When the China Times Express folded in November 2005, sports reporter Wang Wen and several colleagues who hadn't already lined up other jobs began receiving unemployment payments. The monthly payments of NT$25,000 were enough for Wang, a divorcee in his 40s, to make it through the next six months comfortably. Having spent his entire adult life working, he found his period of unemployment refreshing and felt no desire to rush into a new job. When his benefits ran out, he elected to become a freelance journalist rather than return to full-time work.

These days, more and more people are worried about losing their jobs. But many remain unprotected by the employment insurance system implemented in 2003.

Higher rates of worry

In a recent survey on unemployment fears conducted by the China Times jobs website, 50% of respondents indicated that they had experienced unemployment, 75% worried about losing their jobs, and 76% feared that at some time in the future they would become "migrant labor" in China or elsewhere abroad.

The government responded to skyrocketing worries about job loss in January 2003 by implementing an employment insurance program. This step came long after the start of similar programs in Europe and the Americas--e.g. 1911 in the UK, 1919 in Italy, 1927 in Germany, and 1935 in the US.

The reason for this late beginning may well be because Taiwan has tended historically to have low rates of unemployment. In 1999, the average unemployment rate among Organization for Economic Cooperation and Development members was 6.5%. In contrast, Taiwan's rate was under 2% in 1995 and had been at that level for many years. Though it began to rise in 1996, and rose still more in 1998 as a result of the East Asian Financial Crisis, it peaked at only 5.17% in 2002 and was 3.79% as of January of this year.

When Taiwan decided to establish an employment insurance system to better maintain social security and guarantee the basic needs of unemployed laborers, it evaluated the approach used by South Korea, which in 1999 added unemployment benefit payments to its labor insurance system. Taiwan drafted its own Employment Insurance Act in 2002, combining three elements--job-placement services, job training, and unemployment payments--into a comprehensive employment security system, and implemented the system at the start of 2003.

Unemployment benefit payments provide those who lose their jobs involuntarily with the means to get by while they seek new work. The benefit lasts for a maximum of six months during any period of unemployment.

Seeking help

According to Meng Ai-lun, director of the Department of Labor Insurance of the Council of Labor Affairs (CLA), Employment Insurance is compulsory-- workers between the ages of 15 and 60 to whom the Labor Standards Act (LSA) applies are automatically enrolled. (The LSA regulates employment conditions but does not apply to various sectors, such as civil servants.) People over 60 are automatically removed from the employment insurance rolls. Workers who lose their jobs involuntarily after having been employed for at least one year are eligible for benefits. Those who lose their jobs and wish to claim benefits are required to register with a public-sector job-placement organization. They begin to receive unemployment payments after 14 days if they have not yet found a new job and have not arranged job training.

These payments amount to 60% of the worker's average monthly salary during the six months preceding the loss of his or her job. (The salary cap for premiums is NT$43,900 per month, making the maximum payout NT$26,340 per month.) The payments extend for a maximum of six months from the date on which the worker became unemployed. As an incentive for workers to seek new employment, those who find new work within six months receive a lump sum equal to 50% of any benefits as yet unpaid.

Meanwhile, those who choose job training from the government receive a stipend for six months, again equal to 60% of their average monthly salary for the six months preceding the loss of their job. The government also pays the National Health Insurance premiums of unemployed workers and their dependents.

How many people collect unemployment payments? / source: CLA

What about the self-employed?

Some 8.66 million workers currently participate in Taiwan's Labor Insurance system, 5.44 million of whom come under the umbrella of the Employment Insurance program. But does the program actually meet their needs?

"The typical worker has no say in determining what the insurance covers and can only demand that the government and the unemployed make effective use of these precious public resources," says Lai Hsiang-ling, chairman of the Committee for Action for Labor Legislation. "The insured had no say at all in establishing the terms and limitations of the insurance. We believe that's unfair to workers."

First of all, not all workers come under the law's umbrella. It targets only 5,447,000 "employed" while excluding more than 1,438,000 self-employed persons (i.e. freelancers, etc.).

Meng explains that the self-employed are excluded because it is extremely difficult to determine whether they have become unemployed. But Wang Huei-ling, an associate professor in the Institute for Labor Research at National Chengchi University (NCCU), notes that self-employed workers give up their work during economic downturns when they feel their income is not commensurate with the amount of effort they expend or when they cannot cover their own business costs. She argues that this also constitutes unemployment. In her view, the self-employed should not be excluded from the employment insurance system because they too are at risk of losing their livelihoods.

