Redundancy Insurance

ADJOURNMENT MOTION

The Government Whip (Mr Chan Chun Sing): Mr Deputy Speaker, Sir, I beg to move, "That Parliament do now adjourn."

Question proposed.

Redundancy Insurance

6.11 pm

Assoc Prof Daniel Goh Pei Siong (Non-Constituency Member): Deputy Speaker, Sir, the Workers' Party (WP) has mooted the idea of a redundancy insurance scheme for some time now. We raised it in our manifestoes for the General Elections in 2011 and 2015, and the hon Member Ms Sylvia Lim raised it in the Budget Debate in 2016. The Party published a fleshed-out proposal in November last year, followed by a modest public consultation exercise to gather feedback. We are encouraged by the feedback, and thankful to members of the public for their invaluable contributions, which have highlighted the pros and cons of our redundancy insurance scheme proposal.

Let me first list three principles that underpin our proposed redundancy insurance scheme and then I will elaborate on each principle and discuss how it would translate into actual operation as a scheme.

The first principle is to generate risk-pooling to reduce the financial pressure on workers who are made redundant. The second principle is to reduce insecurity and worry among the vast majority of employed Singaporeans. The third principle is to complement the existing programmes targeting the retraining and re-employment of workers under the Adapt and Grow initiative.

The first principle is to establish a system of progressive risk-pooling to reduce the financial pressure that workers experience when they are made redundant. The risk of being made redundant increases with age, though we are now witnessing a greater proportion of younger workers being laid off. Nevertheless, older workers, particularly those aged 40 and above, tend to face a triple whammy, compared to younger workers. Older workers face a greater risk of being made redundant. They also face the intergenerational squeeze and have more bills to pay. Financial pressure points include children's education, support for elderly parents, as well as hefty mortgages and escalating healthcare costs. On top of these two factors, their prospects for re-employment have historically been worse than younger workers.

Growing old is a certainty in life and the younger workers would one day face the triple whammy their seniors face today. Thus, the important thing is to pool the uneven risk that is being felt across generations of workers in an equitable and progressive manner.

We propose that employees pay 0.05% of their monthly salary into an Employment Security Fund, which would be matched by employers. Based on the average wage, excluding Central Provident Fund (CPF) contributions in 2014, the proposed 0.1% would amount to an average monthly contribution of $3.80 per worker. If a worker is made redundant, he or she will receive a payout of 40% of his or her last drawn salary for up to six months. This payout would be subject to a cap of 40% of the prevailing monthly median wage of resident workers. Based on the 2014 median gross monthly income of $3,000, excluding employer CPF contributions, a worker would receive up to a monthly payout of $1,200 for six months.

We should also better protect our most vulnerable workers. We propose that the minimum payout would be $500 a month so as to benefit low-wage workers.

The objective here is to reduce the financial pressure felt by workers, especially older workers, when they are made redundant. As a supplement to cash savings, the redundancy insurance payouts would give affected workers some peace of mind to look for suitable employment or to retrain and acquire new skills to make themselves relevant again in the labour market. The intention here is to minimise the distraction of financial pressures so that affected workers would do what they should be doing in such a situation, that is, focus on getting the next job.

We should not subscribe to an either-or fallacy to downplay the usefulness of redundancy insurance. Some dismissals of redundancy insurance apply such a fallacy. Some have argued that redundancy insurance payouts would discourage workers from saving for rainy days. It is quite ridiculous to think that the maximum $7,200 payout that an affected worker stands to gain would discourage him or her from saving excess cash, especially in our thrifty culture. There is no evidence to suggest that the purchase of life insurance discourages Singaporeans from saving for their loved ones. Otherwise, why would the Government encourage lower-income Singaporeans to buy life insurance by providing for life insurance relief for personal income tax?

Another dismissal of redundancy insurance goes along the lines that there are already many Government programmes providing ample cash assistance to the needy. This is another either-or fallacy. Redundancy insurance payouts are not meant to replace the assistance provided to the needy. Most workers who are made redundant do not fall into the needy category and would not need cash assistance. This bears repeating. Redundancy insurance aims to reduce the financial pressure faced by affected workers and the resultant distractions caused by the pressure, so that workers can focus on getting their retraining and re-employment right.

Redundancy insurance helps affected workers to find re-employment in a timely manner so that they would not need to depend on Government cash assistance. In this sense, redundancy insurance is a preventive measure, helping affected workers to avoid the vicious poverty trap and to maintain their financial independence.

