Uladzimir Valetka: The state protects workplaces, not the unemployed

The unemployment benefit should make 25-50% of the average salary.

The benefit in the amount of 25-48% of the average wage will stimulate people to be more active in the labor market, still covering the risks of the dismissal, geographic mobility expenses, and professional training at people’s own expense.

The Ministry of Labour and Social Security has decided to raise unemployment benefits, and Federation of Trade Unions of Belarus announced that in the near future the government would consider the introduction of unemployment insurance.

What will the declared changes bring to the society? How effective will they be? How will they affect the unemployment situation in the country?

Uladzimir Valetka, a senior researcher of CASE Belarus, commented on the situation in an interview with the "EuroBelarus" Information Service.

 - The Ministry of Labour will provide the Government with proposals for a differentiated increase in unemployment benefits. What does the government offer instead of $12 charity?

- To be precise, we should compare the governmental plans with the sum of 2 base amounts ($21), which makes the maximum amount of the benefit today.

The plan suggests that we should be guided by the size of the living wage (currently it makes 1,699,430 rubles, or $85). I.e. the benefit is to grow by 4 times. By the way, benefits are now also differentiated – a graduate will receive only 70% of the base amount. Therefore, differentiation is almost threefold (from 70 to 200% of the base amount).

- In the near future the government plans to consider the introduction of insurance against unemployment. How can Belarusians be insured against unemployment?

- To be precise, it is not the introduction of unemployment insurance system that is being considered now, but rather, the reform of the latter, because such system is already secured by legislation.

In accordance with the Law "On the basis of the state social insurance" job loss is the insured incident. Unemployment benefits are paid from the fund of social protection of the population, formed at the expense of employer’s mandatory contributions to social security.

Even today the social insurance system in our country has norms that are used in international practice, namely unemployment benefit is attached to salary; its amount also depends on the cause of job loss and on the status preceding the unemployment, as well as on the presence of unemployed dependents. Its value decreases as the period of unemployment extends.

The existing system applies to all categories of the unemployed, regardless of their participation in the insurance system – traditionally, more than 40% of the registered unemployed have no working experience.

It’s also important to understand that this reform isn’t simple, and there are no universal recipes. The reform should be implemented step by step, and budgetary financing cannot be escaped even if focusing on insurance system – these are the results of the World Bank's assessment, announced at the Kastrychnitski Economic Forum".

- Plans are just plans, but can the planned measures ease the situation of the unemployed?

- The increase of the unemployment benefit lies in the interests of the whole society – the potential unemployed should feel that society supports them in finding a workplace that gives a more effective use of their skills and really contributes to their mobility in the labor market.

Secondly, adequate protection of the unemployed and their families means the creation of effective demand, which our economy lacks today.

In 2015, the registered unemployment was at 1% and about 40 billion rubles was spent at unemployment benefits, which makes 0.005% of GDP. Simple arithmetic of benefits increase gives a rise of about 4 times, which makes 0.02% of GDP, with 1% of the unemployed.

But if the amount of the benefit is adequate, more unemployed will register. Thus, according to the last two censuses the unemployment rate was at 6%, which is close to reality and makes 0.1% of GDP for paying unemployment benefits.

And it is only a relatively appropriate but still modest protection order of 250-300 thousand people and their families.

In my opinion, the maximum amount of the benefit should be limited to not one, but two living wage budgets, which will require 0.2% of GDP and will bring our system of protection against unemployment to the level of developed countries.

These figures seem frightening only at first glance. Thus, today not less than 4% of GDP is spent on the inefficient enterprises. The challenge is to be able to extract 0.2% out of the 4%.

- Can we forecast the larger scale of unemployment than the estimates given above? In April only Belarusian enterprises dismissed 20 thousand employees more than hired. As the Ministry of Economy admitted, "the enterprises, which are in a difficult financial position, employ 470 thousand people today."

- No. These are the maximum numbers confirmed by the two censuses. The 4% of GDP mentioned above is a kind of expanded compensation to enterprises thanks to their role in retaining the burden of excess employment.

It is the increase in unemployment benefits that allows transferring the burden back to the state and saving money. And why is that? Cause right now the state protects workplaces, not the unemployed.

However, we shouldn’t think of this process as of statistics. For example, it’s a mistake to think that if we spend 0.2% of GDP on increasing benefits then we won’t have to spend 4% of GDP for the state, thus saving 3.8% of GDP. No, we shouldn’t count on that. A more realistic estimation is to redistribute 0.2% GDP on increasing benefits from the already allocated funds. To do this, they need to be really estimated and the effects of redistribution should be studied in dynamics.

The benefit in the amount of 25-48% of the average salary will encourage people to be more active in the labor market, covering the risk of their dismissal, geographic mobility expenses, and professional training at people’s own expense.

What makes me happy in the course of the recent discussions is more and more people in Belarus, from the experts to the officials, who understand that a small unemployment benefit blocks the market’s dynamism, bringing more harm than good to the society.