Unemployment has always been an insidious problem in India. The COVID-19 pandemic has had a devastating effect on several sectors of the economy and consequentially on the rate of employment. As of May 29, 2021, the rate of unemployment in India stands at 11.58% for the entire country as per the data released by the Centre for Monitoring Indian Economy (CMIE).
The consequences of unemployment are far-reaching as it not only adversely affects the economy and GDP growth, but also affects societal fabric. The ideal and long term solution to combat unemployment is the creation of an adequate number of jobs to absorb the workforce. However, in the absence of this long-term solution, the focus should be on alleviating the distress caused by unemployment.
One way to do this is for the state to implement adequate financial schemes and programs that provide assistance to those who are unemployed due to extraneous factors and circumstances. Unemployment insurance is one of the ways of providing assistance to the unemployed and poor till they are once again gainfully employed to prevent unemployed individuals from falling into destitution and vagrancy.
The global position on unemployment benefits
1. Unemployment insurance in the United States
To provide unemployment benefits, various countries have policies and programs in place. The US enacted policies qua unemployment insurance as far back as 1935. The basic unemployment insurance program is run by various states which provide most of the funding and pay for the actual benefits given to workers. A person is eligible to receive these benefits from the state where the person was last employed at, even if the person now lives in a different state.
In most states, 26 weeks of benefits are provided to unemployed workers in order to replace about half of their previous wages. In cases where the situation worsens, the unemployment insurance programmed provides an additional 13-20 weeks of compensation. To qualify for unemployment insurance, a person must have lost their job “through no fault of theirs”, is able and available to work and is actively seeking work and must have earned at least a certain amount of money during a base period prior to becoming unemployed.
The amount of money that a person is eligible to receive will depend on the number of weeks they were last employed and their “weekly dollar amount”. In the United States, unemployment insurance is a state benefit that the government, through its corpus, gives to the unemployed.
2. Unemployment insurance in the United Kingdom
In the United Kingdom, the Jobseekers Act was passed in 1995 which provides income support for unemployed people by giving a jobseeker’s allowance which is either a contribution-based allowance (based on the age of the claimant) or an income-based allowance. All unemployed people would be required to enter a Jobseeker’s Agreement, committing them to a plan of action to seek work.
Similarly, other countries such as Canada, Denmark, Germany, Japan, Netherlands, etc. have a robust scheme of unemployment insurance in place.
3. Unemployment insurance in India
In India, while there is no uniform or centralised scheme of unemployment insurance readily available to all unemployed individuals, there are a couple of government schemes which provide unemployment benefits.
The Employees’ State Insurance Corporation (ESIC) offers two unemployment benefits schemes – Rajiv Gandhi Shramik Kalyan Yojna (RGSKY) and Atal Beemit Vyakti Kalyan Yojna (ABVKY). The Employees’ State Insurance Act, 1948 (the Act) was introduced to provide benefits to employees employed in factories and other establishments such as shops, commercial establishments, residential hotels, restaurants, eating-houses, theatre or other places of public amusement or entertainment in case of sickness, maternity and employment injury and to make provision for certain other matters in relation thereto. Apart from providing unemployment benefits to those who are eligible, the Act provides several other benefits.
The factory and other establishments to which this Act applies, must employ at least 10 people or should have employed 10 people on any day in the preceding 12 months. To avail benefits under the Act, the person must be an “insured person” i.e. a person who is or was an employee in respect of whom contributions are or were payable under this Act and who is entitled to any of the benefits provided by this Act.
A corporation namely, the Employees’ State Insurance Corporation is set up under this Act and a contribution is made i.e. a sum of money payable to the corporation by the principal employer in respect of an employee and includes any amount payable by or on behalf of the employee in accordance with the provisions of this Act. All these contributions paid under this Act and all money received on behalf of the corporation shall be put into a fund called the Employees’ State Insurance Fund which shall be held and administered by the corporation for the purposes of this Act. Therefore, the benefits and funds disbursed under this Act are disbursed from this fund.
