[Senate Hearing 107-680]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-680

 ONE YEAR LATER: RESTORING ECONOMIC SECURITY FOR WORKERS AND THE NATION

=======================================================================

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   ON



 EXAMINING UNEMPLOYED AMERICANS IN THE C0NTEXT OF THE CURRENT ECONOMIC 
 SITUATION, FOCUSING ON TEMPORARY EMERGENCY UNEMPLOYMENT COMPENSATION 
                             (TECU) REFORM

                               __________

                           SEPTEMBER 12, 2002

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions



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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

               EDWARD M. KENNEDY, Massachusetts, Chairman

CHRISTOPHER J. DODD, Connecticut     JUDD GREGG, New Hampshire
TOM HARKIN, Iowa                     BILL FRIST, Tennessee
BARBARA A. MIKULSKI, Maryland        MICHAEL B. ENZI, Wyoming
JAMES M. JEFFORDS (I), Vermont       TIM HUTCHINSON, Arkansas
JEFF BINGAMAN, New Mexico            JOHN W. WARNER, Virginia
PAUL D. WELLSTONE, Minnesota         CHRISTOPHER S. BOND, Missouri
PATTY MURRAY, Washington             PAT ROBERTS, Kansas
JACK REED, Rhode Island              SUSAN M. COLLINS, Maine
JOHN EDWARDS, North Carolina         JEFF SESSIONS, Alabama
HILLARY RODHAM CLINTON, New York     MIKE DeWINE, Ohio

           J. Michael Myers, Staff Director and Chief Counsel

             Townsend Lange McNitt, Minority Staff Director

                                 ______

                                  (ii)

  




                            C O N T E N T S

                               __________

                               STATEMENTS

                           SEPTEMBER 12, 2002

                                                                   Page
Kennedy, Hon. Edward M., a U.S. Senator from the State of 
  Massachusetts, opening statement...............................     1
Mishel, Lawrence, President, Economic Policy Institute, 
  Washington, DC; Wendell Primus, Director of Income Security, 
  Center on Budget and Policy Priorities, Washington, DC; and 
  Felix Batista and Napoleon Morales, Unemployed Workers, New 
  York, NY, on behalf of the New York Unemployment Project.......     3
    Prepared statements of:
        Mr. Mishel...............................................     5
        Mr. Primus...............................................    14
        Mr. Batista..............................................    32

                                 (iii)

  

 
 ONE YEAR LATER: RESTORING ECONOMIC SECURITY FOR WORKERS AND THE NATION

                              ----------                              


                      THURSDAY, SEPTEMBER 12, 2002

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:28 a.m., in 
room SD-106, Dirksen Senate Office Building, Hon. Edward M. 
Kennedy (chairman of the committee) presiding.
    Present: Senators Kennedy and Reed.

                  Opening Statement of Senator Kennedy

    The Chairman. We will come to order.
    We first of all want to express apologies to our witnesses 
for the delay. They scheduled an unexpected vote earlier, which 
necessitated my presence.
    I look forward to hearing our witnesses, and I welcome all 
those who have come to this hearing to hear about an enormously 
important challenge that our country is facing with regard to 
working families.
    Last September 11, our Nation and our way of life were 
attacked. Our hearts remain heavy because of the losses that 
our Nation and our people suffered on that day.
    The events of September 11 made clear that America's 
workers are true heroes. The pictures of tired, dust-covered 
firefighters and law enforcement officers confronting 
unimaginable horror that day are permanently emblazoned in our 
minds, and so also is the memory of their service to our 
country.
    September 11 was an attack not just on our cities and our 
citizens but on the entire American economy. No one can truly 
weigh the loss of life. But the loss of property amounts to 
tens of billions of dollars. We can redress that, and we will. 
But the loss and the risk went far beyond Ground Zero in New 
York, at the Pentagon, or in Pennsylvania.
    Americans stopped flying and stopped buying. Corporations 
put investment decisions on hold. Hundreds of thousands lost 
their jobs in companies across the economy, in airlines and 
hotels, in restaurants and retailers, in manufacturers and 
businesses of every size.
    Felix Batista, who is here with us today, lost his job and 
lost many friends as well. Seventy-three of Mr. Batista's 
coworkers at Windows on the World in New York lost their lives 
at the World Trade Center.
    Never before has it been so clear how interconnected our 
society is. In the past year, more than 19 million workers like 
Mr. Batista have lost their jobs. Some have found new ones. But 
today, more than 8 million Americans are out of work through no 
fault of their own. For them and their families, life is a 
continuing ordeal of missing paychecks, unpaid bills, lost 
health insurance, no job on the horizon. One in five unemployed 
workers has been out of work for 6 months or more--too many 
months of looking for work and hearing ``No'' after ``No'' 
after ``No.'' Two million of those workers will run out of 
their unemployment benefits by the end of this year.
    The corporate scandals contributed to the decline in the 
economy as well. Alan Gonsenhauser of Northborough, MA is one 
of those workers about to exhaust his benefits. Formerly the 
vice president of a Massachusetts consulting firm whose largest 
client was Enron, he was laid off last December. Nine months 
later, he is still looking for a job. He, his wife and their 
two children can rely on unemployment benefits and personal 
savings to cover family expenses, but his benefits will expire 
this Saturday.
    Estimates show that we have lost more than 160,000 jobs 
because of the corporate scandals. What these workers do not 
need is more tax breaks tilted to the wealthy. What they do 
need is more measures to heal the economy and help those who 
need and deserve our support the most.
    These unemployed workers need a benefits extension. In the 
last recession, unemployment benefits were extended four times. 
At its peak, an additional 33 weeks of benefits were provided. 
That enabled workers to keep a roof over their heads, food on 
the table, and it also helped to jumpstart the economy.
    Sadly, not all workers receive unemployment benefits when 
they are laid off. Too many low-wage workers are left out of 
the unemployment system because they recently joined the labor 
force or are seeking part-time work. In addition, today's 
benefit checks are too low for many families to afford their 
basic necessities--food, rent, electricity, and health care.
    It is long past time to meet these needs by extending 
unemployment benefits, by covering low-wage and part-time 
workers, and by raising benefit levels. In doing so, we can 
make a significant difference for workers and also for our 
economy.
    The Bush Administration has resisted our efforts to provide 
adequate unemployment assistance and health insurance coverage 
to workers still searching for new jobs in this weak economy. 
But the administration can no longer afford to ignore the pain 
and the needs of these struggling families. We must act--and 
act now--to live up to our obligations to help our fellow 
citizens in their time of need.
    We must not ignore the plight of millions of Americans hurt 
by forces beyond their control. We must work together to get 
our economy moving again and see that no one is left behind.
    I look forward to hearing more about these issues from our 
witnesses today.
    Dr. Larry Mishel is the new president of the Economic 
Policy Institute. He is co-author of ``The State of Working 
America,'' an annual EPI publication that provides a 
comprehensive look at the economy as it is experienced by 
America's working people and their families. His areas of 
expertise include labor economics, wage and income 
distribution, industrial relations, productivity growth, and 
the economics of education.
    Dr. Mishel, we look forward to hearing from you.

   STATEMENTS OF LAWRENCE MISHEL, PRESIDENT, ECONOMIC POLICY 
 INSTITUTE, WASHINGTON, DC; WENDELL PRIMUS, DIRECTOR OF INCOME 
 SECURITY, CENTER ON BUDGET AND POLICY PRIORITIES, WASHINGTON, 
DC; AND FELIX BATISTA AND NAPOLEON MORALES, UNEMPLOYED WORKERS, 
  NEW YORK, NY, ON BEHALF OF THE NEW YORK UNEMPLOYMENT PROJECT

    Mr. Mishel. Thank you very much, Senator.
    Thank you for the opportunity to discuss our Nation's 
current employment and unemployment situation. As you know, 
unemployment has been increasing fairly steadily since October 
2000, rising from 3.9 percent to its current level of 5.7 
percent, with over 8 million workers unemployed.
    Although the economy has been growing this year, the growth 
has not been strong enough to create jobs and keep unemployment 
from rising. Although unemployment dipped slightly last month, 
the consensus among economists, including those at CBO, is that 
unemployment will rise and stay at a level near or above 6 
percent throughout this year and next.
    The economy is not creating enough new jobs to keep up with 
population growth and productivity improvements. There were 
only 39,000 jobs created last month, with no job growth in the 
private sector. Yet we need at least 120,000 new jobs each 
month just to accommodate new entrants into the labor force.
    The fast productivity growth we enjoyed means that the 
economy can grow by roughly 2 to 2.5 percent without adding any 
new jobs. Thus, the economy has to grow at least 3 to 3.5 
percent just to keep unemployment from rising, and it has to 
grow much faster than that so we can get back to the 4 percent 
unemployment rate that we need to obtain.
    The job shortfall in the economy can be illustrated in two 
ways. First, we now have 1.8 million fewer jobs in the private 
sector than we did in October 2000. That is a 1.7 percent 
decline. The job loss in this recession is as large as that of 
the early nineties recession or the 1980's recession. So by 
that measure, this is not mild.
    Second, the Bureau of Labor Statistics has a new series on 
job openings that starts in December 2000. That shows that job 
openings have declined by a million, while the number of people 
unemployed has grown by 3.2 million. The result is that there 
is a 5.4 million job gap between the number of job openings and 
the number of unemployed. So there are now roughly three 
unemployed workers for every job opening.
    This is why I think Congress should not be complacent about 
the current 5.7 percent unemployment rate. First, as I 
mentioned, unemployment will rise further in the future. 
Second, the lessons of the late 1990's are that we can achieve 
a 4 percent unemployment rate and that that level of 
unemployment is needed to generate broad-based income growth. 
Third, the high unemployment we are experiencing has already 
caused wages to grow more slowly for those who are employed, 
especially among low-wage workers, whose wage growth now no 
longer exceeds inflation. Wage growth among middle-wage workers 
now is about half what it was just a few years ago in terms of 
how fast it is relative to inflation, the real wage growth. So 
the economy affects not only the unemployed; it affects those 
people who are employed by lowering the rate of wage growth.
    Last, 5.7 percent is not a good indication of the 
unemployment experienced by many groups. Blue-collar workers 
have unemployment at roughly 9 percent; construction workers, 
roughly 10 percent; blacks, 10 percent; Hispanics, 7.5 percent. 
And if you are a young black man or woman with just a high 
school education, the unemployment rate that you face is 24 
percent. So 5.7 percent is an average; it does not really 
reflect a lot of people who are really hurting.
    The Nation thus has a serious and persistent job problem 
that needs to be addressed. One way to address it is through a 
coordinated policy with our trading partners to lower the 
dollar, which is one of the reasons why we are having a 
manufacturing crisis. But there are other mechanisms that 
Congress can act through legislation to help.
    One, we need to cushion the impact of unemployment on those 
directly affected, as the Senator has already suggested. 
Second, we need the Government to stimulate demand. Businesses 
need more customers. We have lots of unemployed. We have lots 
of excess capacity. If they have customers, they will make 
profits, they will invest, they will hire workers. The only way 
to do that at this point in my view is by boosting Government 
spending by about $100 billion a year for each of the next 2 
years.
    We should not hesitate to do this even though it will 
increase the deficit in the short term. In fact, we cannot 
stimulate demand unless we add to the deficit. At the same 
time, an appropriate Government stimulus should not and need 
not affect our fiscal balance over the long run. We need to 
increase spending in the short term, but not have it be 
permanent.
    Extending unemployment insurance and improving the 
unemployment insurance system will serve both goals of 
assisting those in need and stimulating the economy. We can 
also use existing programs to inject expenditures into the 
economy. One area is school repairs, where there is lots of 
need for schools to repair their buildings and facilities, and 
we have existing programs that we can funnel billions of 
dollars through and get the work done very quickly.
    Another area that I would recommend is fiscal relief to the 
States. The States have some $40 to $50 billion in shortfalls. 
When that happens, they raise taxes and cut services, both of 
which exacerbate a recession, and it is the Federal 
Government's role in my view to help offset those results.
    We also know what the Government should not do. Economic 
policy should not be targeted at restoring stock prices. We do 
not know what level of the stock market is correct or how to 
affect stock prices. Nor do we want to provide a safety net for 
day traders. Rather, we should focus on creating a better 
market for stocks through reliable accounting and transparency. 
It is best to work on improving the real economy and have the 
stock market rise accordingly.
    Thank you. I look forward to your questions.
    The Chairman. Thank you very much. We will come back to 
questions.
    [The prepared statement of Mr. Mishel follows:]

                 Prepared Statement of Lawrence Mishel

    Thank you for the opportunity to discuss our Nation's current 
employment and unemployment. As you know, unemployment has been rising 
fairly steadily since October 2000, rising from 3.9 percent to its 
current level of 5.7 percent, with 8.1 million workers unemployed. 
Although the economy has been growing in 2002, the growth has not been 
sufficiently fast to create jobs and keep unemployment from rising. We 
now have 1.7 percent fewer private sector jobs than in October 2000. 
Moreover, current slow growth will generate few jobs and will lead 
unemployment to grow further--perhaps to 6.5 percent or more--and to 
remain above 6 percent for at least another year or so. The Nation, 
thus, has a serious jobs and unemployment crisis that needs to be 
addressed in two ways. One, we need to cushion the impact of this 
recession on those directly affected. Second, we need to generate 
growth by stimulating demand--that is, by creating more customers for 
business. The fastest, most effective way to do this is by boosting 
government spending quickly and for the next year or so. Extending 
unemployment insurance and improving the unemployment insurance system 
will both assist those in need and stimulate demand quickly.