Age and gender distribution of unemployment benefit recipients, 2005 / source: CLA, DGBAS

Moral hazard

But even supposing a worker is fortunate enough to be included in the system, she or he must still be involuntarily terminated to receive benefits.

In 2005, for example, only 57,487 of Taiwan's more than 400,000 unemployed met the program's criteria--involuntarily terminated, unemployed for less than two years, willing to work, and registered with a job-placement organization--and received benefits. (Only 59,094 applied.)

Wang says that the Employment Insurance Act's use of the reason for a worker's loss of employment to determine whether or not that worker receives benefits is not typical of the unemployment insurance systems in other nations.

"If it's insurance, you shouldn't be making too many moral judgments," says Wang. Given the underlying premise of insurance, she argues, you should offer unemployment payments to workers regardless of why they are out of work. Whether they were fired or quit because they simply couldn't continue doing their jobs is irrelevant.

For example, how can you demand that workers at a company on the verge of collapse stay on until the bitter end? Such a demand places tremendous limitations on workers' freedom to work. Workers who leave of their own accord get neither severance pay from the company nor unemployment payments from the government. Even workers who stay are rolling the dice--in the end, they too may end up without severance pay when the company collapses.

Meng explains that the reason for restricting unemployment payments to those who have been involuntarily terminated is to limit moral hazard--to prevent people from gaming the system by repeatedly quitting their jobs.

But even this involuntary termination clause does not eliminate moral hazard. Under the current rules, workers need only make a deal with their bosses to receive verification of their involuntary termination and thus be able to claim unemployment payments. Most bosses would be willing to cooperate.

Job training is an important part of getting people back to work. The photo shows an electrical wiring course being conducted at the Bureau of Employment and Vocational Training's Northern Vocational Training Center in Wuku, Taipei County.

No help for older workers

The payments offered by the Employment Insurance Act reach a broader group than the former job-loss payments under the 1999 Labor Insurance Act because the new system includes workers at businesses with four or fewer employees. Labor Insurance's limitations on payments within a certain period, as well as on total payments--workers could not receive more than six months of unemployment payments over five years, 12 months over ten years, and 16 months over their lifetimes--have also been eliminated. But this change is seen by some as unfairly favoring younger workers.

Under the new system, every time a worker receives six months of unemployment payments, she or he must again obtain employment and work for at least one full year before becoming again eligible. While this criterion might encourage young people to make a habit of unemployment by working a year then taking six months off, it represents a serious obstacle to workers in their middle and later years who have lost their jobs and for whom the reemployment rate is lowest.

A CLA survey tracking the results of job searches by unemployed workers shows a positive correlation between the number of days required to find a new job and the age of the worker. Workers under 24 required an average of 119 days to find a new job. Workers over the age of 50 required an average of 222 days, or nearly double the time of the younger workers. Given that older workers have much more difficulty regaining employment, they are of course much less likely to find a job, lose it and claim benefits again.

While we don't know yet whether the fear that young people will take advantage of the employment insurance system by becoming habitually unemployed is justified (the CLA has not yet assembled data on repeat claimants of unemployment), the age breakdown of those who applied for unemployment payments in 2005 (see graph), suggests otherwise. It shows that 25-49-year-olds comprised the largest group of claimants with 47,000 applicants (82% of the total). This amounts to a reasonable 17% of this age group's total of 270,000 unemployed.

In contrast, though 15-24 year olds have the highest rate of unemployment of any of the age groups (currently about 112,000 persons, or 9.19%), they have the lowest rate of applying for unemployment benefits (3,108 persons, or less than 2.8%). This may be because young people have little difficulty finding new jobs, and have relatively little need for unemployment payments.

The data also show that men outnumbered women at a rate of about 1.5:1 (259,000:169,000) among 2005's 428,000 unemployed, but were much less likely to apply for benefits. In fact, the number of men amounted to only 70% of the number of women applying for benefits. The CLA believes that there are two reasons for this. First, men still tend to be the main breadwinners in the family, and therefore tend to be aggressive in their search for new work. Women, on the other hand, tend to take the more passive approach of first applying for benefits and resting for a while before looking for another job. Second, men have less difficulty finding new work.

Unemployment isn't the exclusive domain of laborers. White-hot competition in the job market means that people in every industry and every profession have a shot at being out of work.

Getting rained on anyway?

Simply put, the Employment Insurance Act's protective umbrella is too small for these workers, and may provide no protection at all in stormy weather.

Lai Hsiang-ling says that unemployment payments at most provide only temporary supplemental income. Those experiencing "structural unemployment," whose original job categories no longer exist and who must spend far longer looking for new work, are going to face hard times.