Under the Act, two unemployment insurance schemes were enacted – the RGSKY and ABVKY. The RGSKY was introduced in 2005 to insure unemployed people who are unemployed due to retrenchment and closure of factory or establishment (as per the Industrial Disputes Act, 1947) and who are permanently disabled to at least 40% arising out of non-employment injury as certified by a Medical Board.
As per circular dated February 9, 2009, issued by ESIC, to avail these benefits, a person has to be an “insured person” under the Act on the date of loss of insurable employment and the insured person has contributed to under the ESI Scheme for a period of five years prior to loss of employment and the benefits cease to be applicable from the date of re-employment. The unemployment insurance is payable only for a period of twelve months during the entire insurable employment. The unemployment benefits cannot be combined with other benefits such as maternity, sickness or disablement benefits that the person is entitled to during the same period.
The other scheme introduced by the ESIC is ABVKY which applies to people employed for wages or in connection to work in a factory or establishment. The insured person is applicable to receive insurance or relief for upto 90 days but only once in a lifetime provided that the inured person was employed in insurable employment for a minimum period of two years immediately prior to unemployment and should have contributed to at least 78 days in the contribution period immediately preceding unemployment.
In order to provide some relief to those effected by unemployment due to the COVID-19 pandemic, the unemployment allowance that an insured person is entitled to under ABVKY has been enhanced from 25% of the average salary drawn to 50% of the average salary payable for a maximum period of 90 days of unemployment and the same is payable after 30 days of losing employment as opposed to 90 days since the loss of employment and this is applicable till July 31, 2021. These enhancements and relaxations can be hailed as being a significant step in ensuring monetary security to those affected during the pandemic.
Problems with regard to the present unemployment benefit schemes
Apart from the two aforementioned schemes under ESIC, unemployment benefits in India are few and far. RGSKY and ABVKY are faulty for several reasons, namely that it is applicable only to factory workers who have been employed in factories that employ at least 10 people. This restricts a large part of the workforce who do not work in factories but in other sectors which do not have adequate job security or are susceptible to closure due to extraneous factors from claiming unemployment benefits.
Further, several factories do not employ at least 10 people on a given day and because of this, workers employed in such factories lose out on the benefits provided under RGSKY and ABVKY. The benefits under RGSKY are applicable only for a period of 12 months during the entire insurable period. i.e. after an insured person claims benefits for 12 months, the insured person is disentitled to ever claim benefits under RGSKY scheme. This puts at a disadvantage those insured persons who are unemployed for prolonged periods of time and this is especially true for cases of unemployment qua the pandemic.
Proposed suggestions and solutions
It is absolutely critical for the state to implement a centralised or uniform unemployment insurance scheme which is available to the entire workforce regardless of the economic sector, establishment and the nature of employment they are employed in. However, in the absence of this, the need of the hour is to have unemployment insurance that anyone can avail, along similar lines as those of healthcare and other general insurance which is available to the general public.
In 2020, there were reports that the government plans to introduce unemployment insurance for working-class Indians and has sought suggestions from Irdai and the General Insurance Council of India on the manner in which such schemes should be developed. However, so far no concrete steps have been taken in this regard.
In terms of private insurance, ICICI Lombard’s Secure Mind provides job loss insurance only if a customer buys SIP from ICICI Direct for a minimum investment of Rs 1,000 per month, HDFC Ergo’s Home Suraksha Plan offers three month’s EMI in case of job loss but this EMI is restricted to 50% of net salary and this cover is available with a reasonable life cover only and if the home loan is for 20 years, the insurer has to pay only 1.5% of the total value of the loan.
These “job loss” insurance policies are incidental to the other insurance policy the person has bought and is often more expensive than the cover for job loss. Apart from these, insurance policies with respect to unemployment insurance along the lines of traditional insurance, are practically non-existent.