                         TODAY'S JOB SITUATION

    The Bureau of Labor Statistics just released their survey on 
employment and unemployment for August 2002. Unemployment stands at 
8.142 million, 5.7 percent of the labor force. Although 39,000 jobs 
were created last month, the number of private sector jobs did not 
expand and are still 1,833,000, or 1.7 percent, lower than in October 
2000. Many economists, including me, believe that the 0.2 percent drop 
in unemployment last month is a temporary dip that will be followed by 
a ratcheting up of unemployment over the near term.
    It is true that this unemployment rate is low relative to the 
unemployment reached in the recessions of over the last thirty years 
(though sizeable relative to those of the 1950-73 period). There are a 
number of reasons, however, not to be complacent: unemployment will 
rise further; our target for unemployment should be 4 percent, and not 
being there has significant adverse consequences; and, when average 
unemployment is at its current levels some segments of the workforce 
experience very high unemployment.
    The important point about today's unemployment is that it is 1.8 
percent more than the 3.9 percent rate we had just 2 years ago, an 
increase equivalent to 2.6 million more unemployed workers. Although an 
unemployment rate of 5.5-6 percent used to be considered acceptable, 
and any lower rate considered potentially inflationary, we now know 
that this conventional wisdom was and is wrong. The late 1990s have 
reestablished that 4 percent is the benchmark target for unemployment, 
one that facilitates broad-based noninflationary growth. The costs of 
not being at 4 percent unemployment are substantial, as discussed 
below. Unfortunately, despite the dip in unemployment last month, it is 
reasonable to expect unemployment to rise over the next 6 months and to 
stay above 5.5 percent, if not 6.0 percent, throughout 2003.
    The explanation is simple. In order for the unemployment rate to 
drop, the economy must grow faster than productivity plus the growth 
rate of the labor force. This is because productivity allows us to 
generate more goods and services without expanding employment and the 
economy needs to continuously absorb new workers (recent high school or 
college graduates and other ``new entrants'' or ``reentrants''). Given 
that the long-term productivity trend is from 2.0 to 2.5 percent and 
the labor force trend is 1.0 percent, the economy must grow at a 3.0 to 
3.5 percent rate just to keep unemployment from rising. It takes a 
growth rate of 4.0 to 4.5 percent to allow unemployment to drop 0.5 
percent.
    Even though the economy began growing over the last three-quarters, 
growth has been so slow (0.1 percent, 1.4 percent, 2.1 percent) that 
very few jobs have been created and unemployment has risen giving us a 
relatively ``jobless recovery.'' The unemployment rate would have grown 
further had the labor force expanded at its recent historical rate. We 
estimate that the current recession in the labor market has kept 
roughly 2.2 million people from seeking employment--a group not 
captured in the unemployment rate. Had just half of the workers in this 
``hidden unemployment'' been in the labor force the current 
unemployment rate would be close to 6.5 percent.
    There are several reasons why unemployment will grow. First, the 
impact of the recent slow growth has not yet been fully felt, since 
unemployment ``lags'' behind growth. Second, growth through the end of 
this year is forecasted to be at the 2.5 percent to 3.0 percent rate 
and for next year is at about 3.5 percent, a growth rate not sufficient 
to set us on a track to achieve 4 percent growth anytime in the next 
few years. This is the conclusion of the CBO, OMB and the Blue Chip 
consensus. For example, the Blue Chip survey of forecasters finds that 
two-thirds of the forecasters do not believe that unemployment has 
peaked. Moreover, forecasters expect unemployment to peak at 6.2 
percent, 0.5 percent more than today's rate. Third, unemployment will 
be higher than typically forecasted because if and when growth 
accelerates the labor force will expand more rapidly, making up for the 
very slow labor force growth (especially in the share of the adult 
population in the labor force) over the last 2 years. For instance, 
from July 2001 to July 2002 the labor force grew by just 0.5 percent. 
My conclusion, I am sorry to say, is that the unemployment situation 
will grow worse before it gets better and unemployment will stay high 
through 2003.
    It is also important to note that the national unemployment rate is 
an average that conceals low unemployment among some groups but very 
high unemployment among others. Therefore, complacency in the face of 
roughly 6.0 percent unemployment is inappropriate. For instance, the 
unemployment rate has averaged 5.8 percent over the last 3 months. This 
includes groups with unemployment rates that are low: professionals and 
managers, 3.1 percent; college graduates, 2.8 percent; and government 
workers, 2.4 percent. Other groups, however, have very high 
unemployment rates such as construction workers (9.6 percent), those 
with less than a high school degree (8.4 percent); and blue-collar 
operatives and laborers (8.7 percent). Especially, notable is the 
higher unemployment rates of minorities, with blacks at 10.1 percent 
and Hispanics at 7.5 percent. Most worrisome is that some disadvantaged 
groups, such as young (ages 16-25) black men and women with a high 
school degree have unemployment rates of roughly 24 percent. This is 
especially relevant to concerns about the success of welfare policy in 
the current environment.
    The higher unemployment rate has had, and will continue to have an 
adverse impact on working families. The impact of the recession 
obviously falls on those who become unemployed. Less well appreciated 
is that the unemployment rate does not adequately reflect the number of 
workers who become unemployed at some time during the year, a number 
two to three times as large as the number of unemployed at any one 
point in time. As unemployment rises so do other forms of 
underemployment, ranging from workers in part-time jobs who want full-
time jobs, workers in temporary jobs who want permanent, regular jobs 
and those who are working at jobs for which they are overqualified. We 
have already seen that higher unemployment can affect those who are 
employed by leading to slower wage growth. Wages are still growing 
faster than inflation but at only half the pace of a few years ago (at 
roughly 1 percent rather than 2 percent real growth). Wage growth has 
decelerated the most for low-wage workers whose wages are now barely 
keeping up with inflation. The wage growth among middle-wage men has 
also been substantially reduced. Consequently, we are now seeing a 
return of the widening of the wage gap between low and middle-wage 
workers as well as the continued growth in the wage gap between high-
wage and middle-wage workers. In other words, the recession is 
reestablishing the trend toward an across the board widening of wage 
inequalities, something we haven't seen since the mid-1990s. The bottom 
line is that higher unemployment is lowering family incomes--by $1,800 
this year for a middle-income family--and leading to wider 
inequalities.
    Another way to examine the costs of high unemployment is by 
appreciating the benefits of the period of low unemployment that 
prevailed from 1995 to 2000. We saw broad-based real wage growth for 
the first time in two decades. Job quality improved as health insurance 
and pension coverage improved, part-time work diminished, self-
employment shrank, and the need to work two or more jobs declined. 
Family incomes across the board rose and the income and wage gaps by 
race shrank for the first time in years. All of this is to say, we 
certainly miss those days of low unemployment and we need to get back 
to them as quickly as possible.

                CHARACTERISTICS OF THE CURRENT RECESSION

    There are characteristics of the current recession that are 
noteworthy. In particular, when compared to earlier recessions: the 
private sector job loss has been more severe, the rise in unemployment 
has been broadly shared by gender and education; and, college graduate 
unemployment has risen more. Plus, there has been an usually large 
increase in the duration of unemployment--how long people stay 
unemployed--as witnessed by the historically large share of the 
unemployed who are long-term unemployed.
    This recession can be judged (so far, at least) to be shallow, 
because of the relatively low increase in unemployment. What has not 
been noticed, however, is that there has been an even more severe loss 
of private sector jobs in this downturn. In particular, private 
employment has declined 1.7 percent, or 1,833,000 jobs, a larger 
decline at this point in the cycle than in the recessions of the early 
1980s and 1990s. This reflects the severe loss of manufacturing jobs 
and the stagnant growth of private sector service jobs. Increased 
employment by government is a singular bright spot. The private sector 
job loss is the downside of the relatively fast productivity growth we 
have enjoyed.
    There has been a more uniform increase in unemployment in this 
recession so that this recession is affecting a broader array of the 
workforce. For instance, the unemployment rate has grown comparably 
among those with ``some college'', a high school degree and those 
without a high school degree. In prior recessions, in contrast, 
unemployment rose much more among those with less education. 
Unemployment among women has risen almost as much as among men, a stark 
contrast with earlier recessions which were more targeted at men. This 
gender pattern reflects the heavy job losses in the female-intensive 
service industries. It is interesting to note, in this regard, that the 
unemployment rate among college graduates has risen more than in the 
early 1990s and is on par with the much steeper increase during the 
early 1980s recession.
    There is one way that this recession's impact is more narrowly 
focused--those who became unemployed tend to stay unemployed longer. In 
August there were 1,474,000 workers unemployed for more than 27 weeks, 
comprising 18.1 percent of the unemployed. This is a larger share of 
the unemployed than was the case at this point in the business cycle in 
the 1970s and 1990s but less so than in the early 1980s recession 
(Figure A). This longer duration of unemployment suggests a greater 
mismatch between the types of jobs available and the types of workers 
that are unemployed. Obviously, an increase in long-term unemployment 
suggests the continued need for extended benefits in the unemployment 
insurance system.

                 POLICY TARGETS: STOCKS AND EMPLOYMENT

    It is understandable that there has been much media discussion of 
the fall of stock prices over the last few months, with the Dow falling 
10.4 percent, the NASDAQ falling 14.5 percent and the S&P 500 falling 
10.4 percent since June. Yet, economic policy should not target getting 
stock prices back up as a goal, even though the losses are painful to 
some. Besides the fact that stock prices were probably inflated and 
unsustainable, the government should not be in the business of 
providing a safety net to stockholders.
    There are many reasons that economic and budget policy should not 
focus on the stock market. First, we do not have a basis for 
establishing what the correct level of stock prices should be--the 
target. Second, we do not understand well what moves the stock market. 
Third, the government does not have effective tools to affect the stock 
market. Fourth, there is no clear connection between a rising stock 
market and the economic well-being of the vast majority, as a rising 
stock market can be consistent with improving or declining family 
incomes and real wages. Last, contrary to popular belief, the stock 
market has not been a source of investment funds--companies have used 
more cash to buy stock than they have received from selling stock. 
Consequently, the government should structure and regulate the stock 
market so as to generate accurate financial information and 
transparency but leave the value of the stock market to supply and 
demand forces.
    On the other hand, at a time of high and rising unemployment it is 
quite appropriate and necessary for government economic policy to focus 
on job generation and putting the economy on a track to achieve 4 
percent unemployment. It is easy to establish the size of the existing 
``job gap''--the difference between the number of job openings and the 
number of unemployed--using the new JOLTS data provided by the Bureau 
of Labor Statistics, as shown in Figure B. In December 2000, the 
earliest data, there were roughly 5.2 million unemployed and 4.0 
million job openings--a gap of 1.2 million jobs. By August 2001--before 
the terrorist attack--the job gap grew to 3.1 million as job openings 
slipped by 0.2 million and the unemployed grew by 2.0 million. The 
latest data, for June 2002, show a further 0.6 million decline in job 
openings and a further 1.2 million growth of unemployed workers, 
leaving a total job gap of 5.4 million jobs. As of June 2002, there 
were 2.67 unemployed workers for every job opening.

                     WHAT'S NEEDED--MORE CUSTOMERS

    The Administration is correct in one important sense in saying that 
the economy's fundamentals are good. That is, we are enjoying a 
relatively fast growth in productivity even during this recession, a 
continuation of a trend that began in 1996. The long-term productivity 
growth rate is now estimated to be 2.0 to 2.5 percent, which is 0.5 to 
1.0 percent greater than the roughly 1.5 percent trend over the 1973-
95. Thus, one problem we do not seem to be having is improving our 
efficiency.
    The problem we face is that businesses do not have enough 
customers--they need more sales. As sales rise, so will profits and so 
will the number of workers hired. Investment in plant and equipment 
will follow. In economic terms, we have excess supply--plenty of 
available workers and productive capacity (industry is now working at 
76.1 percent capacity, down from 81.8 percent in 2000)--but 
insufficient Demand. Therefore, to achieve a stronger cyclical recovery 
we need mechanisms to quickly increase expenditures by government 
consumers (both foreign and domestic). That is, we need a short-term 
(over the next 2 years) boost to Demand.
    Over the period from 1996 to mid-2000, demand was growing at a 3.5 
to 4.5 percent pace but fell to a 1.5 percent pace over the last five 
quarters because consumption growth slowed, investment fell and net 
exports declined. In order to lower unemployment by 1.5 percent over 
the next 2 years--a modest goal that gets us close to the 4 percent 
unemployment rate target--we will need to increase overall growth 1.5 
percent each year for the next 2 years--3 percent more growth overall.
    There are two means to do this. One would be to gradually lower the 
value of the dollar through a policy coordinated with other advanced 
countries and using lower interest rates. This would lead to greater 
exports and fewer imports, thereby boosting the manufacturing sector. 
This is an important policy but not one that directly involves 
congressional legislation.
    The other mechanism to boost demand is to increase government 
expenditures without raising taxes or having offsetting cuts in other 
programs. This will require extra spending of $100 billion in each of 
the next 2 years. To be clear, this extra spending must be associated 
with an increase in the fiscal deficit over the next 2 years in order 
for these new expenditures to add to demand. However, the increase in 
expenditures and the accompanying deficits need not, and should not, 
create long-term fiscal imbalances. Thus, the characteristic of a 
short-term spending stimulus is that the expenditures decline and then 
disappear as unemployment falls. It is possible to implement an ongoing 
spending plan if it is paid for by bringing in more revenues after the 
first 2 years. Preventing the future execution of the planned tax cuts 
and retaining the estate tax can help offset the costs of higher 
spending implemented now, allowing policymakers to achieve long-term 
fiscal solvency.
    It is also possible to increase short-term demand through consumer 
oriented tax cuts. The tax cuts being discussed by the Administration, 
however, are permanent and therefore raise deficits in both the short-
term and the long-term. They are also not consumer-oriented. In fact, 
many of the tax cuts are oriented toward increasing saving, which would 
decrease rather than increase demand. The proposed tax cuts are thus 
wrongly timed (permanent rather than short term) and incorrectly 
targeted (at improving saving rather than consumer spending).
    Another shortcoming of tax cuts over spending is that there is 
leakage to savings and imports which do not increase domestic demand. 
That is, part of tax cuts received by households will be saved rather 
than spent and any consumer spending generated by tax cuts is more 
likely to go to imports than will government spending on 
infrastructure, school repair or government services.
    unemployment insurance: softening the blows, stimulating demand
    Unemployment insurance plays two critical roles in the US economy. 
It forms the first line of defense against income lost during periods 
of unemployment and it provides an automatic stimulus to the economy 
during periods of economic decline by sustaining consumption and 
therefore demand. By extending benefits for the long-term unemployed 
and improving eligibility to incorporate more workers into the system, 
policymakers can both cushion the impact of a recession on individuals 
and provide a countercyclical stimulus that will moderate the 
recession. Thus, a package of unemployment reforms should be part of 
any stimulus plan.

