[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
             UNEMPLOYMENT BENEFITS AND ``RETURNS TO WORK''

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

                                HEARING

                               before the

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 10, 2003

                               __________

                           Serial No. 108-11

                               __________

         Printed for the use of the Committee on Ways and Means














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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, JR., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM MCCRERY, Louisiana               JIM MCDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHIL ENGLISH, Pennsylvania           LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona               EARL POMEROY, North Dakota
JERRY WELLER, Illinois               MAX SANDLIN, Texas
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                    SUBCOMMITTEE ON HUMAN RESOURCES

                   WALLY HERGER, California, Chairman

NANCY L. JOHNSON, Connecticut        BENJAMIN L. CARDIN, Maryland
SCOTT MCINNIS, Colorado              FORTNEY PETE STARK, California
JIM MCCRERY, Louisiana               SANDER M. LEVIN, Michigan
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
PHIL ENGLISH, Pennsylvania           CHARLES B. RANGEL, New York
RON LEWIS, Kentucky
ERIC CANTOR, Virginia

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.














                            C O N T E N T S

                               __________
                                                                   Page
Advisory of April 3, 2003, announcing the hearing................     2

                               WITNESSES

IMPAQ International, LLC, Jacob M. Benus.........................    23
Mathematica Policy Research, Inc., Paul T. Decker................     8
New York Unemployment Project, Joe Bergmann......................    12
W.E. Upjohn Institute for Employment Research, Christopher J. 
  O'Leary........................................................    16

                                 ______

                       SUBMISSIONS FOR THE RECORD

Romine, Jennifer, New York, NY, letter...........................    46
United Claims Management, Seattle, WA, Dale Tuvey, statement.....    46















             UNEMPLOYMENT BENEFITS AND ``RETURNS TO WORK''

                              ----------                              


                        THURSDAY, APRIL 10, 2003

             U.S. House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Human Resources,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:10 a.m., in 
room B-318, Rayburn House Office Building, Hon. Wally Herger 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                                CONTACT: (202) 225-1025
FOR IMMEDIATE RELEASE
April 03, 2003

  Herger Announces Hearing on Unemployment Benefits and ``Returns to 
                                 Work''

    Congressman Wally Herger (R-CA), Chairman of the Subcommittee on 
Human Resources of the Committee on Ways and Means, announced that the 
Subcommittee will hold a hearing on the Nation's Unemployment 
Compensation program and the effect of benefits on recipients' returns 
to work. The hearing will take place on Thursday, April 10, 2003, in 
room B-318 Rayburn House Office Building, beginning at 10:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include researchers and other experts in unemployment 
issues. However, any individual or organization not scheduled for an 
oral appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The Unemployment Compensation program (UC, sometimes also referred 
to as Unemployment Insurance or UI) is a State-Federal partnership 
under which benefits are paid to laid-off workers who have a history of 
attachment to the workforce. Unemployment benefits are meant to provide 
partial, temporary wage replacement while the laid-off worker looks for 
a new job or awaits recall to his or her former position. In 2002, $52 
billion in State and Federal unemployment benefits were provided to 10 
million laid off workers.
      
    A number of studies have noted UC benefits can increase the 
probability of unemployment and extend the time a person is out of 
work, among other outcomes. In part to offset such effects, UC and 
related programs include features designed to assist UC recipients in 
quickly returning to the labor force. These include a requirement that 
States target services to certain unemployed workers most likely to 
exhaust benefits (sometimes called ``profiling''), resulting from 
legislation approved by the full Committee in 1993 (P.L. 103-152). In 
addition, longstanding program rules require certain recipients to 
search for work as a condition of collecting benefits.
      
    In announcing the hearing, Chairman Herger stated, ``The Committee 
has played a key role in helping unemployed workers as our economy 
recovers. In the past year, we passed legislation providing extended 
benefits to 6 million workers and transferring to States $8 billion in 
Federal unemployment funds. We also must ensure that the way we provide 
unemployment benefits maximizes the chances that recipients return to 
work quickly. Numerous studies suggest unemployment benefits extend 
unemployment and delay returns to work, which is troubling. This 
hearing will review these issues, and allow us to consider what more we 
can do to help laid off workers go back to work quickly.''
      

FOCUS OF THE HEARING:

      
    The hearing will review the effect of UC benefits on recipients' 
prompt returns to work; it also will review current features of UC and 
related programs, including profiling and work search requirements, 
designed to assist workers in quickly returning to work.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Due to the change in House mail policy, any person or 
organization wishing to submit a written statement for the printed 
record of the hearing should send it electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, by the close of business, Thursday, April 24, 2003. 
Those filing written statements who wish to have their statements 
distributed to the press and interested public at the hearing should 
deliver their 200 copies to the Subcommittee on Human Resources in room 
B-317 Rayburn House Office Building, in an open and searchable package 
48 hours before the hearing. The U.S. Capitol Police will refuse 
sealed-packaged deliveries to all House Office Buildings.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
      1. Due to the change in House mail policy, all statements and any 
accompanying exhibits for printing must be submitted electronically to 
[email protected], along with a fax copy to 
(202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a 
total of 10 pages including attachments. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
      
      2. Copies of whole documents submitted as exhibit material will 
not be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
      3. Any statements must include a list of all clients, persons, or 
organizations on whose behalf the witness appears. A supplemental sheet 
must accompany each statement listing the name, company, address, 
telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman HERGER. Good morning and welcome to today's 
hearing.
    I am glad to see that we have such an interested audience 
today. Please remember that you are our guests, and 
interruptions will not be tolerated. Those who might disrupt 
the hearing will be asked to leave.
    I hope this won't be a problem, but I wanted to make sure 
everyone understands the rules before we get under way.
    This Committee has a long history of assisting unemployed 
workers, including in recent months. The temporary extended 
benefits program we created in March 2002, will assist 6 
million workers with up to 26 weeks of Federal extended 
benefits. We also provided an unprecedented $8 billion to 
States to help workers and strengthen the economy. Thirty 
States had lower taxes as a result. This week another State, 
Kansas, extended benefits using these funds.
    At our March 20 hearing, I stated that future hearings 
would review the Nation's unemployment program and consider how 
we could make benefits more responsive to worker needs. Today's 
hearing marks the start of that process.
    Today we will ask some simple questions about unemployment 
benefits and returns to work: Do benefits extend periods of 
unemployment? How do we help unemployed workers return to work 
quickly? How can we help more unemployed workers go back to 
work sooner?
    The principles that guide us are simple and familiar: 
government programs should promote work because paychecks are 
better than benefit checks.
    Today we will hear from three noted experts who have 
studied the unemployment benefits program and how it works, and 
sometimes doesn't work, to help unemployed individuals find new 
jobs. Some of what we will learn is that unemployment benefits 
can actually discourage work. That is troubling and worth our 
attention. Here is how one of our witnesses puts it: 
``Unemployed workers who have access to unemployment 
compensation (UC) will tend to reduce the intensity of their 
job search or to be more selective in accepting a job offer 
than they would be in the absence of UC. Both of these 
tendencies generate longer unemployment spells.''
    We also will review ways we try to overcome disincentives 
to work. There are two. First, States expect many UC recipients 
to search for work. Second, States screen workers to assess 
which ones are likely to be unemployed for extended periods and 
target reemployment services accordingly. We will explore how 
these efforts are working, along with possible improvements.
    We also are joined by Mr. Joe Bergmann of New York, who 
will tell us about his personal experience trying to find work. 
If anything, his testimony reflects a key point of this 
hearing--that we need to focus on services workers need to get 
back on the job.
    Some might say that a strong economy with a job for 
everyone is the ultimate answer. They are part right. This 
Committee will continue to invest a great deal of time and 
effort to stimulating the economy and expanding the number of 
jobs. Even in the best of times millions of workers lose jobs 
and collect unemployment benefits. Make no mistake, this Nation 
will continue to provide benefits to millions of such workers.
    Now especially, when jobs may be harder to come by, we 
should make sure benefits and services help workers go back to 
work quickly, instead of delaying returns to work. By doing so, 
we will better serve workers, their employers, and the economy 
at the same time.
    Without objection, each Member will have the opportunity to 
submit a written statement and have it included in the record 
at this point.
    Mr. Cardin, would you like to make an opening statement?
    [The opening statement of Chairman Herger follows:]
   Opening Statement of The Honorable Wally Herger, Chairman, and a 
        Representative in Congress from the State of California
    Welcome to today's hearing. This Committee has a long history of 
assisting unemployed workers, including in recent months. The temporary 
extended benefits program we created in March 2002 will assist 6 
million workers with up to 26 weeks of Federal extended benefits. We 
also provided an unprecedented $8 billion to States to help workers and 
strengthen the economy. Thirty States had lower taxes as a result. This 
week another State, Kansas, extended benefits using these funds.
    At our March 20 hearing, I stated that future hearings would review 
the Nation's unemployment program and consider how we could make 
benefits more responsive to worker needs. Today's hearing marks the 
start of that process.
    Today we will ask some simple questions about unemployment benefits 
and returns to work:

           Do benefits extend periods of unemployment?
           How do we help unemployed workers return to work 
        quickly? And
           How can we help more unemployed workers go back to 
        work sooner?

    The principles that guide us are simple and familiar: government 
programs should promote work, because paychecks are better than benefit 
checks.
    Today we will hear from three noted experts who have studied the 
unemployment benefits program and how it works and sometimes doesn't 
work to help unemployed individuals find new jobs. Some of what we will 
learn is that unemployment benefits can actually discourage work. That 
is troubling, and worth our attention. Here's how one of our witnesses 
puts it: ``Unemployed workers who have access to UC will tend to reduce 
the intensity of their job search or to be more selective in accepting 
a job offer than they would be in the absence of UC. Both of these 
tendencies generate longer unemployment spells.''
    We also will review ways we try to overcome disincentives to work. 
There are two. First, States expect many UC recipients to search for 
work. Second, States screen workers to assess which ones are likely to 
be unemployed for extended periods and target reemployment services 
accordingly. We will explore how these efforts are working, along with 
possible improvements.
    We also are joined by Mr. Joe Bergmann of New York, who will tell 
us about his personal experience trying to find work. If anything, his 
testimony reflects a key point of this hearing--that we need to focus 
on services workers need to get back on the job.
    Some might say that a strong economy with a job for everyone is the 
ultimate answer. They are part right. This Committee will continue to 
invest a great deal of time and effort to stimulating the economy and 
expanding the number of jobs. But even in the best of times millions of 
workers lose jobs and collect unemployment benefits. Make no mistake--
this nation will continue to provide benefits to millions of such 
workers.
    But now especially, when jobs may be harder to come by, we should 
make sure benefits and services help workers go back to work quickly, 
instead of delaying returns to work. That will better serve workers, 
their employers, and the economy at the same time.

                                 

    Mr. CARDIN. Thank you, Mr. Chairman. I do.
    Normally at the beginning of a hearing, particularly one on 
unemployment insurance (UI), I would be complimenting the Chair 
for calling this hearing. I must tell you I find the timing of 
this hearing both troubling and disheartening, and I hope I am 
wrong on that.
    The current extended unemployment benefit program will 
expire at the end of next month. This hearing seems to be 
designed to find a reason not to extend the program. I hope I 
am wrong on that.
    The UI is a social insurance system. It is a system based 
upon paying into a fund that currently has over $20 billion in 
reserves to cover people who are unemployed when we go through 
tough times. That is exactly what we are going through now, 
tough times. It is not a welfare program.
    Yet as I listened to my Chairman in his opening comments, 
it reminded me of welfare reform. This is not welfare, Mr. 
Chairman. These are people who are unemployed through no fault 
of their own who are trying to find a job in an economy that 
doesn't produce enough jobs for them to be employed. At a time 
when our economy has lost more than 2 million jobs, I do not 
understand how anyone can blame the UI system for the 
unemployed.
    I also strongly disagree with the suggestion that 
dislocated workers are not looking hard enough to find new 
jobs. Such a view is unfair to the unemployed Americans and 
contradicted by facts.
    Before we blame workers for rising joblessness, we should 
remember a few realities.
    First, job losses have accelerated over the last 2 months, 
leaving even fewer employment opportunities for the unemployed. 
In fact, there are now 3.4 unemployed workers for every job 
opening.
    Second, the number of long-term unemployed who have been 
without work for more than 6 months has more than doubled over 
the last 2 years, going from about 700,000 to almost 1.8 
million Americans.
    Third, the percentage of workers who are exhausting their 
regular UC has risen to record levels, higher than in the 
recessions during the 1970s, 1980s and 1990s. These trends were 
not caused by workers or by the UI program. They are a direct 
result of a weak economy that is hemorrhaging jobs. In this 
context, I would hope there would be a bipartisan consensus to 
extend unemployment benefits to all jobless workers.
    Can we improve this system? Absolutely, Mr. Chairman. You 
know that I have made certain suggestions on trying to improve 
the unemployment system. As you know, the stakeholders have 
made recommendations to improve the UI system. We can improve 
it, but let's not deny necessary benefits to those who cannot 
find jobs.
    The UI benefits generally replace less than one-half of the 
unemployed worker's prior wages, creating a major incentive to 
find new work quickly. Any potential impact UI has on delaying 
return to employment is largely negated when the number of jobs 
are declining as they are now. Just a few months ago, Federal 
Reserve Chairman Greenspan reminded Congress that arguments 
about UI creating work disincentives are, and I quote, no 
longer valid during a period where jobs are falling.
    Finally, focusing solely on this one issue ignores the 
enormous benefit of UI, such as reducing poverty among jobless, 
promoting long-term attachment to the workforce and stimulating 
consumer demands during economic downturns.
    Mr. Chairman, the extended unemployment benefit program is 
scheduled to prohibit any new enrollees after the end of May. 
We should extend and expand the program before it is too late 
for millions of unemployed workers. I only wish I could be more 
confident that this hearing was moving us in this direction.
    Mr. Chairman, I might point out that I am impressed, 
though, by the witnesses that are on our panel. I particularly 
want to acknowledge Dr. Jacob Benus, who is my constituent, who 
has been extremely active in the community in Baltimore. We 
thank him for that activity. He is here today as one of the 
experts in this area. It is a pleasure to welcome him to the 
panel.
    Thank you, Mr. Chairman.
    [The opening statement of Mr. Cardin follows:]
Opening Statement of The Honorable Benjamin L. Cardin, a Representative 
                 in Congress from the State of Maryland
    Mr. Chairman, I am willing to consider all kinds of research as it 
relates to programs in this committee's jurisdiction. However, I find 
the timing of this hearing both troubling and disheartening. The 
current extended unemployment benefits program will expire at the end 
of next month, and this hearing seems designed to find a reason not to 
extend the program.
    Furthermore, at a time when our economy has lost more than two 
million jobs, I do not understand how anyone can blame the unemployment 
insurance system for unemployment. I also strongly disagree with the 
suggestion that dislocated workers are not looking hard enough to find 
new jobs. Such a view is unfair to unemployed Americans, and it is 
contradicted by fact.
    Before we blame workers for rising joblessness, we should remember 
a few realities. First, job losses have accelerated over the last two 
months, leaving even fewer employment opportunities for the unemployed. 
In fact, there are now 3.4 unemployed Americans for every job opening. 
Second, the number of long-term unemployed (who have been without work 
for more than six months) has more than doubled over the last two 
years--going from about 700,000 to almost 1.8 million Americans. And 
third, the percentage of workers who are exhausting their regular 
unemployment compensation has risen to record levels--higher than in 
recessions during the 1970s, 1980s and 1990s.
    These trends were not caused by workers or by the unemployment 
insurance program. They are the direct result of a weak economy that is 
hemorrhaging jobs. In this context, I would hope there would be a 
bipartisan consensus to provide extended unemployment benefits for all 
jobless workers.
    It is true that unemployment compensation may allow dislocated 
workers some flexibility in searching for jobs that fit their skills. 
However, UI benefits generally replace less than half of an unemployed 
worker's prior wages--creating a major incentive to find new work 
quickly. Furthermore, any potential impact UI has on delaying return to 
employment is largely negated when the number of jobs are declining, as 
they are now. Just a few months ago, Federal Reserve Chairman Greenspan 
reminded Congress that arguments about UI creating work disincentives 
are ``no longer valid'' during ``a period where jobs are falling.'' 
Finally, focusing narrowly on just this one issue ignores the enormous 
benefits of the unemployment compensation system, such as reducing 
poverty among the jobless, promoting long-term attachment to the 
workforce, and stimulating consumer demand during economic downturns.
    Mr. Chairman, the extended unemployment benefits program is 
scheduled to prohibit any new enrollees after the end of May. We should 
extend and expand that program before it is too late for millions of 
unemployed workers. I only wish I could be more confident that this 
hearing was moving us in that direction. Thank you.

                                 

    Chairman HERGER. Thank you, Mr. Cardin.
    Just in case it is not clear--I certainly want it to be 
clear--the purpose of this hearing is not to deny anyone any 
benefits. The purpose of this hearing is an attempt to make the 
system work better, to assist those who are experiencing 
unemployment, and to assist them in finding employment as soon 
as possible.
    Mr. CARDIN. Mr. Chairman, if you would yield to me on that 
point, because I think you are referring to my comment.
    Chairman HERGER. Very quickly, yes.
    Mr. CARDIN. I understand you don't want to deny people 
unemployment, but if we do not extend the program, the number 
of people who are going to be exhausting their UI benefits is 
going to increase dramatically, which is contrary to the way we 
have acted in the last three recessions.
    Chairman HERGER. Once again, I would like to remind our 
witnesses today to limit their oral statements to 5 minutes. 
However, without objection, all of the written testimony will 
be made a part of the permanent record.
    On the panel today, we have Dr. Paul Decker, Vice President 
and Director of Human Services Research at Mathematica Policy 
Research, Incorporated; Joe Bergmann, with the New York 
Unemployment Project; Dr. Christopher J. O'Leary, Senior 
Economist at the W.E. Upjohn Institute for Employment Research; 
and Dr. Jacob Benus, Executive Director and Vice President of 
Research at IMPAQ International.
    Dr. Decker.

