ILS Policy Brief

September 2011

POLICY BRIEF
Translating research evidence and advancing new frameworks to inform policy and practice

Unemployment Insurance in the Philippines: Is it Feasible?

This brief discusses the feasibility of having an unemployment insurance scheme in the Philippines. It presents the studies conducted by ILS and ILO regarding the possibility of setting-up this form of social protection for the unemployed.

What is the issue?

Early this year, after several consultations with the tripartite stakeholders, the Philippine Labor and Employment Plan (LEP) 2011-2016 was finalized. The Plan provides the strategic directions for labor and employment in the medium term. One of the Guarantee in mutually Part of that strategies proposed in the Plan is to the rights and protection of workers agreed upon work arrangements strategy is to study the possibility of internal) shocks. Several industries mitigate the negative financial effects of these shocks by resorting to downsizing, retrenchment, reduction of work hours, and laying-off of workers, thereby increasing the rate of unemployment. Despite this vulnerability, the Philippines does not have its own unemployment insurance scheme, thus, exposing workers to financial difficulties during periods of involuntary unemployment. The incongruence of the views of the tripartite partners has all the more made the issue on unemployment insurance relevant. There is an apparent need to reconcile the differences through social dialogue and craft a mutually agreed upon scheme.

setting-up an unemployment insurance scheme as the workers income floor in case they lose their job and which allows time to find a new job while unemployed.1
Discussions regarding unemployment insurance have already been endeavored in the past, and the need to have this form of social protection has been acknowledged in several forums. Despite the unanimous recognition of its importance, the stakeholders are seemingly divided on how the scheme should be implemented. Nevertheless, these past endeavors should be a good backdrop of the current direction which is to further stir discussions, and possibly inch closer to realizing this social protection scheme.

What are the key features unemployment insurance?

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Culled from the experience of other countries and guided by the Conventions of ILO (C44, C102 and C168), the following are the key features of unemployment insurance2:

The Insured Persons. In order to qualify

in unemployment insurance schemes, countries with existing unemployment programs have their respective sets of eligibility requirements that must be satisfied by the applicant. Although there

Why is the issue important?

Recent experience has shown that the Philippine economy is vulnerable to external (and even
2 1

The Philippine Labor & Employment Plan 2011-2016

Dalumpines. Exploring the Possibilities of a Philippine Unemployment Insurance Scheme. 2009

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September 2011

are variations in the requirements for unemployment insurance, certain criteria are similar. These are: being unemployed (have met the qualifications of being unemployed); have paid premiums for a predetermined length of time (reference base period and insured period); have filed application accordingly; and have met other eligibility requirements. Unemployment Benefits. Article 1 of the ILO C44 (Unemployment Provision Convention of 1934) stipulates that countries which ratify the said convention must adopt schemes that will provide benefits and allowances to the unemployed insured workers. Benefit is a form of payment related to contributions paid in respect of the beneficiary's employment whether under a compulsory or a voluntary scheme (Art. 1a). The entitlement to receive unemployment insurance is based on the fulfillment of the conditions concerning the qualifying (insured) period of the claimant during the reference base period. Eligibility. From the schemes of other countries, the most basic eligibility requirement in order to become entitled in receiving unemployment benefits is the involuntary loss of employment. Whenever a worker who has complied with the conditions during the qualifying period becomes unemployed involuntarily due to the economic conditions (business decision) of the company, such worker may be entitled to receive benefits from the unemployment insurance fund. However, the claimant must still meet other eligibility requirements to ensure that s/he belongs to the group of unemployed workers eligible to receive the benefits. Contribution Rate. Financing is one of the most crucial elements in the creation of any unemployment insurance model. In many countries where an existing unemployment insurance system is in place, the scheme is funded through the contributions of the employer, employee, and sometimes the government. The government also takes charge in the

administration and implementation of insurance benefits, including the management of the funds.

