Employment insurance system in dire straits
17:36 JST, June 27, 2022
TOKYO (Jiji Press) — Japan’s employment insurance system has been thrown into financial difficulties, with the cumulative approved total of employment adjustment subsidies provided to businesses under the system rising way above ¥5 trillion, amid the prolonged COVID-19 crisis.
The government has decided to raise jobless insurance premiums paid by employers and employees in the current fiscal year to March next year. Because the margin of the hike was limited, no prospect is in sight for improvement of the system’s financial standing.
Premiums may have to be raised again in fiscal 2023.
The employment insurance system features jobless and child care leave benefits, as well as two programs — one for employment stabilization and the other for skill development. The former is financed by premiums paid by management and labor, as well as contributions from state coffers, while the latter is covered by employers’ premium payments alone.
Employment adjustment subsidies to companies that provide leave allowances to furloughed workers are paid for from funds set aside for the two programs.
At the end of fiscal 2019, the employment insurance system was well funded, with reserve funds standing at ¥4.48 trillion for jobless and child care leave benefits and ¥1.5 trillion for the two programs.
In 2020, the coronavirus crisis caused drastic changes, however, the government took the special steps of raising the subsidy rate for companies that give leave allowances to furloughed workers and the upper limits on daily payouts, in a bid to prevent a spike in the number of jobless people after anti-infection measures, such as restaurant and bar closures, were put in place.
Due to an increase in leave allowance payments, the two programs had run out of reserves by the end of fiscal 2020.
The government managed to get over the emergency by borrowing from reserves for jobless and child care leave benefits and fund transfers from general-purpose state funds. But jobless and child care leave benefits also ran low on reserves in fiscal 2021, putting the management of the whole employment insurance system on a tightrope.
The premium rate for jobless and child care leave benefits was set in principle at 0.6% of overall wages for employees and 0.95% for employers. Until fiscal 2021, however, the rate had been cut to 0.3% for employees and 0.6% for employers.
When a premium rate review started at the Labor Policy Council, an advisory panel to the labor minister, in September 2021, one government official said that the premium rate for employees might be brought back to the original 0.6% in fiscal 2022, which started in April.
But raising premiums is a tall order as it is often viewed as a tax hike in effect. “I wonder if it’s fair to raise premiums at a time when the outlooks for the pandemic and the economy are uncertain,” said a senior member of the ruling Liberal Democratic Party in the upper house.
In the end, the government decided to skip raising the premium rate for employees in April but to lift it to 0.5% from October. A two-stage hike is planned for the rate for employers, to 0.85% from October after an increase to 0.65% implemented in April.
The deal reflected the government’s attention to concerns within the ruling parties over the adverse impact a premium hike may have on their showings in the July 10 upper house election.
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