EIS estimation

Funny numbers (except):

Employers: Why collect RM1.6b in jobless benefits when retrenchment costs RM300m?

KUALA LUMPUR, Aug 2 — The Malaysian Employers Federation (MEF) has questioned the rationale of collecting an estimated RM1.6 billion annually for the Employment Insurance System (EIS) or over 5 times the compensation for all workers retrenched in the Asian Financial Crisis.

MEF executive director Datuk Shamsuddin Bardan based his calculations on contributions of 1 per cent from both the employer and employee (0.5 per cent each) for an average monthly salary of RM2,000 from 6.8 million private sector workers.

This would amount to about RM1.6 billion a year, while he estimated that unemployment benefits for 50,000 Malaysian workers retrenched during the 1997 crisis would total RM300 million assuming that they received half-month wages based on a RM2,000 salary for six months.

I don’t know where this figure of 50,000 job losses during the AFC comes from. One of the weaknesses of the retrenchment data is that it relies on self-reporting by employers, who don’t exactly have an incentive to report job losses.

So let me just take two industries for which we have detailed data from the economic census. Between 1996 and 2000, the construction sector lost 169k jobs, while manufacturing lost 90k jobs between 1996 and 1999, for a total of 259k jobs. That’s more than five times greater than the MEF estimate, and nearly wipes out the annual inflow.

There’s probably a good argument here for adjusting the contribution to something more realistic, but the difference is not as extreme as MEF thinks.