Procedures in Claiming Unemployment Insurance. Certain procedures must be

followed by a claimant prior to the receipt of unemployment benefit payments. Several necessary documents (prerequisites) must be submitted to the concerned social security agency in order to validate the entitlement of the claimant to receive the benefits. The processing time, as provided by the ILO C168, must not exceed seven days. Roles of Government Agencies. The gargantuan tasks of implementation and administration of unemployment insurance, as seen in all countries that have existing unemployment benefit schemes, fall on the hands of government institutions. Government agencies have the responsibility of ensuring that the funds for unemployment insurance are properly collected, invested and disbursed. Careful management of the funds must be observed by the concerned government agencies since its sustainability relies chiefly on how it is handled.

Linking Unemployment Insurance to Labor Policies. For any unemployment

insurance program to be successful, it must be integrated to an active labor market policy. It must be of prime consideration that the unemployment insurance scheme of the Philippines does not only provide for monetary needs of the insured workers once these workers get unemployed. The main aim of unemployment insurance should be to aid involuntarily laid-off and retrenched workers in seeking reemployment.

Has there been a study regarding the feasibility of setting up unemployment insurance in the Philippines?
Yes. From 2009 up to early 2010, Dr. Axel Weber of the International Labour Organization conducted a study3, which includes actuarial
3

Weber. Social Protection in Case of Unemployment in the Philippines. Feb 2010. ILO

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valuation and projections, on the feasibility of having a social protection program for the unemployed in the Philippines.

What does Dr. Webers study propose?

According to Dr. Weber4, the following design features (framework) capture the positions and realities in the Philippines:

and employees and will be located in a separate office under the SSS, where a special staff shall be assigned in handling unemployment benefits. UI will have separate accounts and shall pay a share of the administrative budget of SSS.

Membership (Insured Person). UI will be

compulsory to all formal sector employees employed in establishments with 10 or more workers. After five years, smaller enterprises will be included since a certain level of formalization is expected at that time. Benefits. Registered unemployed who have fulfilled the qualifying criteria shall receive a benefit of 50% (or 60%) of the average monthly salary credit for the last 12 months. The ceiling is Php15000, which is the maximum AMSC. The waiting period, in line with C102, will be 7 days from the moment of registration. The duration of payment of the benefit will be one month for every year of contribution payment to a maximum of 10 months. Qualifying Criteria (Eligibility). 1) Being registered with a PESO office as unemployed and seeking employment; and 2) Having paid the contributions. In case the employer evades (evasion) or fails to pay the contribution, the unemployed shall nevertheless receive the benefits but the costs plus fine shall be recovered from the employer. Financing (Contribution Rate). UI shall be paid through contributions from employers and employees in equal shares of 1% each. Government shall provide the start-up loan, which shall be paid in the first years. Administration (Government Roles). The UI will be administered by the PESO offices (registration, training and job referral), TESDA (training) and SSS/GSIS (contribution collection and benefit payment). UI will be a completely separate fund, governed by employers

What is the position of the tripartite stakeholders5?

Employers.

Id

Id

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Through an Ad Hoc Committee formed by ECOP, a report was submitted by the employers which provided for a non-contributory and limited unemployment assistance scheme. The Committee also proposed that an initial funding of Php500M shall come from both the SSS and the GSIS. Employers, however, are willing to agree to a contributory scheme if: 1) It would be a substitute to the current obligation to pay severance pay upon separation and 2) The current strict labor law would be more flexible in dismissing employees. Trade Union. Trade unions prefer a scheme that is funded by the State. Additional contribution will only be feasible if: 1) The trade union participate in the management of the funds; 2) UI covers a provision for training; 3) Benefit is wage-related and duration is adequate; 4) Age or physical condition may also determine the level and duration of benefit; 5) There should be incentives if one does not exhaust the whole duration of benefits; 6) There has to be a provision for relocation allowance; 7) Separation pay should not be treated as part of UI; and 8) Benefits should be granted whatever the reason for dismissal is. Government. Government agencies have different views regarding UI. DOLE supports the approach while NEDA is uncertain about the need for UI. GSIS contends that public sector workers already enjoy security of tenure and are already protected by GSIS. POEA and OWWA on the other hand, while supportive of the idea, see problems on

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September 2011

its feasibility. SSS, consistent with its position in the past, does not want to administer UI.