    STATEMENT OF PAUL T. DECKER, PH.D., VICE PRESIDENT AND 
DIRECTOR, HUMAN SERVICES RESEARCH, MATHEMATICA POLICY RESEARCH, 
                  INC., PRINCETON, NEW JERSEY

    Dr. DECKER. Good morning. Thank you for giving me the 
opportunity to testify on the UC system and on the effect of UC 
benefits on the reemployment of recipients.
    As you know, the UC system is designed to alleviate the 
hardship caused by involuntary unemployment. By paying benefits 
to recipients during the time they are unemployed, the system 
also creates a reemployment disincentive for at least some of 
these recipients. Therefore, in setting the generosity of the 
system, policymakers must balance two conflicting goals, the 
goal of providing adequate benefits to meet the needs of the 
unemployed and the goal of minimizing the reemployment 
disincentives in the system.
    Today, I will focus on two findings based on research 
regarding disincentives. First, the UC system creates a 
reemployment disincentive, and expanding the generosity of UC 
lengthens unemployment spells among recipients. Second, State 
UC policies can be used to at least partially offset the 
reemployment disincentives and reduce UC payments.
    With respect to the first conclusion, the UC system creates 
a disincentive to reemployment because it lowers the cost of 
being unemployed. Some unemployed workers who have access to UC 
will tend to reduce the intensity of their job search or be 
more selective in accepting a job offer than they would be in 
the absence of UC. Both of these tendencies generate longer 
unemployment spells.
    The UC benefits have two dimensions--the amount paid per 
week and the maximum duration of benefits. Increasing the 
generosity of UC benefits, either through increased benefit 
amounts or additional weeks, adds to the reemployment 
disincentive and further lengthens unemployment spells.
    Studies have consistently demonstrated, for example, that 
higher weekly benefits lead to a modest increase in the length 
of unemployment. Estimates from these studies suggest that an 
increase in the ratio of weekly benefits to weekly wages of 10 
percentage points lengthens unemployment spells by between 0.5 
and 1.5 weeks. So, if benefits are increased, the result will 
be somewhat longer unemployment spells.
    Studies show that extending the maximum duration of 
benefits also lengthens unemployment spells. However, the range 
of estimates is fairly wide. The estimated impact of offering 
an additional 10 weeks of benefits could lengthen average 
unemployment spells by as little as 1 week or by as much as 5 
weeks, depending on the estimate. Regardless, it is clear that 
extending benefits, similar to increasing the benefit amount, 
encourages longer unemployment spells.
    State policies can be used to at least partially offset the 
reemployment disincentive associated with UC. For example, 
other panel members will discuss how work search requirements 
and targeted mandatory job search assistance can encourage more 
rapid reemployment.
    Another policy option that has potential to encourage more 
rapid reemployment is the use of reemployment bonuses. A series 
of experiments were conducted in the late 1980s to test the 
potential effectiveness of reemployment bonuses in encouraging 
more rapid reemployment and reducing UC payments. The bonus 
offers ranged between $300 and $1,000 and were paid to 
recipients who started a new job within 6 or 12 weeks of their 
initial UC claim, depending on the particular experiment. The 
experiments found that bonus offers encouraged more rapid 
reemployment and reduced average UC receipt, with the estimated 
UC reduction reaching nearly 1 week per recipient for the most 
generous offers.
    However, these reductions were not large enough to make the 
reemployment bonus offers cost-effective from the standpoint of 
the UC system. The cost of administering and paying the bonuses 
exceeded the estimated savings in UC payments generated by the 
offers.
    Recent research suggests that a more targeted bonus offer 
would be more cost-effective, but this finding requires further 
investigation before it can be used to inform policy.
    In conclusion, research has clearly demonstrated that the 
UC system introduces a reemployment disincentive, but 
researchers tend to disagree about the importance of this 
effect. The dispute arises partly because the size of the 
effect is somewhat uncertain, as I have pointed out, but also 
because different researchers describe similar estimates in 
different ways. Where one researcher characterizes an effect as 
substantial, another labels it as modest. Regardless, 
reemployment disincentives are inevitable in the UC system 
because it pays recipients while they are unemployed; and the 
challenge for policymakers is to balance that disincentive 
against the need to provide adequate assistance to the 
unemployed.
    Thank you.
    [The prepared statement of Dr. Decker follows:]
Statement of Paul T. Decker, Ph.D., Vice President and Director, Human 
 Services Research, Mathematica Policy Research, Inc., Princeton, New 
                                 Jersey
    Thank you for giving me the opportunity to submit testimony on the 
Unemployment Compensation (UC) system and the effect of UC benefits on 
the reemployment of recipients.
    The UC system is designed to alleviate the hardship caused by 
involuntary unemployment. But by paying benefits to recipients during 
their unemployment spells, the system also creates a reemployment 
disincentive for at least some recipients. Policy makers therefore must 
set a benefit amount that balances two conflicting goals: (1) providing 
adequate benefits to meet the needs of the unemployed, and (2) 
minimizing the reemployment disincentive. To achieve this balance, the 
``rule-of-thumb'' that has guided UC policy since the inception of the 
system is that weekly UC benefits should replace roughly 50 percent of 
workers' weekly wages (O'Leary and Rubin 1997).
    I will base my remarks on three conclusions related to the 
reemployment disincentives of the UC system:

            Expanding the generosity of UC lengthens 
        unemployment spells.
            States UC policies can shorten UC spells.
            Reemployment bonuses can generate modest reductions 
        in UC spells but are generally not cost-effective.

Expanding the Generosity of UC Lengthens Unemployment Spells
    The UC system creates a disincentive to reemployment because it 
lowers the cost of unemployment. Unemployed workers who have access to 
UC will tend to reduce the intensity of their job search or to be more 
selective in accepting a job offer than they would be in the absence of 
UC. Both of these tendencies generate longer unemployment spells. 
Increasing the generosity of the system, either through increased 
benefit amounts or additional weeks, adds to this effect.
    Effect of the weekly benefit amount. Studies consistently show that 
higher weekly UC benefits lead to a modest increase in the length of 
unemployment. Most studies have focused on the effect of changes in the 
wage replacement rate--the ratio of the weekly benefit amount to the 
pre-UC weekly wage--which, as I have pointed out, is intended to 
average about 50 percent in the current system. Studies conducted since 
the early 1980s suggest that an increase in the replacement rate of 10 
percentage points lengthens average unemployment spells by between 0.5 
and 1.5 weeks (Moffitt and Nicholson 1982; Moffitt 1985a; Solon 1985; 
and Meyer 1990). Hence, if weekly benefits are increased because of 
concerns about adequacy, the result will be somewhat longer 
unemployment spells.
    Effect of the maximum duration of benefits. Increases in the 
maximum duration of benefits also lengthen average unemployment spells. 
Studies since the early 1980s suggest that a one-week increase in 
maximum duration of benefits extends average unemployment spells by 
between 0.1 and 0.5 weeks (Moffitt and Nicholson 1982; Moffitt 1985a 
and 1985b; Solon 1985; Katz and Meyer 1990; Corson et al. 1999; and 
Jurajda and Tannery 2003). This range of estimates is fairly wide, 
implying, for example, that an extension of maximum benefit duration 
from 26 weeks to 36 weeks could lengthen average unemployment spells by 
as little as 1 week or by as much as 5 weeks.
State UC Policies Can Shorten UC Spells
    Work-search requirements. To counter the disincentive effects of 
UC, states can use work-search requirements to promote more rapid 
reemployment. In most states, recipients must provide the UC agency 
with a list of a minimum number of potential employers contacted for 
each week during which benefits are claimed. However, UC agencies 
usually do not aggressively validate the information that UC recipients 
provide, which leads one to question the effectiveness of the work-
search requirements in offsetting the reemployment disincentive of UC. 
Regardless, evidence suggests that the work-search requirements have a 
substantial impact. A Washington State UC experiment conducted during 
the 1990s showed that, relative to a system with no required employer 
contacts, standard work-search requirements in that state reduced 
average UC benefit spells by more than 3 weeks per recipient (Johnson 
and Klepinger 1994). Evidence from another experiment conducted in 
Maryland during the 1990s demonstrated that additional strengthening of 
the standard work-search requirements, either through increases in the 
number of required contacts or through verification of the contacts, 
further reduced benefit receipt (Klepinger et al. 1998).
    Targeted job-search assistance. The state Worker Profiling and 
Reemployment Services (WPRS) programs that were established a decade 
ago can also offset the reemployment disincentive effects of UC. These 
programs require UC recipients identified as most likely to exhaust 
their benefits to participate in mandatory job-search assistance 
services. A recent evaluation of WPRS programs in six states found that 
the programs generated reductions in UC receipt in five of the six 
states, with the reductions in a given state ranging from 0.2 weeks per 
recipient to nearly 1 week per recipient (Dickinson et al. 1999). 
Reductions were largest in states that had extensive service 
requirements, and that strictly enforced those requirements.
 Reemployment Bonuses Can Generate Modest Reductions in UC Spells but 
        Are Generally Not Cost-Effective
    Evidence from the bonus experiments. A series of experiments were 
conducted during the late 1980s to test the potential effectiveness of 
reemployment bonuses in encouraging more rapid reemployment and 
reducing UC payments. The bonus offers tested ranged from about $300 to 
$1,000 and were paid to recipients who found a new job within about 6 
or 12 weeks of their initial UC claim, depending on the particular 
experiment.
    The reemployment bonus offers reduced average UC receipt, with the 
estimated reductions ranging nearly as high as 1 week per recipient for 
the most generous offers. However, these reductions were not large 
enough to make the reemployment bonuses cost-effective from the 
standpoint of the UC system--the costs of administering and paying the 
bonuses exceeded the estimated savings in UC payments generated by the 
offers (Decker and O'Leary 1995). Furthermore, unemployed workers who 
previously had not applied for UC might be induced to do so if the 
reemployment bonus were made permanent. This effect, often referred to 
as an entry effect, would add to the net costs of offering a permanent 
reemployment bonus beyond what was measured in the bonus experiments.
    Reemployment bonuses may be more cost-effective if they are 
targeted to certain UC recipients, as is done with WPRS services. 
O'Leary et al. (2003) have shown that targeting of reemployment bonus 
offers to UC recipients who are expected to exhaust their benefits can 
generate larger reductions in UC payments for a given bonus offer. This 
research also suggests that these reductions in UC payments may be 
large enough to pay for the costs of administering and paying the 
bonuses.
    Personal Reemployment Accounts. Personal Reemployment Accounts, or 
PRAs, have been proposed as part of the President's stimulus package to 
provide reemployment assistance to UC recipients who are most likely to 
exhaust their benefits. Recipients would use the PRAs, which could 
contain as much as $3,000 each, to pay for services and training to 
help them return to work sooner. The accounts would also include a 
reemployment bonus provision. PRA recipients who become reemployed 
within first 13 weeks of their first UC payment would be eligible for a 
reemployment bonus equal to the remaining balance in the PRA. If the 
PRA amount were set to the maximum value of $3,000, the maximum 
reemployment bonus amount would be considerably more generous than the 
bonus offers tested in the experiments.
    Using the estimates from the bonus experiment, I predict that the 
reemployment bonus feature of a PRA set at $3,000 would generate a 
reduction in average UC spells among PRA recipients of more than 1.5 
weeks. The predicted impacts under PRAs are larger than the estimated 
impacts in the bonus experiments because (1) the more generous PRA 
amount should speed reemployment and therefore reduce benefits 
received; and (2) the targeting of the PRA bonus focuses on individuals 
who expect to have long UC spells, so it should magnify the reduction 
in UC.
Conclusion
    Although research has clearly demonstrated that the UC system 
introduces a reemployment disincentive, researchers disagree on the 
importance of this effect. The dispute arises partly because estimates 
of the effect of UC generosity on unemployment spells vary, and partly 
because different researchers describe similar estimates in different 
ways. Where one researcher characterizes an effect as ``substantial,'' 
another views it as ``modest.'' Regardless, reemployment disincentives 
are inevitable in UC insofar as it pays recipients for staying 
unemployed. The task of policy makers, therefore, is to balance that 
disincentive against the need to provide adequate assistance to the 
unemployed.
References
    Corson, Walter, Karen Needels, and Walter Nicholson. 1999. 
``Emergency Unemployment Compensation: The 1990s Experience.'' 
Unemployment Insurance Occasional Paper 99-4, U.S. Department of Labor, 
Employment and Training Administration.

    Decker, Paul T., and Christopher J. O'Leary. 1995. ``Evaluating 
Pooled Evidence from the Reemployment Bonus Experiments.'' Journal of 
Human Resources 30, 3: 534-550.

    Dickinson, Katherine P., Suzanne D. Kreutzer, Richard W. West, and 
Paul T. Decker. 1999. ``Evaluation of Worker Profiling and Reemployment 
Services: Final Report.'' Research and Evaluation Report Series 99-D, 
U.S. Department of Labor, Employment and Training Administration.

    Johnson, Terry R., and Daniel H. Klepinger. 1991. ``Evaluation of 
the Impacts of the Washington Alternative Work Search Experiment.'' 
Unemployment Insurance Occasional Paper 91-4, U.S. Department of Labor, 
Employment and Training Administration.

    Jurajda, Stepan, and Fredrick J. Tannery. 2003. ``Unemployment 
Durations and Extended Unemployment Benefits in Local Labor Markets.'' 
Industrial and Labor Relations Review 56, 2: 324-348.

    Katz, Lawrence F., and Bruce D. Meyer. 1990. ``The Impact of 
Potential Duration of Unemployment Benefits on the Duration of 
Unemployment.'' Journal of Public Economics 41, 1: 45-72.

    Klepinger, Daniel H., Terry R. Johnson, Jutta M. Joesch, and Jacob 
Benus. 1998. ``Evaluation of the Maryland Unemployment Insurance Work 
Search Demonstration.'' Unemployment Insurance Occasional Paper 98-2, 
U.S. Department of Labor, Employment and Training Administration.

    Meyer, Bruce. 1990. ``Unemployment Insurance and Unemployment 
Spells.'' Econometrica 58, 4: 757-782.

    Moffitt, Robert. 1985a. ``Unemployment Insurance and the 
Distribution of Unemployment Spells.'' Journal of Econometrics 28, 1: 
85-101.

    Moffitt, Robert. 1985b. ``The Effect of Duration of Unemployment 
Benefits on Work Incentives: An Analysis of Four Data Sets.'' 
Unemployment Insurance Occasional Paper 85-4, U.S. Department of Labor, 
Employment and Training Administration.

    Moffitt, Robert, and Walter Nicholson. 1982. ``The Effect of 
Unemployment Insurance on Unemployment: The Case of Federal 
Supplemental Benefits.'' Review of Economics and Statistics 64, 1: 1-
11.

    O'Leary, Christopher J., Paul T. Decker, and Stephen A. Wandner. 
2003. ``Cost-Effectiveness of Targeted Reemployment Bonuses.'' 
Unpublished manuscript.

    O'Leary, Christopher J., and Murray Rubin. 1997. ``Adequacy of the 
Weekly Benefit Amount.'' In Unemployment Insurance in the United 
States: Analysis of Policy Issues, Christopher J. O'Leary and Stephen 
A. Wander, editors. Kalamazoo, MI: W.E. Upjohn Institute for Employment 
Research.

    Solon, Gary. 1985. ``Work Incentive Effects of Taxing Unemployment 
Insurance Benefits.'' Econometrica 53, 2: 295-306

                                 

    Chairman HERGER. Thank you very much, Dr. Decker. Now Mr. 
Joe Bergmann of New York Unemployment Project. If the audience 
could hold their applause and if we could just listen to our 
witnesses, please. Thank you.
    Mr. BERGMANN. I haven't done anything yet. Can my time 
start?
    Chairman HERGER. Let's start the time.

   STATEMENT OF JOE BERGMANN, MEMBER, NEW YORK UNEMPLOYMENT 
                  PROJECT, NEW YORK, NEW YORK

    Mr. BERGMANN. Thank you for giving me the opportunity to 
talk to you. My name is Joe Bergmann--it says so right here--
and I am here today as a Member of the New York Unemployment 
Project, as someone who has been job hunting for 18 months.
    I live in New York City. I am 54 years old. I have a wife 
and two daughters, one who is 8 years old and another 16, who 
is going to be in the 12th grade next year and hoping to go to 
college. How am I going to do that with no income?
    I have been working since I was 14. In 40 years, I have 
never been out of work for more than a month, until now.
    For the past 15 years, I have worked in interactive 
marketing and advertising. I was a creative director at a 
company that was a subsidiary of TMP Worldwide, who owns 
Monster.com. After
9/11, everything just fell apart. Our office was just north of 
the World Trade Center. On October 2, 2001, 75 percent of our 
people were laid off.
    I started to look for work on October 2, 2001, the minute I 
got home. Up till now, I have sent out 2,000 resumes and have 
had only 10 responses. Three responses led to interviews. All 
three of the companies were about to offer me a job, but at the 
final stage they pulled the position entirely. This was due to 
having a ``bad quarter.'' The job disappeared.
    I continue to look for work. I have 32 different Internet 
job sites that I visit on a weekly basis, and there are less 
and less jobs each time I visit. I network with people I have 
worked with. They send me job referrals. I cold call.
    My wife is also unemployed. She had found a job last 
November, and then 1 month later her company went out of 
business.
    Both of us have taken extra training courses through the 
U.S. Department of Labor to help us get work. We have also 
written a novel which we are trying to sell.
    I have done everything I can do to look for a job, 
everything that has been asked of me, everything I know how to 
do, and I am still out of work. Even the people in the 9/11 
assistance programs as well as Department of Labor programs 
took one look at what I was doing and said there was nothing 
else I could do to find work. Still I try new things to get in 
the door.
    The last thing that I am is lazy. I am not looking for 
handouts. I want a job.
    I started out burning boxes at a discount store when I was 
14. I have been a tennis pro, I have been a TV news reporter, 
an actor, a playwright, a copywriter, a novelist and one of the 
first people to do interactive marketing. You can say I have 
got quite a few skills, but that doesn't seem to mean much in 
this economy.
    Unemployment helped me as long as it lasted, but when my 
claim ran out, it was like a knife through my heart. How was I 
going to pay my bills? How was I going to take care of my 
family? I had to go bankrupt.
    Extended benefits for unemployment would have helped 
prevent that. That is why I, who have tried to do the right 
thing all my life, have come here to beg you to do the right 
thing--increase the benefits rather than destroy them.
    I am here today with 50 other unemployed people from New 
York and Pennsylvania. We are Members of the New York 
Unemployment Project and the Philadelphia Unemployment Project. 
All of our stories are different, but one thing we have in 
common is that we all want to work.
    By the way, we are the folks who pay your salary. We may 
not be the ones who pay your way in, but we are the ones who 
can lay you off.
    I haven't read Dr. Decker's or Dr. O'Leary's studies, but I 
know a couple of things and would challenge them or any of you 
to contradict me:
    This economy has lost 2.6 million private sector jobs since 
the recession began in 2001.
    Like me, 21.4 percent of the unemployed have been jobless 
for more than 6 months.
    We are hurting. Literally hundreds of thousands of workers 
are out of benefits or are collecting benefits at a small 
fraction of what they were getting.
    How can you say that this small amount of money that you 
are giving us makes us not want to get a job quicker? It makes 
no sense.
    Let's be clear. No one prefers to collect unemployment 
benefits. We all want to work.
    To prove that, I would like to make a request of any or all 
of you, Mr. Chairman and everyone. Come with us back to New 
York for a day or come here to Washington. Come to a one-stop 
career center or sit with any of us as we do cold calls and go 
through classifieds, sift through on-line job postings and make 
cold calls. Spend a week in our shoes, and let's have this 
conversation again.
    I am just shocked and hurt and incredibly upset that the 
Committee would have the--I don't know what the word is--
temerity on the same day that the Department of Labor announced 
108,000 more jobs lost in the economy that you announce a 
hearing about how unemployed workers and UI are to blame for 
the joblessness. You can't be that out of touch, can you? You 
must see that American workers are now disposable. Chief 
Executive Officers get rewarded for running their companies 
into the ground, and the employees end up paying with their 
jobs. Government subsidizes and bails out industry, and 
employees get the boot. Now you want to blame us for not 
working, for living off the government dole which we paid into?
    We are asking you to help us the way you help industry. Mr. 
Chairman, we paid for this, everything, this building, the 
chairs you are sitting in and UI that protects us when we are 
discarded. We are also paying for the time you are taking to 
try and take those benefits away from us.
    You want to blame something? Blame the economy, not the 
unemployed and the unemployment system for why we haven't 
returned to work.
    As for these studies that lead to this hearing, I did a 
little research on Dr. Decker and Dr. O'Leary and, no 
disrespect, but didn't you used to work for the Upjohn Company 
at one time?
    Dr. O'LEARY. I work at the Upjohn Institute for Employment 
Research in Kalamazoo, Michigan.
    Chairman HERGER. If the gentleman could summarize, please.
    Mr. BERGMANN. Mr. Upjohn had an idea of putting all 
unemployed people on his company's farms. Is that where we are 
headed?
    I find the basis of this hearing to be offensive to all 
Americans and not just the unemployed. Take a moment to talk to 
these people and learn from them. I don't know what else to 
say.
    [The prepared statement of Mr. Bergmann follows:]
 Statement of Joe Bergmann, Member, New York Unemployment Project, New 
                             York, New York
    Thank you for giving me this opportunity to talk to you. My name is 
Joe Bergmann, and I am here today as a member of the New York 
Unemployment Project, and as someone who has been job-hunting for 18 
months.
    I live in New York City. I'm 54 years old. I have a wife and two 
daughters, one 8-years-old and another, 16, who is going to be in the 
twelfth grade next year and hoping to go to college. How do I do that 
with no income?
    I have been working since I was 14. In 40 years I have never been 
out-of-work for more than a month--until now.
    For the past 15 years I've worked in interactive marketing and 
advertising. I was a Creative Director of a company that was a 
subsidiary of TMP Worldwide, who owns Monster.com. We were breaking 
even, but after 9/11 everything just fell apart. Our office was just 
north of the World Trade Center. On October 2nd of 2001, 75 percent of 
our people were laid-off. Now, my division no longer exists.
    The parent company, TMP Worldwide, has gone from 10,000 employees 
to less than 6000, with more layoffs coming.
    I started looking for work on October 2, 2001--The minute I got 
home. Up till now, I've sent out 2000 resumes and have had only 10 
responses. Three responses led to interviews. All three of the 
companies were about to offer me a job, but at the final stage, they 
pulled the position entirely. This due to a having a ``bad quarter.''
    But I continue to look for work. I have 32 different internet job 
sites that I visit on a weekly basis, but there are less and less jobs 
each time. I network with people I've worked with and I cold call.
    I help develop and market websites, but since the economy began to 
stall companies are spending less and less in their web development and 
marketing in general. I had three different freelance jobs. I even 
offered to pitch new business for free with a small pharmaceutical 
marketing company. I was hoping it would lead to paid work. We won some 
business, and I've managed to get some freelance work, but it's nothing 
regular, and certainly not enough to make ends meet.
    My wife is also unemployed. She had found a job last November and 
then one month later the company went out of business.
    Both my wife and I have taken extra training courses to help us get 
work. I have taken digital video production courses and a web 
production course to increase my skills, and a writing course.
    I have done everything I can to look for a job, everything that's 
been asked of me, everything I know how. I am still out of work. Even 
the people in 9/11 assistance programs, and Department of Labor 
programs take one look at what I'm doing and say that there's nothing 
else I could do to find work.
    The last thing that I am is lazy. I'm not looking for handouts. I'm 
looking for a job.
    I started out burning boxes at a discount store when I was 
fourteen. I've been a tennis pro, a TV News Reporter, an actor, a 
playwright, a copywriter, a novelist, and one of the first people to do 
Interactive marketing. You could say that I've got quite a few skills. 
But that doesn't seem to mean much anymore.
    Unemployment helped me when I needed it. But when it ran out, it 
was like a knife through my heart. How was I going to pay my bills? How 
am I going to take care of my family?
    I've gotten help from Safe Horizon, a little bit from Red Cross and 
quite a bit from the Salvation Army (food vouchers/Metrocards). 
Whatever IRA we had is worth less than half of what it was.
    Nevertheless, I've had to go bankrupt. Extended benefits for 
unemployment would have helped prevent that. That's why I, who have 
tried to do the right thing all my life, come here begging you to do 
the right thing.
    I am here today with fifty other unemployed people from New York 
and Pennsylvania. We are members of the New York Unemployment Project 
and the Philadelphia Unemployment Project. All of our stories are 
different, but one thing we have in common is that we all want to work.
    I haven't read Dr. Decker or Dr. O'Leary's studies, but I know a 
couple of things--and would challenge them or any of you to contradict 
me:

