UIF - Blessing or curse?

Published Date: 2018-03-06 | Source: Simply Financial Services | Author: Simply

UIF - Blessing or curse?

Jobs: you're not always happy in the one you have, but you'd rather have that than no job at all. Is it the money? Of course that's part of it - no matter how liberal you are, the structure of the modern economy requires you to earn income to satisfy your basic needs and achieve your bigger goals. But having a job offers much more than money. When it pays fairly, a job offers dignity and self-respect. And as one moves up the job scale, employment offers other advantages like status and social pull. It is for all these reasons that jobs are such a major talking point in any political campaign or social analysis. It is also why paying people to not work is so controversial. Welfare systems that offer unemployment benefits are universal, at least in the developed world, but that doesn't mean they aren't constantly debated. South Africa's primary State-driven unemployment scheme is the Unemployment Insurance Fund (UIF) - but is it a blessing or a curse?

Background

South Africa has an alarmingly high unemployment rate. Latest official figures (October 2017) put SA's unemployment rate at 27,7%, a full percentage point higher than it was the previous year when a global competitiveness report ranked South Africa's unemployment rate as the worst in the world. The International Labour Organisation (ILO) ranked SA as the 9th worst country for employment internationally, but ranked it last among countries with a mature developed economy. These are scary statistics, but scarier still when one considers that unemployment among the youth (15-34 year olds, and the future of the local economy) stands at 38,6%.

In that context, the UIF seems like a valuable social security tool. It primarily aids people who are between jobs (have been employed, but lose their employment involuntarily) by allowing them to draw a monthly contribution in place of income until they find a new job. Candidates have to meet eligibility criteria (eg. they and their previous employers consistently contributed to the UIF) and the benefit is only available for a limited period.

But can South Africa afford it? Unemployment Insurance is common in developed countries, but far rarer in developing countries due to the potentially high burden it puts on State resources. Here in SA, however, that doesn't seem to be the main problem. The UIF has a massive surplus of funds (R133.3 billion), so money doesn't appear to be the issue. The problem seems more connected to an ineffective claims process and poor management of UIF administration.

So, is it worth it? Here are some arguments for and against:

FOR

  • Provides a safety net for unemployed workers to maintain a standard of living while finding a new job, though the worker will still have to supplement the benefit from their savings.
  • Keeps low income households above the poverty line, though only temporarily.
  • Allows involuntarily unemployed people more time to find a job that they desire, increasing workplace wellbeing for employers and employees, though this can slow down the rate of people who actually try to find a new job.
  • Keeps the economy ticking over as the unemployed can continue to consume goods and services, though this is irrelevant if the funds aren't reaching the claimants.

AGAINST

  • Employers have lower resistance to retrenching employees, though employers are also required to contribute to the fund.
  • The government may tax the general public more to subsidise the UIF benefit, which could be devastating in a country where only 13% of the population carries the full weight of the country's income tax.
  • The system can be abused, eg. workers who work for the minimum amount of time to qualify for the maximum period of unemployment benefit.
  • Can discourage certain unemployed workers from trying to find a new job quickly

South Africa's economy faces complex and unique problems, with employers and employees facing many challenges as they try to get by. In such an environment, supporters and opponents of the UIF system have strong arguments in their favour, but most will agree that in challenging times we have to work together to provide stability to as many people as possible. Do we leave that up to the state, or do private businesses and individuals find a more effective solution? We'd love to hear your thoughts.



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