Will it help improve the quality of employment? Will it help promote mutual and/or collective gains?

What are the experiences of other countries in implementing 6 unemployment insurance ?

In China, an involuntarily unemployed worker with an aggregate insured period of at least 1 year (but less than 5 years) will receive an amount set by the governments of the provinces, autonomous regions and municipalities. The premium payment of the worker is 1% while 2% for the employer. In Thailand, a worker will receive 50% if the worker is laid-off and 30% if he quit voluntarily, provided he is insured for 6 months out of a period of 15 months preceding the day of unemployment. The duration of benefit payments is not more than 180 days within one calendar year. Premium payment of both employers and employees is 0.5% each of the insurable wage, while the government pays 0.25%. In Vietnam, an unemployed worker who is insured for 12-36 months, shall receive 60% of the average wage for the past 6 months before becoming unemployed for three months. Those who are insured for more than 36 months but less than 72 months shall receive benefit payments for 6 months. The employer and employee equally pay 1% of the total wage bill, while the government pays 1% of the wage bill of the State.

Will the proposed unemployment insurance help increase employment levels?

It must be noted that what the proposed social protection scheme addresses are the ill-effects of unemployment to workers. It remedies the financial hardships of involuntarily unemployed workers during the period when they are seeking reemployment. Unemployment insurance provides income security to workers during the period when demand for labor, because of existing economic conditions, is low. It provides security when employment growth is hampered until such time that the economy recovers and allows reemployability.

Will it help expand access employment opportunities?

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What are considerations in examining the proposed unemployment insurance scheme?

Decent Work, a concept which aims to promote opportunities for all women and men to obtain decent and productive work, in conditions of freedom, equity, security and human dignity7, has been used as the framework for analyzing policies and programs in the current medium-term. The policy would have to be subjected to the fourway test established in the framework, which are: Will it help increase employment levels? Will it help expand access to employment opportunities?

The main objective of unemployment insurance is primarily to provide income security to unemployed workers during the transition period when they are seeking reemployment. For the scheme to be successful, active labor market policies job referrals, skills development programs, public employment subsidies, etc. must be integrated into the program. It follows that agencies tasked to execute such policies, such as TESDA, DOLE and PESO, will have to revitalize their programs. This will potentially expand access to employment opportunities of the unemployed.

Will it help improve the quality of employment?

Unemployment insurance was identified in the LEP 2011-2016 as one of the ways of achieving the objective of enhancing the quality of employment. It is part of the strategy to Develop enhanced social protection programs for vulnerable groups against economic and natural shocks particularly for laid-off workers.

Id LEP 2011-2016

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Will it help promote mutual and/or collective gains?

In 2009, during the National Consultation on an Unemployment Insurance in the Philippines 8, the preliminary findings of Dr. Weber were presented. A number of issues, disagreements and challenges were raised by the different tripartite partners on the schemes applicability in the country, including questions regarding financial viability, administration, contribution, jobs mismatch, entitlements, seed money, flexibilization, representation and even the capacity of PESO.

This plurality of issues is apparently an indication of the need for more dialogues and consultations to iron out the differences of the sectors. Nevertheless, the receptiveness of the stakeholders would pave the way to a possible mutually agreed upon arrangement in the future. Social dialogue is clearly the vehicle to achieve this aim.

Policy Briefs aim to stimulate informed discourse on labor and employment issues. Each issue draws on current research and new frameworks to inform public policy, service delivery and practice.

Institute for Labor Studies Department of Labor and Employment 5F DOLE Bldg., Gen. Luna Wing, Intramuros Manila www.ilsdole.gov.ph 02 527 34 56

Report of Proceedings on the National Consultation on an Unemployment Insurance in the Philippines, November 2009

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