[Joint House and Senate Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 108-402
THE EMPLOYMENT SITUATION: OCTOBER 2003
=======================================================================
HEARING
BEFORE THE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
NOVEMBER 7, 2003
__________
Printed for the use of the Joint Economic Committee
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
SENATE HOUSE OF REPRESENTATIVES
Robert F. Bennett, Utah, Chairman Jim Saxton, New Jersey, Vice
Sam Brownback, Kansas Chairman
Jeff Sessions, Alabama Paul Ryan, Wisconsin
John Sununu, New Hampshire Jennifer Dunn, Washington
Lamar Alexander, Tennessee Phil English, Pennsylvania
Susan Collins, Maine Adam H. Putnam, Florida
Jack Reed, Rhode Island Ron Paul, Texas
Edward M. Kennedy, Massachusetts Pete Stark, California
Paul S. Sarbanes, Maryland Carolyn B. Maloney, New York
Jeff Bingaman, New Mexico Melvin L. Watt, North Carolina
Baron P. Hill, Indiana
Donald B. Marron, Executive Director and Chief Economist
Wendell Primus, Minority Staff Director
C O N T E N T S
----------
Opening Statement of Members
Senator Robert F. Bennett, Chairman.............................. 1
Representative Pete Stark, Ranking Minority Member............... 2
Witness
Statement of Hon. Kathleen P. Utgoff, Commissioner, Bureau of
Labor
Statistics, Accompanied by Kenneth V. Dalton, Associate
Commissioner, Office of Prices and Living Conditions; and John
M. Galvin, Associate Commissioner, Employment and Unemployment
Statistics..................................................... 4
Submissions for the Record
Prepared statement of Senator Robert F. Bennett, Chairman........ 29
Prepared statement of Representative Jim Saxton, Vice Chairman... 30
Prepared Statement of Representative Pete Stark, Ranking Minority
Member......................................................... 30
Prepared Statement of Commissioner Kathleen P. Utgoff, together
with Press Release No. 03-675, entitled, ``The Employment
Situation: October 2003,'' Bureau of Labor Statistics,
Department of Labor............................................ 35
Response of John M. Galvin, Associate Commissioner, to
Representative Baron Hill...................................... 60
THE EMPLOYMENT SITUATION:
OCTOBER 2003
----------
FRIDAY, NOVEMBER 7, 2003
Congress of the United States,
Joint Economic Committee,
Washington, D.C.
The Committee met at 9:30 a.m., in room SD-628 of the
Dirksen Senate Office Building, the Honorable Robert Bennett,
Chairman of the Committee, presiding.
Senators present: Senators Bennett, Sessions, Reed and
Sarbanes.
Representatives present: Representatives Saxton, Ryan,
Putnam, Stark and Hill.
Staff present: Donald Marron, Ike Brannon, Jeff Wrase,
Colleen Healy, Melissa Barnson, Chris Frenze, Robert Keleher,
Rebecca Wilder, Wendell Primus, Chad Stone, Daphne Clones-
Federing, Nan Gibson, Josh Shakin, and Rachel Klastorin.
OPENING STATEMENT OF SENATOR ROBERT F. BENNETT,
CHAIRMAN
Chairman Bennett. The hearing will come to order. Good
morning to all and welcome to today's employment hearing.
Like virtually every other economic statistic reported in
the past month, the employment numbers released today are
definitely good news for the American worker.
No matter how you cut it, the economy is adding new jobs at
a rapid pace and will likely continue to do so for the
foreseeable future.
The official payroll statistics indicate that the U.S.
economy created 126,000 new jobs in the month of October, the
third month in a row that payroll employment rose. The revised
numbers now indicate that 125,000 jobs were added in September
and that even August, previously reported as negative, is now
considered to have been positive.
The unemployment rate declined to 6 percent. The household
survey reported that employment increased by an astounding
441,000 in September, and according to the household survey,
our economy has now essentially replaced all of the jobs lost
during the 2001 recession, and the number of jobs is now at an
all-time high.
Now I understand that we're going to be talking about
payroll survey numbers. But I want to continue to examine the
question of the disparity between these two surveys.
As I have looked at it, I have found that, historically,
they've been very close together and the divergence began
during our recent economic difficulty. And I would like to talk
about why and what might be done to reconcile these two
conflicting messages.
I believe that today's employment numbers, along with the
steep drop in new jobless claims and the large increases in
productivity and output, indicate quite clearly that the U.S.
economy is returning to a period of strong growth.
The Bureau of Labor Statistics reported yesterday that
productivity grew at an annual rate of 8.1 percent in the third
quarter of 2003.
