2019-06-23Jaswanth Singh G



One can breathe a little easier knowing the fact that if one loses the job. He/she will be still having an income by way of Unemployment Insurance. Unemployment Insurance is the most common public income support program for the unemployed in developed countries, where it typically offers enough income protection.  It usually covers the majority of employed persons, irrespective of nature of occupation or industry. Increased exposure to foreign markets and fearing the future global crisis, more and more developing countries are contemplating to introduce unemployment insurance. It is often argued that removing excessive job protection would not only boost the creation of more and better jobs but also improve job prospects for vulnerable. Reducing job protection is an extremely sensitive task that can often be implemented only if accompanied by introducing for workers Unemployment Insurance is one of them.

Unemployment insurance can be a great social security measure. How to tackle the situations in case of temporary or seasonal employment. While providing an excellent opportunity to bolster both workers protection and economic efficiency the introduction of unemployment insurance in developing countries poses major challenges. When is a country ready to introduce an unemployment insurance program?

Which factors influence whether Unemployment Insurance program operates successfully and how can such programs design be adjusted within respect to coverage, eligibility rules and the generosity of benefit structure of incentive and monitoring?


Brief Traces of Unemployment Benefits and History

Unemployment benefits were introduced in Germany in 1927 and in most European countries in the period after the Second World War with the expansion of the welfare state. Unemployment Insurance in the USA originated in Wisconsin in 1932 through the social security act of 1935 the fed government of the USA effectively encouraged the individual states of us to adopt Unemployment Insurance plans. The Unemployment Insurance ACT 1920 created the dole system of payment for Unemployed workers. The dole system provided 39 weeks of up to over 11 million workers practically the entire civilian working population except for domestic services, farm workers, rail/roadmen and civil servant.


Unemployment Insurance applicability

  1. Retrenchment
  2. Closedown/shut down
  3. Layoff
  4. Downsizing etc.,

Following circumstances may disqualify you from collecting the Unemployment Insurance benefits depends on states law

  1. Quit without a good cause
  2. Fired/ Loss of employment due to employee’s proven code of Misconduct
  3. Resigned because of illness (sometimes can be backed up by An Accident and Disability Policy to provide the Disability benefits)    
  4. Self-employed
  5. Involved in the serious labour dispute
  6. Employee opting for a sabbatical for career progression or higher education.


Unemployment Insurance related measures in India

  1. According to The Industrial Dispute Act (IDA) of 1947, a permanent worker can be dismissed only for proven misconduct or habitual absence. Also, companies employing more than 100 workers must get government approval before they can lay off workers or shut down in practice such approvals are very rarely granted. The IDA also stipulate that severance payments must be given to the fired worker set as 15 days average pay for each completed year of continuous service such regulations are lumped together under the broad term employment protection. As a part of labour reforms, the government should lay less emphasize on job protection and it should focus and strengthen on employee protection. While India currently lacks a comprehensive social security database to monitor the work history and benefit received by the workmen’s.
  2. The current eligibility condition of 3 years of prior contribute in ESIC to get Unemployment Insurance allowance is too stringent and tedious
  3. MNREGA provides insurance to rural workers along with small unemployment insurance component in ESIC. There are no such Unemployment Insurance program exists for urban workers in India.
  4. Rajiv Gandhi Sharmik Kalyan Yojana (RGSKY) is the only form of traditional unemployment insurance ( supported by ESIC) in India under this scheme, an insured person who loses his job after contributing premium for at least 3 years is eligible for unemployment allowance equivalent to 50% of wages per month for a maximum period of one year.


Unemployment Insurance benefits

  1. Regular benefits are paid for a max of 26 weeks in most countries. Few counties restrict it to fewer weeks
  2. The compensation will behalf of previous earnings up to a maximum amount certain limit
  3. Benefits are subject to income taxes and must be reported in the income tax return.
  4. Vocational Training provided for upgrading skills 


Unemployment Insurance should indemnify the current earnings with Indexation for certain specified months. If in between the claimant gets a job then such cover seizes to exist. Unemployment insurance due to disability certain accidents policies will cover the disability benefits. How such a scheme helps the disabled employee to compensate his livelihood. For self-employed probably a business interruption policy will be a choice which should have a feature of unemployment insurance


Who should contribute?

Employers complying with the various labour laws have to contribute towards the unemployment insurance the premium contribution can be claimed as expenses. Such initiatives the employer ensures that they have strong human practice management towards an employee in place, Even employees along with the Employers contribution with a supporting contribution by the government will also be an effective and responsible mode. Introduction of Payroll tax on firms’ borne by the employers or providing the same through GST can also be an option.


Enhanced Role of Government to Implement the Unemployment Insurance Scheme effectively

The government must set up a comprehensive unemployment insurance program for urban workers which can be funded by contributions from both firms and employees and possibly supplemented by revenues from general taxation and utilities and the subsidy amount. Government agencies should be in place to monitor the activity and implementation of the scheme. Enough and efficient   awareness programs have to be initiated through various government machinery and Insurance Companies

International Labour Organization (ILO) has adopted employment promotion and protection against Unemployment convention 1988 for promotion of employment against Unemployment and social security including Unemployment Insurance benefit.


Below is the recent projection made by ILO on Expected Unemployment Rate.

The global unemployment rate is expected to rise modestly from 5.7 to 5.8 percent in 2017 representing an increase of 3.4 million in the number of jobless people, a new ILO report shows. The number of unemployed persons globally in 2017 is forecast to stand at just over 201 million – with an additional rise of 2.7 million expected in 2018 – as the pace of labour force growth outstrips job creation, according to the ILO’s World Employment and Social Outlook – Trends 2017 

Unemployment, vulnerable employment and working poverty trends and projections, 2016–18

It was also been often heard that by 2035-2040 Many of the Employment/Occupation which exists today will soon become redundant & Obsolete.  Along with Considering the ILO’s Expected Unemployment rate the entire world economy should introspect and arrive at an apt and satisfactory social security cause to support the issues which may arise in future


  1. OJ Blanchard and Jean Tirole 2008 advocate an unemployment insurance program funded by layoff taxes on firms.
  2. International Labour Organization (ILO) World Employment and Social Outlook – Trends 2017
  3. Does Unemployment Cause Future Unemployment? James J. Heckman and George J.  Borjas Economica
  4. IdeasforIndia.in


Jaswanth Singh G

Insurance Domain Consultant (InsureTech) and Faculty for Insurance, Financial Services & Pension Studies

Article Published in June 2017 Edition of The Insurance Times



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