Will unemployment insurance work in a recession?

Introducing a policy on unemployment benefits in early 2009 when Vietnam faces a slowing economy has raised concerns about the feasibility of the policy.

People peruse recruitment notices at a recruitment center on Pham Ngoc Thach Street in Ho Chi Minh City’s District 1 (Photo: SGGP)

The new policy, which aims to help the unemployed stabilize their lives, will ease the heavy load on the state budget and enterprises from this social issue.
 
At a press conference in Ha Noi on Monday, Deputy Minister for Labor, Invalids and Social Affairs Nguyen Thanh Hoa said the ministry will issue a circular guiding the implementation of the government’s unemployment insurance regulations by the end of this month. 
 
The circular is necessary because it will be the first time Vietnam has applied this policy and the government wanted to ensure it was implemented properly, Mr. Hoa said.
 
According to the ministry, between 5 million and 6 million workers will benefit from unemployment insurance.

Statistics show that more than 1 million people reach a working age every year, but only a limited number of them are able to find jobs.
 
Meanwhile, each year, workers lose their jobs through the restructuring of state-owned companies. Unemployment benefits are considered the most effective measure to support these workers in a market economy.

However, some people have raised concerns that unemployment insurance, like social insurance, will be hard to collect as enterprises would probably intentionally not comply with the unemployment insurance regulations because of the economic difficulties.
 
They said that enterprises might avoid paying unemployment insurance by signing their employees to contracts for less than a year or declaring salaries are lower than what the employees receive. Many enterprises already employ these methods to avoid paying social insurance.
 
Phung Quang Huy, director of the Bureau of Employers’ Activities under the Vietnam Chamber of Commerce and Industry, admitted that enterprises probably would try to avoid paying unemployment insurance as it was another expense they would have to bear in difficult economic times.
 
Deputy Minister Hoa said the policy had been foreshadowed since 2006, when the National Assembly passed the Law on Social Insurance, so businesses should have been preparing for the introduction of the new insurance for some time.
 
The ministry will cooperate with relevant agencies to step up inspections and supervision and will deal strictly with any businesses found violating the policy, he added.
 
However, he said, the ministry will try to raise enterprises’ awareness about their social duty in paying unemployment insurance.
 
Under the new regulation, both employees and employers will contribute 1 percent of their monthly salary to a fund for unemployment insurance, and the state will do the same from the state budget.
 
A Vietnamese worker with a job contract of at least 12 to 36 months who has paid into the insurance for at least 12 months will be eligible for unemployment insurance if they lose their jobs.
 
The insurance will pay the unemployed 60 percent of the salary they were receiving over the previous six months.
 
The period in which applicants can receive the insurance will depend on the period in which they will have paid into the insurance.

Sources: SGGP, VNA - Compiled by Anh Minh

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