            This economy has lost 2.6 private sector jobs since 
        the recession began in 2001.
            21.4% of the unemployed have been jobless--like 
        me--for more then six months.
            We are hurting. Literally tens of thousands of 
        workers are out of benefits or are collecting benefits that are 
        a small fraction of our former earnings. Let's be clear: no one 
        prefers to collect unemployment benefits. We all want work.

    Let's be clear: No one prefers to collect unemployment benefits. We 
all want to work.
    I have a request both for you Mr. Chairman, your colleagues and the 
other witnesses before this committee: come back to New York with us, 
or join us today in Washington, D.C. Come to a one-stop career center 
or sit with any one of us as we read through the classifieds, sift 
through hotjobs.com, cold call for resumes. Spend a week in our shoes 
and then let's have this conversation again.
    I have to admit, speaking for all of us here today--I am just so 
shocked and so hurt and so angry that this committee would have the 
temerity on the same day that the Department of Labor announced 108,000 
more jobs lost to this economy that you would announce a hearing about 
how unemployed workers and the unemployment insurance program is to 
blame for our joblessness.
    Mine is not the only story here. Behind me are 50 other members of 
the New York Unemployment Project who are in the same situation. 
They're the real experts in what it's like to feel discarded in this 
dying economy. Yet, they still have hope that meaningful work will be 
out there. Don't destroy that hope by blaming them for what is out of 
their control. All of you, Mr. Chairman, have an opportunity to show 
real compassion and understanding by what you do here. I ask you to 
support the people who make American companies work.
    You want to blame something? Blame the economy, not the unemployed 
and the unemployment system for why I haven't returned to work.
    Thank you.

                                 

    Chairman HERGER. I thank you, Mr. Bergmann.
    I want to remind our audience that we will not allow 
outbursts during this hearing. Those who do feel they need to 
have an outburst will be asked to leave.
    Mr. Bergmann, I want to thank you for your obviously 
heartfelt testimony. My heart, as well as, I am sure, I know 
everyone here in our country, goes out to you and those many 
who are like you and are in the same position that you find 
yourself at this time.
    I want to reemphasize that the purpose of this hearing is 
not to deny anyone assistance during a time when they are 
trying to help themselves. It is an attempt to try to help the 
system to work better and more efficiently and assist 
individuals like yourself find work sooner. That is the purpose 
of this hearing.
    With that, we will turn to our next witness, Dr. O'Leary.

 STATEMENT OF CHRISTOPHER J. O'LEARY, PH.D., SENIOR ECONOMIST, 
   W.E. UPJOHN INSTITUTE FOR EMPLOYMENT RESEARCH, KALAMAZOO, 
                            MICHIGAN

    Dr. O'LEARY. Good morning, Mr. Chairman. Thank you.
    I am pleased to work at the Upjohn Institute for Employment 
Research, which was established on the endowment created before 
there was UI in the United States. Dr. Upjohn created a private 
program in 1932; and, as you know, in 1935 the Social Security 
Act created the UI system as we know. After that was up and 
running, the money was used to create an institute to study the 
causes and ways to deal with unemployment.
    This year marks the 10th anniversary of Federal legislation 
creating the Worker Profiling and Reemployment Services (WPRS) 
system to promote speedy reemployment for UI beneficiaries at 
risk of long-term unemployment. The WPRS has two main parts, 
identification of claimants most likely to exhaust their 
regular UI benefits and referral of those clients to 
reemployment services.
    The WPRS is based on a large body of research that found 
targeted job search assistance to be a highly cost-effective 
means for promoting return to work. Recent evaluations show 
that WPRS has provided an effective incentive for shortening 
periods of UI benefit receipt and increased earnings during the 
benefit year of those targeted for services.
    Traditionally, the program participant selection process 
has been informal, relying on the judgments of frontline staff 
or the queuing mechanism of first-come, first-served.
    The WPRS provides a formal systematic method based on 
objective criteria applied equally to all customers. 
Evaluations of profiling models have shown that they reliably 
distinguish those who are most likely to exhaust UI from those 
who will probably draw only a small fraction of their UI 
entitlement.
    To ensure that profiling is as accurate as possible, States 
should regularly update these models. This was the first 
recommendation by the 1998 WPRS policy work group. 
Subsequently, the Department of Labor gave significant 
improvement grants to 11 States. The WPRS would benefit from 
more resources for model refinement. Supplemental funding could 
be provided in a way that would encourage cooperative linkages 
between the State workforce agencies and economic research 
units at local universities and other institutes.
    In fact, I should note, Mr. Lewis, that the University of 
Kentucky helps the State of Kentucky with their model 
estimation and revision; and the private, non-profit Upjohn 
Institute does the same for the State of Michigan, Mr. Levin.
    Given an efficient referral process, effective employment 
services are key in making the WPRS system work. Services 
typically include a group orientation to job search services 
followed by individually customized services like skills 
assessment, resume preparation, job interview referrals, plus 
access to the one-stop resource room.
    The WPRS has reinvigorated the linkage between UI and the 
employment service established by the work test for continued 
benefit eligibility, a linkage in jeopardy with the growth in 
telephone and Internet UI claims. By supplementing the 
employment service work test monitoring role with a program of 
reemployment services, WPRS adds a type of carrot to the 
traditional stick of the work test for UI beneficiaries.
    Since the inception of WPRS, services have been funded 
creatively by States. Some have used funds from UI penalty and 
interest accounts. In recent years, Congress has provided $35 
million per year for reemployment services grants to the 
States. However, these grants were not included in the 
administration's proposed fiscal year 2004 budget.
    Statistical targeting has great potential in the one-stop 
environment created by the Workforce Investment Act 1998 (P.L. 
105-220). Currently, the Upjohn Institute is working with the 
Department of Labor and the Georgia Department of Labor to 
develop a Frontline Decision Support System (FDSS).
    The FDSS will help frontline staff assess available job 
openings and determine which among the array of services 
offered at the one-stop center may best meet a customer's 
needs. The system relies on patterns observed for similar 
clients in recent administrative data to inform customers about 
reemployment prospects and which particular services might be 
most effective.
    Unlike WPRS, which focuses only on one decision--whether or 
not to refer UI beneficiaries to services--FDSS uses 
statistical methods to help inform the referral decision for 
all customers of one-stop career centers. By helping staff and 
customers make more informed decisions, FDSS promises to reduce 
the length of time a job seeker is out of work.
    To summarize, Mr. Chairman, WPRS has introduced a modern 
public management approach to the workforce development arena. 
It has provided staff with an effective means of directing 
reemployment services to UI beneficiaries at risk of long-term 
unemployment, and evaluations have found that WPRS helps the 
system by reducing unemployment duration and helps workers by 
increasing benefit year earnings.
    Thank you.
    [The prepared statement of Dr. O'Leary follows:]
  Statement of Christopher J. O'Leary, Ph.D., Senior Economist, W.E. 
     Upjohn Institute for Employment Research, Kalamazoo, Michigan
I. Introduction
    This year marks the tenth anniversary of legislation that 
established the Worker Profiling and Reemployment Services (WPRS) 
system. Passage of PL 103-152 in November 1993 required each state to 
implement a WPRS system, with the purpose of promoting speedy 
reemployment for unemployment insurance (UI) beneficiaries at risk of 
long-term unemployment. The system includes two key components: 1) 
identification of UI beneficiaries who are most likely to exhaust their 
regular UI benefits and 2) referral of those individuals to 
reemployment services. WPRS is based on a large body of research 
conducted by states and the federal government that found targeted job 
search assistance to be a highly cost effective means for promoting 
return to work (Wandner 1994, Meyer 1995). WPRS has been operational in 
all states since 1995, and recent evaluations of the program show that 
it has provided an effective incentive for reducing UI benefit receipt 
(Dickinson, Decker, and Kreutzer 2002). There is also some evidence 
that WPRS has led to increased earnings during the UI benefit year 
(Black, Smith, Berger and Noel 2001).
    The purpose of my remarks is to describe the profiling and referral 
process, to offer evidence of its effectiveness, and to suggest areas 
that need improvement. I will also briefly describe two innovative 
extensions of the profiling concept to other workforce programs.
II. Formal Selection Process
    One of the innovative aspects of WPRS is the formal approach it 
takes in selecting customers into employment programs. The 
administrative process by which individuals are selected to participate 
in employment is referred to as targeting. When program participation 
is not an entitlement and existing capacity of the program cannot 
accommodate all those who may desire to participate, a selection 
process must be adopted. To achieve an efficient and effective program, 
one must devise a selection process that directs customers to services 
that best meet their needs.\1\
---------------------------------------------------------------------------
    \1\ For more information on the concept of targeting employment 
services and descriptions and evaluations of programs that use 
targeting techniques, see Eberts, O'Leary and Wandner (2002). It should 
also be noted that the OECD has recognized targeting as having broad 
application to workforce development programs (OECD 1998). Eberts and 
O'Leary (1997) describe profiling efforts in other countries.
---------------------------------------------------------------------------
    Through its statistical profiling model, WPRS offers a systematic 
referral process using objective data which is applied equally to all 
eligible customers. Traditionally, the selection process has been 
informal, relying upon the judgment of frontline staff or the queuing 
principle of first-come, first-served.\2\ Formal methods like WPRS 
provide for systematic selection based on objective criteria applied 
equally to all customers. Evaluations of WPRS have shown that the 
statistical models are able to distinguish among those most likely to 
exhaust UI benefits from those least likely to exhaust with significant 
precision (Dickinson et al. 1999, 2002).
---------------------------------------------------------------------------
    \2\ Gueron and Pauly (1991) cite two studies that show little 
correlation between the job-readiness ratings by frontline staff and 
participants' performance in the program.
---------------------------------------------------------------------------
III. Concept and Purpose of WPRS
    Through WPRS, states have taken preemptive action to help 
unemployment insurance (UI) beneficiaries shorten their duration of UI 
compensation. A state WPRS system identifies, primarily through 
statistical methods, those UI recipients who are most likely to exhaust 
their benefit entitlement and refers them to required reemployment 
services. The profiling and referral process is performed in three 
stages. First, unemployment insurance recipients who are expecting to 
be recalled to their previous job or who are members of a union hiring 
hall awaiting their next assignment are dropped from the process.\3\ 
Second, the remaining unemployment insurance recipients are ranked by 
their likelihood of exhausting regular unemployment insurance benefits 
as determined by a statistical model. Third, beneficiaries are then 
referred to reemployment services in order of their ranking until the 
capacity of local agencies to serve them is filled.\4\
---------------------------------------------------------------------------
    \3\ Since WPRS is designed for permanently separated workers who 
are likely to be unemployed for long periods, workers who are job 
attached and not looking for a new job are excluded. Workers with 
specific recall dates and who find jobs through union hiring halls are 
considered to be waiting to return to their previous jobs.
    \4\ See Wandner (1997) for a more detailed description of the 
national guidelines and requirements for the state WPRS systems.
---------------------------------------------------------------------------
    To profile workers, most states have adopted a statistical 
methodology that assigns a probability of benefit exhaustion to each UI 
beneficiary who is eligible for profiling.\5\ A few states, which 
lacked sufficient data or expertise to estimate a probability model, 
started with a simple screening device based on one or two 
characteristics. Some of these states have moved to statistical models 
once the data deficiencies were corrected. Today, about 85 percent of 
the states use statistical models. The probability of exhausting 
benefits is derived from estimating the effects of personal 
characteristics and economic factors on the likelihood that a UI 
recipient will exhaust benefits. Personal characteristics typically 
include: educational attainment; tenure, wages, industry and occupation 
of last job held; and exhaustion of benefits in prior benefit years. 
Civil rights legislation prohibits using a claimant's age, race, and 
gender as variables in the model. Local labor market conditions are 
also included to reflect the likelihood of reemployment in the various 
local labor markets within a state. In essence, the probability 
assigned to each eligible UI recipient is a weighted average of the 
effect of each of these characteristics on the likelihood that an 
individual exhausts UI benefits.\6\
---------------------------------------------------------------------------
    \5\ See Eberts and O'Leary (2003) for a description and analysis of 
the updated profiling model for the State of Michigan.
    \6\ The U.S. Department of Labor recently sponsored a study by 
Black, Smith, Plesca, and Plourde (2002) of the lessons learned from 
the worker profiling. This study also includes recommendations of the 
best ways to simplify and improve statistical WPRS models.
---------------------------------------------------------------------------
IV. Background
    WPRS can trace its roots to research sponsored by the U.S. 
Department of Labor during the 1980s. Those studies revealed several 
common characteristics about dislocated workers, which could be used to 
identify those who would have the most difficulty finding employment. 
For example, workers with longer job tenure (more than three years) and 
who were employed in manufacturing industries were more likely to 
experience long durations of unemployment and significant earnings 
reductions than those with shorter tenure and in industries other than 
manufacturing, particularly nondurable industries. In addition, 
demonstration projects conducted in New Jersey, Nevada, Minnesota, and 
Washington, offered convincing evidence that supported the profiling 
and referral concept (Meyer 1995). The demonstrations in New Jersey and 
Minnesota established the efficacy of using statistical methods and 
administrative data to identify, early in their unemployment spell, 
those who are likely to experience long periods of joblessness. Results 
from all four states showed that providing more intensive job search 
assistance reduces the duration of insured unemployment and UI 
expenditures. The magnitude of the effects were large enough to make a 
difference in program costs: Reduction in UI receipts ranged from 4 
weeks in Minnesota to a half week in Washington, and the government 
benefit-to-cost ratio varied from 4.8 in Minnesota to 1.8 in New 
Jersey. At the same time, workers' earnings were higher because job 
search assistance accelerated their reemployment and thus increased the 
number of hours worked (Corson, Dunstan, Decker, and Gordon 1989).
    Encouraged by the prospect of UI benefit savings from the early 
identification and referral of long-term unemployed to reemployment 
services along with the persistent increase in the number of long-term 
unemployed, Congress passed legislation in November 1993 that mandated 
states to implement WPRS programs. The legislation gained broad 
bipartisan support in part because of the large and convincing body of 
prior research findings and the estimates by the Congressional Budget 
Office that the WPRS would generate significant savings for the federal 
government over the first five years of the program. The bill did not 
create new services for displaced workers, and states were required to 
provide only those services that were already available. Workers who 
were referred to available services were required to participate in the 
program or risk losing their UI benefits.
    Although WPRS is federally mandated, each state was asked to 
implement the program themselves. The federal government provided 
states with one-time funds to build capacity and expertise and offered 
state agencies limited technical assistance. After that, states were 
expected to finance the program out of ongoing employment and training 
program funds. Consequently, the ability of the states to serve 
claimants depends upon the capacity of the existing reemployment 
services. For some states, the demands of designing and testing a 
statistical profiling model were beyond the technical expertise of 
their staff, and they elicited the assistance of universities and other 
research groups to help develop a model. Therefore, successful 
implementation of the program required cooperation and coordination 
among a variety of federal and state agencies, including UI, the 
employment service, the Economic Dislocated Worker Adjustment 
Assistance (EDWAA) training programs, and research groups.
V. Evaluations of the Effectiveness of WPRS
    Two evaluations have been conducted to determine the success of 
WPRS. A multi-state evaluation of WPRS, sponsored by the U.S. 
Department of Labor, was based on claimant-level data from a sample of 
states (Dickinson et al. 1999, 2002). In each of the states included in 
the study (Connecticut, Illinois, Kentucky, Maine, New Jersey, and 
South Carolina), labor market outcome data were compiled from 
administrative records on all new initial UI claimants between July 
1995 and December 1996 who were eligible for referral to mandatory WPRS 
job search assistance (JSA). The combined samples included 92,401 
profiled and referred claimants, and 295,920 claimants who were 
profiled but not referred to WPRS JSA. The impact estimates were 
statistically significant in all states except South Carolina. For 
those five states with statistically significant results, the largest 
impact was 10.98 weeks in Maine with the other impacts ranging from 
10.21 to 10.41 weeks of UI benefits.
    The State of Kentucky also sponsored an assessment of its WPRS 
system. A feature of the Kentucky evaluation that sets it apart from 
the national evaluation was that the evaluation design was incorporated 
into the profiling modeling and implementation process. This allowed 
for the randomized assignment of claimants to treatment and control 
groups--an improvement over the design of the multi-state evaluation. A 
team of economists at the Center for Business and Economic Research at 
the University of Kentucky developed the profiling model and conducted 
the evaluation (Berger et al. 1997, 2001).
    The impact estimates for WPRS in the Kentucky evaluation were more 
dramatic than those found in the multi-state evaluation. With regard to 
the three outcomes of interest, the estimated impacts were a reduction 
of 2.2 weeks of UI, a reduction of $143 in UI benefits per beneficiary, 
and an increase of $1,054 per beneficiary in earnings during the UI 
benefit year. The differences in these estimates from those of the 
multi-state WPRS evaluation are most likely due to the fact that Black 
et al. (2001) essentially confined their comparisons within narrow 
intervals of exhaustion probabilities, thereby achieving a closer 
counterfactual. Dickinson et al. (1999) compared those assigned to 
WPRS, who had the highest probability of benefit exhaustion, with all 
those profiled but not referred, including many with very low 
exhaustion probabilities. This meant that the comparison group in the 
multi-state evaluation was likely to have shorter mean benefit duration 
than program participants, even in the absence of WPRS services. The 
ideal approach is to use beneficiaries from the same percentile group 
to make the comparison between the outcomes of those who were referred 
to orientation with those who were not.
VI. Issues Requiring Attention and Improvement
    Two aspects of WPRS require particular attention and improvement. 
The first issue is the ability to provide reliable estimates of a 
beneficiary's likelihood of exhausting benefits. At the heart of WPRS 
is a statistical model that predicts the probability that a UI 
beneficiary will exhaust his or her benefits. The model is based on the 
relationship between the event that a UI beneficiary exhausts benefits 
and key personal characteristics and local labor market conditions. 
Using the experience of UI beneficiaries who have recently filed 
claims, estimates of the relative contribution of each of the 
characteristics embedded in the model are obtained. These estimates are 
then combined with a claimant's personal characteristics to generate 
that person's probability of exhaustion.
    In order to ensure that the predictions are as accurate as 
possible, states must be diligent in updating their statistical models 
on a regular basis. The WPRS policy workgroup established in 1998 by 
USDOL recommended that states update their models so that they reflect 
current labor market conditions and worker behavior (Messenger, 
Schwartz and Wandner 1999). The USDOL also provided Significant 
Improvement Demonstration Grants to 11 states, half of which used the 
funds to update their models (Needels, Corson, and Van Noy 2002). 
Unfortunately, limited funds were available to assist only a handful of 
states. More resources, both at the state and federal levels, should to 
be provided to ensure the quality of these models and to make sure they 
reflect current labor market conditions. One approach is for state 
workforce agencies to establish linkages between economic research 
units at universities and other research institutions. Such 
collaboration can leverage government funds and benefit everyone 
involved.
    The second issue is the integration of the identification process 
with the provision of services. Adequate reemployment services are the 
critical step between profiling and getting the unemployed back to 
work. Worker profiling alone is not sufficient to yield the intended 
results of the program. WPRS has made significant strides in placing 
greater emphasis within the UI system on the work test by requiring UI 
beneficiaries to participate in services and to actively search for 
jobs, and has prompted claimants to undertake these activities earlier 
than later in their unemployment spell. One office manager we talked 
with during our evaluation of Michigan's WPRS offered that WPRS gave 
his staff the opportunity to do what they were supposed to do--assist 
the unemployed in finding a job. Previously, staff was frustrated 
because too few people were requesting assistance (Eberts and O'Leary 
1997).
    Yet, reemployment services require funding. Since the inception of 
WPRS, the funding of services has come from sources outside of WPRS. 
The federal legislation assumes that states will provide the services 
from other federal funds, mainly ES grants. ES grants are the primary 
source of funding of public labor exchange and job search assistance 
services. Congress has provided $35 million for FY 2003 and in several 
prior years for ``Reemployment Services Grants,'' which are part of 
``Employment Service Grants to States. However, these grants are not 
proposed in the Administration's budget for FY2004.
VII. Extension of Statistical Targeting Tools to Other Programs
    Although WPRS is entering its second decade, the use of statistical 
methods to target resources is only in its infancy. These statistical 
management tools have great potential, particularly in the one-stop 
environment established by the Workforce Investment Act (WIA). WIA has 
established a hierarchy of services, from core to intensive to 
training. Given the extensive number of services available, one-stop 
staff is faced with the challenge of directing customers to services 
that best meet their reemployment needs. Currently, the Upjohn 
Institute is collaborating with the U.S. Department of Labor and the 
Georgia Department of Labor to develop a statistical assessment and 
targeting methodology that assists frontline staff in evaluating 
available job openings and making referrals to services. This system, 
termed the Frontline Decision Support System (FDSS), offers a 
systematic framework for staff to quickly assess the needs of 
customers, to target services that meet customers' needs, and to 
deliver services in an effective and efficient manner. The FDSS tools 
are similar to worker profiling models in that statistical 
relationships are estimated between a customer's outcomes and personal 
characteristics and other factors. In the case of FDSS, the outcome is 
employment rather than UI benefit exhaustion (Eberts, O'Leary, and 
DeRango 2002).
    Despite the similar methodologies, FDSS's referral decision process 
is more complex than that of WPRS. With WPRS, the decision is whether 
or not to refer a UI claimant to a predetermined set of services. Under 
FDSS, the decision is which among a large number of services best meets 
the needs of a specific customer. FDSS provides a customized list of 
services, ranked from most effective to least effective for each 
individual. The list is customized for each individual in that it 
reflects the effectiveness of services for past participants with 
characteristics similar to the customer that a staff person is 
currently serving. FDSS also provides specific information about job 
prospects and wage potential for each customer. Thus, FDSS serves all 
customers who enter the one step, not simply UI claimants. Yet, like 
WPRS, FDSS promises to reduce the length of time job seekers are out of 
work by helping staff and customers make more informed decisions about 
services and job prospects. FDSS is currently in operation at two sites 
in Georgia and is scheduled to go statewide in a few months.
    Prior to developing and implementing FDSS, the Upjohn Institute 
with support from the U.S. Department of Labor, extended the 
statistical assessment methods of WPRS to welfare-to-work programs. The 
success of this project provided the basis for developing FDSS. 
Welfare-to-work programs typically treat all recipients the same, 
providing the same basic services regardless of a participant's skills, 
aptitudes, and motivation. Yet, barriers vary widely among 
participants. Some customers require little assistance in finding a 
job, while others have multiple barriers and stand to benefit from more 
intensive, targeted services. The Upjohn Institute developed and 
conducted a pilot that used administrative tools to target services to 
customers without changing the nature of the program or significantly 
raising costs. Statistical techniques were developed to estimate the 
likelihood of employment based on participants' demographic and work 
history information found in administrative records. An employability 
score was computed for each customer and was then used to assign each 
participant to one of three service providers. Each provider offered 
the same basic set of services but differed in the mix of services and 
in their approach to delivering services. The pilot used these 
differences to determine the best provider for each customer.
    An evaluation, based on random assignment, provided evidence that 
the pilot was successful in using statistical tools to improve program 
outcomes by placing more welfare recipients into jobs.\7\ It showed 
that the statistical assessment tool successfully distinguished among 
participants with respect to barriers to employment. It also found that 
referring participants to service providers according to their 
individualized statistical needs assessment (employability score) 
increased the overall effectiveness of the program by 27 percent as 
measured by the program goal of customers finding and retaining a job 
for 90 consecutive days.
---------------------------------------------------------------------------
    \7\ See Eberts (2003) for a description and evaluation of the Work 
First Targeting pilot, which was conducted at the Kalamazoo/St. Joseph 
Michigan Works Agency.
---------------------------------------------------------------------------
VIII. Conclusion
    WPRS has introduced an innovative management tool into the 
workforce development arena. The statistical targeting methodology has 
provided staff with an effective means of directing reemployment 
services to those unemployed workers who need them most. Evaluations 
have shown that such a tool has benefited both the UI system by 
reducing unemployment duration and the worker by increasing earnings. 
Furthermore, statistical tools have also been successfully used in 
workforce programs that are broader in scope. I believe that with the 
proper support for WPRS and continued encouragement for states to 
develop and implement additional tools to help staff and customers make 
more informed decisions, we can continue to improve the efficiency and 
cost-effectiveness of the UI and workforce development systems in this 
country.
References
    Berger, Mark C., Dan A. Black, Amitabh Chandra and Steven N. Allen. 
1997. ``Profiling Workers for Unemployment Insurance in Kentucky,'' The 
Kentucky Journal of Business and Economics 16: 1-18.