                   SOFTENING THE BLOW OF UNEMPLOYMENT
 
   The current unemployment insurance system is an important but weak 
safety net. From the worker's perspective there are few if any 
protections from lay off. While some may be eligible for generous 
severance packages, most workers rely on income from unemployment 
insurance once they lose a job. The unemployment insurance program has 
weaknesses, but overall it has worked remarkably well since it's 
creation in 1935. Research indicates that in the absence of 
unemployment insurance benefits many families would quickly descend 
into poverty. For moderate income households unemployment insurance 
benefits lifted 20 percent of these households out of poverty (Danziger 
and Gottschalk, 1990). Nearly one-third of workers are unable to 
replace even ten percent of their lost income from savings, while those 
who receive unemployment insurance benefits draw down their savings and 
assets more slowly (Gruber, 2002).
    While unemployment insurance benefits are a much needed palliative 
measure for those unfortunate enough to lose a job, they do not provide 
enough income for families to make ends meet. On average a single 
working parent with two children falls $1,317 short each month of the 
amount of money needed to maintain a minimal, no-frills living 
standard. A two parent household with one parent unemployed and the 
other employed part-time at the median wage falls short of their family 
budget by $334 per month (Boushey & Wenger, 2001). While unemployment 
insurance is very helpful it is not overly generous.
    Currently, only 48 percent of workers who become unemployed will 
receive unemployment insurance. Those who receive UI can expect to 
remain unemployed for 14.7 weeks and receive $254 per week in benefits.

                   UNEMPLOYMENT INSURANCE AS STIMULUS

    The second benefit that comes from unemployment insurance is its 
effect on the macro-economy. Unemployment insurance acts as an 
automatic stabilizer--injecting money into the economy as the labor 
market wanes and unemployment increases. During periods of low 
unemployment and economic expansion unemployment insurance benefits 
naturally decline and trust fund balances are increased. Thus, the 
program injects spending into the economy when the economy is weak and 
takes out spending when the economy is strong. Improvement in the 
system will not create long-term fiscal imbalances.
    The stabilizing role of unemployment insurance is considerable; 
research by Chimerine et al. (1999:6) indicates that the unemployment 
insurance program ``mitigated the loss in real GDP by about 15 percent 
over all the quarters in each recession.'' Moreover, and importantly, 
the authors indicate that the effect of unemployment insurance in the 
1990 recession was more robust than in the 1980's recession. This was 
likely due in large part to the extended benefits program that was 
passed by the 102nd Congress in 1992.
    Other research has concluded that unemployment insurance plays an 
important role in stabilizing the economy. Von Furtenburg (1976), 
Dunson et al. (1990), Uri, et al. (1989), and Vroman (1998) all find 
that increases in unemployment are met with commensurate increases in 
UI expenditures and that these expenditures result in significant 
economic stimulus during periods of economic decline.
    The importance of the unemployment insurance system on macro-
economic performance has been well documented. However, with the 
exception of the 1990-1991 recession, the policy and demographic 
changes have reduced the availability and generosity of unemployment 
insurance benefits--weakening its effect as a stabilizer. In 
particular, recipiency rates have declined from the late 1970's. During 
1975, the year of peak unemployment in the 1970s, the recipiency rate 
averaged 75 percent 1. During 1992, at the end of the last recession, 
when unemployment peaked, the UI recipiency rate was 52 percent. 
Currently the percent age of unemployed workers receiving UI benefits 
is 48 percent.
    Low levels of unemployment insurance eligibility are problematic 
for particular groups of workers. First and foremost, the lowest 
earners have a difficult time qualifying for UI benefits. These workers 
often earn low wages and have periodic interruptions in employment. As 
a consequence, many of them fail to earn sufficient income or work 
enough hours to qualify for unemployment insurance benefits. This means 
that many new entrants to the labor force, in particular women who 
previously received welfare, will be unable to qualify for unemployment 
insurance benefits.
    The second group of workers who have limited access to unemployment 
insurance are workers employed on a part-time basis. These workers, 
most of whom are women, make up 20 percent of the U.S. labor force as 
of July 2002. The earnings from these jobs comprise nearly 30 percent 
of household income--a significant loss of income should a part-time 
worker lose a job. Yet most part-time workers are ineligible to receive 
unemployment insurance benefits. Research indicates that only 17 States 
have rules allowing part-time workers to qualify for unemployment 
insurance benefits. (Wenger, McHugh & Segal, 2002)
    Apart from the problem of access are ongoing problems of recipients 
who exhaust benefits prior to finding a job. During first quarter of 
2002, 36.9 percent of UI benefit recipients ran out of regular 
benefits, making them eligible for Federal extended benefits (Tier 1 
TEUC--Temporary Extended Unemployment Compensation). TEUC allowed many 
workers to receive as many as 13 weeks of additional benefits. It is 
estimated that 60 percent of those on extended benefits will exhaust 
their benefits before finding work. Currently, over one million people 
have exhausted all of their UI benefits.
    The UI system of the United States needs to be significantly 
expanded so that it better serves all of the unemployed. Not only would 
this serve the interests of the families who have experienced job loss, 
but it would serve as a well-targeted and highly effective economic 
stimulus.

                   OFFSETTING THE STATE FISCAL CRISIS

    There has been a larger shortfall in State budgets in this 
recession than in earlier recessions, according to the National 
Governors Association. States are drawing down their reserves and 
cutting spending and raising taxes in order to balance their budgets. 
Unfortunately, when States raise taxes and reduce services they reduce 
the overall demand for goods and services, thereby exacerbating the 
recession. The layoffs and spending reductions also curtail many needed 
services. A very useful way to restore demand in the economy would be 
to provide fiscal relief to State (and local) governments. This is 
administratively easy to do--it would take a staff of twenty-five to 
distribute $50 billion of fiscal relief to the States. This would also 
have an immediate impact, as plans to cut programs, raise taxes, or 
execute layoffs would be suspended.

                           SCHOOL RENOVATION

    There is wide agreement that there's a need to improve and expand 
school infrastructure. The GAO estimated the need for school repairs at 
$112 billion dollars in 1995. The problem has only gotten worse. There 
are existing programs that can be used to quickly expand school repair 
activity. One mechanism is to expand the repair fund program of the 
Individuals with Disabilities Education Act (IDEA). Given that many 
school districts are currently curtailing planned repairs, any new 
funding for this purpose can be implemented quickly. Another mechanism 
is to expand Federal funding of the Qualified Zone Academy Bond (QZAB) 
program, which provides tax credits toward the interest on school 
construction bonds. We could expand school repair by $10 to $20 billion 
annually through these programs and not only increase spending and 
accelerate the recovery but also address a much needed investment 
shortfall in our schools.

                               CONCLUSION

    The jobs and unemployment situation will only worsen as slow growth 
leads to higher unemployment, driving us further from achieving a much-
needed goal of 4 percent unemployment. The cost of the higher 
unemployment is lost wages and incomes to workers and their families, a 
further widening of inequalities, an inhospitable environment for 
welfare reform and the social costs of greater crime and worsened 
health. It is critical that policymakers address the unemployment 
problem by seeking a measured decline in the value of the dollar and 
through various temporary spending measures of about $100 billion each 
year for the next 2 years.





    The Chairman. We now welcome Dr. Primus, who is director of 
the Income Security Division of the Center on Budget and Policy 
Priorities. Dr. Primus has expanded the Center's research in 
areas including Social Security, unemployment insurance, child 
support enforcement, child welfare, income and poverty trends, 
and Federal policy related the 1996 welfare law.
    He served as chief economist and staff director of the 
House Ways and Means Committee during the recession in the 
early 1990's when the committee played a significant role in 
extending temporary unemployment benefits.
    We are glad to have you here, Dr. Primus.
    Mr. Primus. Mr. Chairman, I very much appreciate the 
opportunity to testify on what Congress should do for 
unemployed Americans in the context of the current economic 
situation. I will summarize my testimony with three simple 
points.
    First, do not be misled by unemployment rates of less than 
6 percent in this recession. For workers, this recession is as 
severe, or probably more severe, than the 1990 recession.
    The most accurate way to evaluate a recession's impact on 
unemployment is to examine the increase in unemployment during 
the recession, measuring it just before the recession and then 
where we are currently. It is that increase in unemployment 
that measures the degree to which the economic situation of 
workers has worsened as a consequence of a downturn.
    Official unemployment as released each month by the Bureau 
of Labor Statistics in this recession has increased from 3.9 
percent to 5.7 percent, as Larry indicated. In the last 
recession, unemployment increased from 5.5 percent or so to a 
little over 7.5 percent, an increase of two percentage points. 
That increase is comparable but somewhat less thus far in this 
recession.
    But if you look at workers and unemployment insurance 
statistics, a different picture emerges. You can think of the 
insured unemployment rate, the percentage of workers collecting 
unemployment, as kind of an unemployment rate among workers. 
For the 3-month period centered in July of 1990 to July of 
1992, that rate rose by seven-tenths of one percent, from 2.4 
to 3.1 percent.
    However, during the last 2 years for which data are 
available, the increase today is greater. It went from 1.7 to 
2.8, a 1.1 percentage point increase. The larger increase in 
this rate indicates that for experienced workers, the impact of 
this recession is somewhat more severe than the impact of the 
previous recession.
    Although the insured unemployment rate is a better measure 
of unemployment among experienced workers than the official 
rate, it also has several defects. This insured unemployment 
rate does not take into account part-time workers, as you noted 
in your opening statement, but it also does not take into 
account anyone who has exhausted his regular unemployment 
benefits, which typically last 26 weeks.
    So unemployed workers today who are receiving Federal 
temporary benefits are not counted by this measure. To 
partially remedy that defect, we use something called an 
``adjusted insured unemployment,'' the same rate that is used 
in your bill, Mr. Chairman. It counts all the workers who are 
receiving unemployment insurance plus those who have exhausted 
benefits in the last 3 months. This was also the definition of 
unemployment that we used in the last recession. That adjusted 
unemployment rate has increased more sharply in the past 2 
years than it did during a comparable period in the early 
1990's.
    As you can see by the graph that I hope is in front of you, 
this increase of 1.5 percentage points is bigger than the 
increase that happened during the 1990 recession.
    Mr. Chairman, take your State, for example. During the last 
recession, when unemployment was increasing from 5.5 to about 
7.8 percent, this adjusted rate in Massachusetts only rose two-
tenths of one percent. In this recession, the increase has been 
2.1 percentage points, almost 10 times more. So clearly workers 
in your State have been affected considerably more.
    If you look at five States--Massachusetts, Michigan, North 
Carolina, Oregon, and Washington have had increases of two 
percentage points or more. In the last recession, there was 
only one State that had an increase over 2 percent.
    The Chairman. Excuse me. Just so I understand, basically 
what you are saying is that we have more workers looking for 
fewer jobs; is that correct?
    Mr. Primus. Absolutely.
    The Chairman. The difference in the impact on the workers 
between the recession in the 1990's and currently is that you 
have fewer jobs available and more workers looking for them, 
and therefore, there is increasing pressure put on the work 
force, and therefore, we have to provide additional help and 
assistance to them if we are going to treat them fairly.
    Mr. Primus. That is right. I guess what I am really arguing 
is that in regard to the unemployment rate for workers, those 
in the work force as opposed to new entrants or re-entrants, 
this recession has hit them more than the last recession.
    The Chairman. OK.
    Mr. Primus. Another way of thinking about this, Mr. 
Chairman, is just looking at long-term unemployment, those who 
have exhausted their regular benefits. The increase in this 
recession is greater than in the 1990's recession. For example, 
where these workers are from in New York, in the last 
recession, exhaustions over a 6-month period increased by 
81,000; in this recession, they increased by 104,000.
    So the bottom line is that this recession is as severe or 
probably more severe for workers who have been in the labor 
force.
    Point number two--the temporary Federal program enacted in 
March provides much fewer weeks of benefits and is scheduled to 
expire at the end of this year, only 9\1/2\ months after it 
began. During the prior recession, the program lasted for 30 
months. As you pointed out, only two States now are getting 
more than 13 weeks. In the last recession, in the early part of 
the recession, the minimum number of weeks a State could 
receive was 26, and there are many fewer States today counted 
as high-unemployment States.
    All of those things suggest that the current Federal 
program is a lot less generous than the prior program.
    Point number three--exhaustion data from this temporary 
program you enacted in March confirms that this recession is 
serious and that the current temporary program is inadequate. 
Already, 900,000 workers have exhausted benefits. By the end of 
September, 1.5 million will have exhausted, and by the end of 
the year, 2.2 million will have exhausted. During a comparable 
period in the early 1990's, we only had 1.4 million workers who 
exhausted those temporary benefits.
    In conclusion, Mr. Chairman, there is a price to inaction. 
If you do not act and provide additional weeks, you will be 
saying to the one million or so who have already exhausted 
those temporary benefits that they will not get benefits like 
their counterparts in the previous recession. And in the last 
recession, it was a bipartisan process. President George H. 
Bush signed all of those extensions into law.
    Furthermore, if you do not act before adjourning sine die, 
there will be one million workers who are going to be receiving 
benefits around Christmas-time and around the beginning of the 
new year; so if you exhausted your benefits in early December 
and maybe were scheduled to get 13, come January 1, that is all 
you are going to get. So there will be roughly one million 
workers that you will be giving a somewhat unhappy New Year, 
and there will be no benefits for the roughly 400,000 workers 
who will exhaust their regular benefits in January and February 
of 2003.
    The final point, Mr. Chairman, is that there is over $25 
billion sitting in a Federal unemployment insurance trust fund 
that was collected from workers so that they can receive extra 
benefits during a period of recession.
    The Chairman. That is very, very helpful. What was the 
height of that unemployment insurance fund? Before we passed 
the 13 weeks, do you remember what that was up to?
    Mr. Primus. It was around $45 billion or so. So it has been 
depleted somewhat, mainly because you transferred about $9 
billion to the States, and you paid for these benefits thus far 
out of that fund.
    The Chairman. Thank you very much.
    [The prepared statement of Mr. Primus follows:]

                  PREPARED STATEMENT OF WENDELL PRIMUS

    Mr. Chairman and Members of the Health, Education, Labor & Pensions 
Committee: My name is Wendell Primus, and I am the Director of Income 
Security at the Center on Budget and Policy Priorities. The Center is a 
nonpartisan, nonprofit policy organization that conducts research and 
analysis on a wide range of issues affecting low- and moderate-income 
families. We are primarily funded by foundations and receive no Federal 
funding.
    I very much appreciate the opportunity to testify on what Congress 
should do for unemployed Americans in the context of the current 
economic situation. In summary, your proposal addresses an urgent 
issue. It would assist unemployed Americans to a significant degree by 
broadening coverage, providing additional weeks of benefits, and 
raising the Temporary Emergency Unemployment Compensation (TEUC) 
benefit amount. In reforming the TEUC program, it is useful to recall 
that improvements to the Unemployment Insurance system serve a two-fold 
purpose. First, they assist workers who are unemployed through no fault 
of their own to meet their daily living expenses, such as rent or 
mortgage payments, utilities, and groceries. Second, by providing this 
assistance, nearly all of the money is immediately spent, thus boosting 
consumer demand and mitigating further layoffs. Most other forms of 
fiscal stimulus do not serve such pressing needs.
    In my testimony, I will describe the current unemployment situation 
and the Temporary Emergency Unemployment Compensation program. I will 
explain that workers are by many measures worse off in the current 
recession than in the recession of the early 1990s, and that the TEUC 
program is less generous than the Emergency Unemployment Compensation 
program that was in place during that last recession. I conclude with 
several suggestions for improving the TEUC program.

