One of the many recommendations of the Social Security Reform Commission is the establishment of an Unemployment Benefits Fund, which would require a separate contribution rate paid by both the employer and the employee.
“The nature of unemployment benefits is that contributions made in the recent past qualify workers for a short-duration benefit, when the worker involuntarily ceases unemployment,” the Commission says in its report.
“Therefore, the most appropriate funding method for such a benefit is pay-as-you-go.”
The Commission says the revenue of such a Fund should remain as stable as possible over time and its contribution rate should not be increased with the onset of a recession, as this would only make the recession worse.
It says there would be a need for some form of dedicated reserve that can be used during periods of increased expenditure by the Fund.
The Commission’s report says “a reserve of at least twelve months of scheme expenditure would be sufficient to leave time for an adjustment of the contribution rate in case of unfavourable experience. Some variation of the reserve below or above that level may be tolerated before considering a modification of the contribution rate.”
The report also says given the cyclical nature and volatility that is involved with unemployment benefits, frequent rate revisions may be necessary.
It also notes that unemployment benefits are one of the most difficult of all social security benefits to administer as benefit claims must be carefully checked, the reason for unemployment verified, and efforts of jobseekers to find employment closely monitored, necessitating a well staffed Employment Exchange.
Like the sickness and maternity benefits presently offered by the NIB, an unemployment benefit should be designed to replace a portion of lost income for a limited period, the Commission recommends.
“In deciding on the benefit structure, consideration must be given to the benefit rate and to the earnings to be used as the basis for calculating the benefit,” the repot says. “While the level of benefits should be sufficient to allow the recipient to maintain a certain standard of living, it should not be excessive so that it may serve as a disincentive to seek new employment.”
The report also points out that for sickness benefit, the benefit rate is now 60 percent and says for unemployment benefit, the rate could be lower and it could also decline over time.
The Commission believes that this would serve as an incentive for recipients to actively seek employment.
“Upon introduction of an unemployment insurance benefit it may be best to provide a modest benefit at a rate of between 40 percent and 50 percent,” the report says.
“This would limit the initial benefit cost to the scheme and would ensure that unemployed persons have an incentive to return to work as soon as possible. Once the scheme has been established and expenditure observed, the benefit rate could then be raised to a high of 60 percent once adequate contribution rates and reserve levels are in place.”
The Commission also says there is little available data on the average duration of unemployment.
But it adds that rough estimates of the incidence of unemployment claims and the likely average duration suggest that a contribution rate of 1.5 percent to 2 percent of insurable earnings should be sufficient to meet expenditure for a scheme that replaces 40 percent of earnings for an average of 10 to 13 weeks.
The Commission says that if NIB is selected as the administrator, there should be little additional costs as no new staff should have to be hired to effectively oversee the new benefit.
By: Candia Dames, The Bahama Journal