The second principle of the proposed redundancy insurance scheme is to reduce insecurity and worry among the vast majority of employed Singaporeans. As the trend of more young workers getting affected by redundancies indicates, no one is safe from the risk of redundancy anymore. Technological and economic disruptions, and increasing protectionist sentiments around the globe, also mean that no industry is immune to layoffs and workforce shakeups.

Redundancies reached 19,170 in 2016, the highest rate since the 2008/2009 global financial crisis. There is a new pattern emerging. During the financial crisis, redundancies peaked at the fourth quarter of 2008 and the first and second quarters of 2009 but quickly went back to the normal levels of 2,000-plus redundancies per quarter. In 2016, higher redundancies have become the new normal. We have not seen peaks but a plateau of 4,000-plus redundancies each quarter since the fourth quarter of 2015.

The first quarter of 2017 of estimated 4,800 redundancies suggest that the new normal of constant, high redundancies will continue. We are not experiencing the acute injury of an economic crisis, but the chronic pain of economic restructuring amidst global disruptions.

In this situation, all workers face massive insecurity and worry about their future. There are two areas where the insecurities are being felt: skills mismatch and fragmentation of employment. Redundancy insurance complements existing Government programmes to reduce the insecurity and worry.

The first area is skills mismatch, which has led to laid-off workers struggling to find re-employment. The net psychological effects are two-fold: increasing demoralisation among laid-off workers leading to more discouraged workers and fearful workers clinging to their jobs instead of actively seeking lifelong learning. Of course, the Government is keenly aware of this issue and has been rightly pouring resources into retraining and skills upgrading.

Redundancy insurance complements these existing efforts by providing laid-off workers with breathing space to retrain and upgrade their skills to match demand in the labour market. This is preferred to laid-off workers desperately signing on to the first job they could find, which could lead to long-term underemployment and worsen skills mismatch in the wider economy.

We propose that the subsequent redundancy insurance payouts after the first payout should be tied to the condition that the worker is either actively seeking a new job through the National Jobs Bank or is actively retraining himself through the various Government programmes. This will ensure that redundancy insurance complements the national movement to improve skills and to minimise skills mismatch in the economy. This will also counter the criticism that redundancy insurance would increase unemployment rates, which is highly unlikely in our proposal in the first place as the payout is deliberately kept at a conservative level and will not be a disincentive to re-employment.

The second area is the fragmentation of employment, which refers to the changing nature of work as more workers turn to freelancing and contract for service as their primary source of income. This is something that is beginning to be felt in Singapore, and Manpower Minister Lim Swee Say gave a speech on the gig economy at the Committee of Supply this year, in which he said that a tripartite workgroup is to study the issues faced by freelancers and to address them and to protect the well-being of freelancers with practical solutions. One of these issues is when contract workers are made redundant through the early termination of their contracts.

We propose that the redundancy insurance scheme also covers self-employed workers, and this would include entrepreneurs, in order to provide them with a safety net like employed workers. Self-employed workers will contribute 0.1% of their self-declared income to the scheme. Self-employed individuals will receive a payout of 40% of their average last drawn income for the previous six months subject to the same median wage cap should they become unable to earn an income due to the involuntary winding up of their businesses or termination of contract for service, capped at one series of payouts every three years.

One argument against redundancy insurance is that it will inadvertently increase insecurity by making employers more willing to retrench workers or give less retrenchment benefits. But these moral hazard criticisms are only valid if employers operate in an unregulated and demoralised environment. I find it strange the idea that employers would push workers off their buildings knowing that there is a safety net below to catch the workers. This is to suggest that after so many decades of tripartite partnership, union representations and Government promotion of workers' rights, our moral economy of stable industrial relations is going to be undermined by a mere social insurance programme.

The third principle of the proposed redundancy insurance scheme is to complement the existing programmes under the Government's Adapt and Grow initiative. As I have mentioned repeatedly, the proposed redundancy insurance scheme does not displace or replace existing programmes to help our unemployed workers and jobseekers but seeks to complement existing programmes. To think otherwise is to subscribe to the either-or fallacy: choose either the WP's redundancy insurance scheme or the Government's Adapt and Grow programmes. This is a false choice.

Some commentators have framed the false choice as such: redundancy insurance is paid for by the workers themselves and the Adapt and Grow programmes by the Government. Of course, the latter is better. This is another either-or fallacy that encourages an entitlement mentality. It runs against this Government's oft-stated principle of fostering resilient independence among our citizens and discouraging dependence on Government welfare schemes.

In fact, I do not only see the redundancy insurance scheme as complementing Adapt and Grow. I see it as a very good candidate to become part of the Adapt and Grow suite of programmes to help Singaporean workers retrain and get re-employed. How is this so? And what gap can the redundancy insurance scheme plug?

