The concept of an unemployment benefit

By Elvin Bailey

Let me start with what it is not. An Unemployment Benefit is not a payment for sitting idle. There will be qualifying conditions. Those conditions could be similar to that for sickness benefit (26 continuous contributions, with 8 of the last 13 contributions being fully paid up) or like Invalidity benefit which requires a minimum of 150 contributions. In Barbados which is the first Caribbean nation that paid such a benefit (since 1982), in order to qualify, workers must have 52 contributions (1 year) paid into the system, with at least seven contributions paid in the quarter immediately preceding the quarter in which the UB is claimed.  We will be looking at places with the experience in order to fashion ours.

Barbados started cautiously: the benefit was initially payable for 13 weeks and at 40% replacement and then later moved to a 26 week payment and at 60% wage replacement. There is also a cap on the amount of money payable per unit of time.  Bahamas is the second nation to have such a benefit, having started in April 2009.

There are exclusions in Barbados. Self employed persons are not covered, nor are Established workers, although temporary [Non-established?] workers are covered. Workers who are fired as a result of his/her own negligence are still be entitled to the benefit, but with a penalty.

An integral part of an UB is that the beneficiary must be actively seeking work. He or she must therefore be registered with an employment agency and must be willing to accept the work that is available. The debate is whether that person is qualified for the work and whether the work is appropriate. Should an architect be sent to be a sous chef?
The applicant’s right of refusal is always an option, but refusal to accept any particular posting may have an impact on the continuing eligibility to access the benefit.

Here is a new term: butterflying. That is, moving from job to job in quick succession. We expect persons to show loyalty and longevity in the workplace. Not so long ago, we talked of 25+ year service in the same industry. While we do not necessarily expect this type of service top hold, we still expect that persons will change jobs, on average evry 5 years. And so, we expect that an IP would have to build up 250 contributions after being unemployed in order to qualify for another Unemployment Benefit. In other words, butterflying is discouraged!  Indeed, some metropolitan countries do not allow payment to persons who have quit the job. 

It is also possible that qualifying conditions may apply afresh after each payment of Unemployment Benefit.

Retraining and re-tooling must also be considered, and this is particularly important in this changing world of work. This concept feeds into that of life-long learning; unfortunately we are not too keen on returning to school until and unless we migrate. Therefore, it will not be acceptable to state that one is unqualified for the job market and continue to draw money: the applicant will be required to enroll in training that equips them top compete in today’s Caribbean Single Market.  

Evidence suggests that the old adage of last in first out no longer holds.  What is emerging is that long-serving workers - who are higher paid workers - are being released in order to improve the bottom line. The prospects for these older hands in today’s job market are generally bleak, unless they can employ themselves. This scenario is becoming evident in St Kitts and Nevis as some companies (who shall remain nameless) try to remain competitive. Could this, in part, explain why we have seen an upsurge in Self employed registration within recent times?

The justification for an Unemployment Benefit is essentially that bills do not disappear with unemployment.  The mortgage and the education loan for the children still have to be paid as well as the bills associated with living. It creates breathing space after the shock of losing the job. Besides, there is an increasingly moral argument that it is improper to watch an insured person suffer hardship while waiting to earn a pension; and while funds are being held in trust. That is not to say, however, that the rate and quality of pension will be affected by the UB, neither is it to say that it will not.

This raises the issue of financing of the benefit. It bears repeating that there are no free lunches and that many of these programmes are only free with your paid subscription. Can any amount from the proposed 3% increase in contributions be assigned to finance the UB or should there be an additional amount? Barbados charges 3% of payroll to fund its system. With this and NHI, maybe the mandatory deductions could be rounded off at 10% (excluding levy). The introduction of an Unemployment Benefit will necessitate the repeal or at least revision of the Severance legislation. You cannot eat your cake and have it still.

Finally, a definition: an unemployed person, for the purposes of this benefit, is a person younger than 62 years and who, immediately prior to his application, was employed and has made a certain number of contributions to the Unemployment benefit fund within the past 3 months. He is neither sick nor disabled nor an invalid person, nor is he a retired person, in receipt of a pension, either form here or abroad. He may be in receipt of returns on investment such as shares, house rent etc., but he may be subject to a means test.

Go ahead now, discuss.

(data on Barbados’ Unemployment Benefit  was obtained from a paper by Derek Osborne, Actuary)