Our Prime Minister sat down to address a list of 10 questions that Singaporeans voted on as topics they were concerned about. One that caught our eye centred upon unemployment insurance, loosely defined as monetary assistance by authorised bodies to those who are unemployed. PM Lee mentioned that Singapore does not have in place a current system of unemployment insurance but ensures workers who have been retrenched receive retrenchment benefits. But are retrenchment benefits enough when one has financial obligations at stake? Or should there also be a system of protection in place to prepare for unforeseen circumstances? We’ve done a bit of research and listed the pros and cons of unemployment insurance and we encourage you to take part in our poll to let us know what you think!
Pro of Unemployment Insurance – Financial stability for the unemployed
In the event that unemployment occurs, unemployment insurance would provide some semblance of financial stability for the unemployed, so that they would still have the means to pay for their daily necessities and healthcare needs. This also means they might not have to take drastic measures such as selling their house.
Pro of Unemployment Insurance – Maintain economic consumption
Juan Sanchez, an MIT economist, purported that unemployment insurance would help sustain economic consumption at its current level as a growing base of unemployed individuals would likely cause a downward spiral of the economy due to lesser spending power. Hence, unemployment insurance would act as an economic stimulus to keep it buoyant.
Con of Unemployment Insurance – Lack of motivation by the unemployed
When an unemployed individual receives monetary assistance and faces less pressure to job hunt to maintain one’s consumption level, there is reason to believe that this will lead to a general lack of motivation to look for a job. In addition, through various studies, it has been found that once an individual receives unemployment insurance, the time taken to for that individual to find a job also significantly increases as compared to someone who does not have unemployment insurance.
Con of Unemployment Insurance – Lack of savings
While unemployment insurance enables unemployed individuals to maintain their current consumption level, in the long run, many would still not have enough to save up for retirement. This in turn creates an entirely new set of problems.
Con of Unemployment Insurance – Detriment to other developments
If the percentage of unemployment increase significantly and the Government has to set aside more and more money to support this base, this could mean cut backs on various other sectors such as education, healthcare, transport and infrastructure etc. A case when the Government has to finance a deficit because of unemployment insurance could spell big trouble for the country.
Take part in our poll!
Do you think unemployment insurance is necessary in Singapore?
Credits:
http://research.stlouisfed.org/publications/regional/11/01/reader%20exchange.pdf
Hi J Chua,
Unemployment insurance sounds to me like some form of a welfare system.
I am a Singaporean who lives in Australia as a permanent resident for the past 13 years. To be honest, I am NOT a big fan of the welfare system (especially in the category of unemployment) mainly because it is essentially a system that penalises the hardworking, employed population with higher income taxes. Sure, there are some that can definitely do with some financial assistance but such a system is often susceptible to exploitation by some who can detect certain loopholes & get pass the system. As mentioned above, unemployment assistance can lead to lack of motivation or urgency for some to look for work. And as we know, a system as such when rolled out, will be hard to take back…
How about passing the onus to the individual himself/herself? In Australia, we can buy income protection insurance for the employed and self-employed to safeguard against injury, accident, death, retrenchment etc. It is also tax-deductible. As a self-employed, I buy income protection insurance to safeguard the above as welll as in the event that I become permanently disabled to work or die, my insurance will pay me a monthly allowance till I die and/or pay out my mortgage so that my family will not be suddenly burdened financially from an unexpected event.
Perhaps the best thing is to encourage Singaporeans to buy income protection insurance if there is such a policy. If not, the financial authorities should consider collaborating with insurance companies to come up with a viable insurance policy in this category.
Another thing I suggest is that the government can look at allowing an unemployed person to draw up a sum or percentage of their CPF if they have been unemployed for a prolonged period ( eg. more than 6 months consecutively) and there is evidence of financial difficulty and hardship for day to day living. In this way, the unemployed is still surviving on its own money and also it compels them to be pro-active in seeking employment knowing that the coffer that they are dipping in today belongs to themselves & needs to be topped up with more work & thus CPF contribution or their retirement will be impacted financially in the future.