                                SUMMARY

    A cursory examination of current unemployment statistics would 
suggest that this recession is mild in comparison to the prior 
recession and therefore no additional weeks of Federal unemployment 
benefits need to be provided to unemployed workers beyond what was 
enacted in March in the economic stimulus legislation. Such an analysis 
might conclude that the current unemployment rate--5.7 percent as of 
August 2002--indicates the recession is quite mild and is harming only 
a modest number of workers.
    This assessment is mistaken. Although by some commonly used 
measures the consequences of the recent downturn have not been as 
severe as the consequences of the recession of the early 1990s, by 
certain other measures the recession that began last year has hit 
workers just as hard as the recession of the early 1990s. In fact, by 
some important measures, such as the actual number of workers whose 
federally-funded unemployment benefits are running out before they are 
able to find a new job, this recession has hit workers harder than the 
last recession.
    The unemployment situation has not yet significantly improved; in 
fact, the latest unemployment rate indicates that unemployment is 
unchanged from its level when the Temporary Emergency Unemployment 
Compensation (TEUC) program was enacted in March 2002. The 
Congressional Budget Office predicts that the unemployment rate will 
remain near 6 percent until the second half of 2003, well after the 
program's expiration date of January 1, 2003. The evidence of the 
difficult labor market conditions facing workers in this recession 
relative to the last recession and historical precedent for a longer 
and a more generous program combine to present a strong case for 
extending and expanding the TEUC program.
    Unemployment data from the Bureau of Labor Statistics (BLS) 
indicate that, on average, there were 2.7 million more unemployed 
workers in the 3 month period from June to August 2002 than in June to 
August 2 years ago, and 1.9 million more unemployed than in the same 
months 1 year ago.
    An increase in the long-term unemployment of workers with 
significant labor force experience who cannot find a job before their 
benefits are exhausted is a particularly striking measure of the depth 
of the current recession. Nationally, the number of unemployed workers 
exhausting their regular State benefits has doubled from the level 2 
years ago.
    The most accurate way to evaluate a recession's impact on 
unemployment is to examine the increase in unemployment during the 
recession, rather than the overall unemployment rate. In other words, 
it is the increase in unemployment that measures the degree to which 
the economic situation of workers has worsened as a consequence of a 
downturn.
    The Adjusted Insured Unemployment Rate (AIUR), which measures both 
short and long-term unemployment of experienced workers, has increased 
by 1.5 percentage points between the three-month periods from June to 
August 2000 and June to August 2002.\1\ In the last recession, the AIUR 
rose by 1.1 percentage points between June to August 1990 and June to 
August 1992. (For further explanation of the different definitions of 
unemployment used here, please see the Appendix.)
    During the last 6 months, the number of workers who have run out of 
State UI benefits is 2.3 million, compared to 2.0 million 10 years ago. 
Thirty-two States plus the District of Columbia had larger increases in 
exhaustions during this recession than the last recession, and 16 
States had more exhaustions over a 6 month period in the current 
recession than in the last. Nationally, during comparable time periods, 
exhaustions increased by 875,000 in the last recession; in this 
recession they increased by a larger amount--1,185,000.
    During a comparable time period, more workers will exhaust their 
Federal UI benefits in this recession than exhausted Federal UI 
benefits in the last recession.\2\ Approximately 2.2 million workers 
will exhaust their TEUC benefits by the end of December 2002. This 
substantially exceeds the 1.4 million workers who exhausted their 
temporary Federal benefits in the 1990s recession. This finding 
confirms the theory that the current TEUC program is inadequate.
    Additionally, some characteristics of the TEUC program reduce its 
effectiveness as both a means of assistance to unemployed workers and 
as an economic stimulus. Extending the expiration date and increasing 
the number of weeks of benefits available are changes dictated by 
economic conditions and historical precedent. At the same time, 
changing other program requirements can strengthen the TEUC program's 
impact. Changes to the TEUC program should include:
    Extending the expiration date of the program beyond January 1, 
2003.
    Increasing the number of weeks of benefits under the program.
    Modifying the definition of ``high unemployment'' for the purposes 
of the program so that more than two States qualify for the highest 
tier of benefits.
    Removing the explicit requirement that workers have at least 20 
weeks of wages in their base period to receive TEUC benefits, so long 
as workers meet the earnings requirements for regular UI benefits in 
their States.

                        CHANGES IN UNEMPLOYMENT

    By most measures of unemployment, the increase in unemployment 
during this recession is somewhat similar to or exceeds the increase 
during the recession of the early 1990s.
    The official seasonally adjusted unemployment data from the U.S. 
Department of Labor's Bureau of Labor Statistics (BLS) include anyone 
who is classified as unemployed, regardless of the reason for their 
unemployment. This data is used to compute the Total Unemployment Rate 
(TUR). The official unemployment data show substantial increases in 
both the number of unemployed and the unemployment rate since the 
recession began in March 2001; these increases are similar to, but 
somewhat less than, those that occurred in the early 1990s recession.
    BLS data indicate that there were 2.3 million more unemployed 
workers in August 2002 than there were in February 2001, the month 
before the recession began. During the recession of the early 1990s, 18 
months into the recession, the number of unemployed had increased by 
2.6 million, a somewhat larger figure.
    Comparing the average unemployment over two three-month periods can 
provide a better picture of changes in unemployment than comparing two 
single months, since three-month averages incorporate more information 
and smooth out one-month aberrations. (BLS unemployment data are prone 
to these aberrations because they are based on a sample.) Comparing the 
3 months prior to the start of the current recession in March 2001 to 
the latest 3 months for which information is available shows that 
unemployment grew by an average of 2.5 million workers. During this 
period, the average three-month unemployment rate grew from 4.1 percent 
to 5.8 percent, an increase of 1.7 percentage points.
    Some 18 months into the recession of the early 1990s, the average 
number of unemployed over a three-month period had grown by 2.3 million 
workers compared to the 3 months just prior to the recession. During 
this period the average three-month TUR grew from 5.3 percent to 7.1 
percent, an increase of 1.8 percentage points. Thus, comparing the 
figures from the two downturns, the actual increases in the number of 
unemployed persons and increases in the unemployment rate are similar.
    However, it took about 24 months in the 1990 recession for 
unemployment to peak. Over this period, the three-month average 
unemployment rate increased 2.2 percentage points.
    A second set of indicators comes from the information compiled for 
the Unemployment Insurance program. The measure of unemployment used 
here is the insured unemployment rate (IUR), which measures the number 
of workers that are receiving regular, State-funded Unemployment 
Insurance (UI) benefits. One advantage of this measure is that since in 
most States an unemployed worker must have a minimum level of earnings 
and weeks of work history to qualify for UI benefits, to some degree 
the IUR measures unemployment among experienced workers with a 
significant labor force attachment.
    The proportion of workers receiving State unemployment benefits has 
actually risen more during this recession than the last recession.
    Because most unemployment insurance data is not seasonally adjusted 
and because averaging 3 months of data is technically better, the 
remainder of this analysis uses three-month averages, centered 2 years 
apart.\3\
    For the three-month period centered on July 1990 to July 1992,\4\ 
the IUR increased from 2.4 percent to 3.1 percent, an increase of 0.7 
percentage points. However, during the last 2 years for which data are 
available, the three-month average IUR increased from 1.7 percent to 
2.8 percent, a 1.1 percentage point increase. The larger increase in 
this rate indicates that, for experienced workers, the impact of this 
recession is somewhat more severe than the impact of the previous 
recession. See the graph below.



    Although the IUR is a better measure of unemployment among 
experienced workers than the official unemployment rate, it itself has 
several defects.\5\ Of special note here, the IUR does not take into 
account experienced workers who have been unemployed for such a long 
period of time that they have exhausted their regular unemployment 
benefits, which typically end after 26 weeks or less. So unemployed 
workers who are receiving temporary Federal benefits or who have 
exhausted their regular or Federal benefits--that is, workers who 
presumably have had the most trouble finding a job and whose economic 
situation is especially perilous--are not counted by this measure.
    It is also worth examining a third measure of unemployment, the 
Adjusted Insured Unemployment Rate (AIUR), which measures both short- 
and long-term unemployment of experienced workers.
    The AIUR has increased more sharply in the past 2 years than it did 
during a comparable two-year period covering the early 1990s recession.
    The AIUR increased by 1.5 percentage points between June to August 
2000 and June to August 2002.\6\ During a comparable two-year period of 
the last recession, the AIUR rose by 1.1 percentage points.
    As shown in Table 1, the AIUR has increased more in 36 States in 
this recession compared to the last recession.
    Currently, there are 11 States with three-month average AIURs above 
4 percent, compared to one State 2 years ago. In the last recession, 
there were 18 States with June to August average AIURs above 4 percent, 
up from three States over June to August 1990.
    In this recession, AIURs have increased by two percentage points or 
more in five States: Massachusetts, Michigan, North Carolina, Oregon, 
and Washington.
    AIURs increased by one percentage point or more in an additional 31 
States, so a total of 36 States had increases of one percentage point 
or more. During the prior recession, only one State had an AIUR 
increase of over two percentage points, and only 23 States had 
increases of one percentage point or greater.
    In summary, the ``official'' unemployment data show similar but 
sometimes somewhat smaller increases in unemployment in this recession 
compared to the last one. However, unemployment rate data from the 
unemployment insurance system show greater increases in this recession 
as compared to the prior recession.



           WORKERS EXHAUSTING UNEMPLOYMENT INSURANCE BENEFITS

    The importance of the recent unemployment increase is magnified by 
the recent increase in the number of workers that are exhausting their 
weeks of unemployment insurance benefits without finding a job. These 
workers have significant work experience but are unable to find a job 
before their benefits expire. The exhaustee data, in some cases, 
indicate that current labor market problems are now worse than they 
were in the early 1990s.
    The increase in the number of workers whose regular State UI 
benefits ran out before they were able to find a job was greater during 
this recession than during the early 1990s recession. The increase in 
exhaustions between the February-July 2000 period as a whole and the 
February-July 2002 period as a whole was 1,185,000 workers. This 
exceeds the increase of 875,000 in the number of exhaustions between 
February-July 1990 and February-July 1992. (Comparing total exhaustions 
over two six-month periods is preferable to comparing exhaustions 
during two individual months, such as July 2000 and July 2002, because 
it accommodates seasonal fluctuations in unemployment. July 2002 is the 
most recent month for which exhaustion data are available.)
    The total number of exhaustions is also greater in this recession 
than the last: 2.3 million workers have exhausted their regular State 
UI benefits over the past 6 months, compared to 2.0 million for a six-
month period at a comparable point in the last recession.\7\ 
Nationally, the number of exhaustions has doubled in the past 2 years.
    These data in the aggregate and for each State are shown in Table 
2. For example, in Alabama 24,811 workers have exhausted regular State 
UI benefits over the past 6 months for which data are available. This 
is 11,289 workers more than a comparable period 2 years earlier. The 
fourth column in the table illustrates the increase in exhaustions from 
a comparable period in the prior recession. The States where the 
increase in exhaustions in this recession was at least double the 
increase in the prior recession are Colorado, Indiana, Kentucky, 
Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, North 
Carolina, North Dakota, South Dakota, Texas, Utah, and Wisconsin.
    To be sure, the size of the labor force has also grown since the 
early 1990s, so the increased number of exhaustees partly reflects the 
increased number of workers. But even after adjusting for changes in 
the size of the labor force, the increase in the total number of 
workers exhausting regular State benefits is greater in this recession 
than in the previous recession.
    The state-by-state data, naturally, depict a similar pattern. 
Thirty-two States plus the District of Columbia have had larger 
increases in the number of unemployed workers exhausting their regular 
benefits, adjusted for the size of the covered labor force, during this 
recession than during the last recession.\8\ In 16 of these States, 
after adjusting for the size of the covered labor force, both the 
increase and the level of exhaustions are larger in the current 
recession than in the previous recession.



                      THE AUGUST UNEMPLOYMENT DATA

    The recent decline in the Total Unemployment Rate in August, from 
5.9 percent to 5.7 percent, received substantial attention as a 
positive sign for the labor market and the economy. While any signs of 
improvement in the labor market constitute good news, one should be 
hesitant about making too much of the August data, particularly in the 
context of assessing whether the Unemployment Insurance program needs 
strengthening.
    A one-month change of 0.2 percentage points does not a trend make. 
Several more months of similar data, or a more substantial drop in the 
rate, are needed before it would become clear that the labor market is 
improving. As BLS itself noted, the unemployment rate for August was 
``little changed.''\9\
    The August unemployment rate of 5.7 percent is the same as the 
unemployment rate in March, when Congress created the TEUC program to 
address the rise in unemployment during the recession.
    The August labor market data included a much less encouraging 
figure that did not make the headlines. ``Non-farm payroll 
employment''--generally considered to be the best measure of the number 
of jobs in the economy--increased by just 39,000, to 130.8 million. 
This is a barely perceptible increase in the number of jobs and is more 
indicative of a stagnant labor market than a growing labor market.
    The proportion of the labor force consisting of people who lose 
their jobs involuntarily, the population that the unemployment 
insurance program is primarily designed to serve, did not decline at 
all in August.
    Many economists predict that unemployment will increase in 
subsequent months. Just a few weeks ago CBO predicted that unemployment 
will remain near 6 percent until the middle of next year.