Now some of my colleagues tend to gnash their teeth at the
high productivity growth of late, lamenting that firms are
learning how to do without workers. However, our experience
over 30 years tells us that periods of rapid increases in the
productivity capacity of our economy are almost always
accompanied by low unemployment.
Increasing the standard of living and employment at the
same time requires healthy productivity growth.
Now it's too easy for the party in power to take the blame
when the economy slows. And for that reason, it is all too
tempting to take all the credit when things turn around.
I'm sure there are some who will insist that today's
numbers are a consequence of Arnold Schwarzeneggar's having won
in California.
[Laughter.]
But in reality, the government holds little sway over the
business cycle, despite what some may think or desire.
Our economy floundered in the middle of the year 2000, in
large part, due to a hang-over from the high-tech boom, likely
abetted by a rise in interest rates. The stagnant economy was
prolonged by the 9/11 disaster, resultant uncertainties in the
Middle East, high energy prices, and various scandals in
financial markets.
That our economy steadily expanded in the face of so many
potentially calamitous events in succession is a testament to
the ability and dedication of the American worker, as well as
to our economic system.
This is not to say that government cannot spur the economy.
I'm one who believes that the Bush tax cut enacted in 2001
undoubtedly softened the blow of the events that befell the
economy and served to make the recession shallower than it
otherwise would have been, and that the tax cuts passed this
year provided some needed impetus at the right time.
Dr. Utgoff, it's always a pleasure to have you visit us,
but we especially enjoy it when you come bearing good news.
So we welcome you to the Joint Economic Committee and look
forward to hearing your testimony.
Mr. Stark, we'd appreciate hearing from you.
[The prepared statement of Senator Bennett appears in the
Submissions for the Record on page 29.]
OPENING STATEMENT OF REPRESENTATIVE PETE STARK,
RANKING MINORITY MEMBER
Representative Stark. Thank you, Mr. Chairman.
I find myself in the uncomfortable position of trying to
make a sow's ear out of a silk purse this morning.
[Laughter.]
You are to be congratulated on the good news. We're not so
far from Halloween, so I watched George the Lesser hop out of
an airplane in his pilot's suit and say, ``The war's over.''
I now expect him to put on his pinstripe suit, get out of a
limousine and say, ``The Depression is over.''
We'll see if he's any more accurate on the state of the
economy than he was on the war.
We did create some jobs in the last couple of months. And
you forgot to mention, I think, that the recalculation showed
that even perhaps September's numbers were better than we had
previously thought. And without switching to the household
numbers, it looked good.
We're still facing a trillion dollars' worth of debt. We
still have in San Jose, California, and in the Silicon Valley
area, for instance, 300,000 highly skilled computer workers,
programmers, out of work.
Now, it's one thing to say--``Great, fellas. You can go and
get 20 hours a week at Wal-Mart.'' Of course, without benefits
and, if Secretary Chao has her way, without union
representation. But that's what's happening.
The good jobs aren't there.
High productivity--you're saying, yes, they're making
stuff. But they're making it in Asia, and then they're bringing
it back here.
It isn't so much that we're bringing the Indo-American
workers over from India. We're now shipping the whole nine
yards, the company and the factory and the workers, back to
India, importing the stuff here, and our guys are out of work.
And the penultimate area is the South. It should be your
territory.
The Republican owners of the textile mills have figured out
that shipping the textile jobs overseas is closing their
plants.
And yes, it gives us cheap T-shirts at Wal-Mart. But it
also gives us pretty cheap jobs.
So we've got still about 9 million unemployed. We've got
almost 5 million people who are employed less than full time
and would like to work full time. 45 million people without
health insurance, about 12 or 13 million of which are children.
Half of the people in America are earning less in the
aggregate than the top 1 percent are earning. And if, Mr.
Chairman, interest rates go up, which I think they'll have to
do to refinance the trillion-dollar debt, then the housing
market goes in the tank and we've got real problems.
And I'm happy to accord credit for creating these jobs.
It's not enough. It's the worst job creation record since
Herbert Hoover. But to not recognize the dangers is what scares
me, to not have an exit plan. We've done that once in a
different kind of war.
But to not recognize the danger of this swelling deficit
and to know that it could really destroy the lives of many
people if the real estate market, for instance, tanks, is
what's missing.
Credit where credit is due and, as I say, I hate to be the
skunk at the picnic, but I certainly would like us to be
concerned about the almost 15 million people, 14 million
people, who are under- and unemployed.
Thank you.
