Redundancy: The Case for Unemployment Insurance

Like many of the labour laws passed during what may arguably be the most prolific legislative period in Jamaica’s political history, The Employment (Termination and Redundancy Payments) Act is long overdue for review. Some may even argue that it has outlived its usefulness. After all, it was passed in 1974 when there were scarcely computers, let alone smartphones, or the vast possibilities of the Internet which has so changed the way we live, work, communicate and conduct business. In the words of one of Jamaica’s best known taxation experts Mrs. Ethlyn Norton-Coke, the Act “is a deterrent to employment” and, to others, perceived as a threat or risk to marginal or struggling enterprises. There is another oft debated legacy of this Act; it has fostered a culture rooted in the notion that redundancy is an entitlement regardless of the circumstances. Truth be told, many employees at every level, expect some payment even when they choose to leave their jobs. Some even come asking for redundancy when they are ready to move on.

Jamaican businesses are caught between a rock and a very expensive hard place. They are required to be agile and flexible in the modern business environment, because they often lack scale.  A firm's capacity must also be responsive to consumers' demand for its products and services. The Act lays the burden of the cost of adjusting such capacity entirely at the feet of the employer. It did not contemplate innovation such as electronic security systems, internet banking and online bill payment; which have lead to substantially increased productivity with smaller workforces. If Jamaican firms in general and small businesses in particular, are to be viable they must be allowed to adjust their workforce capacity without the burden of significant costs, which are inherent in the application of the Act.

A precondition must however be the introduction, testing, and successful implementation of cost effective and fair mechanisms for helping displaced employees to transition. If the consumers' tastes change and the demand for a firm’s output falls away, it may not or may not be the fault of the firm. Yet, only the firm is left with the cost of separation from a workforce that it may no longer need or can redeploy.

I had hoped that the discussion which resurfaced in late 2011 (see Gleaner Editorial of September 7, 2011 http://bit.ly/wfxJpd), would continue and without the usual intractable postures. I am enthusiastic about an unemployment insurance scheme as a modern alternative. I am not however as enthusiastic about the National Health Fund (NHF) as the operator of any such scheme. I can certainly see an opportunity for the insurance sector to introduce a new product to the market which allows companies to manage this inherent cost in a prudent way. I foresee that, as is the case with most pension plans, there can be a matching arrangement which allows both sides to prepare for the eventuality. I can even see such a scheme having the same tax status as NIS or a pension contribution.

The International Financial Reporting Standards (IFRS) rules do not allow firms to carry redundancy provisions beyond the current period; as they do bad debt provisions for example. But, the modern reality is that firms will continue, through innovation, to produce more with far less. The fact is that the production of low cost goods will continue to migrate to low waged countries, this is not new. Many of us can recall the migration of companies such as Colgate and Jockey from Jamaica, to countries like the Dominican Republic and Costa Rica where wages are lower, and yes, labour laws may even be lax.

To demonstrate the point, I have conducted a loose experiment which began in my closet, and the results were not surprising to me. My favorite pink Ralph Lauren top; made in China. My favourite baby blue Brooks Brothers shirt; made in Malaysia. My GapBody undies; made in Sri Lanka. My well worn Ed Hardy footwear; made in Vietnam. My comfy old Anne Klein iflex shoes; made in China. My ready-to-throw-out Victoria's Secret pajamas are made in Vietnam too so I hope you've got the point. Don't think it's all about clothing either; my trusty iPad is assembled in China. If anyone knows for a fact that any of these countries have anything even remotely akin to Jamaica's Employment (Termination and Redundancy Payments) Act, please speak up.

Let me be very clear though, I am not in favour of repealing this Act without a meaningful replacement. It would not only be unconscionable but I dare say impossible to achieve given the current make up of the Jamaican government. The world is a very different place than it was in 1974; in which small, developing countries such as ours must compete. Surely we can successfully compete and do right by our workers at the same time. On this issue however, we simply cannot do both with closed minds.