The Adapt and Grow initiatives can provide excellent assistance for workers who are laid off. If they sign up with Workforce Singapore (WSG) to try out new jobs or training attachments in specific sectors, rank-and-file workers and professionals, managers, executives and technicians (PMETs), will receive allowances from the Government. For senior PMETs who are made redundant or unemployed for six months or more, they could turn to the Career Support Programme which offers salary, training and placement support.

But these programmes work only if laid-off workers decide to turn to the Government for help in the first place. After many decades of cultivating a resilient and independent workforce, turning to the Government for immediate assistance on labour market endeavours after losing one's job is a foreign concept for Singaporean workers. In fact, it is a good thing that our workers are a resilient and independent bunch and prefer to try to look for a job on their own first before turning to the Government for help.

I do not think the Government disagrees with me on this, as the Career Support Programme policy for junior PMETs remain one of extending aid only if the workers have been unemployed for six months or more, regardless of whether they were made redundant. In other words, laid-off PMETs below 40 years of age are expected to seek re-employment on their own for six months before they can receive Government assistance.

This also implies that the six months after being laid off is a crucial period where the independence and resourcefulness of our workers are applied to finding a new job before the risk of discouragement starts to escalate. The labour market, when properly structured and regulated, should be left to its own devices to sort out supply and demand matching, but market failures should also be addressed, especially if market failures could lead to the discouragement of our workers. Six months seem to be the natural and reasonable period for laid-off workers to sort themselves out with the market, before they turn to the Government for assistance. But for them to do so, they need to be focused on the task and not be distracted by the strain on their finances. This is where the payouts from redundancy insurance would help.

In this sense then, the proposed redundancy insurance scheme would fit into the Adapt and Grow initiative. It provides a safety net for all laid-off workers, regardless of whether they choose immediate Government assistance or not. It encourages workers to exercise their independence and resourcefulness to sort out their employment situation in the labour marketplace first and, failing which, then they can turn to Government assistance with the dignity of knowing that they have tried.

Another benefit of the redundancy insurance scheme is that it cultivates a strong social consciousness among Singaporean workers, promoting a sense of solidarity among them across skills levels, income groups and generations. Even as each worker seeks to compete effectively in the labour market to maximise one's own interests and earn the remuneration one meritoriously deserves, each would also know by way of the redundancy insurance that all Singaporean workers are looking out for one another in case anyone is felled by redundancies that no one could have predicted or prevented.

This is the promise of social insurance for our society made more vulnerable by the fragmentation of employment and global economic disruptions. And there is psychological defence knowing that we got one another's back as we sail the waters of global uncertainty.

Yet, another benefit of the redundancy insurance scheme is that when it is properly calibrated and launched in a timely manner, the Employment Security Fund would become self-sustainable in the long run and would cost the Government close to nothing.

Sir, the reason that WP is moving this Motion at this time is because a risk-pooling scheme requires a lead-time of sunny days for the pool to be built up for the rainy days. For redundancy insurance, sunny days are those years when redundancies stay relatively low and employment relatively high.

Given the Manpower Minister's ominous Labour Day warning that unemployment will rise in the near future as we go head long into economic restructuring amidst technological and social disruption, we believe the window of opportunity for implementing a redundancy insurance scheme is closing fast.

Many developed countries have established some form of redundancy insurance to ameliorate problems arising from their maturing economies. Many of these redundancy insurance policies share features with the one that we have proposed here. For example, redundancy insurance programmes in Canada, France, Germany, Japan and South Korea involve more or less equivalent contributions from employers and employees with little public expenditure. Programmes in Canada, France and South Korea also have the condition that affected workers are actively looking for work in order to receive the payouts.

I am not arguing that we should follow suit just because our peer economies are doing so. There are differences in circumstances, which is why our proposed scheme adapts the basic features of redundancy insurance to our situation. But there are similar issues that point to the usefulness of redundancy insurance in addressing the issues. As developed economies seek to boost labour productivity and innovation amidst technological disruption, structural unemployment will rise. In such a situation, redundancy insurance is useful as a safety net for affected workers and, I must emphasise, also serves as a trampoline for workers to reskill and find new career directions.

At this point, I would like to make the note that the topic of unemployment insurance is not a new topic in this House. More recently, hon Members, such as Ms Sylvia Lim, Ms Foo Mee Har, Mr Patrick Tay and Mr Azmoon Ahmad, have brought up the idea in one form or another. What I have offered here is the synopsis of the fleshed-out proposal that was published by WP in November last year and additional arguments highlighting the benefits of the proposal. The scheme proposed here is not any unemployment insurance scheme but a targeted redundancy insurance scheme that takes the local situation, workforce culture and existing Government programmes into account.

