Unemployment Insurance: Coming Soon

The rapid transformation of the labor market is presenting employees in Taiwan with unprecedented challenges. The good old days of virtual full employment are gone forever. "Unemployment rates of 2.5-3% will become commonplace," says a report from the Council for Economic Planning and Development.

When people are made unemployed, drawing benefit should not become their main goal in life. Retraining and returning to the labor market as soon as possible is the only real solution. Our picture shows a technical drawing class at the Employment and Vocational Training Administration's North Taiwan training center. （photo by Pu Hua chih）

Appropriately, moves to introduce unemployment insurance are now under way. What does the plan contain? And how will it help members of the workforce?

On May Day this year, ROC Premier Vincent Siew made three promises to Taiwan's workforce. The first was that the statutory working week would be reduced from 48 to 44 hours; the second, that the Council of Labor Affairs (CLA) would be upgraded to a Ministry of Labor. Both these moves depend on approval from the Legislative Yuan, so we will have to wait and see whether these promises can be kept. But the third-a clear declaration that "an unemployment insurance system will be introduced in the second half of this year"-had workers jumping for joy.

One out of work hurts the whole family

The ROC's domestic economy has never fully recovered from the stock market crash of 1990, and since then the most feared symptom of economic slowdown-unemployment-has gradually begun to appear. In the second half of 1995, the unemployment rate began to rise appreciably, and in August 1996 hit almost 3.2%, the highest level in over a decade. Over the past six months or so, with various efforts from the government, the jobless rate has gradually fallen, but average unemployment for 1997 as a whole was still more than 2.7%, also a 12-year high.

What makes the present wave of unemployment more worrying than previous peaks is that it mainly affects middle-aged to older workers. Anita Liu, director of the Manpower Planning Department at the Council for Economic Planning and Development (CEPD), observes that people aged between 40 and 55 are at the zenith of their physical and mental powers, and their skills and incomes are at their peak. Their family financial responsibilities are also at their heaviest. Workers in this age group have always formed a highly stable segment of the labor market, but in the last three years unemployment among them has "gone up and up." For instance, for the 45-49 age group, the number out of work had stayed below 1% for years, but in 1996 it suddenly almost doubled, and last year reached a new peak of 1.6%! (See Table.)

Furthermore, middle-aged to older employees are the so-called "sandwich generation": above them they have their elderly parents to support, and below them their adolescent children who will soon want to go to college. They are the breadwinners for the whole family, so if they lose their jobs it strikes at the very fabric of society. This is of far greater consequence than the long-standing high levels of unemployment among young people under 24.

At present, the government already provides various kinds of help for people put out of work by factory closures and company failures, such as new-job bonuses (unemployed workers who find new jobs and stay in them for six consecutive months can collect a "bonus" of NT$10,000 per month for six months) and new-job loans (up to NT$1 million, repayable over five years). But with unemployment rates climbing, the strain on these forms of assistance is too great, and there is an urgent need for support from the social insurance system.

Unwilling saviors

In fact, unemployment insurance is nothing new. In the appendices to the Labor Insurance Act, which came into force in 1958, there is the explicit provision: "Premiums, place and time of implementation and rules for unemployment insurance shall be determined by ordinance of the Executive Yuan." But all these years the Executive Yuan, hidebound by such myths as: "Unemployment insurance would lead the state into financial ruin-we can't go down the same disastrous road as the welfare states of the West," or, "How could a healthy person not find a job? Only loafers become unemployed," was unwilling to put an unemployment insurance system into place.

But today, with the tide of unemployment rising, the provision which for decades has been nothing but an empty paragraph is finally being pressed into service. The plan at the moment is to hive off 1% from the current Labor Insurance contribution of 6.5% of salary to provide unemployment insurance.

"When Labor Insurance still included employed people's medical insurance, and was heavily in deficit, Labor Insurance contributions were set at 7.5%. Later, when the National Health Insurance scheme came in, it took another 4.5%, but Labor Insurance contributions only went down by one percentage point. "After a few years of well-nourished recuperation, Labor Insurance is in much better financial health and can take on board unemployment insurance," explains CLA chairman Chan Huo-sheng.

Under the design currently envisaged, people who are recognized as unemployed will be able to apply for unemployment benefit and receive monthly payments in the amount of half the average monthly salary on which Labor Insurance contributions were paid in the six months prior to their employment ending.

It is worth noting that to reduce their burden of insurance contributions, employers in Taiwan habitually under-report their employees' salaries. On average, only 65% of total salary is reported. On this basis we can calculate that a worker with a monthly salary of NT$30,000 might actually only collect unemployment benefit of NT$10,000.

As to the period over which unemployment benefit is paid, the current regulations define three categories. The first is workers who have participated in the unemployment insurance scheme for between one and five years: in any period of unemployment they can collect a maximum of three months' benefit, and however many times they are unemployed during the first five years, they cannot collect more than six months' benefit in total. The second category is workers who have participated for between five and 10 years: for each period of unemployment they can collect six months' benefit, but only up to a maximum of 12 months' benefit within the 10 years. The final category is those who have participated for more than 10 years: they can collect up to eight months' benefit in each period of unemployment, up to a maximum of 16 months throughout their working lives.