[The prepared statement of Representative Stark appears in
the
Submissions for the Record on page 30.]
Chairman Bennett. I'm tempted to respond.
Representative Stark. Oh, c'mon.
Chairman Bennett. And I shall resist the temptation.
Representative Stark. C'mon, c'mon.
Chairman Bennett. We're here to hear Commissioner Utgoff.
We can have these debates back and forth, perhaps during the
question period, or maybe even another forum.
Commissioner, we appreciate you being here and look forward
to hearing what you have to say.
OPENING STATEMENT OF HON. KATHLEEN P. UTGOFF, Ph.D.
COMMISSIONER, BUREAU OF LABOR STATISTICS U.S.
DEPARTMENT OF LABOR, ACCOMPANIED BY KENNETH V. DALTON,
ASSOCIATE COMMISSIONER, OFFICE OF PRICES AND LIVING CONDITIONS;
AND JOHN M. GALVIN, ASSOCIATE COMMISSIONER, EMPLOYMENT AND
UNEMPLOYMENT STATISTICS
Commissioner Utgoff. Thank you, Mr. Chairman, and Members
of the Committee. I appreciate this opportunity to comment on
the labor market data we released this morning.
Non-farm payroll employment rose by 126,000 in October,
following increases in August and September that totaled
160,000, after revision.
I would note that the payroll survey estimates for the
prior 2 months are always subject to revision as we receive
reports from additional survey respondents. This increase in
payroll employment over the last 3 months contrasts with
declines in the February-July period that averaged 85,000 per
month.
Several service industries added jobs in October.
Manufacturing employment continued to decline, although at a
slower pace than earlier in the year. The unemployment rate, at
6.0 percent, was essentially unchanged over the month.
Professional and business services added 43,000 jobs in
October, with gains in many of its component industries.
Employment in temporary help services continued to rise and is
up by 150,000 since April.
Employment in private educational services grew by 23,000
in October. Job gains over the last 3 months have more than
offset declines that occurred in June and July.
Over the year, employment in private education expanded by
56,000. Health care and social assistance added 34,000 jobs,
with noteworthy gains in doctors' offices and in child daycare
services.
In the leisure and hospitality sector, employment in food
services and drinking places rose by 23,000. Job growth in food
services has picked up in recent months; since July, employment
has increased by 57,000. Within retail trade, food stores added
13,000 jobs in October. Employment in food stores was boosted
by the hiring of additional workers in anticipation of strike.
Employment in construction was little changed over the
month, but the industry has added 147,000 jobs since its most
recent trough in February. In October, employment in credit
intermediation decreased by 10,000, reflecting the decline in
mortgage refinancing activity.
Manufacturing job losses continued in October. Declines in
the sector have moderated in recent months, particularly in
durable goods manufacturing. In October, both the factory work
week and overtime were unchanged.
After posting a small increase in September, employment in
air transportation fell in October. Since reaching its most
recent peak in March, 2001, the industry has lost more than 20
percent of its jobs.
Average hourly earnings for production or non-supervisory
workers, at $15.46, were essentially unchanged in October. Over
the year, average hourly earnings rose by 2.4 percent.
Looking at some of the measures from our survey of
households, the October unemployment rate of 6.0 percent was
about the same as in September. The jobless rates for all the
major worker groups showed little change over the month. About
8.8 million persons were unemployed, of whom 2.0 million had
been without a job for 27 weeks or longer.
Employment as measured by our household survey rose over
the month.
In summary, non-farm payroll employment rose by 126,000 in
October. Since July, employment is up by 286,000. The
unemployment rate, at 6.0 percent in October, was about
unchanged.
Thank you. My colleagues and I would be glad to answer any
questions that you have.
[The prepared statement of Commissioner Utgoff, together
with Press Release No. 03-675, appear in the Submissions for
the Record on page 35.]
Chairman Bennett. Thank you very much.
I do want to get into the question of the disparity between
the household survey and the payroll survey. And I want to make
it clear to everybody that these are not competing surveys from
competing think tanks.
This is not Brookings versus Heritage. This is not the Cato
Institute versus the Citizens for Tax Justice, each one going
out and doing its own analysis.
They both come out of BLS. They're both done by the
organization over which you preside. And I'm not challenging
the validity of either one, understanding the methodology. But
I'm trying to find out what can be done to change the
methodology so that they come into some kind of coordination
between the two.
Because, as I said, historically, they've run pretty much
together. They started to diverge around the time of the
economic difficulty we've just gone through, and they tell very
different stories.
