Give a loan to cover loss of income

My friend asked my views about unemployment insurance. Is it useful? Will it help those who are retrenched?

I replied that it is useful, compared to no safety net. But it is very costly. And it needs to be managed well. 

Why? There is a "propensity to claim". The insured person thinks that he or she has paid the premium, and should be entitled to the unemployment benefit. 

There are many situations where the entitlement to the benefit is clear, e.g. when a person who has been employed for several years loses the job for reasons beyond their control. This happens when the company has to cut down on the workforce or close its business.

There will be other occasions when the entitlement is not clear, e.g. when a worker is terminated due to bad performance. There could be a tendency for the employer to address the situation as "retrenchment", so that the worker gets the benefit. 

These grey areas are likely to lead to abuse or disputes. 

A political party has proposed an unemployment insurance scheme and has calculated the cost of the scheme. I suspect that they have under estimated the cost considerably. In many countries, the cost of unemployment insurance is much higher than their figures. 

I prefer a system where the worker is allowed to borrow against his CPF savings to meet loss of income due to unemployment or under employment, e.g. when required to take no-pay leave. This borrowing helps to meet the immediate cash flow but has to be repaid, or will be deducted from the CPF savings at a future date.

This loan is similar to withdrawing savings from CPF. I agree. But the loan can also be granted even when there is no CPF savings that can be withdrawn.

I think that the loan approach is better than unemployment insurance.