Mr Patrick Tay had said in the Debate on the President's Address in January last year that unemployment insurance merits closer study and scrutiny. Mr Deputy Speaker, Sir, we have here a proposal that I hope the Government would see fit to study and scrutinise and not dismiss lightly.

Mr Deputy Speaker: Minister Josephine Teo.

6.25 pm

The Minister, Prime Minister's Office and Second Minister for Foreign Affairs and Manpower (Mrs Josephine Teo): Mr Deputy Speaker, Sir, when I was serving in the Labour Movement, we always said that a job is the best welfare and full employment is the best protection for our workers. That is why the priority has always been to help workers in jobs keep jobs and to help workers who lose their jobs find new jobs. It is also why the People's Action Party (PAP) Government has never taken its eye off job creation.

This approach has kept Singaporeans employed and unemployment low. However, as our economic situation changed, and restructuring became a necessity and a concern, we have built up many schemes to help workers who lose their jobs. This is something that Assoc Prof Daniel Goh has acknowledged.

Firstly, schemes to help them get new jobs, such as the Career Support Programme for PMETs, that gives up to $42,000 in salary support to help someone who loses a job find a new employer, or the Work Trial Programme for rank-and-file workers plus extensive subsidies to equip workers with skills for new jobs.

We also have schemes like ComCare and bursaries that provide short-term relief to Singaporeans while they are out of a job. There are many schemes but all with a single purpose − to get workers back at work, with new and useful skills, and to ease the transition and moderate the impact on their families.

We have not hesitated to give generous wage support and training subsidies, but always conditional on the worker making the effort by attending a training course or accepting a placement opportunity. This approach has worked. But, as the Prime Minister and Minister Lim Swee Say have pointed out, there is still a risk that, in future, our unemployment rate will rise beyond what we have been used to. What should our response be?

WP has proposed redundancy insurance. Unemployment insurance, including redundancy insurance, are not crazy ideas and neither are they new, as Assoc Prof Daniel Goh acknowledged.

Indeed, many developed countries have had some form of unemployment insurance for years. But their unemployment rates are generally significantly higher than ours. Many people in these countries can see themselves having to depend on payouts. As a result, their attitude is, "If we have to pay premiums, so be it".

Singapore today is not in the same position. We have focused our efforts on employment support through training and reskilling, with full support from employers and unions, which other countries find harder to do. Unemployment and redundancy insurance also have their downsides, which WP has not talked about.

The most serious downside with automatic insurance payouts is that it reduces the incentive to find work. In Denmark, studies have shown that while many jobless persons do get a job within the payout period, many more wait until just before the benefits expire to take on available jobs. In other words, the jobs are there but the unemployed workers delay taking them up. This is a real pity, because the longer a person stays out of a job, the harder it is to find work. As a result, long-term unemployment goes up.

A second downside is that redundancy insurance is actually not cheap. WP claims that we only need 0.1% of monthly salary, shared equally between employers and employees. However, this is too good to be true, even based on the Member's own research findings.

Using data the Member provided, just comparing countries with similar benefits, Canada's premium is 4.4%. The Republic of Korea needs 1.35%, which is at least 10 times the Member's estimate. That was back in 2013. Today, premiums in the Republic of Korea have risen to 2.2%.

WP has not explained what is so different about its proposal that costs so much less. If we make more realistic assumptions, the scheme is much more likely to cost at least 1% to 2% of wages, and then we have to consider how it will raise costs for employers. That worries me, especially for our small and medium enterprises (SMEs).

There are other questions to worry about. Will employers offset the premiums by paying their workers lower salaries? Will employers feel less obligation to retrain and retain, resulting in higher redundancies? Will employers be less willing to pay workers retrenchment benefits, since they have already paid the premiums for the redundancy?

Therefore, all things considered, we should persist with our present approach. Do everything possible to help displaced workers find replacement jobs and give the displaced workers every incentive to make the effort to help themselves. This is the right strategic approach and will go a long way.

Mr Deputy Speaker, during the global financial crisis, I served as a union leader. A few days before Chinese New Year in 2009, some 600 employees in one of our unionised companies were told they were being laid off.

The timing was cruel and the union had not been consulted. But we had to stay focused on helping the workers. We knew the workers were in for a tough time. It was the middle of the crisis. The International Labour Organization was projecting up to 50 million job losses worldwide.

