Arabian Business - Unemployment pay is a ‘huge step for employee rights’ and will reduce dependency on firms: experts

The UAE’s new unemployment insurance scheme – which will come into effect in January 2023 – could be a game-changer for employee stability and will put the onus back on firms to ensure that they have what it takes to retain top talent, as it will take more than just wages to do so, experts told Arabian Business.

The UAE’s Ministry of Human Resources and Emiratisation has stated that the new unemployment pay programme – which was initially announced by the Dubai Ruler Sheikh Mohammed bin Rashid Al Maktoum in a post on Twitter – will be applicable to all UAE citizens and residents.

The unemployment insurance programme will offer each UAE resident the option to pay a minimum of AED 40 and a maximum of AED 100 per year into an insurance scheme,

In return, UAE workers who lose their jobs will be eligible to receive 60 percent of their basic salary, or up to AED 20,000, each month.

“This programme is another huge step for employment stability and employee rights in the UAE,” Marize Coetzer, a senior associate at global law firm Reed Smith, said.

“It complements the recent changes to the UAE Labour Law and the introduction of new visa categories, which encourages people to join the UAE workforce and to remain here after their employment ends.”

The scheme aims to provide financial security and ensure the availability of income for UAE workers in the event of unemployment, until alternative job opportunities are made available.

Coetzer explained: “A large portion of the UAE expatriate workforce still live from hand to mouth. This unemployment insurance will give employees comfort even if their employment is unexpectedly terminated.

“They would not have to immediately relocate and leave the country due to lack of income, or be forced to incur debt to survive.”

The unemployment benefits are also likely to give people breathing space to find a job.

Vijay Valecha, the chief investment officer at Century Financial, said: “This will prevent a person from taking up a job in distress and long term it will be good for companies also as they will be able to find the right person for the job.”

Apart from not needing to relocate immediately in the event of a job loss, the new law also empowers employees who are not happy in their current roles.

“Currently, employees need to have a job to move to if they are unhappy in their current role, whereas the new reforms reduce this dependency. This new policy should give employees more confidence, as well as security,” Scott Livermore, the ICAEW economic advisor, and chief economist and managing director at Oxford Economics Middle East said.

“The reforms highlight that factors beyond wages are important for attracting talent. During the recovery phase, this is likely to become more intense. This places the onus on businesses to be ‘good’ places to work in a broader sense.”

The unemployment pay initiative will also improve the competitiveness of the labour market, and encourage workers from around the region and the globe to look more closely at the UAE’s private sector, experts added.

Livermore said: “The new initiative will likely encourage expats to relocate to the UAE, and will also likely see public sector employees migrate to the private sector. This creates a more self-sufficient labour system and encurages greater confidence about developing a career in the UAE.”

This will also be beneficial for employers as it may serve as a way to attract employees to join, or incentivise employees to stay at, their company.

“There is already competition for talent as the economy recovers strongly from the Covid. If these reforms increase the attractiveness of the private sector in the UAE to both local and expat talent, then this could be positive for business and the economy as a whole.

“The new initiative will create a more stable economy, with a less transient labour pool, and will therefore help retain and develop knowledge in the economy, which should be positive for long run growth.” Livermore added.

From an economic perspective, unemployment schemes such as this are also likely to catalyse the UAE’s growth and help tackle future economic shocks, experts added.

Vijay Valecha said: “As the name indicates, unemployment insurance helps an unemployed person meet the family’s necessities, such as rent and food bills. However, these schemes are also beneficial for the economy.

“The economy indirectly benefits as it reduces the aggregate training costs in the system. This is because unemployment insurance enables a person to find jobs that are important in the economy.”

Studies in the US have found that individual consumption falls only one-third in the presence of an unemployment insurance program.

“It will help the local economy as money will keep flowing to businesses, landlords and other retailers in terms of economic uncertainty. So this scheme can enable UAE and individual families to tackle future economic shocks in a better way. Especially low-income families will be able to keep away from poverty,” Valecha concluded.

“Moreover, it restores the balance of power in the labour market. In the absence of any scheme, individuals are forced to deplete their assets to meet daily requirements, or some will be forced to send their immediate family members back home.”