ECONOMIST Dr Damien King said he believes the proposed unemployment insurance that is being pushed by Finance Minister Dr Nigel Clarke should be a replacement for redundancy payments, but the suggestion has not found favour with Uunions.

“Supporting a laid-off person between jobs is a key part of a social safety net. It should be a cost borne by society. Unemployment insurance (UI) will do that. But redundancy payments serve the same purpose, except they are unfairly imposed on the employer. So UI should replace it,” King wrote in a recent post on X (formerly Twitter).

King made the suggestion after Clarke indicated in his budget presentation on March 12 that the Government is taking steps to implement an unemployment insurance scheme and will borrow US$20 million from the World Bank to provide the Ministry of Labour and Social Security with the technical support to implement it. Though Clarke did not suggest that unemployment insurance will replace redundancy payments when employees lose their jobs, King said it should.

“Unemployment insurance is a better way to do it because the need to tide people over until they get a new job is a social responsibility and shouldn’t be imposed on the individual firm in the first place,” King explained in an interview with the Jamaica Observer.

The idea of having an unemployment insurance scheme in Jamaica is not new, but the issue came up for consideration in recent times after the experience of COVID-19 and the economic and social impact from the loss of jobs. Clarke said that experience brought home the need for a funded scheme that provides temporary income support in the event of unemployment.

King, in illustrating his rationale for calling for the scheme to replace redundancy payments, said pressuring companies to continue paying employees in a scenario where they are seeing a decline in sales can ultimately lead to them going out of business, jeopardising the livelihoods of those who remain employed.

“It really should be something that the collective pays for, and that’s where unemployment insurance comes in. Everybody contributes, whether it’s through an explicit insurance scheme involving contributions from both employers and employees into a pool or through taxation. Either way, it ensures that everyone contributes to support those who end up losing their jobs through no fault of their own,” explained Dr King.

For his part, Clarke suggested that it is likely that the employees who contribute to the National Insurance Scheme (NIS) would be automatically included in unemployment insurance.

But King is not the only one advocating for unemployment insurance to replace redundancy payments. Wayne Chen, president of the Jamaica Employers Federation (JEF), echoed a similar perspective.

“Over time, redundancy payments have evolved into a disincentive and an additional cost burden for formal employment. It’s no coincidence that a substantial portion of Jamaica’s workforce, estimated at around 40 per cent, operates in the informal sector. Even within the formal sector, a significant number are engaged in short-term contracts, often structured to avoid the hefty burden of redundancy payments,” Chen shared with the Caribbean Business Report in an interview.

It is not clear how much redundancy payments cost companies in aggregate, but Clarke said the proposed unemployment insurance, which is to be funded by employee and employer deductions could cost between 0.8 per and 1.5 per cent of a person’s salary, according to a feasibility study, “with capital contribution from the Government of a few billion dollars for this benefit to be provided.”

With an estimated 40 per cent of the economy operating informally, and most working in small and medium-sized enterprises, or operating outside the scope of regulations such as Pay As You Earn (PAYE) or the National Insurance Scheme (NIS), Chen stresses that it’s imperative to manage the situation carefully, recognising that social protection is a shared responsibility benefiting all citizens.

“In Jamaica, we hold certain expectations, such as access to public health care, education, and some form of basic pension. When it comes to unemployment benefits, the burden has historically fallen on employers. However, unemployment insurance offers a universal benefit, potentially benefiting every Jamaican,” Chen highlighted.

However, trade unions are not finding favour with the proposal to do away with redundancy payments once unemployment insurance is introduced.

“The concept of redundancy was established by wise individuals to benefit the working class,” stated Granville Valentine, general secretary at the National Workers Union of Jamaica. “I’m aware that some members of our society are trying to get rid of redundancy — which is something I can’t support and will not support,” he affirmed.

Valentine stressed that he welcomed the introduction of an unemployment insurance scheme, but said it should be seen as something to enhance redundancy payments rather than replace it.

“It is something the trade union movement will not give up, no matter who is in Government. It will not be an easy one, so if anyone is thinking of a replacement, it must enhance the package that is there. But it is not fully understood what the insurance scheme will be as yet,” he said firmly.

Valentine stressed to the Caribbean Business Report that he would need to see clearly what is being offered before making a decision, as there are aspects that need to be reviewed and clarified, especially since redundancy payment is a legacy item.

“I don’t see the fine print of the requirements of the insurance, but from what I’ve heard, it doesn’t suffice. In my view, the redundancy formula should stay, and then we can introduce unemployment insurance,” added Valentine.

St Patrice Ennis, president of the Jamaica Confederation of Trade Unions (JCTU), an umbrella group consisting of 11 trade unions, shares his views, stressing that an unemployment insurance scheme and redundancy payments are two distinct matters.

“We see unemployment insurance as something that for many people would be for a…finite period. We view that as a stop gap measure in order to assist the worker in tiding them over until he or she finds new employment. Redundancy is not the same. I think we are conflating two different things,” Ennis told the Caribbean Business Report.

Ennis points out that redundancy compensation is not only paid to employers who are being separated from a company for economic reasons, but also those separate for medical reasons, which means that, depending on the medical issue, some people who receive redundancy payments may not be able to re-enter the job market.

However, both King and Chen argued that redundancy payments and unemployment insurance serve the same purpose — providing income to those laid off o help tide them over until they secure a new job— and that there’s no need to address the same issue twice by having both systems in place.

“You don’t want the person to end up with more income for being laid off than they had while working,” King remarked.

Chen had similar sentiments.

“There’s no principled reason for that [co-existing systems]. You don’t want to have two bites of the cherry. While they may co-exist temporarily, and may be included in individual employment contracts, it’s unjust to ask employers to pay redundancy and then turn around and pay for unemployment insurance,” Chen stated strongly.

Still, not dismissing the concerns about the burden that redundancy payments place on small and medium-sized enterprises, Ennis asserted that the issue has been discussed before and that there was widespread advocacy in the past for the establishment of a pool of funds to handle redundancy situations. But he said that proposal was knocked by members of the private sector who said it was tantamount to asking them to pay for the inefficiencies of other private sector companies.

For Chen though, the hope is that the best system will be developed for Jamaica.

“The Government, employers, and unions must sit down and work out what is equitable and what allows our workforce to remain competitive and productive,” said Chen.

Once implemented, Jamaica would join countries like Barbados and The Bahamas with such a structure for social stability. In Barbados, an unemployed persons is paid an unemployment insurance equivalent to 60 per cent of their average weekly wages for up to six months, while in The Bahamas, the payment amounts to 50 per cent of average wages and is paid for three months.