    Black, Dan, Jeffrey Smith, Mark Berger and Brett Noel. 2001. ``Is 
the Threat of Reemployment Services More Effective than the Services 
Themselves? Experimental Evidence from the UI System.'' Unpublished 
manuscript. College Park, MD: University of Maryland.

    Black, Dan, Jeffrey Smith, Miana Plesca and Suzanne Plourde. 2002. 
``Estimating the Duration of Unemployment Insurance Benefit 
Recipiency.'' Final Technical Report. Contract Number UI-10908-00-60. 
Washington, DC: U.S. Department of Labor (February).

    Corson, Walter, Shari Dunstan, Paul Decker, and Anne Gordon, 1989. 
``New Jersey Unemployment Insurance Reemployment Demonstration 
Project,'' Unemployment Insurance Service, Occasional Paper 89-3. 
Washington, DC: U.S. Department of Labor (April).

    Dickinson, Katherine P., Paul T. Decker, Suzanne D. Kreutzer, and 
Richard W. West. 1999. ``Evaluation of Worker Profiling and 
Reemployment Services: Final Report.'' Research and Evaluation Report 
Series 99-D. Washington, DC: Office of Policy and Research, Employment 
and Training Administration, U.S. Department of Labor.

    Dickinson, Katherine P., Paul T. Decker and Suzanne D. Kreutzer. 
2002. ``Evaluation of WPRS Systems'' in Targeting Employment Services, 
Randall W. Eberts, Christopher J. O'Leary, and Stephen A. Wandner, eds. 
Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.

    Eberts, Randall W. 2002. Design, Implementation, and Evaluation of 
the Work First Profiling Pilot Project. Washington D.C.: U.S. 
Department of Labor, Employment and Training Administration Occasional 
Paper 2002-07.

    Eberts, Randall W., and Christopher J. O'Leary. 1997. ``Process 
Analysis of the Worker Profiling and Reemployment Services (WPRS) 
System in Michigan.'' Prepared for the Michigan Employment Security 
Agency. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research 
(April).

    Eberts, Randall W., and Christopher J. O'Leary. 2003. ``A New WPRS 
Profiling Model for Michigan,'' Report to the Michigan Unemployment 
Agency prepared by W.E. Upjohn Institute for Employment Research 
(March).

    Eberts, Randall W., Christopher J. O'Leary, and Kelly J. DeRango. 
2002. ``A Frontline Decision Support System for One-Stop Centers,'' in 
Targeting Employment Services, Randall W. Eberts, Christopher J. 
O'Leary, and Stephen A. Wandner, eds. Kalamazoo, MI: W.E. Upjohn 
Institute for Employment Research.

    Eberts, Randall W., Christopher J. O'Leary, and Stephen A. Wandner, 
eds. 2002. Targeting Employment Services, Kalamazoo, MI: W.E. Upjohn 
Institute for Employment Research.

    Gueron, Judith, and Edward Pauly with Cameran M. Lougy. 1991. From 
Welfare to Work.  New York: Russell Sage Foundation.

    Messenger, Jon, Suzanne Schwartz, and Stephen A. Wandner. 1999. The 
Worker Profiling and Reemployment Services Policy Workgroup: Policy 
Analysis and Recommendations. Washington, D.C.: U.S. Department of 
Labor, Office of Policy and Research.

    Needels, Karen, Walter Corson, and Michelle Van Noy. 2002. 
``Evaluation of the Significant Improvement Demonstration Grants for 
the Provision of Reemployment Services for UI Claimants,'' Final Report 
to the U.S. Department of Labor, Mathematica Policy Research, Inc. 
July.

    OECD. 1998. Early Identification of Jobseekers at Risk of Long-Term 
Unemployment: The Role of Profiling. Paris: Organisation for Economic 
Co-Operation and Development.

    Wandner, Stephen A., ed. 1994 ``The Worker Profiling and 
Reemployment Services System: Legislation, Implementation Process and 
Research Findings.'' Unemployment Insurance Occasional Paper No. 94-4. 
Washington, DC: UI Service, Employment and Training Administration, 
U.S. Department of Labor.

    Wandner, Stephen A. 1997. ``Early Reemployment for Dislocated 
Workers in the United States,'' International Social Security Review 
50(4): 95-112.

                                 

    Chairman HERGER. Thank you, Dr. O'Leary. Dr. Benus.

STATEMENT OF JACOB M. BENUS, PH.D., EXECUTIVE DIRECTOR AND VICE 
  PRESIDENT FOR RESEARCH, IMPAQ INTERNATIONAL, LLC, COLUMBIA, 
                            MARYLAND

    Dr. BENUS. Good morning, Mr. Chairman and Members of the 
Subcommittee. Thank you for giving me the opportunity to 
testify.
    We can probably all agree that providing UC benefits to 
unemployed workers while they look for a new job or wait to be 
recalled to their former job is an important benefit to the 
U.S. worker as well as to the U.S. economy. However, providing 
UC does not come without adverse incentive effects. For 
example, a number of studies have shown that more generous UC 
amounts are likely to increase the duration of unemployment.
    Policymakers have available a number of instruments that 
can be used to restore and/or create incentives that encourage 
UC recipients to return to work more quickly. The following 
policies have been used in the United States and in other 
countries to restore incentives without reducing the insurance 
protection of the UI system: Time sequencing of benefit 
payments; workfare; and monitoring work search and sanctions.
    My focus in this statement will be on the research evidence 
that is currently available on the effectiveness of monitoring 
work search. I will also mention briefly the other policies 
that have been suggested.
    The first policy that I mentioned is time sequencing of 
benefit payments. A number of research efforts have addressed 
the issue of time sequencing of benefits. Should benefits be 
paid at a fixed rate over the entire unemployment spell or 
should these payments decline over the unemployment spell?
    The general conclusion from this literature is that a 
reasonable case can be made for a declining time profile. That 
is, some research has concluded that a benefit system with a 
declining amount over a worker's unemployment spell provides 
better work search incentives. However, there are a number of 
important caveats to this conclusion and, thus, I believe that 
it would be inappropriate to propose such a system without 
further evidence.
    The second policy that I mentioned is workfare. The idea 
that benefit claimants should be required to work in a public 
works job or participate in some formal training program in 
exchange for benefits has a long tradition in many countries, 
places like France and Britain.
    Three arguments are often used to promote this concept. The 
first argument is that workfare may make income transfers to 
the unemployed more politically acceptable. The second argument 
is that workfare may serve as a screening tool and thus improve 
the targeting of UC payments. That is, people who are not 
interested in finding a job will self-select out of the UC 
system. Third is a deterrent argument. The threat of workfare 
will make some people more eager to leave unemployment quickly.
    While there is not much research in this area, some 
research studies have suggested that the threat of requiring UC 
recipients to participate in the public works and/or 
participate in a training program may be more effective than 
the training itself. This result suggests that workfare may be 
a useful tool in promoting a return to work more quickly. 
However, the main issue is whether this approach is cost-
effective. That is, providing intensive training and/or 
providing public work opportunity for the unemployed will be 
expensive. Other approaches for improving the incentive 
structure to return to work more quickly may be more cost-
effective.
    This leads me to the third alternative, which is improved 
monitoring and sanctions. The UC system conditions benefit 
payments on such criteria as ``availability for work'' and 
``actively searching for work.'' In most States, UC claimants 
must report a minimum number of employer contacts each week in 
which benefits are claimed. Claimants who fail to meet these 
minimum requirements may be sanctioned, for example, by a 
temporary loss of benefits.
    Unfortunately, there is relatively little evidence on the 
effectiveness of monitoring and sanctions as a tool for 
promoting more rapid reemployment of the unemployed. The most 
convincing evidence in this area is found in a group of 
experimental design studies that were funded by the Department 
of Labor in the eighties and early nineties.
    The first example is the Charleston Claimant and Work Test 
Demonstration. This 1983 demonstration used an experimental 
design to evaluate strengthened work search requirements. The 
result of this demonstration indicated that strengthened work 
search reduced UI payments by a half a week per claimant 
without affecting the claimant's likelihood of working or his 
average earnings. Thus, results of this study clearly indicate 
that increased oversight or monitoring of UI work search 
requirement reduces the duration of UC benefits.
    In contrast to the Charleston demonstration, a Washington 
State demonstration in 1986-87 tested the effect of relaxing 
the standard work search requirements. One of the treatment 
groups in this study was not required to report work search 
contacts or to file the standard UI claim form.
    As we might expect, the Washington ``exception reporting'' 
treatment--essentially, they were required to report only if 
they found a job--increased the number of weeks of UC benefits 
received. These additional weeks of UC benefits did not 
translate into any improvement in earnings in the year after 
the claim.
    There was a third study, but I notice that I am out of 
time. I will wrap up quickly.
    The Maryland work search demonstration was done in 1994, 
and the results of this evaluation suggested that increased 
work search requirement and increased monitoring can have a 
significant impact on UC receipt. Increasing the number of 
employer contacts reduced the duration of benefits by 6 
percent. Verification reduced the duration of UC benefits by 
even more, by 7.5 percent.
    The conclusion of these experiments is relatively clear. If 
you relax the monitoring requirements, UC duration will 
increase. If you strengthen the work search requirements, the 
UC benefits will decrease; and verification will even have a 
greater impact.
    [The prepared statement of Dr. Benus follows:]
    Statement of Jacob M. Benus, Ph.D., Executive Director and Vice 
  President for Research, IMPAQ International, LLC, Columbia, Maryland
    Thank you for giving me the opportunity to submit testimony on the 
Unemployment Compensation (UC) system and the effect of UC benefits on 
the reemployment of recipients.
    We can probably all agree that providing UC benefits to unemployed 
workers while they look for a new job or wait to be recalled to their 
former job is an important benefit to U.S. workers as well as a benefit 
to the U.S. economy. However, providing UC does not come without 
adverse incentive effects. For example, a number of studies have shown 
that more generous UC amounts are likely to increase the duration of 
unemployment.
    Policy makers have available a number of instruments that can be 
used to restore and/or create incentives that encourage UC recipients 
to return to work more quickly, thus, shortening UC spells. The 
following policies have been used in the U.S. and other countries to 
restore incentives to return to work more quickly without reducing the 
insurance protection of the Unemployment Insurance system.

            Time sequencing of benefit payments,
            Workfare, and
            Monitoring work search and sanctions.