              TEUC IS CONSIDERABLY LESS GENEROUS THAN EUC

    The TEUC program was enacted earlier this year as part of an 
economic stimulus package. It provides up to 26 weeks of additional UI 
benefits to workers who have exhausted their regular State UI benefits 
and who live in ``high unemployment states'' (as defined by the 
program) and up to 13 weeks of additional benefits to workers in other 
States. To qualify for the additional weeks of benefits, workers must 
have met all the requirements to collect regular UI in their State, 
have exhausted those regular UI benefits, and still be unemployed. 
Also, workers must have at least 20 weeks of earnings in their base 
periods. Workers in high unemployment States that have 13-week average 
IURs of at least 4 percent can collect TEUC benefits for as many weeks 
as they received regular State UI benefits, up to 26 weeks, and workers 
in other States may receive TEUC for half as many weeks as they 
received regular UI, up to 13 weeks. While States pay for regular UI 
benefits, TEUC benefits are federally financed. The TEUC program is set 
to expire on January 1, 2003; no benefits will be paid after that date 
even to workers who had not received the full number of weeks of TEUC 
benefits for which they were eligible before the cut-off date.
    The Emergency Unemployment Compensation (EUC) program was 
established to provide additional benefits to workers during the 
recession of the early 1990s. That program, which was enacted in 
November 1991 and expired on May 1, 1994--lasting for a total of 30 
months--initially provided up to 33 weeks of benefits to workers in 
high unemployment States (using a different definition than employed in 
the current TEUC program) and 26 weeks of benefits to workers in other 
States.\10\ In July 1992, it was revised to provide up to 26 weeks of 
benefits to workers in high unemployment States and 20 weeks to workers 
in other States. To qualify as high unemployment States to provide 
extra weeks of benefits, States had to have AIURs of at least 5 percent 
or six-month average Total Unemployment Rates of 9 percent.

                            EXPIRATION DATE

    The TEUC program is currently set to expire on January 1, 2003, 
only 9.5 months after the program began. According to the Congressional 
Budget Office, the unemployment rate will still be close to 6 percent 
at that time--higher than it was in March 2002, when the TEUC program 
was enacted, or in March 2001, when the recession began. Currently, the 
official unemployment rate remains 1.4 percentage points above its 
level in March 2001.
    By the time the EUC program ended, the national TUR had returned to 
within 0.6 percentage points of its level at the beginning of that 
recession, after climbing 2.3 percentage points above its beginning 
level at the peak of the recession. The EUC program remained in place 
even economic growth resumed, because unemployment rates tend to lag 
behind the economic recovery and do not return to their pre-
recessionary levels immediately. By the same logic, it is necessary to 
extend the expiration date of the TEUC program so that it does not end 
while unemployment remains high.

                      NUMBER OF WEEKS OF BENEFITS

    Under the TEUC program, workers in high unemployment States may 
receive up to 26 weeks of additional Federal benefits; workers in other 
States get up to 13 weeks of benefits. Currently, only two States 
qualify to provide 26 weeks of benefits, so the vast majority of TEUC 
recipients qualify for a maximum of 13 weeks. Up to 12 States qualified 
to provide 26 weeks of benefits at some point thus far in the TEUC 
program, but 10 States have dropped out of the ``high unemployment'' 
category.
    For the first 7 months of the EUC program, workers in high 
unemployment States could receive 33 weeks of temporary Federal 
benefits, and workers in other States could receive 26 weeks. After 
June 1992, workers in high unemployment States received 26 weeks of 
benefits and workers in other States got 20 weeks of benefits. Not 
until March 1993, a full 16 months after the program began, were any 
recipients limited to fewer than 20 weeks of EUC benefits.
    Also, more States qualified for the high unemployment tier of 
longer benefits periods in the previous recession than in the current 
recession:
    Early in the EUC program during the last recession, 15 States 
qualified to provide up to 33 weeks of benefits, with other States 
providing up to 26 weeks of benefits. Soon after the TEUC program was 
implemented in this recession, 12 States qualified to provide up to 26 
weeks of benefits, and other States provided up to 13 weeks of 
benefits.
    Seven months into the EUC program, when the number of weeks of 
benefits available was reduced, 15 States still qualified to provide 26 
weeks of benefits, and 20 weeks of benefits were available in the other 
States. In contrast, 6 months after the start of the TEUC program, only 
two States still qualify to provide 26 weeks of benefits, and only 13 
weeks are available in other States.
    Almost 2 years after the EUC program began, the number of weeks 
available was again reduced. Seven States qualified to provide 15 weeks 
of additional benefits, and the remainder provided 10 weeks. The TEUC 
program is scheduled to expire after only nine-and-a-half months; no 
additional benefits will be available at the two-year mark.



                    DEFINITION OF HIGH UNEMPLOYMENT

    As discussed above, only two States currently qualify to provide 26 
weeks of additional TEUC benefits, and in the other States, only 13 
weeks of additional benefits are available. While 12 States qualified 
to provide up to 26 weeks of benefits at some point during the program, 
ten have fallen out of the ``high unemployment'' category in large part 
because the trigger that provides extra weeks of benefits in high 
unemployment States is flawed. It is based on a measure that does not 
include long-term unemployment, and is not seasonally adjusted.
    For the purposes of the TEUC program, classification as a high 
unemployment State is based on the Insured Unemployment Rate, which 
does not include long-term unemployment. Workers who exhaust their 
regular State UI benefits and need additional assistance are not 
counted in the triggering mechanism for that very assistance--a worker 
who is receiving UI benefits in his 26th week of unemployment is 
included in the IUR, but when that worker exhausts regular UI and 
begins to receive TEUC benefits, he is dropped from the IUR 
calculation! The IUR counts a worker who exhausts his regular State UI 
benefits in the same way as a worker who has returned to his job--by 
dropping him from the numerator of the calculation. Thus, the IUR can 
decline in States where the unemployment situation is actually 
worsening because durations of unemployment are increasing.
    Also, the IUR is not seasonally adjusted, but unemployment is a 
seasonal phenomena. Rates are expected to decline in the summer months, 
and those seasonal declines have compounded the problems with the 
trigger levels. Of the 10 States that were classified as high 
unemployment States at some point during the program but no longer meet 
the definition, only three have had decreases of more than two-tenths 
of a percentage point in their seasonally adjusted Total Unemployment 
Rates.\11\ Two of the ten States have seen their overall unemployment 
rates increase by a half a percentage point or more since March, yet 
because their not seasonally adjusted IURs have decreased, they no 
longer qualify to provide the full 26 weeks of additional benefits.\12\
    The AIUR, which does include long-term unemployment, was used to 
define high unemployment under the EUC program. States qualified to 
provide up to 33 weeks of additional benefits during the first 7 months 
of the program and 26 weeks thereafter with AIURs of at least 5 
percent. As a result of a more appropriate trigger level, 16 States 
qualified to provide at 33 weeks of benefits early in the EUC program, 
and after the number of weeks available was reduced, 15 States remained 
eligible to provide 26 weeks of benefits.

                        TWENTY-WEEK REQUIREMENT
 
   Other characteristics of the TEUC program limit the extent to which 
it satisfies its goals of providing economic stimulus and assistance to 
unemployed workers. Some workers who exhausted their regular State UI 
benefits did not receive TEUC benefits at all, because in addition to 
having qualified for and exhausted regular State UI benefits, workers 
must have had at least 20 weeks of earnings in their base period to be 
eligible for TEUC benefits, a condition that did not apply to EUC 
eligibility in the early 1990s. Eligibility rules for regular State UI 
benefits in 23 States do not explicitly require 20 weeks of work, and 
workers who may have had less than 20 weeks of work but met the 
monetary and nonmonetary eligibility requirements in those States were 
nonetheless ineligible for TEUC benefits if they exhausted their 
regular UI benefits. While 23 States could potentially pay regular UI 
benefits to workers who have fewer than 20 weeks of wages, it is 
expected that there are significant numbers of such workers receiving 
regular State UI benefits in only ten States. It is estimated that 
requiring 20 weeks of work will result in almost 130,000 workers who 
would otherwise have received TEUC benefits during 2002 not receiving 
such benefits.

                     PERMANENTLY CHANGE THE TRIGGER

    As in the early 1990s recession, the TEUC program should use an 
AIUR trigger to determine which States are high unemployment States. 
The natural rate of unemployment is somewhat lower now than it was in 
the 1990s, and the trigger level should reflect this change in the 
underlying economic conditions. (For a discussion of the natural rate 
of unemployment, see the text box ``The Natural Rate of Unemployment 
Has Changed Over Time.'') States should qualify to provide the longer 
period of TEUC benefits with an AIUR of at least 4 percent.
    A four-percent AIUR trigger should also be adopted for the regular 
Federal-State Extended Benefits (EB) program. Currently, States qualify 
for that program if their IURs are at least 5.0 percent and at least 
twenty percent higher than at the same time in the past 2 years. Also, 
all but 12 States have adopted an optional trigger that allows them to 
qualify with IURs of at least 6 percent and no required increase from 
the past 2 years. Eight States have adopted a third trigger, a three-
month average TUR of at least 6.5 percent and at least ten percent 
higher than the TUR for the same months in either of the past 2 years.
    The same logic for changing the TEUC high-unemployment trigger 
applies to changing the trigger--both the overall unemployment rate and 
the UI measure of unemployment--for the permanent EB program. The IUR 
does not include long-term unemployment, and the natural rate of 
unemployment is lower now than when the trigger level was established. 
There are two additional reasons for adopting a four-percent AIUR 
trigger for the permanent EB program:
    Having a more appropriate trigger would mean that States could 
qualify for extra weeks of benefits earlier in the recession than if 
the trigger is set too high and workers are forced to rely on temporary 
emergency programs created by a political process. The political 
process can be slow, and allowing States to trigger on based on their 
AIURs might get benefits to workers sooner in a recession--and 
therefore begin to provide economic stimulus sooner in the recession.
    A more appropriate EB trigger would probably also lower Federal 
expenditures. If States with high unemployment, measured realistically 
under an improved trigger, qualify for regular EB, then temporary 
emergency programs might not be necessary or might be necessary for a 
shorter period of time. Since EB benefits are not paid in all States 
but rather only those with high unemployment, the cost to the Federal 
government would potentially be lower.



                             OTHER CHANGES

    The TEUC program has a dual purpose: to provide additional 
assistance to unemployed workers whose spells of unemployment are 
lengthened by recessionary conditions, and to provide targeted economic 
stimulus. Peter Orszag, a senior fellow in Economic Studies at the 
Brookings Institution, says that temporary extended UI benefits provide 
``high `bang for the buck' in terms of economic stimulus.''\13\ This is 
because such benefits are spent quickly. As Nobel Prize winning 
economist Joseph Stiglitz wrote in the Washington Post, ``give money to 
people who have lost their jobs in this recession, and it would be 
quickly spent.''\14\ They are also well-targeted: they go to 
communities where economic need, as measured by unemployment, is 
highest. A 1999 Department of Labor study found that in past 
recessions, each dollar of UI benefits probably increased the GDP by 
$2.15.\15\
    Both the stimulative effect of the TEUC program and the relief 
provided to unemployed workers could be increased by paying benefits to 
two groups of workers who currently do not qualify--those seeking part 
time work and those who do not have sufficient earnings in the regular 
base period but would qualify if the alternate base period were used--
and by increasing benefit amounts.\16\ The proposed changes to allow 
workers who would have qualified for regular State UI benefits had 
their most recent wages been included in their base periods or had they 
not been disqualified for seeking only part-time employment to collect 
TEUC benefits are a good step. States should also undertake studies of 
the interaction of their UI programs and their Temporary Aid to Need 
Families (TANF) programs to make sure that UI policies interact 
properly with the work-based TANF system. Such studies might prompt 
States to cover part time workers or to use the alternate base period 
of their own volitions even if those provisions are not mandated or 
encouraged by provisions enacted into Federal law.

 NUMBER OF TEUC EXHAUSTIONS INDICATES THAT PROGRAM MUST BE STRENGTHENED

    Exhaustion data from the Temporary Extended Unemployment 
Compensation (TEUC) program confirm that the program should be 
strengthened. During the first 5 months of the TEUC program, from March 
to July of 2002, some 2.8 million workers received assistance from the 
TEUC program. However, according to Labor Department data, around 
900,000 of these workers exhausted their benefits by the end of July 
without finding work. (Some of these workers have found jobs since 
then, but given the weakness of the labor market, it is very likely 
that many of these exhaustees still lack jobs.)
    In August and September of this year alone, a Center on Budget and 
Policy Priorities analysis projects another 600,000 workers will 
exhaust their TEUC benefits, lifting the number of exhaustees to 1.5 
million workers.\17\ By the end of 2002, a projected 2.2 million 
workers will exhaust their TEUC benefits before securing employment.
    Table 3 shows the cumulative number of workers who have exhausted 
all of their Federal UI benefits in each State at the end of July. New 
York had the largest number of workers exhausting benefits (111,000), 
followed by Texas (78,000), Florida (62,000), Pennsylvania (58,000), 
and Illinois (58,000). Because California and New Jersey met the high 
unemployment test and were eligible for another 13 weeks of UI benefits 
until early July, many fewer workers had exhausted UI benefits in those 
large States. On average, the number of unemployed workers exhausting 
their benefits in each State is projected to increase by about two 
thirds by the end of September, and more than double by the end of the 
year.
    By the end of October 2002, more people will have exhausted their 
TEUC benefits than exhausted EUC benefits in all of 1992. In the 
initial twelve and a half months of EUC, 1.4 million workers exhausted 
their benefits before finding work. Under the current TEUC program, 
which took effect in mid-March, a total of 2.2 million workers are 
projected to exhaust their benefits in calendar year 2002.\18\



    Over 60 percent of those receiving TEUC benefits are currently 
exhausting these benefits. By comparison, about 45 percent of EUC 
beneficiaries exhausted their EUC benefits in 1992.\19\ A higher rate 
of workers are exhausting benefits today primarily because fewer weeks 
of benefits are available today than in 1992, and unemployed workers 
thus have less time now than they did in the previous downturn to find 
work before their benefits terminate. The higher rate might also signal 
a labor market in which it is more difficult to find a job.
    The graph above illustrates the number of workers exhausting 
benefits for comparable periods of time. The 2002 total is a projection 
based upon the reported data for the TEUC program to date. Exhaustions 
are higher today than in 1992 for two reasons. The exhaustion rate, as 
explained above, is higher currently than during the EUC program, as is 
the number of unemployed individuals that could potentially exhaust 
benefits. In addition, the stock of exhaustions when the program began 
was somewhat greater in 2002 than in 1992.

