MTUC regrets employers against Employment Insurance Scheme

KUCHING: Malaysian Trades Union Congress ( MTUC) deeply regrets that employers are dead set against the Employment Insurance Scheme ( EIS) 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,” said MTUC secretary Andrew Lo, who is also Sarawak Bank Employees’ Union chief executive officer in a press statement received here yesterday.

The Ministry of Human Resources has been undertaking a series of discussions with the participation of major stakeholders.

These discussions are not new at all, starting more than 10 years ago.

Lo said given their objection to the minimum wage, even the minimum retirement age, employers’ objection to EIS was not surprising nor was their ‘usual fear-mongering’ that EIS will make businesses unsustainable.

MTUC recalled that in the employers’ bid to stop the minimum wage, they claimed that 600,000 businesses would go bankrupt.

Their failed prophecy is quite embarrassing, Lo said.

“What is sad is that many employers are ready to cut off their noses to spite their faces as many employer groups 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,” said Lo.

If the Company’s Act is indeed amended to give retrenchment benefit — which is a contingent liability — priority over all creditors, no banks, creditors or suppliers will want to extend any loans, credit lines or buy any company bonds.

Credit and loans are the bedrock of any businesses.

Such proposals will kill the Malaysian economy.

“Employers essentially have three reasons for their objections. MTUC would like to debunk some of the employers’ reasons for objecting,” Lo said.

Reason one – unemployment insurance is an unfair cost burden on employers. The proposed rate is just 0.5 per cent of wages from employers and employees with a cap of RM4,000.

With average labour cost of 45 per cent, the average increase in total operating cost is just 0.2 per cent. 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 represents the employees’ value to the company like the employer will ultimately ‘claim’ this cost but proportionately not increasing salary, for example.

Reason two is 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 protection of workers, Lo said.

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 cases of insolvency where usually there are no funds left to pay retrenchment benefit claims.

There 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 Malaysia’s competitiveness by the World Bank.

Therefore, employers seem to maintain their claim that they want pro-growth policy.

Reason three is the scheme penalises good and wellmanaged 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 ran the nuclear power plant to face multibillion (dollar) lawsuits and it had to retrench its workers, as the plant had to be permanently closed. Even world-renowned financial institutions have collapsed in the aftermath of the last financial crises,” Lo said.

The hallmark of a wellmanaged 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 productive ones and produce new products.

Workers who are not able to be trained in new production methods have to be retrenched.

Unemployment insurance ( UI) will facilitate this restructuring as workers will be more open to job change, with the protection of UI.

According to Lo, 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 four is we don’t need UI in the last recession where only 5 per cent of retrenchment benefits were not paid. Malaysia is already at full employment and is facing a high level of labour shortages.

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

“It is useful to recall that the New Economic Model ( NEM) advocates 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,” he said.

As the economy transforms under the NEM, there will be some degree of frictional unemployment and EIS can help ease 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 up- skilling 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 off their noses to spite their faces,” said Lo.