A leaky umbrella

Unemployment insurance is to be tacked onto the Labor Insurance scheme, but unfortunately the Labor Insurance umbrella does not cover the employees of small firms (the regulations only require enterprises employing five people or more to register their employees for Labor Insurance; other employed people can join the scheme, but at their own expense). This is very unfair on the many employees who are still not covered by Labor Insurance. A bill to amend the Labor Insurance Act is currently before the Legislative Yuan, and legislators have reached a consensus that the scheme should be extended to cover all working people, on a compulsory basis. But the bill has been held up in the legislature for four years. When will it finally be passed? This will still require some effort from both government and opposition legislators.

Workers not covered by Labor Insurance are eager to be included in the scheme, but those who are already covered will not necessarily be eligible for unemployment insurance protection as a matter of course.

"As a kind of social insurance, unemployment insurance has to cover its own costs, and therefore to ensure that the scheme is put on a sound financial footing, in the initial period it will be subject to two restrictions," says Hsin Ping-lung, an associate research fellow at the Chung-Hua Institution for Economic Research, who was involved in the planning of the new system. He explains that the first restriction is that insured workers will not be eligible for unemployment benefit until they have paid contributions for a full year. In other words, even assuming the scheme gets under way in July of this year as planned, no payments will be made until July 1999. The second restriction is that workers whose employer cannot be "identified" will not be covered.

This second limitation means that some 2.6 million "workers with no fixed employer" and self-employed people will be excluded from the unemployment insurance system. Their loss will be compensated by their being excused from paying the 1% of Labor Insurance contributions earmarked for unemployment insurance, and they will continue to be eligible for the existing assistance such as vocational training and new-job bonuses and loans. CLA chairman Chan Huo-sheng also promises that in the future, unemployment insurance will be gradually extended to cover these workers. Nonetheless, they have expressed intense anxiety and discontent.

No right to be unemployed

"We don't want to be refunded that 1%, we want unemployment cover the same as anyone else!" says one worker who is a member of a catering trade union.

However, Anita Liu comments that such demands cannot reasonably be met. "How can you determine that someone without a regular employer, or who works for him or herself-like a taxi driver, a hairdresser working in her own home, or the owner of a snack bar or small shop-has not become unemployed voluntarily?" she asks.

One thing that is particularly regrettable is that because workers with no fixed employer who are members of labor unions can enjoy a substantial government subsidy on their Labor Insurance and National Health Insurance contributions (for instance, for ordinary employees the government pays 10% of ordinary Labor Insurance contributions, but for workers with no fixed employer it pays 40%), some unscrupulous employers take advantage of this legal loophole to evade paying employer's contributions, by demanding that their employees join unions as workers without a fixed employer. This practice is especially widespread among large beauty parlor and hairdressing salon chains, and in the catering trade. Hence Anita Liu urges these workers to protect their own rights by putting pressure on their employers, to "force" them to accept their legal responsibilities.

Will unemployment insurance make people in Taiwan lazy? With the setup currently envisaged, this hardly seems likely, for the first condition for receiving benefit is becoming unemployed "not voluntarily"-such as when a factory closes, a company ceases trading, or a firm retrenches its operations and makes workers redundant. Furthermore, this has to be confirmed by the employer. In other words, those who leave a job of their own accord because they are "not satisfied" with it-currently the most commonly stated reason for becoming unemployed-will not be eligible for unemployment benefit!

The unemployment insurance system is being introduced with great caution at every step, in an effort to prevent people "living off the dole" and thereby creating still greater social injustice and wasting resources. This approach is understandable, but Hsin Ping-lung cannot conceal his concern: "We must get unemployment insurance up and running before Taiwan accedes to the WTO. Otherwise, if large-scale structural unemployment appears, there will be great pressure to throw open unemployment benefit to all and sundry, and the basic principle of social insurance being self-financing will be abandoned. However this is resolved-whether by increasing contributions or through state subsidies-the consequences will be serious."

Stand up and be counted

From the point of view of the social security system, unemployment insurance also has another major role to play: it is hoped it will serve as "bait" to bring the "hidden" unemployed out of the shadows, so that they can make their needs heard and receive guidance and training from the government.

Hsin Ping-lung observes that in advanced countries the employment security system comprises three major segments: unemployment insurance, employment counseling and vocational training. But in a large-scale survey in Taiwan, many people preferred to say they were "not in a hurry to find work" rather than admit to being unemployed. This leads to the bizarre situation of "a large percentage of people without work, but very low unemployment figures." The introduction of unemployment insurance should enable the government to get a better handle on the nation's employment situation, and to better tailor employment counseling and vocational training to society's real needs.

"Someone interested in learning computing can study it free of charge, and someone who wants to be a nurse's aid can learn the skills involved. This not only increases unemployed people's chances of earning a living and helps entrepreneurs find suitable labor; the appropriate use of human resources is also the greatest force for national development," says Hsin Ping-lung.

The bottom line is that unemployment insurance is "help in an emergency, not a panacea for poverty," and that "giving someone a fish to eat is not as good as giving them a fishing rod." The greatest hope behind unemployment insurance is that unemployed people will be able re-enter the labor market in the shortest possible time.

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Casual work in the construction industry is a major source of employment for Taiwanese aboriginals, but workers with "no fixed employer" are initially to be excluded from the unemployment insurance scheme. This has caused much controversy. (photo by Hsueh Chi-kuang)

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When people are made unemployed, drawing benefit should not become their main goal in life. Retraining and returning to the labor market as soon as possible is the only real solution. Our picture shows a technical drawing class at the Employment and Vocational Training Administration's North Taiwan training center. (photo by Pu Hua-chih)