                               CONCLUSION

    It is necessary to extend the expiration date of the TEUC program 
beyond the end of calendar year 2002. Economic conditions and the 
unemployment situation have not improved since the program was enacted 
in March, and the Total Unemployment Rate is expected to remain above 
its March level until after the TEUC program is currently set to 
expire. Typically, unemployment rates remain high even after a 
recession has ended. In the last recession, the TUR peaked in June 
1992, 15 months after the recession had officially ended. The 
unemployment rate did not decline to its level at the beginning of that 
recession until December 1994, 3 years and 9 months after the recession 
ended. The current unemployment situation is not likely to improve 
until the middle of 2003, according to CBO, and therefore the TEUC 
program should be continued.
    There is historical precedent for both extending the expiration 
date of the TEUC program and expanding the number of weeks of benefits 
provided. Analysis of the changes in the Adjusted Insured Unemployment 
Rate, the Insured Unemployment Rate, and the numbers of people 
exhausting their regular State UI benefits shows that this recession is 
similar to or exceeds the recession of the early 1990s, when more than 
13 weeks of additional, federally financed benefits were always 
available in all States, and when such benefits were available for more 
than three times as long as the 9.5 months provided under the current 
TEUC program. Also, there is justification for expanding TEUC coverage 
to include workers who may have fewer than 20 weeks of wage history or 
who would have qualified for regular UI benefits if their most recent 
wages were included in their base period or if they were not 
disqualified because they were seeking part time employment.

  Appendix: A Brief Discussion of Unemployment Measures Used in This 
                               Testimony

    The most commonly used unemployment statistics are those announced 
each month by the Bureau of Labor Statistics based upon a sample of 
approximately 60,000 households. The sample does not collect enough 
information in each State to measure accurately changes in unemployment 
or long-term unemployment. And because the survey depends upon 
household responses, the data may contain reporting errors. Despite 
these problems, these data are an important and provide a consistent 
set of longitudinal data about employment and unemployment.
    Another source of unemployment statistics is the Unemployment 
Insurance system itself. Administrative data from the UI system are not 
based upon a sample, so accurate information on the unemployment 
situation in each State can be garnered (only regarding the unemployed 
who are actually receiving benefits), and they are administrative data, 
which avoids some of the difficulties with the household survey. 
Furthermore, certain UI data can provide a good measure of long-term 
unemployment. The three forms of unemployment data used in this paper 
are described in more detail below.
    The Total Unemployment Rate (TUR) measures the number of people who 
are unemployed as a percentage of the total labor force. The TUR is 
based on Current Population Survey sample data from the Bureau of Labor 
Statistics and includes people who are entering the labor market for 
the first time or returning after a long absence, people who may have 
left their jobs voluntarily, and people who lost their jobs.
    The Insured Unemployment Rate (IUR) is based on administrative data 
reported by the States to the Department of Labor, and measures the 
number of people receiving regular State UI benefits as a percentage of 
those who are ``covered'' under the UI program.\20\ To some extent, the 
IUR may be thought of as the unemployment rate of workers with a 
significant labor force attachment because the IUR, unlike the TUR, 
only includes people who qualify for UI benefits (that is, they have 
met certain earnings requirements, have lost their jobs involuntarily, 
and are looking for new employment).
    However, the IUR is also not a perfect measure of unemployment, 
even among experienced workers. Because it only includes workers 
receiving regular State UI benefits, which end after 26 weeks or less, 
workers who exhaust their regular State UI benefits but are unable to 
find employment are not counted. Thus, the IUR can decline in States 
where the unemployment situation is actually worsening because 
durations of unemployment are increasing.
    Also, the IUR includes only unemployed workers receiving regular 
State UI benefits. Some workers who are experienced--such as workers 
employed for a considerable number of years in part-time jobs--do not 
receive unemployment insurance benefits because of eligibility 
restrictions. Further, eligibility for unemployment insurance varies 
widely among the States. Some States do not include the most recently 
completed quarter of wages in the base period, so recently hired 
workers in those States may not qualify for benefits in those States.
    Another weakness of the IUR is that although unemployment is a 
seasonal phenomenon, BLS seasonally adjusts only the national IUR, not 
State data. Rates are expected to decline in the summer months, and 
those seasonal declines have compounded the problems with the 
programmatic trigger levels for States, which do not account for the 
temporarily deflated rates. Furthermore, the IUR is an administrative 
definition of unemployment that is not uniform across the State. States 
have very different eligibility rules, which can also change over time.
    The Adjusted Insured Unemployment Rate (AIUR) is the number of 
workers receiving regular State UI benefits plus the number of workers 
who have exhausted regular UI benefits in the previous 3 months divided 
by the number of workers who are eligible for UI benefits. It measures 
short- and long-term unemployment among experienced workers.
    Seasonally adjusted state-level data on insured unemployment are 
not available and neither State nor national exhaustion data are 
seasonally adjusted. Therefore, AIUR comparisons in this paper were 
made using the same months in the years being compared. Since the 
period of February-July 1992 was the peak of the last recession, this 
paper uses February-July 2002 as a basis for comparison. If February-
July 2002 is not the peak of the current recession, the extent to which 
changes in exhaustions, the IUR, and the AIUR during this recession 
exceed those of the last recession would be even greater.







                               FOOTNOTES

    \1\ The Adjusted Insured Unemployment Rate (AIUR) is simply the 
number of unemployed workers collecting UI benefits in a given month 
plus the previous 3 months of exhaustion data. It does not include 
unemployed workers with unemployment spells of more than 39 weeks.
    \2\ Primus, Wendell and Jessica Goldberg. ``Number of Workers 
Exhausting Federal Unemployment Insurance Benefits Will Reach an 
Estimated 1.5 Million by the End of September and Exceed Levels in the 
Last Recession.'' Center on Budget and Policy Priorities, September 6, 
2002.
    \3\ If anything, since the current figures include an initial 6 
months that preceded the downturn, this should produce comparisons 
slightly biased toward overstating the impact of the 1990s recession 
and understating the current recession. See Appendix for more 
information.
    \4\ This comparison contrasts the average monthly seasonally 
adjusted IUR from June 1990-August 1990 to the average monthly IUR from 
June 1992-August 1992. This is the one set of UI data for which 
seasonal adjustments are available.
    \5\ The IUR includes only unemployed workers receiving regular 
State UI benefits. Some workers who are experienced--such as workers 
employed for a considerable number of years in part-time jobs--do not 
receive unemployment insurance benefits because of eligibility 
restrictions. Further, just who is eligible for unemployment insurance 
varies widely among the States.
    \6\ The Adjusted Insured Unemployment Rate (AIUR) is the IUR rate 
plus the previous 3 months of exhaustion data. It does not include 
unemployed workers with unemployment spells of more than 39 weeks. This 
definition was used in the Emergency Unemployment Compensation (EUC) 
program in the early 1990s.
    \7\ Adjusting for the size of the covered labor force, the number 
of exhaustions is slightly less.
    \8\ The ``covered labor force'' is all employees for whom UI taxes 
are paid. The UI system covers 97 percent of all wage and salary 
workers.
    \9\ ``The Unemployment Situation: August 2002.'' Bureau of Labor 
Statistics, September 6, 2002.
    \10\ When enacted, the EUC program provided 13 or 20 weeks of 
benefits. However, before those benefits were exhausted, an additional 
13 weeks were added.
    \11\ Alaska, Arkansas, California, Idaho, Massachusetts, Michigan, 
Nevada, New Jersey, Pennsylvania, and Wisconsin qualified to provide up 
to 26 weeks of TEUC benefits for part of the TEUC program, but had all 
triggered off of the second tier of benefits as of the end of July 
2002.
    \12\ Mathematically, the only way that the TUR can increase while 
the IUR decreases is if a much higher percentage of the unemployed left 
their jobs voluntarily or are new or re-entrants to the market, which 
the CPS indicates is not currently the case, or if long-term 
unemployment becomes a higher percentage of total unemployment and 
seasonal factors distort the IUR.
    \13\ Orszag, Peter. ``Unemployment Insurance as Economic 
Stimulus.'' Center on Budget and Policy Priorities, November 15, 2001.
    \14\ Joseph Stiglitz, ``A Boost That Goes Nowhere,'' The Washington 
Post, November 11, 2001, page B01.
    \15\ Lawrence Chimerine, Theodore Black, and Lester Coffey, 
``Unemployment Insurance as an Automatic Stabilizer: Evidence of 
Effectiveness over Three Decades,'' Unemployment Insurance Occasional 
Paper 99-8, U.S. Department of Labor, July 1999.
    \16\ Goldberg, Jessica and Wendell Primus. ``The Importance of 
Using Most Recent Wages to Determine Unemployment Insurance Eligibility 
and Duration of Benefits.'' Center on Budget and Policy Priorities, 
June 26, 2002.
    \17\ Primus, Wendell and Jessica Goldberg. ``Number of Workers 
Exhausting Federal Unemployment Insurance Benefits Will Reach an 
Estimated 1.5 Million by the End of September and Exceed Levels in the 
Last Recession.'' Center on Budget and Policy Priorities, September 6, 
2002.
    \18\ The first 12.5 months of EUC are compared to the first 9.5 
months for TEUC. The reason for this difference in months is that on 
average, about 15 more weeks of benefits were provided under the EUC 
program in the first half of 1992 than under the TEUC program, and on 
average 8 more weeks in the second half. To make a valid comparison 
between 1992 and 2002, a 3 months difference in the number of months 
for which exhaustions are accumulated was used. Mechanically, one needs 
to compare exhaustions over a longer time period for a program that 
provides 26 weeks versus 13 weeks. Essentially, there are fewer 
exhaustions in the first 6 months of a 26 week program as compared to 
the first 6 months of a 13 week program.
    \19\ Of the 4.6 million workers who received EUC benefits in the 
first 12.5 months, some 3.1 million could have exhausted benefits in 
that period. (Some could not exhaust their benefits in that period 
because the benefits lasted into the subsequent period.) Some 1.4 
million--slightly less than half--actually exhausted benefits. The 
other 1.7 million found a job before their benefits were scheduled to 
run out. Of the 4.4 million workers projected to receive benefits in 
2002 under the TEUC program, 3.5 million potentially could have 
exhausted these benefits by the end of 2002, and 2.2 million of them 
are projected to exhaust these benefits.
    \20\ The ``covered labor force'' is all employees for whom UI taxes 
are paid. The UI system covers 97 percent of all wage and salary 
workers.

