What is the problem? 

• There is no unified and functioning social security system in the country, that would insure citizens from the social risks caused by unemployment. 
• Up until now, there is no unemployment benefit system. 

Therefore, 

• The state doesn’t have the instrument of utmost importance for fighting poverty at the initial stage – unemployment allowance;      
• The principal mechanism of financial stability and welfare for people left without a job –unemployment insurance – doesn’t function in the country. 

How can this problem be solved?

In order to solve this issue, the state must create a unified unemployment benefit system that will cover unemployment insurance and unemployment allowance schemes. When establishing an unemployment benefit system, the state must be guided by the best international practice, as well as, take into account the local socio-economic context.   

International practice: 

In general, the unemployment benefit systems consist of main two instruments, unemployment insurance, and unemployment allowance.       

What should we know? 

• In the European Union both instruments of unemployment benefits functions. 
• In particular, unemployment insurance works in every member state of the European Union.  

• However, unemployment allowance, as uneymployment benefit separate scheme, is used in only 10 members states of the European Union ( Austria, Estonia, Finland, France, Germany, Irland, Italy, Malta, Portugal, and Spain).      

The Perspective of the unemployment allowance in Georgia: 

• In Georgia, approximately 532000 people get subsistence allowance, and the amount of the subsistence allowance per family varies between GEL 200-250. 

Taking into account the above, 

• Establishing an unemployment allowance would decrease the poverty level caused by unemployment, on the one hand; 
• On the other hand, would decrease the state expenses intended for subsistence allowance and protect the unemployed from extreme poverty. 

Terms:

Criteria for registering as a beneficiary of unemployment allowance, the allowance amount, and the duration of granting the allowance should be exactly determined, 

In particular: 

• The state shall determine the type of persons who will be entitled to receive the allowance. 

• As an established practice shows, persons who were working for 12 months before losing a job, can be entitled to the unemployment allowance. This duration framework differs by country. 
• The amount of the allowance should be defined, which must be more than the subsistence minimum, but less than the salary received, and on the other hand, the person should have the motivation to seek a new job. 

• The duration of the allowance should be defined. As a rule, this period amounts to 6 to 12 months. When deciding on the duration, the state shall be guided by the two main principles – fight poverty at the initial stage and give the unemployed the stimulus to seek a new job. 

The perspective of unemployment insurance in Georgia 

Along with establishing the unemployment allowance scheme, it is important to set forth a nonbudgetary unemployment insurance system, as it would ensure the effectiveness of the labor market and the income stability for a citizen during the crisis.  

When creating the unemployment insurance scheme, the mandatory nature of the insurance, the work experience required to gain insurance benefits, the amount of insurance contributions, the duration of contributions, and the duration of receiving the benefits should be determined.  

• It is necessary to receive unemployment insurance benefits: 
• A citizen should have some work experience (e.g., the citizen worked for 6, 12, 24, or 36 months before becoming unemployed). As usual, mandatory work experience varies between 12 to 18 months; 
• A citizen should make financial contributions to the insurance scheme for a certain period; 
• A citizen must be involuntarily dismissed from the job; 
• A citizen should be looking for a new job and should be capable of working. 

It should be highlighted, that 

Unemployment insurance/allowance is granted only to those citizens, who have been registered as employed by the state and are registered as unemployed after losing a job. 

Therefore, 

There is a risk, that people employed in informal sector, who lost their job, will not be granted the unemployment insurance/allownance benefits, because the state doesn’t register people employed in informal sector. This an important problem,  

Because 

The share of informal employment in the Georgian labor market is very high. According to the data of the National Statistics Service, the share of informal workers in the non-agricultural sector is 29%. However, these statistics don’t fully cover the numbers of informal work.  

What should the state do? 

• Determine whether the unemployment insurance should be mandatory (e.g., Germany, Austria and France) or voluntary (e.g., Denmark, Finland and Hungary). In the context of Georgia, both systems have their advantages and risks. In case of the introduction of voluntary insurance, the citizens would be given the opportunity to determine for themselves how much it is worth to transfer a certain amount from the salary to the insurance funds, although there would be a risk that the citizens would refuse to contribute, which would increase the pressure on the unemployment allowance system;  
• Choose one of the three most common contribution systems (three-column, two-column, one-column). In the case of choosing a system in which only the employer and the employee would make contributions, the state budget would be freed from the financial costs of unemployment insurance and would be limited to the financing of unemployment allowance, however, considering the low wages of employees, it would be difficult to accumulate enough money in the funds to provide a decent number of benefits. In case of state involvement, the share of the employee's contribution would be reduced and the mobilization of sufficient funds in the funds would be simplified, although the budget expenditure would increase;  
• Determine the minimum, threshold amount of the monthly contribution, whether it is 1.5%, 2% or 3% of the monthly salary. The issue of redistribution of contributions must be agreed upon between the employer and the employee, although the state must determine the minimum threshold for redistribution to the employer. For example, when distributing contributions, the employer should not give less than 50% of the contribution;      
• Determine whether the duration of insurance benefits will be fixed for all beneficiaries (Cyprus, Denmark) or whether it will depended on the volume and duration of contributions to the insurance fund in individual cases (Austria, Croatia); 
• Take into account the low remuneration of employees in Georgia and develop a strategy on how to accumulate the necessary amount of funds in the insurance funds to provide decent benefits; 
• In parallel with the introduction of the unemployment benefits system, have an active labor market policy, which includes the activation of professional training-retraining programs for job seekers and the increase of their efficiency. 

What are we waiting for? 

• On 28 April 2021, the then Minister of Health of Georgia, Ekaterine Tikaradze, spoke about the creation of a Social Code in the parliament and announced the “implementation of a large-scale legislative reform in the form of a Social Code based on taking into account the experience of successful countries” in Georgia;       
• On 21 June 2021, the presentation of the principles of the code was held and the adoption of the code was planned for 2023; 

What goals does the Code have? 

• In the statement of the Ministry of IDPs, Labor, Health and Social Protection from the Occupied Territories of Georgia, is said that “the reform of the Social Code aims to introduce a complete and integrated approach to the social protection system, which includes the development of a regulatory framework for the social, health and insurance sectors.”  

Will the Code regulate the unemployment insurance/allowance? 

The presentation states that the insurance reform provides for “considering of new components of insurance, mandatory medical, social, unemployment, accident, temporary incapacity for work insurance.” 

However, 

• It is yet unknown, on which unemployment insurance model will be the unemployment benefit system be based in Georgia and whether it will also include an independent unemployment allowance scheme.