    My focus in this statement will be on the research evidence that is 
currently available on the effectiveness of monitoring work search in 
reducing the duration of unemployment. I will also mention briefly the 
other policies that have been suggested for encouraging UC recipients 
to return to work more quickly.
Time Sequencing of Benefit Payments
    A number of research efforts have addressed the issue of time 
sequencing of benefits. That is, should benefits be paid at a fixed 
rate over the entire unemployment spell or should these payments 
decline (or increase) over the unemployment spell. This topic was first 
introduced in the late 1970's (Shavell and Weiss, 1979) and has 
recently attracted new attention in the academic literature (Hopenhayn 
and Nicolimi, 1997; Wang and Williamson, 1996; Davidson and Woodbury, 
1997; Cahuc and Lehmann, 1997, 2000; Fredriksson and Holmlund, 2001). 
The general conclusion from this literature is that a reasonable case 
can be made for a declining time profile. That is, some researchers 
have concluded that a benefit system with declining amounts over a 
worker's unemployment spell provides better work search incentives. 
However, there are a number of important caveats to this conclusion 
and, thus, I believe that it would be inappropriate to propose such a 
system without further evidence.
Workfare
    The idea that benefit claimants should be required to work in a 
public works job or participate in some formal training program in 
exchange for benefits has a long tradition in many countries (e.g., 
France and Britain). Three arguments are often used to promote this 
concept. The first is that workfare may make income transfers to the 
unemployed more politically acceptable. The second argument is that 
workfare may serve as a screening tool and thus improve the targeting 
of UC payments. That is, people who are not interested in finding a 
job, will self-select out of the UC system. Third, is a deterrent 
argument: the threat of workfare will make some people more eager to 
leave unemployment quickly.
    While there is not much research in this area, some recent studies 
have suggested that the threat of requiring UC recipients to 
participate in a public works job and/or participate in a training 
program may be more effective than training itself. This result 
suggests that workfare may be a useful tool in promoting a return to 
work more quickly. However, the main issue is whether this approach is 
cost-effective. That is, providing intensive training and/or providing 
public work opportunities for the unemployed will be expensive. Other 
approaches for improving the incentive structure to return to work 
quickly may be more cost-effective.
Monitoring and Sanctions
    The UC system conditions benefits payments on such criteria as 
``availability for work'' and ``actively searching for work.'' In most 
states, for example, UC claimants must report a minimum number of 
employer contacts each week in which benefits are claimed. Claimants 
who fail to meet these minimum requirements may be sanctioned, for 
example, by a temporary loss of benefits.
    Unfortunately, there is relatively little evidence on the 
effectiveness of monitoring and sanctions as a tool for promoting more 
rapid reemployment of the unemployed. The most convincing evidence in 
this area is found in a group of experimental design studies that were 
funded by the U.S. Department of Labor in the 1980's and 1990's. Below, 
we briefly summarize each of these studies (for a more complete review 
of these studies, see: Meyer, 1995; Fredriksson and Holmlund, 2003; and 
O'Leary, 2003).
    Charleston Claimant and Work Test Demonstration. This 1983 
demonstration used an experimental design to evaluate new, strengthened 
work search requirements. Specifically, the control group in this 
experiment was given the customary work test that required Employment 
Service (ES) registration (there was no systematic monitoring of this 
requirement). The design also included three treatment groups:

          (1)  Strengthened work test (i.e., claimants must register 
        with the ES or they will be denied benefits),
          (2)  Strengthened work test plus enhanced placement services, 
        and
          (3)  Strengthened work test plus enhanced placement services 
        plus job search workshops.

    The results of this demonstration indicated that the strengthened 
work test reduced UI payments by 0.5 weeks per claimant without 
affecting claimants' likelihood of working or average earnings (Johnson 
and Keplinger, 1994). Thus, the results of this study clearly indicate 
that increased oversight or monitoring of the UI work search 
requirement reduced the duration of UC benefits.
    Washington Alternative Work Search Experiment. In contrast to the 
Charleston demonstration, the Washington State demonstration (1986-87) 
tested the effect of relaxing the standard work search requirements. 
Specifically, one of the treatment groups in this study was not 
required to report work search contacts or to file the standard UI 
claim form. Instead, for this group, payments were mailed automatically 
unless the claimant called the local office to report a change in 
circumstances that affected the UC benefits amount.
    As might be expected, the Washington ``exception reporting'' 
treatment that essentially eliminated oversight or monitoring of work 
search, resulted in a very large (3.3 weeks) increase in the number of 
weeks of UC benefits received. These additional weeks of UC benefits 
did not translate into any improvement in earnings in the year after 
the claim.
    Maryland UI Work Search Experiment. The most recent work search 
experiment was conducted in Maryland (1994). In this experiment, 
claimants were randomly assigned into four treatment groups and two 
control groups. The Treatment groups were:

          (1)  Report four employer contacts per week (not verified);
          (2)  Contact two employers per week, but need not report the 
        contacts;
          (3)  Report two employer contacts (not verified) plus attend 
        a 4-day job search workshop early in the unemployment spell;
          (4)  Report two employer contacts per week and claimants were 
        informed that their contacts would be verified.

    In addition, the demonstration included two control groups to test 
the Hawthorne effect (i.e., to examine whether knowing that they were 
part of a demonstration in and of itself would alter claimants 
behavior). Both control groups were required to follow the normal 
requirements of two employer contacts per week (with no verification 
and no specific re-employment services offered). One of the groups, 
however, was informed that they were part of a demonstration project 
and that their administrative records would be included in the 
evaluation of the study.
    The results of the Maryland evaluation suggest that increased work 
search requirement and increased monitoring can have significant 
impacts on UC benefit receipt. Increasing the number of weekly employer 
contacts, for example, reduced the duration of benefit receipt by 0.7 
weeks (or 6 percent). Thus, increasing the number of required work 
search contacts from two to four is an effective approach to reducing 
UC payments.
    In contrast, informing claimants that they should continue to 
contact two employers per week but they need not report the contacts 
(``honor system'' approach) increased the duration of UC benefits by 
0.4 weeks.
    Requiring claimants to attend a 4-day workshop also reduced the 
duration of UC benefit receipt. Specifically, receipt of benefits was 
reduced by 0.6 weeks (or 5 percent).
    Informing claimants that their employer contacts would be verified 
had the largest impact in reducing UC payments. Specifically, relative 
to the normal work search policy, verification reduced UI benefits by 
0.9 weeks (or 7.5 percent). The study concluded that a verification 
rate of 10 percent is sufficient to affect behavior and that increased 
monitoring is an effective approach to reducing UC payments.
    It is interesting to note that just telling claimants that their 
weekly employer contacts would be verified does not generate a 
reduction in the duration of UC payments. The impact will only occur if 
verification actually takes place.
Conclusions
    Based on the results of the experiments cited above, a consistent 
story emerges. Relaxing the standard work search requirements increases 
the duration of UC benefits receipt without an attendant increase in 
work or future earnings. In contrast, both strengthening the work 
search requirement and increasing the verification of claimants' work 
search effort has a statistically significant impact on reducing the 
duration of UC benefits receipt. Moreover, there is no evidence that 
these changes have a detrimental effect on claimants' likelihood of 
finding work or their future earnings.
    Thus, policy makers have an opportunity to restore the adverse 
incentives of the UC system by promoting programs that strengthen the 
work search requirements and increase oversight of these requirements. 
Whether or not such policy measures are cost-effective requires a 
rigorous experimental design demonstration.
    The design of such an experimental demonstration would include a 
control group subject to current work search requirements and current 
verification procedures (essentially none) and three treatment groups:

          (1)  Enhanced work search requirements,
          (2)  Enhanced verification of work search effort,
          (3)  Enhanced work search requirements plus enhanced 
        verification of work search effort.

    The results from such a demonstration could provide policy makers 
with the necessary input to develop new instruments that can be used to 
restore and/or create incentives that encourage UC recipients to return 
to work more quickly, thus, benefiting both the job seeker and the UC 
system.
References
    Cahuc, P and E Lehmann (1997), Equilibrium Unemployment and the 
Time Sequence of Unemployment Benefits, Working Paper 97.49, Universite 
de Paris I, Pantheon-Sorbonne.

    Cahuc, P and E Lehmann (2000), Should Unemployment Benefits 
Decrease with the Unemployment Spell? Journal of Public Economics 77, 
135-153.

    Davidson, C and S Woodbury (1997), Optimal Unemployment Insurance, 
Journal of Public Economics 64, 359-387.

    Fredriksson, P and B Holmlund (2001), Optimal Unemployment 
Insurance In Search Equilibrium, Journal of Labor Economics 19, 370-
399.

    Fredriksson, Peter, and Bertil Holmlund (2003), ``Improving 
Incentives in Unemployment Insurance: A Review of Recent Research.'' 
IFAU--Institute for Labour Market Policy Evaluation, Working Paper 
2003:5.

    Hopenhayn, H and J P Nicolini (1997), Optimal Unemployment 
Insurance, Journal of Political Economy 105, 412-38.

    Johnson, Terry R., and Daniel H. Klepinger (1991), ``Evaluation of 
the Impacts of the Washington Alternative Work Search Experiment.'' 
Unemployment Insurance Occasional Paper 91-4, U.S. Department of Labor, 
Employment and Training Administration.

    Johnson, Terry R. and Daniel H. Klepinger (1994), ``Experimental 
Evidence on Unemployment Insurance Work-Search Policies.'' The Journal 
of Human Resources, 29 (3) (Summer).

    Klepinger, Daniel H., Terry R. Johnson, Jutta M. Joesch, and Jacob 
Benus (1998), ``Evaluation of the Maryland Unemployment Insurance Work 
Search Demonstration.'' Unemployment Insurance Occasional Paper 98-2, 
U.S. Department of Labor, Employment and Training Administration.

    Meyer, Bruce D. (1995) ``Lessons from the U.S. Unemployment 
Insurance Experiments.'' Journal of Economic Literature, 33 (1): 91-
131.

    O'Leary, Christopher J. (2003), ``Evaluating the Effectiveness of 
Labor Exchange Services.'' W.E. Upjohn Institute for Employment 
Research. Mimeo.

    Shavell, S and L Weiss (1979), The Optimal Payment of Unemployment 
Insurance Benefits over Time, Journal of Political Economy 87, 1347-
1362.

    Wang, C and S Williamson (1996), Unemployment Insurance with Moral 
Hazard in a Dynamic Economy, Carnegie Rochester Conference Series on 
Public Policy 44, 1-41.

                                 