    The Chairman. Our next witness, Mr. Felix Batista, has been 
a waiter at Windows on the World since 1978. He had a vacation 
day on 9-11; otherwise, he would have been there at the top of 
the World Trade Center. He lost 73 coworkers in the 9-11 
attacks. He also lost his job, and 2 months ago, he exhausted 
all of his unemployment benefits. He was using his benefits to 
support his mother and his 14-year-old daughter. He has been 
actively looking for work for the past year, but there are no 
jobs to be found.
    Napoleon Morales is another unemployed worker who is 
accompanying Mr. Batista.
    We would be glad to hear from you, Mr. Batista.
    Mr. Batista. My name is Felix Batista, and I worked at 
Windows since 1973, and then I lost my job. I have looked 
everywhere to find a job.
    Mr. Morales. I am going to be helping Mr. Batista to tell 
his story.
    The Chairman. That is fine. Please go ahead.
    Mr. Morales. My name is Napoleon Morales, and I am also 
unemployed. I used to work as a contractor for the Federal 
Government, and after September 11, I became unemployed. I am a 
member of the New York Unemployment Project.
    Mr. Batista's statement reads as follows:
    ``Mr. Chairman and members of the committee, thank you very 
much for giving me the opportunity to appear before you 
today.''
    ``My name is Felix Batista. I am 57 years old and a 
resident of Queens, NY. I am a single father of four and have 
been unemployed since September 11, 2001, 1 year ago 
yesterday.''
    ``I am here today as a citizen, a New Yorker, and a 
survivor to tell you my story and the stories of so many of us 
who want to work. I am a member of the New York Unemployment 
Project, a membership-based organization of unemployed New 
Yorkers formed after September 11 to fight for jobs and income 
support. I am joined here today by 100 other members of the New 
York Unemployment Project, each unemployed and with a unique 
story of their own, to voice our support for Senate bill 2892, 
the Economic Security Act of 2002.''
    ``In 1978, I began working at Windows on the World, the 
restaurant on the 106th floor of Tower 1 of the World Trade 
Center. For 23 years, I worked there. I did a little bit of 
everything in the restaurant. I really loved the work. All of 
my coworkers were really good, even my boss. They treated me 
well and gave me everything I needed.''
    ``I lost my job because of September 11. By luck and by the 
grace of God, I was not working that morning. Just by 
coincidence, I had asked for my vacation that week, even though 
September is usually not time for vacation.''
    ``I lost 73 of my workers at Windows on the World. It was a 
very difficult thing, because losing them was like losing a 
member of my family, since I had spent so much time with them--
more time even than I had spent with my family.''
    ``Even for those whose lives were spared, things are very 
difficult. Three hundred and thirty of my coworkers lost their 
jobs along with me when the towers fell.''
    ``After a few weeks, I applied for unemployment benefits. 
Three weeks after I applied, I received my first unemployment 
check. In this fashion, I was able to pay my personal expenses 
without too much difficulty. I was able to continue to support 
my 14-year-old daughter as well as my aging mother. I had a lot 
of expenses--for the lights, the gas, the phone, as well as 
food and clothing for my family, not to mention my rent. These 
were all crucial services, and with unemployment benefits, I 
was able to make ends meet.''
    ``It has been 2 months since my benefits expired. I am 
still not working, and I still need economic support. Although 
I have been actively looking for work, I have not found 
anything. My unemployment benefits helped me to resolve my 
personal issues and pay my family's expenses. It was not a lot 
of money each week, but at least we could survive.''
    ``I am looking for work, but there is no work out there. I 
have been looking for work through my union and on my own, 
through job fairs and other efforts, but I have not been able 
to find any work at all, not even at minimum wage, not even 
part-time, not even on a night shift.''
    ``About 2 months ago, my unemployment benefits and my 
extension expired. My family and I do not know what is going to 
happen to us. Up to this point, there has been no response, no 
help to solve our financial problems. FEMA has been helping me 
to pay the rent, but the problem is my other expenses that I 
have. The things that I cannot do because of the lack of 
benefits are pay my most basic expenses, let alone take a 
moment to feel relaxed or comfortable in my life. I feel lost. 
I do not have the resources to survive or to support my 
family.''
    ``I tried to apply for public assistance, but there was a 
lot of red tape, and I was treated very badly. And I do not 
want to be on public assistance. I am not dead yet. I want to 
work. I have never wanted to ask for any kind of Government 
help.''
    ``When my wife passed away from cancer in 1994, she left me 
alone with my four children. Everyone told me that I should go 
and apply for public assistance to get some help. But I did not 
want to do so, because I have two strong arms still, and I 
wanted to work. Now, too, I hope to find a job so that I can 
keep working to support my family. I still have my two strong 
arms to keep moving forward. The problem is that there is no 
work.''
    ``That is why we are here today. We ask you, the Congress 
of the United Sates, to help us while we struggle to find work 
and struggle to keep living.''
    ``I have worked for more than 21 years in this country. I 
have paid my taxes for all of these years. But now, in my time 
of need, I am unable to find support. I do not think that this 
is fair.''
    ``Unfortunately, my story is not unique. All of the other 
members of the New York Unemployment Project with me here today 
are also struggling to find money for basic necessities in the 
absence of work or unemployment benefits.''
    ``I will tell you a little bit about each of their stories 
and ask them to stand up.''
    ``Rafael Camano, also a former Windows on the World 
employee, has run out of his extended unemployment benefits. He 
has received only a few job offers for off-the-books work that 
pays below the minimum wage.''
    ``Mohammed Fruitwala lost his job as a catering supervisor 
at Restaurant Associates in the World Financial Center on 
September 11. He is the sole breadwinner for his family of 
three in Brooklyn. He has also exhausted his unemployment 
benefits.''
    ``Pauline Onwu lost her job after September 11. She had 
been working at the Red Cross, helping with disaster relief, 
and was laid off in March. While she still has a few weeks of 
extended benefits and has managed to secure 8 hours of low-wage 
work at Lord and Taylor department store in Manhattan, she 
cannot find a full-time job and fears eviction when her 
benefits run out.''
    ``Alan Reiss was a marketing manager in the high-tech 
sector in Manhattan. He has exhausted his extended benefits, 
been forced to file for bankruptcy, and now has had to suffer 
the indignity of the welfare system.''
    ``We, the members of the New York Unemployment Project, are 
just a few of the 110,000 New Yorkers who have exhausted our 
Federal extended benefits. In March, you the Congress gave our 
State over $40 million for our unemployment insurance trust 
fund. The law that you passed relied on Governors and State 
legislatures spending the money to alleviate high unemployment 
but did nothing to compel them to. In New York, all of the 
money was used to pay off debt the fund had incurred due to 
poor fiscal management and to meet existing benefit claims, 
staving off a payroll tax hike for big business. Yet, when New 
Yorkers like us demanded Governor Pataki act to extend 
benefits, he claimed the State had no money.''
    ``This bill is so important because not only does it extend 
benefits now, it ensures that in the future, unemployed workers 
will receive automatic extensions of their benefits in times of 
deep recession and high unemployment.''
    ``New Yorkers need this bill. This country needs this bill. 
Me and my family need this bill.''
    ``Thank you, Mr. Chairman, and I thank the committee.''
    [The prepared statement of Mr. Batista follows:]

                  PREPARED STATEMENT OF FELIX BATISTA

    Mr. Chairman and Members of the Committee. Thank you very much for 
giving me the opportunity to appear before you today.
    My name is Felix Batista. I am 57 years old and I live in the 
Corona section of Queens, New York. I am a single father of four and 
have been unemployed since September 11, 2001--1 year ago yesterday. I 
am here today as a citizen, a New Yorker and a survivor to tell you my 
story and the stories of so many of us who want to work. I am a member 
of the New York Unemployment Project, a membership based organization 
of unemployed New Yorkers formed after September 11--to fight for jobs 
and income support. I am joined here today by forty other members of 
the New York Unemployment Project, each unemployed and with a unique 
story of their own, to voice our support for Senate bill 2892--the 
Economic Security Act of 2002.
    In 1978, I began working at Windows on the World, the restaurant on 
the 106th floor of tower one of the World Trade Center. For 23 years I 
worked there. I did a little bit of everything in the restaurant. I 
really loved the work. All of my coworkers were really good, even my 
boss. They treated me well and gave me everything I needed.
    I lost my job because of September 11th. By luck and by the grace 
of God, I was not working that morning. Just by coincidence I had asked 
for my vacations that week even though September is usually not time 
for vacations.
    I lost 73 of my coworkers at Windows on the World. It was a very 
difficult thing, because losing them was like losing a member of my 
family, since I had spent so much time with them, more time, even, than 
I had spent with my family.
    Even for those whose lives were spared, things are very difficult. 
Three hundred and thirty of my coworkers lost their jobs along with me 
when the towers fell.
    After a few weeks, I applied for unemployment benefits. Three weeks 
after I applied, I received my first unemployment check. In this 
fashion, I was able to pay my personal expenses without too much 
difficulty. I was able to continue to support my fourteen-year old 
daughter as well as my aging mother. I had a lot of expenses--for the 
lights, the gas, the phone, as well as food and clothing for my family, 
not to mention my rent. These were all crucial services, and with 
unemployment benefits I was able to make ends meet.
    It has been 2 months since my benefits expired. I am still not 
working and I still need economic support.
    Although I have been actively looking for work, I haven't found 
anything. My unemployment benefits helped me to resolve my personal 
issues and pay my family's expenses. It wasn't a lot of money each 
week, but at least we could survive.
    I'm looking for work, but there is no work out there. I've been 
looking for work through my union, and on my own, through job fairs and 
other efforts. But I haven't been able to find any work at all, not 
even at minimum wage, not even at part time, not even on a night shift.
    And 2 months ago, my unemployment benefits and my extension 
expired. My family and I don't know what is going to happen to us. Up 
to this point there has been no response, no help to solve our 
financial problems. FEMA has been helping me to pay the rent, but the 
problem is my other expenses that I have. The things that I can't do 
because of the lack of benefits are pay my most basic expenses, let 
alone take a moment to feel relaxed or comfortable in my life. I feel 
lost. I don't have the resources to survive or to support my family.
    I tried to apply for public assistance, but there was a lot of red 
tape and I was treated very badly. And I don't want to be on public 
assistance. I'm not dead yet. I want to work.
    I have never wanted to ask for any kind of government help. When my 
wife passed away, from cancer, in 1994, she left me alone with my four 
children. Everyone told me that I should go and apply for public 
assistance to get some help. But I didn't want to do so because I had 
two strong arms still and I wanted to work. Now, too, I hope to find a 
job so that I can keep working to support my family. I still have my 
two strong arms to keep moving forward. The problem is that there is no 
work.
    That's why we are here today. We ask you, the Congress of the 
United States, to help us while we struggle to find work and struggle 
to keep living.
    I have worked for more than 21 years in this country. I have paid 
my taxes for all of these years but now, in my time of need, I am 
unable to find support. I don't think that this is fair.
    Unfortunately, my story is not unique. All of the other members of 
the New York Unemployment Project with me here today are struggling to 
find money for basic necessities in the absence of work or unemployment 
benefits.
    I will tell you a little bit about each of their stories and ask 
them to stand up.
    Rafael Camano, also a former Windows on the World employee has run 
out of his extended unemployment benefits. He has received only a few 
job offers for off the books work that pays below the minimum wage.
    Mohammed Fruitwala lost his job as a catering supervisor at 
Restaurant Associates in the World Financial Center on September 11. He 
is the sole breadwinner for his family of three in Brooklyn. He has 
also exhausted his unemployment benefits.
    Pauline Onwu lost her job after September 11th. She had been 
working at the Red Cross helping with disaster relief and was laid-off 
in March. While she still has a few weeks of extended benefits and has 
managed to secure 8 hours of low-wage work at Lord & Taylor department 
store in Manhattan, she cannot find a full time job and fears eviction 
when her benefits run out.
    Alan Reiss was a marketing manager in the high-tech sector in 
Manhattan. He has exhausted his extended benefits, been forced to file 
for bankruptcy and now has had to suffer the indignity of the welfare 
system.
    We, the members of the New York Unemployment Project are just a few 
of the 110,000 New Yorkers who have exhausted our Federal extended 
benefits.
    In March, you the Congress gave our State over $400 million for our 
unemployment insurance trust fund. The law you passed relied on 
Governors and State Legislatures spending the money to alleviate high 
unemployment but did nothing to compel them too. In New York all of the 
money was used to pay off debt the fund had incurred due to poor fiscal 
management and to meet existing benefit claims--staving off a payroll 
tax hike for big business. Yet, when New Yorkers like us demanded 
Governor Pataki act to extend benefits, he claimed the State had no 
money.
    This bill is so important because not only does it extend benefits 
now, it ensures that in the future unemployed workers will receive 
automatic extensions of their benefits in times of deep recession and 
high unemployment.
    New Yorkers need this bill. This country needs this bill. Me and my 
family need this bill.
    Thank you.

