THE EARNED ALLOWANCES

Despite the swift development of humankind in the 21^st century, unemployment remains an integral part of the market economy visibly intensified during global crises. This issue has not yet been solved completely by anyone, but the developed countries know how to decrease its negative implications through various social assistance mechanisms, the development of self-employment programs, stimulation of business activity, etc. One of the most effective methods for supporting the unemployed is the unemployment insurance system currently used in 72 countries around the world. Since January 2018, the Unemployment Insurance Fund also started functioning in Azerbaijan.

Self-employment and insurance

Solution of unemployment problem in any country is directly related to the diversification of the national economy. Azerbaijani President Ilham Aliyev addressed this issue in his speech during the interactive session Strategic View: Eurasia at the World Economic Forum in Davos. “The oil and gas industries cannot create enough new jobs, and to keep unemployment at low levels, it is necessary to intensify the development of agriculture, tourism and services, industrial manufacturing, high technologies, education, management, etc. With Azerbaijan's entry into the post-oil period, serious reforms are implemented in the country to diversify non-oil production and exports. These reforms are already yielding good results. For instance, in 2017, the non-oil sector and industry of our economy grew by about 3% and 4%, respectively,” said President Ilham Aliyev said. He added that 177 thousand permanent jobs were created in Azerbaijan last year.

Last year, the government launched several reforms covering social security and labour market: a transition to a new pension system from mid-2017, establishment of a commission on informal market, new vocational training centres and transition from passive labour market programs to active ones.

At the meeting of the Cabinet of Ministers on the results of socio-economic development in 2017 and forthcoming tasks, president mentioned the measures to increase employment and strengthen measures to overcome unemployment. In particular, public works organised in various spheres have made it possible to employ thousands of nationals in various regions of Azerbaijan. The implementation of the self-employment program started more than a year ago. The objective of the program is to support the establishment of small enterprises. In 2017, 1232 families were involved in this program and provided with material and financial assistance, as well as an opportunity to create their own small business, mostly in farming sector. In 2018, the government will allocate ₼35m for the development of this program, which will become a significant state support for almost 7,000 families.

The implementation of the self-employment program is directly related to the implementation of another social project, the Unemployment Insurance Fund established on January 1, 2018 under the law on unemployment insurance. The purpose of the law is to strengthen social protection of population through preventive measures to create new mechanisms for financing and preventing risks in the process of compensating salaries for unemployed persons who lost their jobs, as well as preventing the occurrence of unemployment.

Half a percent of the salary

The main objective of the fund is to provide material assistance to persons whose employment contracts were terminated because of the liquidation of the employer or the massive reduction of employees.

Pursuant to the law on unemployment insurance, a new type of social tax is introduced, which covers broader categories of population and is compulsory. The fund will generate income from payments of the insurers (legal entities, companies and state bodies), which is 0.5% of the wage fund, as well as deductions from the salaries of employees working at state enterprises and have an employment contract with the employer. The amount of these deductions will also reach 0.5% of the salary of the employee. The insurer will determine the amount of insurance premium based on insurance rates. Insurers must ensure monthly contributions in parallel with the payment of monthly salaries, but not later than the 15^th day of the following month.

Calculation of monthly insurance fees will be made based on 50% of the lost monthly salary if the insurance period covers 3 to 5 years; 55% of the lost monthly salary if the insurance period covers 5 to 10 years; and 60% of the lost monthly salary if the insurance period is over 10 years. The period of premium payments for state social insurance (before the entry into force of this law) and payment of insurance premiums after the start of its application will be included in the employee's insurance experience. In turn, insurance payments are provided in three types - the basic insurance payment, an addendum (a written supplement to a previously concluded insurance or reinsurance contract, which contains agreed upon changes in the previously agreed terms between the parties) and a minimum insurance payment.

Only for the unemployed!