    Chairman HERGER. I thank the gentleman. The gentleman's 
time has expired. We will now turn to questions. I would like 
to remind the Members that they each have 5 minutes for witness 
questioning. The gentleman from Louisiana.
    Mr. MCCRERY. Thank you, Mr. Chairman. I thank all of you 
for your testimony today.
    Dr. Benus, I have been active in efforts to examine some of 
the shortcomings of our unemployment system. One of those has 
been the administrative funding to the States. The evidence 
that we have received before this Subcommittee over the past 
few years indicates that there are a great many States who have 
insufficient funding from the Federal Government to run their 
administrative services for UC, including job search functions. 
Have you done any research on that or do you have any knowledge 
of the effect of shortchanging the States on administrative 
funding?
    The Federal revenues collected, as you probably know, only 
about 50 or 55 percent of those get back to the States for 
administrative funding. Could you comment on that?
    Dr. BENUS. I don't know the specifics of the funding for 
monitoring the work search activities of the unemployed. 
However, it is becoming increasingly apparent that States have 
reduced their effort to verify the work search effort of 
individuals, and it is largely attributed to a reduction in 
administrative funding.
    My understanding is that there used to be some funding that 
may be targeted specifically for this quality control or 
verification of work search effort, but it is probably now 
subject to the same reductions as other administrative costs. 
Therefore, I believe that with increased funding for work 
search verification there could be a positive impact on the 
system and without hurting the job seekers.
    Mr. MCCRERY. In fact, States tell me and the directors of 
the Departments of Labor and UI agencies in the States tell me 
that if they had more administrative funding it would actually 
greatly enhance the chances for their unemployed to find a job 
because they could then match the unemployed with the jobs that 
are out there. Have you found that as well?
    Dr. BENUS. I agree with the statement that increased 
funding would provide additional funds for both the job-
matching activities as well as for such activities as I have 
described, which is the monitoring of these activities. I agree 
with that.
    Mr. MCCRERY. Mr. Cardin, if you don't mind, would you read 
the quote from Chairman Greenspan again? Just remind me of what 
he said.
    Mr. CARDIN. I have the full quote. The full quote is:
    ``But when you get into a period where jobs are failing, 
then the arguments that people make about creating incentives 
not to work are no longer valid. Hence, I have always argued 
that, in periods like this, the economic restraints on the UI 
system almost surely ought to be eased to recognize the fact 
that people are unemployed because they can't get a job, not 
because they don't feel like working.''
    Mr. MCCRERY. Thank you.
    There are two things to consider in that statement.
    Number one, he certainly implies that arguments that UI can 
be a disincentive to job search are valid, but that when we 
have periods of deep unemployment or sustained unemployment and 
sustained job loss that perhaps we ought to disregard that 
valid argument and provide more unemployment benefits. So, the 
question that we as policymakers have to ask, and I think Dr. 
Decker put it succinctly in his conclusion, we have to decide 
what the balance is.
    We use various indicators to determine that balance. One of 
those indicators is level of total unemployment, level of 
insured unemployment, job creation, job loss and the economy. 
Then we weigh all of that against the disincentives that are 
created by providing unemployment benefits, disincentive to 
work search.
    That is the job that we are about today and continuing, I 
hope, for not too much longer, because I hope the economy turns 
around and we start creating jobs again instead of losing jobs. 
That is what we are trying to balance, and that is what this 
hearing is about.
    I appreciate all of you being here today to help us with 
that.
    Chairman HERGER. Thank you, Mr. McCrery. The gentleman from 
Maryland, Mr. Cardin.
    Mr. CARDIN. Thank you, Mr. Chairman.
    Mr. McCrery, let me just agree with you. You have had a 
longstanding concern about the UI system. You have raised it in 
our Committees for many years. I respect your concerns about 
trying to improve the system.
    My concern is not that we shouldn't be having a hearing on 
the subject. My concern is the timing of this hearing.
    I remember in the 1980 recession--I happened to be Speaker 
of the Maryland legislature at the time--we were called back 
into special session by our Governor; and before that I knew 
there were always fights among the business community and labor 
community about what to do about UI. It was a traditional 
battle.
    What was interesting, we went into that special session and 
there was total agreement among the business community, among 
labor that we had to do something to ease the UI system because 
people couldn't find jobs. We had to help our economy, and this 
was the time to pull together to use the system. There was 
agreement at that point.
    I think the point that Mr. Greenspan is making is that here 
you have a pretty conservative economist who is telling us that 
500,000 jobs have been lost in the last 2 months. This is not 
the time to be talking about the problems with the unemployment 
system discouraging people to find a job because there are no 
jobs out there for them to find or it is hard for them to find 
jobs. So, I guess it is the timing of this hearing that has 
many of us concerned and troubled and the reason why we are 
saying, okay, we can talk about this, but we should have done 
this 3 years ago, 4 years ago.
    We asked for hearings. You asked for hearings. We had 
hearings at that time. Now we have the money in the UI fund. It 
is there. This is the time to ease up, not to tell people that 
more people are going to start losing their checks as of the 
end of May.
    I really want to ask Dr. Decker and Dr. O'Leary the point 
about timing. I understand your concerns, but do you disagree 
with Dr. Greenspan? Do you disagree with just about every 
economist I have talked to that, at a time when you are losing 
jobs in your economy, where it is extremely difficult to find 
jobs, would your attention now be placed upon just the opposite 
of what Dr. Greenspan is saying? Is this the right time?
    Dr. DECKER. I think it gets back to the point that was made 
earlier about balancing the disincentives against meeting the 
needs of the unemployed.
    I think what Mr. Greenspan is saying is, as we move into 
times of recession, that you have to weigh the needs of the 
unemployed more heavily than you would in more positive 
economic times. I basically agree with that statement.
    As to what should be done in terms of extended benefits, we 
can talk about the details of that. As to Mr. Greenspan's 
statement, I agree with the general statement.
    Mr. CARDIN. Thank you. Dr. O'Leary?
    Dr. O'LEARY. Yes, Mr. Cardin. I would never disagree with 
Alan Greenspan. He has proved us all wrong. He has longevity, 
and he is right more than he is wrong.
    This is something that, even before you mentioned Alan 
Greenspan, I had in the back of my mind: All of these policies 
are more effective when labor demand is adequate. I think that 
is what Mr. Greenspan is saying. The time to emphasize 
incentives, the time when these things really work is when 
there is adequate labor demand. They also work at other times. 
We can't think of any particular beneficiary as representative 
of the whole. The point is to make the system focused on 
reemployment rather than unemployment.
    Mr. CARDIN. We all agree that we want to find jobs. The 
question is, as Mr. Bergmann has pointed out very clearly, give 
him a job, give him the training he needs. He has gone through 
every training. The job training center says there is not much 
more they can do to help him. It is a face on the numbers. The 
problem is we get caught up in all these numbers, and we don't 
see the face.
    Mr. Bergmann, thank you for being here to put a face on the 
issue. We very much appreciate your--I didn't mean to invoke 
the wrath of my Chairman on that.
    Dr. Decker, let me just conclude, as my time is running 
out, by thanking you for your observations.
    We should be having a hearing on the need, how we should 
extend, what duration, what amount of benefits, how many weeks, 
but, instead, we are having this hearing, which, Mr. Chairman, 
I find somewhat offensive, I must tell you. I think we should 
be dealing with the urgent need, which is whether the current 
expiration is in the best interest of our country or not, 
rather than looking at a systemic problem that we need to deal 
with and we should have dealt with in the prior Congress.
    Thank you, Mr. Chairman.
    Chairman HERGER. Outbursts will not be tolerated. We 
appreciate our audience, but we will have order. I thank 
everyone for on the whole being very good, but I just want to 
remind everyone there are few issues that are more important 
than the issue we have before us.
    Just again a comment to my good friend from Maryland, I 
believe the timing of this is appropriate. The timing of this 
hearing is to help those who are unemployed, those that want 
work such as Mr. Bergmann.
    Again, I want to thank you for your heartfelt testimony, 
but the purpose of this hearing is to help the process to work 
better, to help the system to work better, to investigate, to 
look at what we can do to help those like yourself find work. I 
want to reemphasize the purpose of this hearing, and I believe 
it is appropriate at this time. I would like now to turn to the 
gentlelady from Connecticut, Mrs. Johnson.
    Mrs. JOHNSON. Thank you very much. I appreciate the 
opportunity. I apologize to some of the speakers that I wasn't 
able to be here during the whole panel.
    To those who are visiting us today and visiting this 
hearing, I appreciate your being here. Democracy is about all 
of our voices, and it is important for you to be here. I don't 
particularly appreciate your trying to make this about theater. 
We do hear you. You have a person testifying. We see you.
    You do have to understand, this is a very big and 
challenging issue, and it has many facets to it. There have 
been periods and there are people and circumstances for whom 
unemployment is an opportunity not to work for a while.
    I hear absolutely what you are saying about the shortage of 
jobs, particularly of the kind, Mr. Bergmann, for people with 
your work history. I admire your tenacity. I sympathize with 
the terrible struggle that you and your wife have had, not 
finding a job. It is hard to understand why there hasn't been 
an opening. I certainly have friends going through that. We 
appreciate that.
    It is also to this Congress' credit, under Republican 
leadership we did expand unemployment for 13 weeks at 100 
percent Federal funding. We expanded it another 13 weeks, so 52 
weeks, 100 percent Federal funding. We will make that decision. 
We always make that decision closer to the time, because if the 
war consummates itself, that is going to have an economic 
impact, and we need to look at that.
    So, really why we are holding this hearing--at least the 
reason I am here--is because, as a Member of this Committee for 
many years, I have tracked closely and been a part of 
legislating to improve our job placement capability and improve 
our job search capabilities. Connecticut was one of the States 
where we piloted the one-stop centers which have made an 
enormous difference.
    I want to ask Dr. O'Leary a question along that line. Our 
ability to profile and sort of identify people who are likely 
to be unemployed for long periods of time did begin to link 
unemployment with employment services far more effectively. 
Now, with so much telephone filing, that linkage is in 
jeopardy. As a State who has gone entirely to telephone filing, 
I feel like people are being left in isolation, that they are 
not getting the support they need in job search. Those one-stop 
centers were a place to meet other people and get references 
and build your network at a far more rapid rate. I don't know 
that you can just do this at home every day by yourself.
    I am very concerned about the increased use of telephones 
for filing and the Internet. I would like you to comment on 
that specifically since you mentioned it in your testimony.
    What we need help with is, what else could we be doing?
    Mrs. JOHNSON. How else could we be supporting you, Mr. 
Bergmann. We need to know that because we cannot afford to have 
seasoned capable people not get back into the workforce in a 
timely fashion. It is too hard on their families. It is too 
hard on them, and it is a terrible waste of human resources 
that no democracy should tolerate.
    So, we have come a long way in our ability to help you. I 
think if you look at the average unemployment, we are below 
what it was in the nineties, and what it was in the eighties. 
That is not good enough. We do face structural problems that we 
didn't face in those eras, and also we tend to have 
unemployment hitting different categories of workers than we 
did in the past, where reemployment is more difficult, and 
where retraining and connections and reconnections into 
different career ladders is far more important.
    So, I want to know, have you gotten any help in finding new 
career ladders, where can your skills, which are clearly high, 
highly developed, be used in other career ladders? So, if I 
could first go to Dr. O'Leary and then--Dr. O'Leary and anyone 
else who would like to talk about how do we make it so that 
unemployment resources can help you not only find a job, but 
find a new career with a ladder that is appropriate to your 
talents, but also offers you the likelihood of getting back up 
to a salary that is commensurate with your abilities.
    Dr. O'LEARY. Mrs. Johnson, briefly the telephone Internet 
claims, impersonalizes the process, and I think that is one of 
the things that the WPRS with the letters of invitation and 
getting people in contact benefits. As Mr. McCrery was noting, 
the administrative finances needs to be adequate to support 
that effectively, but also financing services, so that when 
people go down to the office, there is some services there. As 
far as other methods, probably Dr. Benus should address the 
richness of the UI program in offering self-employment 
assistance, which is very effective for older workers with 
significant career experience, and perhaps talents like Mr. 
Bergmann. Thank you.
    Mrs. JOHNSON. Anyone else care to comment? Yes, sir, Dr. 
Benus.
    Dr. BENUS. As Chris mentioned, there is, within the system, 
there are programs available to unemployed people, including 
the Self Employment Assistance (SEA) program, which is targeted 
at unemployed workers who are interested in starting a 
business. There is currently a new demonstration that is 
looking at a similar type of program that is a partnership 
between the Department of Labor and the Small Business 
Administration, which also helps unemployed as well as other 
people who may be interested in such a program of starting 
small businesses. This is a small program now, but it is 
something that is particularly suitable for people with Mr. 
Bergmann's talents or other people in that situation.
    Mrs. JOHNSON. Now, we've seen that work quite a bit. My 
time has expired. I will come back.
    Chairman HERGER. I am going to use the Chairman's 
prerogative here. I am very interested in hearing that. Would 
you mind, would you like to comment on this also, Mr. Bergmann?
    Mr. BERGMANN. Just quickly. I think your basic premise is 
that this is a UI problem. The amount of money that you have 
you had to spend on some of these SEA programs would have to be 
significantly increased to be effective. I think that it would 
be negligibly effective. I don't know if that is even the term 
you would use. I don't think it would be as effective as just 
increasing unemployment weeks, giving out--you said that 
unemployment had been raised twice. I have only gotten 13 weeks 
increase. My unemployment ran out on July 22 of last year. So, 
there has only been one 13-week increase. Another basic premise 
that I think we have a flaw here is that I make a lot more 
money working than I do on unemployment. So, I am a lot more 
incentivized to get to work than--and I don't know of many 
other people who would want to live on--what we make now is 
$364.50 because we are taxed on it.
    Chairman HERGER. I thank you. Each of you. Now we will turn 
to the gentleman from Michigan, Mr. Levin, to inquire.
    Mr. LEVIN. Mr. Chairman, in a sad way I am glad we are 
holding this hearing, if you will listen, because I think 
that--and I feel some sadness here. My friend from Louisiana, 
Mr. Cardin, has said he has worked on this problem. This is the 
wrong subject for this hearing, so I am glad you called it so 
that we can know that. We don't need to tell Mr. Bergmann and 
the millions of others how they can find work. We need to ask 
ourselves how people who are out of work and looking for work 
live.
    That is the issue, Mr. Herger we should be having a 
hearing--the program ends in May. We should be having a hearing 
on what we do next. Your statement, and I don't have it 
verbatim. At times of high unemployment, you ought to be 
focusing on help, how we help people get to work. We ought to 
be asking ourselves how in the dickens people are going to be 
able to live when they can't find work.
    Mrs. Johnson, my pal from so many decades, it is not 52 
weeks for most people. That is wrong. It is 26 plus 13, and a 
few States beyond that. Some of you, some, keep talking about 
this isn't like 1981, 1982, 1991, 1992. The number of 
exhaustees now is twice what it was in 1991 and 1992. That is a 
fact. I have been involved in this since I was in the 
legislature in the mid-sixties in Michigan. I am sorry the 
gentleman--you are here not asking this Subcommittee to talk 
about extending benefits.
    In Michigan, Dr. O'Leary, the Administration has eliminated 
the personal contact between unemployment and people helping 
the unemployed. That is what you should be talking about. This 
Congress has diminished funds for the employment service. That 
is what you should be talking about. Now, it is done by 
telephone. So, the people who say that there ought to be more 
contact are the same people who have reduced the funding for 
contact, including through the employment service. This 
Administration has underfunded or requested too little funds 
for employment service efforts, and some have urged its 
abolition.
    It has been abolished in Michigan. There are three offices 
now in Michigan. People go into a one-stop thing and they see a 
machine. Chairman Herger, that is what we should be talking 
about, the millions of people who are out of work. I picked up 
this article, and I will finish from the Wall Street Journal. I 
don't think we should mind people reacting here Chairman 
Herger. They are unemployed. We are working. I picked up this 
article from the Wall Street Journal in March. This fellow who 
had been working 35 years going on a street corner with a sign 
saying employment.
    You are telling him what he needs is help from you as to 
how he should get work. He sent out 700 resumes. That is what 
we should be talking about. There may be differences as to how 
long we extended the program, under what circumstances. Let's 
sit down and talk about those before the end of May. We have 
been urging an additional 13 weeks beyond the 39 weeks. There 
has been no interest whatsoever in this. So, look. I suggest, 
Mr. Chairman, you call a hearing in the next few weeks or as 
soon as we get back on what we do about the program that is 
going to be--that is going to end, unless we extend it and 
under what circumstances. When we get back, it will be almost 
May. We will have a few weeks before the program ends.
    Chairman HERGER. I thank the gentleman from Michigan and I 
might comment, the Chair and the Committee is noticing the 
orderly manner in which the audience is responding and we 
accept that. It is the disorderly that we would caution you not 
to be involved with. With that, we will turn to the gentleman 
from Kentucky, Mr. Lewis, to inquire.
    Mr. LEWIS. Thank you, Mr. Chairman. I really think this is 
the appropriate time to talk about--unemployment and the 
appropriate time to talk about employment, finding jobs. As I 
see, the signs in the audience today, these people want jobs. 
They are not about UI as Mr. Bergmann said, that is just barely 
enough money, if enough money to get by. I have been there.
    My father was a pipe fitter, construction worker. He had to 
draw unemployment from time to time. It wasn't enough to take 
care of our family. He wanted his job back. I have been there. 
I worked at a steel mill. I have been unemployed. I had to draw 
UI. It wasn't enough to take care of my family. I wanted a job. 
Mr. Bergmann is here saying today he wants a job. He has been 
trying to get one, but he hasn't been successful. I am sure 
everyone here today, you have been looking for jobs but you 
haven't been successful. You are asking for a job. We can 
extend UI until the cows come home, but it is not going to be 
enough to take care of you and your families. So, what the 
question is, what can we do to find jobs for people that are 
unemployed?
    That is what I want to ask Mr. Bergmann. What can we do, 
what can be done in your community to help you find a job, to 
get you back in a position where you can provide for you and 
your family and for those that are here today. If the 
unemployment services or the employment services aren't 
adequate, what can we do to make them adequate to help you find 
a job. That is what I wanted. That is what my father wanted. 
That is what our family wanted. We wanted an income that was 
appropriate for keeping our family with a roof over our head 
and the opportunity to live a fairly good life. Mr. Bergmann.
    Mr. BERGMANN. I am not an economist, and I just think that 
the economy needs to be stimulated in some way. I don't know 
how much a tax cut would help with the stimulus because I--if 
you don't have an income, I don't get a tax break. So, the next 
thing is you have--I think that you have to start thinking in 
terms of--you spend a lot of money on corporations, giving 
corporations the--you give a lot of money to corporations 
whether it is a tax break or it is bailing them out, things 
like that. Money was given during the--I know from the 9/11 
fund for companies to maintain jobs which they turned around, 
kept the money and fired people. So, there was no 
accountability on that issue. There is much more money wasted 
in the--for corporate welfare than for unemployment. I just 
think that in some ways, I think there has to be a humanity put 
back into how we think about----
    Mr. LEWIS. My question is----
    Mr. BERGMANN. I am answering your question.
    Mr. LEWIS. I am just saying though, there may be--those 
things may be true, but are we talking about putting more money 
back in, extending unemployment which, if we need to do that, 
that is fine to help bridge you over until you can find a job. 
What can we do? How can we fund a system that would provide an 
opportunity to get you employed again in, do we need to put 
more funding, do we need to direct it more into employment 
services? As has been stated here today, maybe those services 
aren't working well as Mrs. Johnson said.
    A phone call to the employment agency, is that enough, or 
should they be--should they take you as--and put you, like any 
employment service, with some individual that works with you 
day in, day out to help find you a job? Go out and, like 
corporations do, as head hunters, go out and look for 
opportunities that would fit your particular need that would 
profile your qualifications.
    Mr. BERGMANN. That would be wonderful if they had somebody 
like that. There are so many people that are unemployed. How 
are you going to do that? How are you going to have one person 
for each person? If that is the case then it becomes a 
caseload. Plus, most of the things I find on Web sites, or at--
when I went to the unemployment office, was most of the jobs 
were woefully horrible. Where you actually--I might as well go 
and work at McDonalds for the same thing.
    Mr. LEWIS. Well,--and I understand that. There were times 
when I had to help provide for my family in ways that I didn't 
want to until I could find another job. I scrubbed out toilet 
bowls. I have done a lot of things that I didn't want to do, 
but I had to do because I had to provide again for my family. I 
am talking about finding a job that meets your qualifications. 
There are unemployment or employment services all over this 
country that do that. Maybe there is a way we can work through 
the private sector.
    There has got to be a way that we can make it more 
efficient and more of an opportunity to work with individuals 
on a day in, day out basis to find them an a job. As I said, 
you are absolutely right. Unemployment doesn't provide the 
funding that will protect families, your--if you--you couldn't 
live on unemployment forever without ending up in the same 
situation, as you said, without being bankrupt. It just doesn't 
provide enough funding.
    Mr. BERGMANN. I know how to look for a job. I have done it 
for 40 years. I know--I have signed up with head hunters. I 
have a lot of people. I have a network of friends that I have 
built. We all look for jobs for each other. There is a lot of 
things that I haven't told about that I do. I know how to look 
for work. If there is no work out there, it just, you just keep 
going. What I need is some support until I can get that job.
    Mr. LEWIS. I agree with that. I understand that. It has to 
be a bridge to an opportunity to allow you to be all that you 
can be. Thank you, sir.
    Mr. BERGMANN. Thank you.
    Chairman HERGER. The gentleman's time has expired. The 
gentleman from Washington, Mr. McDermott, to inquire.
    Mr. MCDERMOTT. Mr. Chairman, I don't really know why you 
called this hearing. Everybody is saying it is a good thing. I 
think it is irrelevant. All the data we are talking about is 
for good times, good economic times. Now, I put this chart up 
here because it shows you what the shape of the recovery has 
been, the broken line, the black broken line is recovery before 
1990. Go down and then about in the 16th week, it would start 
up. Then you have got the blue broken line, which is what the 
1990 recession was where it started up later, but the red line 
is what is happening right now. It is still going down.
    [The chart follows:]






    
                                 ______

    The Wall Street Journal says the International Monetary 
Fund says Mr. Bush's tax cut is poor policy, it is ill-timed 
and they go on to talk about what is going on in the 
international economy. I come from the State with the highest 
unemployment. We have got the airline industry sitting on us, 
right. Nobody's traveling. Boeing has got more planes sitting 
down in the desert than they will deliver this year. This 
quarter is the worst quarter in Boeing's history, since they 
joined McDonnell Douglas and the second worst quarter in their 
entire history.
    So, if one of your major manufacturers, tied to the travel 
industry is not selling planes it means people aren't 
traveling. You have got USAir in the tank. Well, they just came 
out of the tank. You have got United Airlines just about to go 
in the tank. All their financing of their planes is on Boeing. 
Boeing is going to wind up taking those planes back. So, what 
you are looking at is an economy that isn't going anywhere 
because the President has forgotten about it. He is talking 
about war in Iraq.
    Now, the war was supposed to get everything rolling again. 
I don't know, if this hearing turns out to be about how does 
Dr. Bergmann get a job. Or Mr. Bergmann get a job, we have 
really missed the elephant laying in the middle of the floor 
here. This President has ignored the unemployment of this 
country. All he does is cut taxes for people on the top. That 
is not bringing it back. That line is going down. It is 
continuing to go down. With no sign of it coming back. I think 
we ought to be talking--this hearing ought to be about 
extending benefits. I come from one of those few States where 
you do get 52 weeks, because we put the money away and it is 
not a welfare program. It doesn't keep people on the program. I 
was looking here at these various States.
    In Connecticut the average benefit is $280, and if you live 
in Danbury, the rent, the average rent is $1,044. That is 93 
percent of your unemployment benefit goes for rent. In 
Louisiana, the average benefit is $204, and in Shreveport the 
average rent, $522. That is 63 percent of your benefit goes for 
rent. Now, who in the world thinks anybody would stay on 
unemployment when you are trying to live on that kind of money? 
Bankruptcy is going to be a big problem in this country. We 
tighten up the bankruptcy law because we didn't want those poor 
investment companies out there. So, what we have done is in 
every way we have been able to we have squeezed the workers 
harder.
    What this hearing ought to be about is simply the question 
of extending benefits. I don't think there is any reason to 
question these witnesses because their data is from good times. 
That is why Mr. Greenspan said what he said. Even they agree 
with him. Greenspan said in good times people might stay off an 
extra week because they are waiting for a better job. The times 
right now, as you see them up there, when you have got 3.4 
people going for every job available, what are we talking about 
here? Services. Let me show you how to dial a phone.
    Maybe that is the kind of service they need. Or maybe it is 
how to find the want ads in the newspaper. This kind of 
nonsense doesn't make any sense at all when the economy's 
collapsing. There ought to be more benefits, and the sooner you 
get about it, the more likely you are to still be in power in 
2004. I am done.
    Chairman HERGER. I am going to turn my closing time over to 
the gentlelady from Connecticut, Mrs. Johnson, to inquire.
    Mrs. JOHNSON. Thank you. I thank you, Chairman. Washington 
State is in that higher extended benefit. Connecticut has just 
gone into it. New York is not into it, and so this kind of 
hearing is very useful. Why is it when New York has a very high 
level of unemployed, but not a high level of insured 
unemployed. Should we be changing the trigger? So, that is one 
issue. Then the other issue is we do have such good evidence 
that WPRS hooking reemployment services into those most likely 
to be unemployed a long time works. Yet we profile a very 
narrow portion. What I wondered was, Mr. Bergmann, have you 
ever--do you believe that you were profiled or were you part of 
the profiling process and did it help or not help? Then, Dr. 
O'Leary and others, should we be focusing this profiling 
process on far more of the workforce because we are exempting a 
lot of categories of people and make it our goal to fund that. 
Mr. Bergmann.
    Mr. BERGMANN. I went through a process where they 
determined what jobs--this is also through the 9/11 fund 
because having loss my job because of 9/11. I went through a 
couple of places that were going to try and help place me. The 
problem is they said, well, we don't have anything in your 
field, like marketing, advertising, Web site development, 
things like that. I thought that was kind of strange since that 
is, that was such a growing industry.
    So, they basically said they couldn't help me because there 
was no place for them to place me. They went through job 
listings. They have an online job board which I now just check 
once every 2 weeks because it never changes.
    Mrs. JOHNSON. I see, I think that is instructive because 
one thing I run into over and over again, and for the number of 
years I was Chairman of this Subcommittee and we ran into it. 
The reemployment system is weak when it comes to people like 
you with high skills. It doesn't connect well with those jobs. 
In periods like this where we are having big layoffs of people 
across, sort of throughout the labor force, the whole system is 
not well geared to that. I think that is one thing. See, I 
think there is a usefulness to having this hearing, both in 
terms of identifying the weaknesses of the system, and dealing 
with people like you and then also this targeting issue as to 
where we go. We clearly also need to look at the triggers. So, 
Mr.--Dr. O'Leary.
    Dr. O'LEARY. Thank you, Mrs. Johnson. The two groups that 
are excluded from the profiling process up front are those who 
are job attached with a definite employer recall date. Now, 
when the UI system was first established, as you know it is 
paid for by employer taxes. It was one of the principles was 
that UI would maintain the workforce for employers during down 
times, and so that the workers would be there when they needed 
to call them back if they didn't want to break those employer 
worker contacts. So, these workers are excluded from profiling. 
They are not expected to do independent job search. The other 
group that is excluded is Members of union hiring halls. That 
was a hard won provision that unions fought for and we are not 
about to break that.
    We are not about to say union hiring hall Members have to 
go through profiling services. Our policy could change. That is 
the practice that is in operation now. All the others in the 
pool coming in claiming benefits go into the profiling pool and 
then the referrals are ordered based on those who are most 
likely to exhaust, estimated to be most likely to exhaust, to 
least likely. The numbers served depends upon the capacity. 
Which again, we get back to the funding for service 
availability. So, it is a capacity limitation on the remaining. 
Except for job attached or union hiring hall Members.
    Mrs. JOHNSON. So, your point is that the weak link right 
now is the funding for services, for those who are profiled.
    Dr. O'LEARY. If funding was expended, then more people 
could be served. Back in the late nineties, when unemployment 
was low, not only were the referred people using these WPRS 
services, but others were voluntarily using them and they have 
always had a positive reaction to the beneficial services. So, 
yes, I think that a key element is funding for the services.
    Mrs. JOHNSON. Thank you. Well that gives us better guidance 
both for the appropriations process and for modernizing the 
law. I appreciate the panel's participation and I appreciate 
the audience visiting with us today as well. Thank you, Mr. 
Chairman.
    Chairman HERGER. I thank the gentlelady from Connecticut. I 
want to personally, on behalf of myself and each Member of this 
Committee, thank each of you, each of our panelists who 
testified this morning.
    Mr. Bergmann, I want to thank you for traveling here and 
giving us your heartfelt testimony. It has been very helpful to 
us. This is the first of a series of hearings that we will have 
on this very important issue, this safety net that we have for 
American workers. I also want to thank our audience for 
traveling here and with just a couple of minor exceptions, you 
have been very good and I want to make you aware that your 
thoughts and your notes have been noted by myself and the 
Committee and again, I thank you. Let it not be misunderstood--
our goal here is to make the system work better than it is now 
to help and assist each of you to find work. That way you can 
better take care of your families and yourself with a job that 
will pay much more than what you are able to receive at this 
time through the unemployment safety net. With that, this 
hearing stands adjourned.
    [Whereupon, at 11:33 a.m., the hearing was adjourned.]
    [Questions submitted from Chairman Herger to Messrs. 
Decker, O'Leary, and Benus, and their responses follow:]

        Questions from Chairman Herger to Paul T. Decker, Ph.D.