Most of our members had only ever known one job their entire lives. Naturally, many of them were downcast. On the workers' last day, we arranged for special buses to take them immediately to the National Trades Union Congress' (NTUC's) Employment and Employability Institute (e2i). I went early to receive my brothers and sisters. We wanted them to know that the union would walk this journey together with them and they were not alone.

We briefed our members about the union's assistance package, e2i colleagues set up rows of interview counters for everyone who needed help. They could get face-to-face consultations and follow-up support on the spot. Most of our members found new jobs and continued to provide for their families. In subsequent Chinese New Years, we could still get together to tell stories of children and grandchildren doing well. My brothers and sisters have lost their old jobs. But through new jobs, they kept their livelihoods, and their dignity.

Whatever our political persuasion, we can all agree on the need for protection against unemployment. But how we do it is important, and the experience of other countries should give us caution.

If we get it wrong, we could end up with more long-term unemployment, more redundancy, lower retrenchment benefits, higher cost burden to businesses and, worst of all, a false sense of security for the workers. None of these is intended, of course, but it could happen.

We must try to do it right in Singapore. We have built up many schemes to help workers keep their jobs and help those who lose their jobs find new ones. We provide generous wage support, training subsidies and temporary relief. We grow the economy to create more good jobs.

The Government provides full funding for these programmes without putting the burden on our businesses. To guard against unemployment, we emphasise employment support because it is still the best way forward.

Even in tough times, Singaporeans want to feel the sense of dignity and pride that comes from standing on one's own feet. I saw it in 2009 in the eyes of my retrenched brothers and sisters whom we helped get new jobs. And today, each time a fellow Singaporean gets a new job through our employment support programmes, we see it again.

I urge Members not to get distracted. Let us stay focused on making our employment support programmes the best that they can be for all Singaporeans.

6.36 pm

Mr Deputy Speaker: Mr Patrick Tay, do you want to ask something? You have three minutes.

Mr Patrick Tay Teck Guan (West Coast): Yes. Mr Deputy Speaker, I have two clarification questions for Assoc Prof Daniel Goh.

Firstly, on behalf of my brothers and sisters in our unions who have fought very hard for retrenchment benefits, is Assoc Prof Daniel Goh suggesting that employers now need not pay any retrenchment benefits and rely on this redundancy insurance payout instead, since employers will be contributing to the premiums? Would having this suggested insurance not make it even harder for unions to negotiate for better and higher retrenchment packages?

Second, Assoc Prof Daniel Goh suggested insurance is for payout during redundancies, and not unemployment. As Director of Legal Services at NTUC, I have come across in these past 15 years, many cases of workers who are unemployed, not just because of redundancy but because of termination, job loss, job fit. And his proposal suggests that all these are excluded.

Mr Deputy Speaker: Assoc Prof Goh, you have two minutes.

Assoc Prof Daniel Goh Pei Siong: Okay. In response to Mr Patrick Tay, in no way am I suggesting that retrenchment benefits should be replaced. Again, this is the "either-or" fallacy that I have been speaking about. And I did not mention that at all − that it should be replaced by redundancy insurance.

Now, there is a risk. I understand that this is part of the cons of the redundancy insurance scheme − the risk that employers would have that kind of mentality and attitude, where they think, "Since I am paying the premiums, I do not have to pay out retrenchment benefits. I have already paid my dues to society."

But my take is that in our society, in our tripartite stable industrial relations situation, which is underpinned by a certain kind of moral economy, that the unions have a certain kind of moral suasion and the Government, too, that has a hold on employers. They will not just easily let go of retrenchment benefits just because we have a redundancy insurance. If we make it clear to them that redundancy insurance is really workers looking out for fellow workers, it does not replace the retrenchment benefits and the kind of duties that are owed to workers by the employers when they have to lay off staff for whatever reason.

Regarding the Member's second question about redundancy, our definition of redundancy is really based on if the jobs are no longer needed and people are being laid off because these jobs are no longer needed. This follows the Ministry of Manpower (MOM) definition, and it does not exclude some of the terminations the Member was talking about, in terms of job fit and what not. Of course, there are terminations due to dismissals, due to poor performance, and that would be excluded. It is really about redundancy as defined by MOM.

Mr Deputy Speaker: Order. The time allowed for the proceedings has expired.

The Question having been proposed at 6.11 pm and the Debate having continued for half an hour, Mr Deputy Speaker adjourned the House without Question put, pursuant to the Standing Order.

Adjourned accordingly at 6.41 pm.