Labor flexibility needed

The government's decision to temporarily tap into social security funds to help domestic firms avoid layoffs highlights the increasing severity of the unemployment pressure in China.

Such government efforts to ease the financial burden are badly needed to help domestic firms ride out the ongoing economic slowdown at home and abroad.

Policymakers should come up with more creative measures to improve the flexibility of the labor market so more employers may be able to cut labor costs without layoffs.

According to a notice jointly issued by the Ministry of Human Resources and Social Security, the Ministry of Finance and the State Administration of Taxation, troubled enterprises will be allowed to delay payment of social security funds in 2009 with the deferment period less than six months.

For struggling enterprises, especially labor-intensive exporters hit hard by shrinking global demand, the latest move will give a timely boost to their balance sheet.

It is estimated that by delaying contributions to pension funds and reducing the rate of other employee insurances, companies can pay hundreds of billions of yuan less in insurance and pension payments while saving millions of jobs.

The rapid decline of China's export growth in the wake of the global financial crisis and economic recession have made it necessary for the new measure to be put in place immediately and effectively.

It will be much less productive to provide a basic living allowance for laid-off workers than to use the unemployment insurance fund to safeguard employment in the first place.

Statistics show the fund amounted to 120 billion yuan ($17.5 billion) at the end of September this year. Under the condition that these measures should not cause a decline of people's social security benefits and a shortage of the funds that back social welfare, it is worthwhile to use the surplus in the unemployment insurance fund to stabilize the job market.

But the short term measures mean that the country cannot depend on these stopgap measures too long and too heavily in the battle against rising unemployment.

Policymakers should draw up long-term measures that can make the labor market more flexible. A better social security net is thus more needed than ever to allow enterprises and workers to cope with challenges in times of crisis.

(China Daily 12/23/2008 page8)