UIF – blessing or curse?

UIF – blessing or curse?

South Africans are dealing with a lot of uncertainty at the moment. Actually, we’ve been dealing with a lot of uncertainty for quite some time, and a large amount of that uncertainty has to do with personal cash. The economy is not as strong as we would like, and many South Africans are struggling to meet their financial commitments every month. In this climate, knowing where your next paycheque is coming from offers a huge amount of comfort. But what if you find yourself between jobs?

The Unemployment Insurance Fund (UIF) was established for exactly that reason. Its intention is to support workers who have involuntarily lost their employment (through retrenchment, for example), though not workers who have been dismissed for poor conduct of any kind. For a limited period of time after losing their job, the unemployed worker draws a percentage of the value of their previous income in the form of a UIF contribution, enabling them some time to find suitable new employment. Though employers and employees are required to subsidise the UIF, each contributing 1% of the employee’s salary value, the UIF is primarily state-funded. This means that its function, and even its existence, need to be closely scrutinised. Unemployment insurance is common in developed countries, but seldom seen in developing countries. South Africa has a unique history and some unique challenges, but this distinction raises important questions:

Is this something we can afford? Does it fulfil its promises of social and economic support to working South Africans? Does it have a positive impact on high unemployment?

The answer to the first question seems to be yes. The UIF has a massive surplus of funds (R133.3 billion), but poor systems and claims management mean that the benefits are not being delivered to those who need them. What about the impact on unemployment? That’s a debate that’s been running for some time, so let’s look at some arguments for and against the UIF:

For

  • Allows an unemployed worker to maintain a certain standard of living until they are able to find a new job.
  • Can potentially keep low-income households above the poverty line, even if only for a limited time.
  • Gives newly unemployed people more time and space to find a job that genuinely interests them, thereby increasing workplace wellbeing.
  • Allows unemployed workers to continue consuming goods and services, keeping the economy ticking over.

Against

  • Knowing that employees will be looked after to some degree, employers might be more willing to retrench them
  • South Africa’s tax-payers (approximately 13% of the population) are already heavily overburdened. An inefficient UIF system increases the load.
  • Certain unemployed workers may be discouraged from trying to find a new job quickly.
  • The UIF can’t help stimulate economic growth if the money doesn’t arrive in the hands of the people for whom it is intended.

In a society where it has never been more necessary for us to support each other, a welfare programme like the UIF seems to have a valuable role to play. But is this really the best use of resources? Does the system work? We’d love to hear your thoughts.