Thus, the social unemployment allowances are mainly targeting the employees of state institutions and private companies regardless of the form of organization and property in the event of mass reductions or with the complete cessation of the activities of enterprises or organizations. The deductions for compulsory insurance against unemployment accumulated in the fund are similar to other insurance premiums (for example, automobile insurance) and cannot be refunded in the absence of an insured event. The funds, which were not spent during the year, will be used to finance expenditures in the next year.

On the other hand, a certain population category may not get the benefits of the fund. “In particular, individual entrepreneurs will not be able to receive benefits under the compulsory insurance against unemployment,” said Idris Isayev, Deputy Minister of Labour and Social Protection of Azerbaijan. “This is because contributions for this type of insurance must be paid by both employees and the employer.”

Pursuant to the law on unemployment insurance, the duties of the insurer, the organization that will accumulate insurance premiums and issue them in the event of an insurance event, are assigned to the Ministry of Labour and Social Protection. The State Social Protection Fund (SSPF) under the Ministry will carry out the functions of accounting, calculation and collection of premiums paid by employers and employees. The State Employment Service is responsible for spending the collected funds as necessary. Thus, there is no need to create a special office for the Unemployment Insurance Fund.

First budget

At the end of December 2017, President Ilham Aliyev approved the budget of the Unemployment Insurance Fund as ₼89.04m for 2018. By the way, only ₼33.5m will be used to pay unemployment insurance, a large part of the fund will be spent on activities that help creating new jobs. Thus, ₼35.8m will be directed to self-employment measures, ₼13.7m to expenses related to the maintenance of employment service apparatus and its local bodies, ₼1.8m for the organization of paid public works, ₼1.6m for vocational training and additional education, ₼1.2m for advice on vocational guidance and ₼120,000 for labour fairs and exchanges.

The evaluation of the expenditure items of the Unemployment Insurance Fund, established in Azerbaijan, indicates that this structure will be oriented not only to the payment of social benefits to the unemployed citizens, but primarily to the active development of the labour market. “The joint activity of the Insurance Fund and the Ministry of Labour will allow us to implement numerous active labour programs, including programs for the employment of young people with subsidized wages.” Today, we have all the necessary material and technical resources to expand our activities in the youth sphere,” noted the Deputy Minister of Labour and Social Protection, Metin Kerimli.

The Fund has a special role to play in the development of the self-employment program in the country. “With the establishment of the fund, a new source of funding for the self-employment program has appeared in the country, which will expand its coverage by 3.2 times.” About 40% of the funds accumulated in this structure – ₼35.8m are set for providing assets to create farms for various directions of activity, and this will allow covering about 35 thousand people in 2018,” said Salim Muslimov, Minister of Labour and Social Protection.

International experience

New initiatives of Azerbaijan in social protection of the population have already received positive feedback from prestigious international organizations.

“Azerbaijan has made notable improvements in the sphere of social protection and development of the labour market,” says the IMF report published last December following the visit of the IMF mission to Baku. Among the measures to develop the labour market, the report highlights the establishment of a new Unemployment Insurance Fund, the implementation of pension reform and the transition from passive employment programs to active ones.

The positive effect of initiatives of the government of Azerbaijan in the field of social protection was also mentioned in the reports of the World Economic Forum and the World Bank (Doing Business).

Undoubtedly, the creation of the fund will have a positive impact on the assessment of Azerbaijan's country indicators, taking into account the fact that rating agencies assess not only the level of economic indicators, but also factors of social stability and risks in this area.

The creation of the unemployment insurance fund has long been in demand, and this step is in line with the recommendations of the International Labour Organization (ILO). The organization reports that there are around 72 countries in the world that provide for the payment of unemployment benefits.

According to various estimates, the coverage of the employed population by unemployment insurance in European countries is varying between 60 to 80%. Similar systems operate in some countries of the post-Soviet bloc, in particular in Kazakhstan, where the State Social Insurance Fund has accumulated 1.2 trillion tenge (about $4b).

Only time will show if the Unemployment Insurance Fund of Azerbaijan reaches comparable indicators and become an effective tool for creating new jobs.