1. The following is a quote from a study published in 2002 by 
        economists Alan Krueger and Bruce Meyer on the labor supply 
        effects of unemployment and other benefits:

    ``UI affects at least five dimensions of labor supply. First, UI 
        can increase the probability of unemployment by affecting 
        worker and firm actions to avoid job loss. Second, program 
        characteristics affect the likelihood that workers will file a 
        claim for benefits once a worker is laid off. Once a claim has 
        been made, we expect that labor supply will be affected by the 
        adverse incentives of the UI program. Third, once on the 
        program, UI can extend the time a person is out of work. Most 
        research on the labor supply effects of UI has focused on this 
        issue. Fourth, the availability of compensation for 
        unemployment can shift labor supply by changing the value of 
        work to a potential employee. Finally, there are additional 
        affects such as the work responses of spouses of unemployed 
        workers.''

    Please discuss these individual effects in turn and explain how 
        they each work to encourage more collection of unemployment 
        benefits and discourage swift returns to work.

            By providing a safety net in case of job loss, UC 
        may encourage some workers to accept jobs with a higher risk of 
        layoff than they would accept in the absence of UC. Workers may 
        also be less inclined to search for a new job while employed, 
        even if they know their current job might be at risk. Both of 
        these effects can increase the frequency of unemployment.
            A large proportion of unemployed workers do not 
        apply for UC benefits. If benefits were made more generous, 
        some of these unemployed workers would probably apply for 
        benefits. Once these workers start receiving benefits, they 
        would be affected by the work disincentive associated with UC 
        receipt and would consequently remain unemployed longer than 
        they would if they did not receive UC.
            The UC system creates a work disincentive for 
        benefit recipients because it lowers the income loss associated 
        with unemployment. Unemployed workers who have access to UC 
        will tend to reduce the intensity of their job search or be 
        more selective in accepting a job offer than they would be in 
        the absence of UC. Both of these tendencies generate longer 
        unemployment spells. Increasing the generosity of the system, 
        either through increased benefit amounts or additional weeks, 
        adds to this effect.
            By making employment less risky and therefore more 
        attractive, the UC system increases the likelihood that some 
        individuals will enter the labor force. Hence, this effect of 
        the UC system may increase employment among the working-age 
        population.
            When a worker is laid off, one potential response 
        to the loss in household income is for the unemployed worker's 
        spouse to increase his or her employment. By reducing the 
        income loss due to unemployment, UC may reduce the degree to 
        which spouses increase their employment in these situations. 
        Recent research demonstrates, for example, that higher UC 
        benefits are associated with less work by the wives of 
        unemployed men.

2. It probably should not shock anyone that providing unemployment 
        benefits to individuals who are out of work may delay returns 
        to work for some workers. Many workers in construction and 
        seasonal industries, for example, rely on unemployment benefits 
        between jobs. I suspect this effect has been understood since 
        this program started in the 1930s. Other countries no doubt 
        face similar issues. Are there any policies developed by other 
        countries specifically to address concerns about delayed 
        returns to work?

    My knowledge of UC policies in other countries is limited. The U.S. 
does more than most other countries to limit the reemployment 
disincentive effect of UC. The limited duration of regular UC benefits 
in the U.S. is one example of this effort. Other countries generally 
provide longer unemployment benefits, and once unemployment benefits 
are exhausted, recipients are often automatically transferred to social 
assistance benefits. Dr. Benus or Dr. O'Leary may be able to provide 
additional information and specific examples of UC policies in other 
countries.

3. Research suggests that the likelihood of finding work increases 
        sharply as benefits are about to or have ended. Here's how you 
        put it in a study you wrote in 1997:

    ``Research has also addressed the issue of the timing of 
        reemployment relative to the timing of benefit exhaustion. Both 
        the labor-supply and job-search theories imply that the 
        probability of reemployment increases near the point of benefit 
        exhaustion. These predictions are confirmed by empirical 
        research (Katz and Meyer 1990), which shows that the rate at 
        which claimants secure work increases substantially just before 
        they exhaust their benefits.'' (From ``Work Incentives and 
        Disincentives,'' Chapter written by Paul Decker in Unemployment 
        Insurance in the United States: Analysis of Policy Issues, 
        Christopher O'Leary and Stephen Wandner, Editors, 1997, p. 297)

    What are the implications for policymakers of this clustering of 
        returns to work near the end of benefits?

    The clustering of reemployment near the end of maximum UC benefit 
durations suggests that the maximum benefit duration has an effect on 
either recall policies of firms or on job-search strategies of workers. 
For example, firms may plan to recall workers near the end of maximum 
benefit durations because they fear losing these workers to other 
employers once UC benefits run out. Alternatively, unemployed workers 
may increase the intensity of their job search or reduce their 
standards for acceptable job offers as they near the end of their 
benefits.
    Despite this relationship between timing of reemployment and 
benefits, most UC exhaustees do not appear to appear to be purposely 
timing their return to work according to the duration of their 
benefits. A recent study of UC recipients in 1998 found that only 11 
percent of exhaustees were reemployed within 4 weeks of benefit 
exhaustion and only 23 percent were reemployed within 10 weeks. Most UC 
exhaustees had very long unemployment spells--62 percent of exhaustees 
were still unemployed 26 weeks after exhaustion.

                                 

    Questions from Chairman Herger to Christopher J. O'Leary, Ph.D.

1. Research suggests that the likelihood of finding work increases 
        sharply as benefits are about to or have ended. Here's how Paul 
        Decker put it in a book you edited in 1997:

    ``Research has also addressed the issue of the timing of 
        reemployment relative to the timing of benefit exhaustion. Both 
        the labor-supply and job-search theories imply that the 
        probability of reemployment increases near the point of benefit 
        exhaustion. These predictions are confirmed by empirical 
        research (Katz and Meyer 1990), which shows that the rate at 
        which claimants secure work increases substantially just before 
        they exhaust their benefits.'' (From ``Work Incentives and 
        Disincentives,'' Chapter written by Paul Decker in Unemployment 
        Insurance in the United States: Analysis of Policy Issues, 
        Christopher O'Leary and Stephen Wandner, Editors, 1997, p. 297)

Q: What are the implications of this issue for worker profiling?

    A.: The typical statistical models used by states to identify those 
most likely to exhaust benefits assign a probability score to each 
claimant profiled. The scores for claimants who nearly, but don't 
completely, exhaust their entitlement tend also to be at the high end 
of the range. That is, WPRS systems tend to refer to reemployment 
services all claimants likely to draw all or most of their UI 
entitlement.
2. Q: Who gets profiled and who is exempted from profiling?
    A: Among all new claimants for UI, those exempt from profiling are 
claimants who would normally be exempt from required work search. This 
includes claimants who are either job attached with a definite recall 
date set by their recent employer, or members of a union hiring hall 
that does job search for them. By excluding these two groups of workers 
from profiling ex ante, the UI system maintains a long policy of 
seeking to preserve employer-employee relationships and respect union 
rights. All other new UI claimants are profiled. That is, an estimate 
is made of the probability that they will exhaust their entitlement for 
regular UI benefits. Among the profiled, those identified as having the 
highest likelihood of UI benefit exhaustion are referred to job search 
assistance (JSA).
Q: What criteria are used in the profiling process to determine whether 
        a particular claimant is likely to exhaust his or her benefits 
        before returning to work? 
    A: The original profiling models established by most states in 1994 
based on recommendations of the U.S. Department of Labor included the 
following factors: educational attainment, duration of tenure on the 
prior job, prior occupation, prior industry, and local economic 
conditions. Some revised state WPRS models have added important factors 
from UI administrative records including: an indicator that the 
previous UI claim was exhausted, earnings in the base period, and the 
length of UI benefit entitlement.
Q: Are the criteria the same for every claimant?
    A: When a state adopts a profiling model, the same model is applied 
to all UI claimants required to search for work. That is, the same 
selection criteria for referral to reemployment services are applied to 
all job seekers in the pool for profiling.
Q: Once someone is profiled, what happens then?
    A: Most state systems assign a score between zero and 100 to each 
profiled claimant representing the likelihood of UI benefit exhaustion. 
Scores are then grouped for a 1 week period and ranked from highest to 
lowest, and depending on local capacity to serve, UI claimants with the 
highest scores are referred to special reemployment services. In some 
areas a predetermined score threshold is set, and anyone with an 
exhaustion likelihood higher than that score is automatically referred 
to services. This latter arrangement speeds up the process which can 
result in quicker return to work.
Q: What services are they to receive?
    A: Profiled claimants selected for referral to services typically 
attend a group orientation to job search followed by additional 
individually chosen or customized job search services. These may 
include: skills assessment, aptitude testing, counseling, resume 
preparation, career planning, job interview referrals, and use of the 
one-stop-center job search resource room.
Q: How long do those services last?
    A: Usually a total of 8 to 10 hours over 2 or 3 days. The 
orientation is usually about 2 hours long and times for the other 
services are chosen individually.
Q: Are some unemployed workers who are profiled as likely to exhaust 
        unemployment benefits exempted from receiving additional 
        services? Why?
    A: The most common reason profiled UI claimants are excused from 
participating in job search assistance is that they've found a job. 
That is, they have a definite date to report for work within 2-weeks. 
(UI benefits claimed after that date could be suspended if 
participation in services is not excused further.) Other excuses are 
medical conditions and child or elder care obligations, however these 
excuses would suspend UI benefit eligibility because of the 
``availability for work'' rule.
3. Q: How successful has profiling been in reducing the number of 
        claimants who exhaust their benefits before returning to work?
    A: Evaluations of WPRS have yielded impact estimates on weeks of UI 
benefits paid in the range of -0.5 weeks (six state study by Dickinson, 
Decker, Kreutzer and West 1999) to -2.2 weeks (Kentucky by Black, 
Smith, Berger and Noel 2001).

Q: Is profiling cost effective? For example, a 1997 report commissioned 
        by DOL for Congress found that worker profiling and 
        reemployment services ``reduced benefit receipt by slightly 
        more than half a week per claimant, which translates into a UI 
        savings of about $100 per claimant.'' (Dickinson et al, p. IV-
        4) How does this compare with the cost of providing such 
        services?

    A: WPRS is cost effective, partly because it is a very inexpensive 
service. The process of profiling and referral is fully automated, and 
the basic ES services provided are inexpensive. Profiling saves UI 
benefit payments and the cost of services provided is low.
Q: How could profiling be made more effective?
    A: First, states should update their models on a regular basis to 
keep the profiling selection process as accurate as possible. Second, 
profiling and referral to services should be done as soon after a claim 
is filed as possible. Currently, there is a lag as long as 6 weeks 
before referral is made. Research suggests that the earlier the job 
search assistance the greater the impact of shortening the duration of 
joblessness. Finally, and perhaps most importantly, employment services 
should be of a high quality and adequately funded. The group 
orientation to job search should all be in tune with current labor 
market conditions and additional job search services should be chosen 
to suit the particular situation of the job seeker.

4. Q: To what extent do factors such as household income from other 
        family members impact return to work incentives?

    A: In economic models of labor supply, the income of other 
household members usually has the effect of making labor supply more 
responsive to variations in wage levels.

Q: Do workers who have a working spouse or other working family members 
        return to work as quickly as those workers who have no other 
        income source?

    A: In terms of choosing to work, other household income permits a 
job seeker to be more choosey.
Q: Should profiling take the family characteristics into account?
    A: Unemployment compensation is a social insurance program 
providing security against the unavoidable risk of joblessness. It is 
an earned entitlement for those who have chosen to work and have 
sufficient recent earnings. UI involves no means test appraising other 
wealth of an individual or income of other household members. WPRS 
profiling models are based on objective criteria predicting UI benefit 
exhaustion. Civil rights considerations prohibit use of certain 
variables such as age, gender and race in WPRS models. If you were to 
attend a WPRS orientation you would see diverse group of attendees. All 
ages, races, and backgrounds are represented. The unobservable 
objective common trait they share is a high likelihood of UI benefit 
exhaustion. The aim of WPRS is to provide early assistance in gaining 
employment for such job seekers.
References
    Black, Dan, Jeffrey Smith, Mark Berger and Brett Noel. 2001. ``Is 
the Threat of Reemployment Services More Effective than the Services 
Themselves? Experimental Evidence from the UI System.'' unpublished 
manuscript. College Park, MD: University of Maryland.

    Dickinson, Katherine P., Paul T. Decker, Suzanne D. Kreutzer, and 
Richard W. West. 1999. ``Evaluation of Worker Profiling and 
Reemployment Services: Final Report.'' Research and Evaluation Report 
Series 99-D. Washington, DC: Office of Policy and Research, Employment 
and Training Administration, U.S. Department of Labor.

                                 

          Questions from Chairman Herger to Jacob Benus, Ph.D.

Question 1. It probably should not shock anyone that providing 
        unemployment benefits to individuals who are out of work may 
        delay returns to work for some workers. Many workers in 
        construction and seasonal industries, for example, rely on 
        unemployment between jobs. I suspect this effect has been 
        understood since this program started in the 1930's. Other 
        countries no doubt face similar issues. Are there any policies 
        developed by other countries specifically to address concerns 
        about delayed returns to work?

    It is well established in the economics literature that providing 
unemployment benefits to individuals who lose their jobs has desirable 
social benefits. The literature also recognizes that some features of 
the UC system may also delay return to work. Policy makers must, 
therefore, balance the socially desirable aspects of the UC system 
while minimizing the system's disincentive effects on return to work.
    A number of countries have developed policies specifically to deal 
with delayed returns to work. Unfortunately, there is very little 
rigorous research to determine, which, if any, of these policies have 
been effective in expediting return to work. While some of these 
policies may be effective, a great deal remains to be done before any 
conclusions can be reached.
    One approach that was tried in the late 1980's in the United 
Kingdom is compulsory intensive interviews. Dolton and O'Neill (1996) 
report on the Restart experiment that was conducted in the U.K in 1989. 
In this experiment, individuals who were unemployed for 6 months were 
randomly assigned to participate in an interview to counsel them on 
active job search (treatment group). Control group Members were not 
notified to attend such an interview. For the treatment group, failure 
to show up at this interview carried the explicit risk of losing 
benefits. The results of this study indicated that the notification of 
an interview had statistically significant positive effect on exit 
rates to employment.
    A related finding from the U.S. corroborates the finding that the 
``threat'' of special services encourages individuals to exit the UC 
system. Specifically, in the Maryland Unemployment Insurance Work 
Search Demonstration (Benus and Johnson, 1998), a randomly selected 
sample of unemployed individuals was required to attend a 4-day job 
search workshop early in their unemployment spell. The results of this 
experiment found that Members of this treatment group exhibited a sharp 
increase in exit rates from unemployment prior to their scheduled 
workshop date. This finding is consistent with a finding from a similar 
experiment in Washington (Johnson and Klepinger, 1994).
    Other countries have used a variety of other policies to encourage 
unemployed workers to return to work quickly. For example, Norway uses 
a strict definition of suitable work. In Norway, unemployed workers who 
receive unemployment benefits are required to accept employment even if 
the job offer is for shift or night work. UC recipients must also be 
prepared to work anywhere in Norway and must be ready to accept any job 
they can do without reference to their previous occupation or wage 
level. Other countries have a much more relaxed definition of suitable 
work and the requirements for accepting a job offer are less strict. 
For example, in the Netherlands and the U.K., unemployed workers must 
accept suitable work if the job involves no more than 2 hours' travel 
daily; in Belgium and Switzerland, the daily travel time requirement is 
4 hours. While strict suitable work requirements may seem like a 
potentially useful policy for expediting return to work, it is unlikely 
that many placements under such strict conditions are stable in the 
long run.
    In a recent study of four European countries where unemployment 
fell during the 1990's (Denmark, Ireland, the Netherlands and the 
United Kingdom), three of the four countries clearly tightened their 
surveillance of unemployment benefit eligibility. Denmark, for example, 
set up a special ``availability inspection unit''; the Netherlands 
started to use sanctions as an instrument for encouraging reemployment; 
and the United Kingdom made participation in a 1-week course mandatory 
for those who had been unemployed for 2 years. Furthermore, in the U.K. 
benefit legislation was radically overhauled in 1996, outlining the 
processes for monitoring unemployed workers' availability for work and 
their compliance with instructions from the Public Employment Service.
    While some of the above policies may seem feasible for the U.S., 
few have been subjected to rigorous research. To determine which, if 
any, of these policies may be appropriate for implementation in the 
U.S., further research is required.
Question 2. Research suggests that the likelihood of finding work 
        increases sharply as benefits are about to or have ended:
          ``Research has also addressed the issue of the timing of 
        reemployment relative to the timing of benefit exhaustion. Both 
        the labor-supply and job-search theories imply that the 
        probability of reemployment increases near the point of benefit 
        exhaustion. These predictions are confirmed by empirical 
        research (Katz and Meyer 1990), which shows that the rate at 
        which claimants secure work increases substantially just before 
        they exhaust their benefits.'' (From ``Work Incentives and 
        Disincentives,'' Chapter written by Paul Decker in Unemployment 
        Insurance in the United States: Analysis of Policy Issues, 
        Christopher O'Leary and Stephen Wandner, Editors, 1997, p. 297)
Are there implications of this research for work search requirements?
    While there are a number of implications from the observation that 
unemployed workers tend to find jobs as they near benefit exhaustion, 
the implications are mostly in the area of establishing the appropriate 
duration and level of unemployment benefits. For example, a number of 
researchers have proposed that benefit level should decline over the 
unemployment spell (Shavell and Weiss, 1979). Others have argued that a 
combination of declining unemployment benefits with a rising wage tax 
(based on the worker's unemployment history) would encourage unemployed 
workers to find jobs more quickly (Hopenhayn and Nicolini, 1997). A 
number of other theoretical proposals have been made; none, however, 
have been tested empirically.
    The most convincing empirical evidence regarding the effectiveness 
of work search requirements on the return to work comes from the 
Washington and Maryland work search experiments. Both of these studies 
concluded that more stringent search requirements combined with 
monitoring reduces the length of benefit receipt.
Question 3. What share of UC recipients are expected to search for 
        work? 
How many people do search for work, and what do states do to confirm 
        their work search efforts? 
How well do States do in enforcing UC work search requirements?
Have these States policies changed over time to become more or less 
        stringent?
What does the research suggest about less stringent work search 
        requirements in terms of returns to work?
    The present UC system has been in effect for many years with little 
structural change. In recent years, the main changes have been in 
computerization and automation of the entire UC system. In many states, 
it is now possible to file an initial UC claim as well as continued 
claims by computer or by telephone. There is also a movement toward 
promoting self-directed employment services through the One-Stop 
Centers. Thus, many of the core services that were previously offered 
by staff are increasingly offered through Internet-based systems that 
require little, if any, in-person contact with staff. The impact of 
this trend is not clear. The new automated systems may enhance the 
ability to monitor and enforce UC regulations; on the other hand, this 
trend may encourage UC recipients to take advantage of gaps in the new 
system.
    Nearly all UC recipients are required to search for work. The 
typical exceptions to this requirement are: temporary layoff with a 
definite return to work date, members of a union who get their work 
through the union hiring hall, participating in an agency-approved 
training program, over 60 and subject to recall by employer, serving on 
a jury, participating in Work Sharing Program, or participating in Self 
Employment Assistance Program.
    In filing a continuing claim, UC recipients are typically required 
to report bi-weekly by telephone. They are also required to: actively 
search for full-time work, be physically able to work, be available for 
full-time work, apply for and accept suitable work, be registered for 
work at the local One-Stop Center, call or report to the One-Stop 
Center as instructed.
    Given the available budget for staff, the prevailing impression is 
that there is very little enforcement of the work search requirements. 
In Washington State, for example, UC claimants are required to place 
and log at least three phone inquiries about employment opportunities 
each week. Claimants are not required to visit any business or to meet 
with a job counselor in order to show that they are expending a 
reasonable effort into their job search.
    Since there has been very little research on this subject, it is 
difficult to determine if State monitoring and enforcement of UC 
recipients' work search behavior has become more or less stringent in 
recent years. The last study on this subject was the 1994 Maryland 
Unemployment Insurance Work Search Demonstration (Benus and Johnson, 
1998). As described in this study, relaxing work search requirements 
extended the duration of unemployment. In contrast, making the work 
search requirements stricter in combination with enhanced monitoring 
reduced the duration of unemployment. One might speculate that the 
recent automation in the UC system may have made enforcement of the 
work search requirements less strict, thus, making the system more 
vulnerable to abuse by UC claimants.
    I hope that my answers to your questions are helpful in your 
consideration of how to address the issues that have an effect on the 
implementation of the Nation's unemployment compensation system. I look 
forward to hearing about the Committee's progress in deliberating on 
these important issues.
REFERENCES
    Benus, Jacob, Terry R. Johnson, Klepinger, Daniel H., and Jutta M. 
Joesch, (1998), ``Evaluation of the Maryland Unemployment Insurance 
Work Search Demonstration.'' Unemployment Insurance Occasional Paper 
98-2, U.S. Department of Labor, Employment and Training Administration.

