry has recently been busy warning companies of the legal pitfalls of making staff redundant without giving the required notice, which, we suppose, is important. For, in these times, a fine of J$250,000 is not to be sneezed at, and no executive would relish three months in a Jamaican jail.

A greater priority, however, should be a serious and rational debate of the island’s redundancy laws, including whether there ought to be a pivot to an unemployment insurance scheme, for which this newspaper and others have advocated in the past. The recession wrought by the COVID-19 pandemic makes the issue not only topical, but underlines its logic.

Indeed, over the past three months, as Jamaica and other countries put the brakes on social engagement to slow the spread of the coronavirus, the island’s economy took a heavy hit. Some sectors shut down and others slowed to a limp. Tens of thousands of workers were furloughed without pay, which is allowable under Jamaican law if the lay-offs are limited to four months.

But in an economy the authorities project could decline by up to six per cent and other analysts say could shrink even more, many of these jobs are unlikely to return. Some companies will probably fold. Others, to survive, are undergoing major restructuring.

Not only has this upheaval been sudden, it took place in the absence of a formal safety net for workers. In fact, in the heat of the crisis, the Government scrambled a short-term, J$10-billion support programme for workers. Sixty per cent of the money has been transferred to people who lost their jobs, or has gone to help firms, mainly in the tourism sector, to meet the wages of employees who were kept on their payrolls.

This, fundamentally, is a short-term scheme. Jamaica’s fiscal circumstances – its debt, despite a sharp reduction over the last eight years, is still over 90 per cent of gross domestic product – makes it unaffordable over the longer run. Which places on the agenda two significant matters.

The most immediate of these has to do with the potential impact on struggling firms after the expiry of the furloughs, if companies haven’t recovered sufficiently to afford significant numbers of their employees. The longer-term question is about what support, if any, should be available to unemployed people, and how such a system might be structured.

Jamaica’s labour laws entitle a worker who has been made redundant, but was employed for at least two consecutive years, to two weeks’ pay per year, for up to five years. Between five and 10 years, the rate moves to four weeks per year. It continues to scale up, reaching 12 weeks per year for an employee with up to 20 years’ service.

This can be an expensive obligation for firms, especially if it arises when companies are financially stressed and in need of restructuring, such as in this environment. Indeed, nine years ago, the late auditor and taxation specialist, Ethlyn Norton-Coke, argued that the redundancy payment law, as structured, was a disincentive to employment. “Many persons don’t employ people anymore because they (may) have redundancy payments,” she said.

REVISIT THE ISSUE

Mrs Norton-Coke was snarled at by trade unionists. This newspaper, however, saw an argument worthy of serious debate, and reprised its proposal for an employee-supported unemployment insurance scheme, managed by the National Insurance Fund, but with a twist: employees who didn’t call on the fund during their working lives would possibly be eligible for high national insurance pensions at retirement.

In 2014, when the Government established a commission on labour market reforms, we suggested that the question of unemployment insurance, and by extension the redundancy law, be on its agenda. Little, though, has been heard, or made, of the work of that group, although it completed its assignment three years ago.

The time, however, is propitious for revisiting the issue, including creative thinking about how, in Jamaica’s situation, the scheme could be funded. The debate, for instance, could consider the feasibility of lowering employer/employee statutory payments to agencies already flush with cash, and other assets, and can’t absorb all their resources, some of which might be steered to an unemployment insurance fund.