"The current system of making payments based on salary-linked contributions is consistent neither with the principle of the haves supplementing the have-nots," says Lai, "nor with the principle of providing assistance to the disadvantaged." According to Lai, most of those who are able to get by on the unemployment payments either have a bit of money put away, earned a lot when employed, or are young singles without families to support. People who earn only NT$20,000-plus when working don't make enough to live on to begin with, and she wonders how they are supposed to make ends meet on 60% of that.

But there is another perspective. "It isn't reasonable to extend the duration or increase the amount of payments, and it doesn't help much," argues the CLA's Meng. He says that research shows that the longer people are out of work, the less likely they are to return to the working world. The purpose of employment insurance is to encourage people to work. Given that it seeks to avoid creating a sense of dependency among the unemployed, he feels that the 60% of salary and a six-month time limit on subsidies to those in job training and on payments to those who aren't are reasonable.

Meng stresses that the unemployment payments constitute emergency assistance; the real objective is to assist people in finding new jobs. For that reason, the law allocates 10% of the employment insurance premiums to job training for employed and displaced workers.

For example, the upgrading and transformation of traditional manufacturers is creating a demand for new skills. To meet that demand, the law provides training subsidies for currently employed workers of NT$30,000 over three years. Any employed worker who participates in the Employment Insurance system can apply for this training subsidy.

The goal: encouraging employment

NCCU's Wang Huei-ling agrees, saying that the three parts of the employment security system--job training, job-seeking assistance, and unemployment insurance--are tightly connected both conceptually and in the system's design. Unemployment payments are only the remedy of last resort; the system's main focus is on job training and job-placement assistance. But with the first two functions still being perfected, the unemployment payments have lost their original intention and function.

According to the CLA's Bureau of Employment and Vocational Training, even with the inducement of a six-month living expenses subsidy for those in job training, only 25,000 people participated in the program from its inception in 2003 through the end of 2006, far fewer than the 168,000 who received unemployment payments.

According to a survey, 68.47% of those who were unwilling to participate in job training believed that it would not guarantee that they found a job. An additional 22.15% said that no training was available in a suitable job category. In other words, the varieties of job training on offer didn't match those demanded by the market, with the result that most who completed training programs were unable to use what they had learned to quickly transition into work. Still other respondents had no time to participate in training because they were working part time in addition to receiving unemployment payments, a practice which is legal as long as their income doesn't surpass a mandated threshold.

The system's job placement program has also had a low rate of success in matching jobseekers with jobs. According to the CLA, fewer than 30% of displaced workers find new jobs. And, to date, only 39,000 persons, or 16% of the unemployed who have registered with the system, have found work through public job-placement organizations.

Although the number of openings at companies has long exceeded the number of job seekers in Taiwan, there has been a mismatch between the opportunities offered by employers and the interests and skills of jobseekers. Consequently, the unemployed remain unemployed and the jobs remain unfilled.

Do benefits cause laziness?

Unemployment insurance is most maligned for its supposed fostering of laziness and negative impact on people's willingness to find work. Numerous studies abroad have shown a negative impact on labor markets--specifically, a decline in workers' willingness to work--following the implementation of an unemployment insurance system. They have also shown that the longer the term of the unemployment payments, the longer unemployment lasts. How does Taiwan compare?

In the 1970s and 1980s, Taiwanese workers who lost their jobs had an average period of unemployment of less than 20 weeks. With the institution of unemployment payments under the Labor Insurance system in 1999, this period began to rise. But when the Employment Insurance system was implemented in 2003, the unemployment period began to decline, dropping from 2003's average of 30.54 weeks to January 2007's average of 25.1 weeks.

The actual data also do little to support the concern that unemployment payments lead to an excess of people making unemployment claims and thus bankrupt the system.

From the system's institution in 2003 through the end of 2006, a total of 168,178 people received unemployment payments totaling NT$18.5 billion. An additional 50,000 job-training stipend payments were made, totaling NT$840 million. Some 56,000 early reemployment bonuses were paid, totaling NT$2.11 billion. The system also paid out 1.02 million National Health Insurance premiums in an amount totaling NT$570 million.

"These results are far better than were anticipated," says Meng. He explains that they had expected many more people to apply and had therefore set the premiums at 1% of the Labor Insurance premium. So far, the actual payouts have been equivalent to a premium of only about 0.4%, leaving a significant surplus.

Does this mean that the program has been insufficiently publicized and people are unaware of how to apply for benefits? Does it mean that the payments available are so paltry that the public is simply not interested? Or does it mean that adequate precautions have been taken against moral hazard? We'll have to wait and see.