It is of utmost importance for insurance agencies and banks to provide policies qua unemployment in India in a similar manner as they provide other insurance policies to bridge the gap in the lack of unemployment benefits available in India. Generally, when a person wants to insure themselves or insure an asset of theirs or indemnify themselves from loss, they purchase an insurance policy from a financial institution for which they pay an amount of money either upfront while purchasing the policy or in instalments, depending upon the policy of the insurance company. In the event that the insured person suffers from any loss, the person can make a claim to the insurance company and receive “compensation” from the company for the loss the person has suffered.
Similarly, insurance companies and banks which provide regular insurance such as life insurance, health insurance, etc. should start to provide unemployment insurance wherein people can insure their employment and pay the requisite premium so that in the eventuality of loss of employment due to extraneous circumstances and for reasons beyond their control, these insured persons can make a claim and receive the cover for a loss of job.
The claim can help insured people tide over financial distress caused due to unemployment and loss of income. The insured person will pay a premium and receive compensation or make a claim vis-à-vis the premium paid. This ensures that individuals who are not covered under governmental schemes of unemployment insurance such as RGSKY and ABVKY can indemnify themselves from loss of employment and can be secured during the period of unemployment.
However certain criterion qua what makes a person eligible for unemployment insurance need to be concretised, in the manner it is done under RGSKY and ABVKY scheme, so that insurance companies do not unnecessarily profiteer off people and premiums paid and eventually do not provide the claim made by the person. The circumstances under which a person can make a claim and avail unemployment insurance can be circumstances such as job loss due to pandemic, closure of organisation or company, retrenchment, downsizing carried out by the company or organisation.
Termination from employment due to non-performance, misconduct, theft, incompetence, etc. may not suffice as grounds for claiming unemployment insurance as the same is not due to extraneous circumstances but due to a fault on the part of the individual. By laying down proper criterion, as to what makes one eligible for unemployment insurance, the chances of issues and controversies arising in granting the claim are, in all likelihood, mitigated, though of course not completely absent.
Apart from insurance companies issuing insurance policies qua unemployment, employers should step up and attempt to bridge the gap qua absence of unemployment insurance by enacting and following company policies that are employers or worker-friendly. Employers should issue a reasonable severance payment to employees who leave the company. Severance payments would financially assist the employee during the period of unemployment. In India, workers in the organised sector working in firms employing more than 50 workers have access to a mandated severance payments programme. The minimum tenure required for eligibility is one year and upon separation, an employee earns the right to get 15 days’ salary for every year of service.
In several countries, a debilitating economy, severe economic distress amongst the people and a shattered structure formed the backdrop of enactment of laws and policies regarding unemployment benefits. In the US, the state unemployment insurance plan was enacted in 1932 to mitigate the effects of the Great Depression as more than 25% of the adult workforce was unemployed. Presently in India, the COVID-19 pandemic is wreaking havoc on an already debilitating economy and is adversely affecting the employment sector which has been poorly performing.
The ramifications of this are long-lasting and severe. Perhaps one way to mitigate the economic and social disaster that will unfurl due to an economic imbalance is to extend unemployment benefits to those who are unemployed. The government should come out with stronger schemes that are available to a larger section of the workforce rather than confining it to only a part of the workforce, as it is at present.
Further, insurance companies and financial institutions should provide unemployment insurance along the lines of regular insurance policies. The COVID-19 pandemic should serve as a historical backdrop to change the existing policies qua unemployment benefits and enact drastically new and beneficial unemployment benefits schemes and policies, as in the past, various events have acted as historical backdrops to bring about change and benefits.
Prachi Dutta is an advocate practising in New Delhi. She studied History at Hindu College, Delhi University and pursued an LLB Degree from Jindal Global Law School. Rudrali Patil is an advocate practising in New Delhi and is a graduate of the Fletcher School of Law and Diplomacy.