    Dolton, P. and O'Niell, D. (1996) ``Unemployment Duration and the 
Restart Effect: Some Experimental Evidence'', Economic Journal, March, 
pp. 387-400.

    Hopenhayn, H and J P Nicolini (1997), Optimal Unemployment 
Insurance, Journal of Political Economy 105, 412-38.

    Johnson, Terry R. and Daniel H. Klepinger (1994), ``Experimental 
Evidence on Unemployment Insurance Work-Search Policies.'' The Journal 
of Human Resources, 29 (3) (Summer).

    Shavell, S and L Weiss (1979), The Optimal Payment of Unemployment 
Insurance Benefits over Time, Journal of Political Economy 87, 1347-
1362.

                                 

    [Submissions for the record follow:]
                                           New York, New York 10012
                                                      April 9, 2003

    Dear Ways and Means Committee:

    I am unable to attend the hearing tomorrow since I can not afford 
to travel from New York to Washington, D.C. at this time.
    I lost my job due to 9/11. I received Disaster Unemployment 
benefits through June 17, 2002. I am offended by the conclusion that 
unemployment benefits prevent people from going back to work. This is 
particularly offensive in light of the current job market in which 
employment opportunities are at an all-time low.
    It is irresponsible to the people who have been attached to the 
workforce for their entire adult lives and find themselves out of work 
through no fault of their own, to conclude that the receipt of benefits 
is the problem, not the lack of jobs or the failing economy.
    The benefits received by individuals impacted by the disaster have 
been inadequate at best. Those benefits in no way contributed to the 
difficulty of finding employment. I hope that the committee will review 
these issues responsibly.

                                                         Sincerely,
                                                    Jennifer Romine
                                 

    Statement of Dale Tuvey, Chief Executive Officer, United Claims 
                    Management, Seattle, Washington
    Thank you for the opportunity to present comments on issues 
affecting the return to work of Unemployment Compensation (UC) 
recipients. This is an important topic that has received too little 
attention over the years.
    I have read the written statements of the witnesses that appeared 
at the Subcommittee's hearing on April 10, 2003. The summaries of the 
various academic studies cited by Dr. Decker, Dr. O'Leary and Dr. Benus 
were enlightening and were generally in accord with my observations as 
a daily practitioner in the field of unemployment compensation.
    I wish, however, to offer some additional comments of a less 
academic nature based on my 12 years' experience as a Washington State 
Employment Security Department employee and my 21 years' experience 
representing employers in all aspects of unemployment insurance cost 
control. I will focus my comments on three areas: system structure, 
laws and policies, and other issues.
    I strongly support the UC system and its role in stabilizing the 
economy, assisting workers in transition between jobs, training and 
retraining of workers, and helping employers to find employees to fill 
jobs. Having a sound system is important to workers, employers and the 
public. We have a good system, but one that can be improved by fixing 
some fundamental problems. While I do not support, and in fact oppose, 
federal benefit eligibility standards as a way to fix the problems, I 
do think Congress and the Department of Labor can play key roles in 
improving the system by providing adequate funding, by playing a 
leadership role in developing policy initiatives, research, and best 
practice dissemination, by assuring compliance with Federal law, and by 
encouraging an economic climate that benefits both workers and 
employers.
System Structure
    The three witnesses at the hearing did an effective job of 
presenting many of the fundamental issues regarding how the very nature 
and structure of the unemployment compensation system contributes to 
longer periods of unemployment than might be found absent any wage 
replacement system. I would like to mention a few additional points.
    First, the funding mechanism for UC administration does not provide 
strong incentives to State Agency staff to consider an applicant's 
return to work as their highest priority. In fact, the mechanism gives 
an inherent incentive to State agency personnel to make policies, 
decisions, and practices that encourage claimants to continue 
collecting UC benefits. The vast majority of UC administrative funding 
is done on a workload basis so that it is in the self-interest of the 
entire system to have more rather than fewer people drawing benefits. 
There is no corresponding budgetary incentive to adopt policies and 
practices that will quickly put people back to work. The incentive is 
in the wrong direction.
    In addition, the complex funding system for UC administration has 
resulted in too few resources to do an adequate job of ensuring that 
claimants comply with their responsibilities to be fully available for 
and actively seeking suitable work. More of the funding currently 
available could and should go to those efforts, but it is also clear 
that the funds appropriated by Congress for overall administration of 
the UC system have declined in constant dollars over the years. An 
increase in administrative funding directed at re-employment and 
integrity activities would be money well spent.
    Our company specializes in managing unemployment claims filed by 
hospital employees. We have been very frustrated by the number of 
Registered Nurses who exhaust their entire 30 week regular benefit 
claims under Washington State UC law (at a time when there was, and is, 
a dire shortage of nurses to the point where some hospitals are closing 
beds for lack of nurses and other health care personnel). Consequently, 
we hired our own placement specialist who is specifically assigned to 
assist former hospital employees to return to work. That is a job that 
should be done by Wagner-Peyser staff in the local one-stop centers. 
Our placement specialist position has more than paid for itself working 
only with people who are eager to return to work. As a private company 
with no threat to a claimant's unemployment benefits for non-
cooperation, we can not compel any participation or action. State 
Employment Security Department staff performing the same functions 
could do as well with the eager applicants, and they could take action 
to discontinue the benefits of those claimants who are not cooperating 
or when availability issues that hinder a return to work are 
discovered. For example, a claimant may choose not to apply for a job 
because the opening is on a night shift, even though work on the night 
shift is a customary trade practice in their profession. As it is, if 
we discover what we believe is a potentially disqualifying eligibility 
issue and report it to the Department no action may be taken. The 
Department often may not even interview the claimant about their 
situation. What the claimant has told our placement specialist about 
their availability for work is not considered by the State in 
determining their eligibility. With State Agency staff working with 
claimants more claimants would be served and issues raised would be 
routinely adjudicated with good results obtained from each of those 
factors. More money appropriated for placement activities using
highly trained and compensated staff, with significant performance 
standards and
expectations would actually be a cost saving expenditure.
    Inadequate funding is generally cited as the reason for states 
changing their claim procedures, first from in-person to mail claims 
reporting to receive benefits, and now to telephone call centers and 
internet reporting. Although the money saved by call centers was vastly 
overestimated and the problems encountered were far greater than 
expected, I have heard no proposals to abandon the current ``hands 
off'' system, despite its difficulties. It is now possible, and not 
uncommon, for a person to complete an entire unemployment claim without 
ever seeing a State Agency employee, let alone have any contact with 
the Wagner-Peyser staff that might help them return to work. The lack 
of personal contact and the lack of the claimant ever having a physical 
proximity to the work search assistance available at a One-Stop Center 
tend to discourage utilization of that resource. The ``out of sight, 
out of mind'' phenomenon operates and the claimant may not even know 
where to find the One-Stop office even if he or she is motivated to use 
it.
    One other structural issue is that unemployment benefits are often 
thought of as a right or an entitlement rather than as an ``insurance 
policy'' that provides financial support when certain conditions are 
met. Even referring to the program as Unemployment Compensation rather 
than Unemployment Insurance contributes to the entitlement mentality. A 
business orientation rather than a social service orientation toward UC 
activities is important. It is praiseworthy that many people go to work 
in the UC, ES, and WIA system to ``help people,'' but often their 
vision of ``helping people'' is to make sure those people get as much 
money as possible without realizing that the primary goal ought to be 
to help the claimant return to work. Symptomatic of this mentality is 
the rather casual acceptance of a rate of improperly overpaid benefits 
that is consistently greater than 8% as reported in official Department 
of Labor statistics. Work search issues are one of the most prevalent 
reasons for improper payments. Approximately one half of the total 
improper payments in the states with the highest improper payment rates 
are due to work search issues according to DOL UI Performs data. There 
should be immediate, intensive, efforts made by State Agency staff to 
reduce the improper overpayment of benefits starting with a 
concentration on work search and unreported earnings issues.
Laws and Policies
    The second area involves laws and policies that encourage longer 
claim duration. Some are codified in law or administrative rules and 
some are an unwritten standard operating procedure. For example, it 
seems incredible that some states' laws do not even require that a 
claimant make an active search for work while claiming benefits. In 
addition, in some states the penalty for refusing an offer of suitable 
work is an eligibility disqualification of as little as one week, and 
even then the penalty most often results in only a one-week delay in 
the claimant receiving benefits. The total amount of benefits the 
claimant ultimately receives is not reduced at all. Provisions like 
these certainly do not encourage an early return to work.
    Even those states which do have work search requirements in their 
law make precious little, if any, attempt to enforce their 
requirements. Most states do not require the claimant to make any 
record or report of their work search to the State Agency. There is no 
way for the State Agency or an interested employer to verify a work 
search that is not recorded even if there is a suspicion of non-
compliance. I have even been told that it is considered ``harassment'' 
to ask claimants where they looked for work without having a specific 
reason to believe that they did not do so.
    There are four additional problems with work search requirements as 
they are generally administered. First, the expectation of what 
constitutes an adequate work search is usually not specifically and 
adequately communicated to claimants at the beginning of their claim. 
The second problem is a corollary to the first. Work search 
requirements for a particular employee are generally not tailored to 
that claimant's individual skills and the labor market for people with 
those skills. It would be interesting to test a ``case management'' 
model of unemployment insurance eligibility determination and work 
search expectation and assistance, where a State Agency employee would 
be responsible for evaluating a claimants skill set and qualifications, 
for providing ``hands on'' assistance to the claimant in identifying 
and removing barriers to employment, and for assisting the claimant to 
identify, contact, and apply for work at appropriate employers. Third, 
the ``real world'' expectations regarding the number of employer 
contacts that should be made for eligibility are woefully small. By far 
the most common minimum number of employer contacts that must be made 
weekly for eligibility in most states is three. Even under adverse 
circumstances three employer work search contacts can be made in a few 
hours. What about the rest of the week? A person who truly desires to 
become re-employed as rapidly as possible, i.e. someone who is 
``actively'' searching for work, would make far more than three 
contacts. Some far more realistic number of contacts should be 
required. And fourth, a critical evaluation of the quality of the 
contacts reported by the claimant must be made. Currently, virtually 
any contact with an employer, regardless of whether or not the contact 
has any reasonable possibility of leading to an offer or acceptance of 
work is counted as valid. The claimant's search should be realistic as 
well as active. Claimants whose only work search for a given week was 
visiting three employer internet web sites that listed job openings 
have been accepted as actively seeking work.
    It is clear from research cited in oral testimony before the 
Subcommittee that extending the maximum duration that benefits are 
available to claimants increases the average length of unemployment. 
The record clearly shows that many claimants respond to economic 
incentives and that when benefit duration is extended they postpone a 
serious job search, especially if there is another income source in the 
family. Therefore I think it is reasonable and realistic to have 
requirements for claimants receiving benefits beyond the ``regular'' 
program make an even more intensive work search even in a soft job 
market, to have additional documentation requirements regarding work 
search, and to expect claimants to take any job they are capable of 
doing rather than to continue receiving extended benefits. Although 
previous federal benefit extensions included strong work search 
mandates, the current TEUC program does not include them, and the Bush 
Administration's proposed UC administrative financing reform would 
repeal these requirements under the Extended Benefits program. The most 
common argument for weakening the work search requirements for benefit 
extensions is that state administrators find such requirements 
burdensome, but based on the results of research I think that 
elimination of these requirements is a mistake. I think the same 
research argues for general revenue to be used a source of funding for 
extended benefits payable outside the permanent EB program, rather than 
expecting employers to finance long-term unemployment claims through 
their UC contributions.
    Unemployment benefits are used by many people to buy time to find 
the perfect job or at least a job as close as the claimant thinks he or 
she can get to the ideal, rather than to serve as a temporary stop gap 
between jobs that are then currently available. If a claimant can not 
find a job within a reasonable amount of time such as 8-10 weeks, the 
expectation should be for them to accept an available job and then 
continue to seek that ideal job while working, not to draw benefits 
while awaiting the ideal. There needs to be a better understanding by 
claimants of what it is to be ``available for'' and ``actively 
seeking'' work. More specific, more demanding, and better-enforced 
standards regarding these issues would significantly contribute to 
reducing the length of unemployment for many people.
    I want to mention two examples from my state of Washington that are 
good illustrations of the type of unwritten policies and attitudes that 
unnecessarily prolong unemployment claims. Each of these situations 
occurred in April 2003. In both cases the Department's actions were 
confirmed as current State policy with appropriate personnel in our 
state's central office policy unit. These were not cases of an 
uninformed or untrained field office staffer making a decision outside 
of that endorsed by the agency as official policy.
    We telephoned a local unemployment call center to ask that a former 
employee of one of our clients be directed to apply for work at that 
business because the former employee's old job was available and the 
employer wanted to consider the claimant for rehire. The job was 
professional/technical in nature and was in a small town where the 
employer had no other applicants for the position and the claimant had 
a very small (1-2) number of opportunities for work in her field with 
other employers. The first and only question asked by the Department 
interviewer was whether or not the employer had listed the job with the 
Department's Work Source Center. When informed the employer had not 
listed the job, the interviewer stated that as a matter of policy the 
Department would not ask or require the claimant to contact the 
employer in question about the job, a job for which they would almost 
certainly be hired. That is absurd.
    The second situation happens very frequently. We routinely are 
informed when a former employee has filed a claim for benefits and has 
been found by the Department to be eligible to begin receiving 
benefits. Often that claimant does not contact their former employer in 
search of work either for their former job or a different job for which 
he or she might be qualified. This situation often occurs in small 
towns with limited labor markets but it also happens in metropolitan 
areas as well. We will generally inform the Department that the person 
has not re-applied for work with their former employer, especially when 
the job was in a small town. Often the claimants' skills are 
professional, semi-professional, technical or specialized in nature 
with very few or no other employers in the community that could hire 
them to do that work. A claimant whose highest skills are utilized by 
only one or a very few employers in a community should be expected to 
have contacted those employers immediately when beginning a work 
search. Failure to make such contact raises a serious question as to 
whether the claimant is available for and actively seeking work 
pursuant to customary trade practices, and thus should not be eligible 
for UC benefits. The failure to apply at that particular employer 
should cause the Department to (1) question their eligibility to 
receive benefits, (2) investigate the claimant's eligibility through an 
in-person interview as to why they have not applied with that employer, 
(3) issue a directive to apply for work there if appropriate, or (4) 
disqualify the claimant if appropriate. The response we commonly 
receive, and that was confirmed as official Department policy, is that 
a claimant is not required to apply at any particular business and that 
as long as the individual is making (or more accurately report if 
asked) the required three contacts per week, that situation raises no 
eligibility issue.
    Even in a metropolitan area with a larger labor market it seems 
that claimants should be expected to have contacted a former employer 
from whom they separated in good standing in order to be considered to 
be conducting an active and realistic work search. This example 
illustrates why tailored, specific, realistic work search expectations 
and plans should be clearly communicated to each claimant at the 
beginning of his or her claim, unless there is an expectation of 
immediate recall, he or she is a member of a full referral union, or 
there is some other special circumstance that makes such requirement 
moot. State Agencies need to be creative and specific about what work 
search efforts are required and diligent in making and documenting 
those requirements. They should help claimants create realistic, 
effective work search plans, monitor claimant compliance with the 
directions given, and immediately disqualify those that do not comply. 
Those actions would help people get back to work and better assure that 
only truly eligible claimants are receiving benefits.
Other Issues
    In addition to the need for more staff in the UC system as 
discussed above there is a serious need for training of those UC staff 
already employed. The inadequate training, and in some cases, lack of 
aptitude for the work assigned to the agency staff due to restrictive 
union rules or other factors, results in inconsistent treatment of 
similarly situated claimants and employers. The quality of service 
received by claimants, applicants, and employers alike is widely 
varying depending on who happens to be assigned to your case, whether 
it is eligibility determination or work search assistance. In the 
vernacular, it is a ``crap shoot.'' State Agencies must pay serious 
attention to having the right people doing a particular job and giving 
them the training they need to be successful. Training is always one of 
the first casualties of an actual or perceived budget shortfall. But it 
is crucial to have trained employees administering these very complex 
laws and assisting people to make effective career and job search 
decisions. And while greater budgetary priority of current dollars to 
training is needed, more administrative financing appropriated by 
Congress is also critical.
    Along with training for employees, training for  claimants is an 
important issue as well. For example, hospitals and other health 
industry employers in Washington State are facing a critical shortage 
of workers at the same time our state has one of the highest 
unemployment rates in the nation. While it would seem logical to take 
advantage of the industry workforce shortages to hire dislocated and 
other unemployed workers or to develop underemployed incumbent workers, 
there are major barriers to doing so. Beyond the entry level, health 
industry employment requires significant educational preparation. 
Existing educational programs lack enough capacity to train the number 
of workers desperately needed in health careers. The need and the 
applicants are there, training capacity is not. Currently in our state 
two thirds of qualified applicants to these programs are turned away 
due to lack of capacity due to inadequate space, funding, faculty, 
student financial aid, clinical sites and equipment. Until this 
bottleneck can be relieved a critical industry which continues to hire, 
pays high wages, and is desperate for workers will not be able to 
impact unemployment even when the unemployed are interested in the 
opportunities presented. Thus the health care industry will 
increasingly turn to foreign sources to import workers while 
unemployment claimants will continue to draw benefits. That is wrong. 
And there are other industries with the same problems. In fact, they 
now compete for the meager training slots available. More training 
capacity is crucial to solving many of these related problems.
    One of the most important ways the federal government can help 
ensure that people return to work quickly is to adopt laws and policies 
that aid economic growth and promote job creation so that there are 
jobs available to be filled. All of the unemployment system is sound 
and fury unless there is a job available for the unemployment claimant. 
When economic conditions are weak it will legitimately take longer for 
claimants to become re-employed. However, many claimants can and should 
be expected to find work sooner than they do now with a different 
expectation of what they will do and an increased effort to find that 
different work. We can and should reverse the trend that shows longer 
duration of claims now as compared to past periods of similar economic 
conditions. Changing expectations of work search and acceptance would 
be effective. The best solution is to create the conditions that make 
jobs available, makes training available to allow people to get the 
skills to fill those jobs, and expects claimants to take the jobs that 
are available. I believe that the single best way to begin that process 
is for Congress to make an investment in the Administrative funding of 
the unemployment system with the money targeted toward training of 
staff and to improvement of the work search expectation, assistance and 
monitoring process.
    Thank you for the opportunity to present these comments to the 
Subcommittee.

                                  
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