    The Chairman. Very good.
    We want to thank you for an enormously powerful and moving 
statement and comments, and we thank all of your associates who 
are with you today.
    I have to find out what the signal is so that you all put 
your signs up at the same time.
    [Laughter.]
    I think I know, because there are many, many reasons to 
raise those signs. But we want to extend a very warm welcome to 
all of you.
    I think I will ask staff if they will put a couple of pads 
out on the tables on either side of the room so we can get 
everyone's names, all those who have come down as part of this 
effort. I think it is important that we know who came; it makes 
an important difference to all of us.
    I see that we have been joined by Jack Reed, who is 
chairman of the Joint Economic Committee, which tries to 
provide guidance to both the Congress and the administration on 
these types of issues. We are very grateful for his presence 
here for that reason and because he strongly supports our 
efforts to try to provide these extensions.
    Mr. Batista, I would be interested if you could tell us 
what it is like to go out and look for a job, having these 
responsibilities back home, providing for your mother and your 
daughter, and continuing to hear ``No,'' ``No,'' and ``No'' all 
day long? What does that do to you, just personally?
    We had a very important day yesterday as we took moments to 
honor those who lost their lives. We took a moment to celebrate 
the extraordinary courage of those who were helping people, but 
also took a moment about reaching out and helping others in 
need. And we are hearing from those testifying here about real 
needs that are out there, and somehow, many of the speeches 
yesterday have a hollow ring to them if we are not going to 
reach out and help people who are in real need. That is what 
was exhibited on that day by many who tried to help others and 
have been trying to help families.
    That is one of the sentiments that we took a sense of pride 
in yesterday, that Americans reach out and try to help those 
who are in need. We have just heard a personal story of a 
family that is in need, and we have seen from the hands that 
went up, representatives of scores, thousands, and I think 
millions of families who have been affected by this, and I 
think the question is whether we are going to learn something 
from yesterday and from a year ago, saying that we are all in 
this together to fight terrorism, but also to understand that 
the attacks on us have losses not only in loss of life, but 
also in the loss of jobs, and that is part of the challenge as 
well. We cannot ignore that. We cannot ignore that and say that 
we are fighting terrorism, I do not think. Maybe some can, but 
I do not think we can. And we are reminded of that at this 
hearing today.
    Mr. Batista, it must be awfully difficult, as somebody who 
has worked and wants to work, to go out and try to gain work 
and be told that there is no work around. Maybe you could tell 
us about that.
    Mr. Batista [Interpreted by Mr. Morales]. Well, you know, 
it is very difficult. I do not feel good. This is the second 
time that it has happened to me. In 1983 also, I went through 
something like this. Thank God, I was not killed--I was not 
there--but it is terrible that this is happening to me.
    How are you going to feel when you go through something 
like this, and it is the second time? And thank God nothing 
happened to me. Being in this position--and I do not have a 
wife; my wife is not alive, and I am raising four kids--I have 
to support my family. On top of it, and to make matters worse, 
it feels bad that you cannot find a job, and you hear ``No,'' 
``No,'' ``No,'' every time.
    You feel terrible. It feels like the entire world is on 
you. You feel like you do not have anybody around you. More or 
less this is my position. I am just letting you know how I 
feel. And I thank you very much for allowing me to give you my 
testimony and also to take part in this committee hearing.
    The Chairman. Well, I want to thank you very much, Mr. 
Batista. The best way we can thank you is to get the 
legislation passed, and we are committed to doing it. Your 
testimony is enormously helpful, and I will speak to our 
colleagues about it on the Senate floor when I have the 
opportunity when we are going to consider this.
    Dr. Mishel, the administration has brought up the idea of 
additional tax cuts, decreasing the deductibility limit on 
capital losses, reducing capital gains tax rates to stimulate 
the economy.
    What is your assessment of those ideas?
    Mr. Mishel. I think this is a wrong-headed set of tax cuts 
for a number of different reasons. One, they are permanent when 
we only need temporary relief. Two, they are targeted 
incorrectly. They are targeted at investor confidence, which 
necessarily also means well-off people.
    What they are not targeted at is creating more customers. 
Doing things that increase saving is not what we want now. We 
want people buying things. So the tax cuts are permanent and 
not temporary. They provide a permanent fiscal imbalance which 
we do not want, and they are not aimed at demand, at actually 
stimulating growth by having people buy things.
    So I think there is a different agenda here, not the agenda 
of getting a faster recovery out of this recession.
    The Chairman. Let me ask you also about the increase in the 
minimum wage. We increased it 6 years ago, and effectively, the 
benefits of that are being wiped out this year if we do not 
increase it again. What would you say about increasing the 
minimum wage to those who say we really cannot do it because we 
are facing large numbers of unemployed, and if you raise the 
minimum wage, it is going to increase unemployment and throw 
people out of work; if you raise wages, it will add to 
inflation and really be a disservice to people who need help 
the most.
    How do we answer that?
    Mr. Mishel. I think there are two things that we should 
discuss about that. One is that the high unemployment itself 
right now is hurting the wage growth of low-wage workers, and 
we are seeing a renewal of a wage gap growing between those at 
the bottom and those in the middle and at the top. We have not 
seen that for a few years. That is going on now, and the wage 
growth of workers at the bottom is barely keeping up with 
inflation now. So the minimum wage would be one way to help 
offset the effect of the higher unemployment on low-wage labor 
markets. As you see, we have had someone testify who is trying 
to find a job and cannot find a job, and in those 
circumstances, employers do not raise wages. The minimum wage 
helps offset that.
    Second, I would just point out the experience of the early 
nineties where, in 1990 and 1991, there was a minimum wage 
increase during a very similar economic time as we have now. 
There have been several studies, including those done by our 
institute, that have shown that there was no job loss from 
that, yet it helped those who needed help the most by raising 
wages.
    So I think experience says that there is not much of a cost 
to doing this, and it is also clear that it would be greatly 
beneficial.
    The Chairman. Dr. Primus, one of the facts is that during 
that period in the early 1990's, we saw an increase in the 
unemployment insurance extensions during the recession of the 
1990's. On November 15, 1991, it passed 91-2; and on February 
4, 1992, it passed 94-2; in July of 1992, it was 93-3; in March 
of 1993, it passed 63-33.
    These are examples of four different pieces of legislation 
to extend the unemployment compensation, three of them strongly 
bipartisan, into the 1990's, and the second one two-to-one, 63-
33. That is a big vote around here, to get 63 votes in favor.
    What is different? We passed four of those when we had 
these needs, and now we have difficulty trying to address the 
problems, with increasing numbers losing their coverage, and 
the prospect of thousands and thousands losing their coverage 
is very, very real. What is the difference? Why is that?
    Mr. Primus. I guess I would point to two differences. I 
think we have been deluded when the unemployment rate is still 
below 6 percent. The press--everyone--believes that this is a 
mild recession. What I tried to do in my testimony was to show 
that in more States, this recession is harder on workers than 
the last recession. So in terms of the impact on workers, it is 
more severe, but our one official rate that everybody looks to 
is not as high as the last recession. But again, as I said, 
that is the wrong way to look at it.
    Frankly, the other difference is that the other body, where 
I worked, was Democrat, and Chairman Rostenkowski at that 
time--and I worked for acting subcommittee chairman Tom 
Downey--we took the lead in getting legislation passed. And as 
I indicated in my testimony, this is a bipartisan process. 
These extensions were all signed into law by former President 
Bush. And it seems to me that if the recession is more severe 
this time, there is the money in the trust fund, and we already 
see that a lot of workers like Mr. Batista here have run out of 
those Federal temporary benefits, and this program is a lot 
less generous. It seems to me that that creates a very strong 
case for you, Mr. Chairman, and others. And unemployment is 
affecting both States that have Republican Senators and 
Democrat Senators.
    So I would hope that you would be able to improve this 
current temporary program along the lines indicated in your 
bill.
    The Chairman. This is a lot less generous. Could you review 
the way that the system has altered or changed the triggering 
mechanism and why that works in the way that it does and the 
result, which is increasing pressure on the unemployed?
    Mr. Primus. It is a lot less generous in terms of the 
additional weeks. As you indicated, in the very first bill that 
was passed, there were 13 weeks and then 20 weeks; but before 
workers had even exhausted--I made a mistake--it was 20 and----
    The Chairman. Yes, 20 and 13.
    Mr. Primus [continuing]. Yes, 20 and 13--but before the 13 
weeks was exhausted, Congress came back in February and enacted 
another 13 weeks. So in a sense, we had 35 States with 26 weeks 
and 16 States with 33 weeks. And by the middle of the year, 
that had dropped to 36 States with 26 weeks--that was the 
minimum--and 15 States were getting 26 weeks. Today there are 
only two States that can provide more than 13 weeks of 
benefits, and the reason for that is twofold.
    The reason why some States have dropped out of being called 
high-unemployment is, one, that the trigger level was not 
seasonally adjusted. During the summer months, unemployment 
does decline. The second reason is that in your bill, you do 
not count workers like Mr. Batista anymore in the rate that 
determines whether a State is high-unemployment, and because we 
do not count Mr. Batista, unemployment has fallen, and 
therefore, many States have dropped out of high-unemployment 
status.
    The Chairman. Well, that does not make any sense, does it?
    Mr. Primus. That is the point. It does not make any sense 
why we should not continue to count workers who are unemployed, 
and your bill remedies that, and if you enact the bill, more 
States would be eligible for additional weeks. In my opinion, 
Mr. Chairman, what you should do is anyone who has exhausted 
temporary benefits should get some additional weeks; and I 
think that in high-unemployment States, you should even 
increase the number of weeks somewhat more.
    The Chairman. Let me just ask you this, and then I will 
turn to Senator Reed. How do you answer the question that in 
high unemployment and less high unemployment, people are still 
out of work, so why should the higher unemployment get the 
additional benefits? Could you just comment on that?
    Mr. Primus. I think that high unemployment indicates that 
the labor market is tougher, that it is harder to find a job, 
and therefore, if you look at the number of workers who are 
exhausting, there is going to be more exhausting in a high-
unemployment State. I think that is the basic argument.
    The Chairman. Mr. Mishel?
    Mr. Mishel. Mr. Chairman, if I may just comment on the 
triggers and the problems that it poses. One thing that has 
happened in the 1990's, I think, is that we should have greater 
expectations about how low unemployment can go, that is, to be 
able to get to 4 percent. And the triggers are set from a 
different time when we might have been satisfied with 5.5 or 6 
percent unemployment. So if we think that 4 percent is 
obtainable and that unemployment above that makes it hard on 
workers, then, the triggers have to be reconfigured to reflect 
that. And they have not, and that is why we can have a large 
increase in unemployment, but we do not get many States going 
over the trigger.
    Thank you.
    The Chairman. Thank you.
    Senator Reed?
    Senator Reed. Thank you very much, Mr. Chairman.
    First, let me just say how very proud I am to be here with 
you. No one has more diligently, faithfully, and tenaciously 
fought for disadvantaged people than Ted Kennedy, and sometimes 
it is a lonely battle--and as I look around, this might be one 
of those times--but it is the right battle.
    Let me say first to Dr. Primus and Dr. Mishel that I think 
your analysis is absolutely correct. As vice chairman of the 
Joint Economic Committee, we have been following these numbers. 
Every month, we have the Bureau of Labor Statistics report to 
us, and what we find is first of all, the statistical anomalies 
that you have reported in terms of calculating, but more 
important, the growing long-term unemployment rate, which is a 
disadvantage particularly for minorities and women in our 
society. And the impact on not only these working Americans but 
their children is profound.
    There are major impacts in terms of social effects but also 
in terms of lower consumer spending. Dr. Mishel pointed out 
that one thing we have to do is get more demand in the economy. 
A simple way to do that is to keep paying unemployment 
benefits, because people will take that--and I do not think 
they play in the stock market; I think they go to K-Mart, if it 
is still there, to buy for their families.
    So I think that this hearing is exactly on target and also 
extraordinarily necessary. If we cannot do this extension of 
benefits, what can we do to help these people who want to work 
and cannot find jobs?
    Also, I think the statistics are compelling but not as 
compelling as your testimony, Mr. Batista and Mr. Morales--
thank you--because numbers are numbers, but this is really 
about people. This is about families; this is about people 
trying to live with dignity and support families. And you have 
demonstrated that very clearly, Mr. Batista, and all of your 
colleagues in the audience.
    It is ironic indeed that yesterday, we were honoring you, 
Mr. Batista, you and the 73 of your colleagues who perished in 
the World Trade Center. But talk is cheap. I think that what 
they would want and what you want is simply to be able to work, 
and if you cannot work, to be able to get unemployment 
benefits, and that is not too much to ask.
    I thank you for coming and making that case today.
    One final point I would raise is that this is very 
disturbing to me, and perhaps Dr. Primus and Dr. Mishel could 
comment. In the long-term impact, what I see happening is that 
in the 1970's and 1980's--certainly in the 1980's--with a 
similar mentality toward helping Americans, we saw income 
levels start moving along on a picket fence. The income of the 
very wealthy went up, the middle stagnated, and the lower-
income Americans lost ground in terms of income growth. During 
the 1990's, because of policies that we adopted here, we were 
able to reverse that and for the first time, started to see 
every relative income level start enjoying the same benefits in 
income growth.
    I am afraid that if we continue these policies, if we 
tolerate these types of approaches, we are once again going to 
see the picket fence, where the wealthiest Americans do 
extremely well, and if you factor in the tax cut, extremely, 
extremely well, but working Americans fall back farther and 
farther. That is regrettable and in fact despicable.
    First, I have one question to the statisticians. That is, 
in the 1991 recession--excuse me--you are not statisticians; I 
know that----
    Mr. Mishel. I take that as high praise. That is okay.
    Senator Reed [continuing]. Well, take what you can get 
here--in 1991, what portion of lost income was covered by UI 
benefits, just roughly, and what portion is covered there--I 
have a sense that even the benefits that we are paying are not 
the kinds of robust benefits that will keep a family from 
desperation.
    Dr. Primus?
    Mr. Primus. Yes. I think the average unemployment check 
today is about $240 a week, and the maximum that it covers in 
terms of replacing lost wages is about 50 to 52 percent, and 
for a lot of workers who are $30,000, $40,000 earners, the 
replacement rate falls to 35 percent or so. So it by no means--
by no means--replaces all of the wages. It only replaces, 
typically, half and sometimes less.
    Senator Reed. And it is certainly in that context not a 
disincentive to finding work quickly.
    Mr. Primus. Yes. There have been studies to show that 
providing benefits equal to that level does not deter work. And 
if I could comment on the tax incentive issue or tax breaks, 
for the 2.2 million workers who will exhaust Federal benefits 
by the end of the year, there is no tax break that you can 
design that will guarantee that Mr. Batista will get 
assistance.
    There are really only two policy tools that you can have 
that make sure that all of the unemployed workers behind me get 
assistance, and that is by doing something about unemployment 
insurance or creating public jobs, and creating public jobs has 
a whole set of issues behind it. It is more expensive, it takes 
a while to get going, etc. And I have no doubt that they want 
jobs, but in the meantime, they need wages or something to 
replace those lost wages, and really, unemployment insurance is 
your best policy tool for doing that.
    Senator Reed. Thank you, Dr. Primus.
    Do you have a comment, Dr. Mishel?
    Mr. Mishel. Yes, Senator Reed. I share your concern about 
the effect of high unemployment on the picket fence and the 
growing inequalities in our society. And I can tell you that we 
do not yet know what happened to incomes for different types of 
families in 2001, let alone what is happening now. But I can 
assure you that when we do know later this month that we will 
find that inequality rose substantially in 2001, and when find 
out about 2002, we will know that it grew even further. And I 
know that because what I know about is people's wages, and I 
know that we are seeing a growing gap across the board in the 
kinds of hourly wages that people are paid.
    I can also tell you that the high unemployment we have is 
now costing a middle class family about $1,800 a year in lost 
income growth.
    But it is not just about income. When we have high 
unemployment, there are health problems that ensue, there is 
higher crime, and there is even substantial evidence that the 
children do worse in school as a result of high unemployment, 
because it is about people and families; it is not just about 
money, and money is about much more than going to K-Mart--it is 
about the very basic necessities of life.
    Thank you.
    Senator Reed. Thanks very much.
    Mr. Batista, if you have a comment, please go ahead, but 
also I wonder how old are your children, and how are they 
doing?
    Mr. Batista [Interpreted by Mr. Morales]. The younger is 
14, and the others are 22 and 24. Two of them are going to 
school, and the other two are working, and they feel the 
situation that I am going through is kind of hard.
    Senator Reed. And you had a comment, Mr. Morales?
    Mr. Morales. Yes. If I may, I wanted to share a comment on 
what Drs. Mishel and Primus were saying. In reality, it is 
true--what has happened to those people who are unemployed in 
New York and have exhausted their unemployment insurance is 
that these people disappear from the system, and no one knows 
about them.
    But I have been going to almost 35 centers in New York on a 
daily basis and checking on them and seeing their faces. They 
are up-in-arms, and they do not know what their situation is 
going to be. All of them are saying, ``We have never faced 
anything like this before. This is incredible.'' We cannot 
believe that our elected officials in New York City are not 
doing anything for us. They are ignoring this issue. And 
basically, I have been recruiting people myself, and they are 
part of our group.
    Senator Reed. Just one further question. What job did Mr. 
Batista do at Windows on the World?
    Mr. Batista [Interpreted by Mr. Morales]. Setting up the 
room for banquets and making sure that things were placed in 
the proper place.
    Senator Reed. Well, my dad was a school custodian, so Mr. 
Batista had the most important job there.
    Mr. Morales. Thank you, Senator. We want to thank you very 
much.
    Senator Reed. Thank you, Mr. Chairman.
    The Chairman. We want to thank Senator Reed for his 
comments. Even though this hearing room is not crowded, Senator 
Reed and I are strongly committed, and we have many allies in 
our colleagues. We should not adjourn at this time without 
taking action on this legislation, and we are going to do 
everything we can to make sure that we do.
    Our friends in labor have made this a top priority, and we 
are going to work very, very closely with them to insist that 
the Senate take action on this before we adjourn.
    So if everyone who agrees with that would raise their red 
cards--okay, and I will raise mine, too.
    We thank all of you for being here, and the committee 
stands in recess.
    [Whereupon, at 11:30 a.m., the committee was adjourned.]

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