So it's to the interest of everybody that we try to
understand why they are diverging, see what can be done to not
necessarily bring them together, but to come up with some kind
of understanding of exactly what is going on.
If I could share with you an example that came out of Bob
Woodward's book on Alan Greenspan, called ``Maestro.'' I'm not
sure how many people have read it.
But in that work, Woodward records how Chairman Greenspan
became convinced, looking at all of the data, that the way the
Federal Reserve Board was calculating productivity numbers was
wrong. And he said to the various economists and technicians at
the Fed--``Your productivity number has got to be wrong.
Productivity has got to be going up.''
And they said, ``No. Productivity is clearly going down. We
are measuring it in the way that it has always been measured
and it is going down.''
And in a phrase that I have heard the Chairman use often,
he said, ``That violates the laws of mathematics. Productivity
cannot be going down and the equation that produces the other
numbers still work because we've got the final number out of
the equation and the other numbers connected to it dictate that
productivity has to be going up.''
And so, in an effort described in the book as an
economist's version of the Manhattan Project, they went into
their methodology and discovered that the Chairman's instincts
were correct, that their method of measuring productivity,
however time-honored it may have been, was wrong, and that the
overall information with respect to the economy did indeed
dictate that productivity had to have been going up in the
period and they had to change their ways of measuring it.
Now I tell you that because I think it might be instructive
here on this question of the payroll survey versus the
household survey.
What are we missing? How can we account for the disparity?
Now I understand that the household survey picks up
agricultural jobs which the payroll survey misses. The
household survey picks up the unemployed, which the payroll
survey misses. But the gap is too big to be filled with those
two numbers.
If there's a statistical problem--that is, statistical
noise in one or the other of surveys, or both--we ought to do
what we can to try to fix that. We ought to do what we can to
try to eliminate that noise.
Some have suggested as they've looked at this that the gap
is partly due to immigration. That is, the household survey
picks up illegal aliens who are in the country and working in
situations where they would not be on payrolls.
I think there may be some of that, but that number can't be
large enough to explain the disparity in the surveys.
A very quick anecdote that I would share with you.
Flying back from Utah this last time, my seatmate on the
airplane and I got into a conversation. She described her
employment situation. She was one of those software engineers
that Congressman Stark has talked about who lost her job.
She was flying first-class to Washington on a platinum
medallion status, obviously very much involved. And I said,
``What do you do now?'' And she said, ``Well, now, after I lost
my job working for a large company, I got together with a few
other software engineers. We formed a small company. We've got
a niche that we're operating in. I'm earning more money now.
I'm busier now. I'm flying to Washington every week on a
lucrative consulting agreement with the government and doing
far better than I did before.''
But the firm that was formed that she's involved with now
does not show up in the payroll survey in any way. And she
would not say that she's at Wal-Mart selling T-shirts. She'd
say that this was the greatest thing that ever happened to her.
I don't know how many of those firms there are out there,
little firms that fly under the radar screen of the payroll
survey.
And so, just quickly, could we have a discussion about what
can be done to try to reconcile the differences between these
two surveys?
And once again, I stress--these are not ideological surveys
being pushed by two different think tanks. These are both
surveys carefully constructed and managed over time by the
Bureau of Labor Statistics which in previous eras did not
diverge that much, and now are diverging a great deal.
Can we discuss this? Have we got any ideas as to which one
comes the closest to telling us what's really happening in the
economy and what methodology might have to be changed in either
or both to bring them back to a range where you can explain the
differences between the two of them?
Commissioner Utgoff. Mr. Chairman, first I'd like to point
out that the payroll and the household series have behaved
differently.
In the late 1990s, the payroll series grew faster than the
household series. The BLS and the Census Bureau have undertaken
a thorough review of that period to try to explain the
differences so that it might shed some light on the current
period.
It's difficult to understand, but we really couldn't
explain a good portion of those differences. Some of them were
due to the factor that you talked about, the immigration factor
that was under-estimated in a recovery period.
It may in fact be that in a slow labor market, immigration
and new jobs through immigration have been over-estimated.
But I can't tell you that we can explain all the
difference. As you know, there are different surveys. They
measure different things. But when they're adjusted for that,
they still show different patterns since November and we really
can't explain a good deal of that difference.
Chairman Bennett. Not to inject partisanship into this, but
you understand how the two surveys get used in political
oratory, with some saying that the one survey demonstrates that
we've got a terrible job market and the other survey
demonstrates that we have replaced all of the jobs that were
lost in the recession.
That's a fairly significant statistical gap that needs to
be filled in some way or another.
I'm glad to hear that you're working on trying to deal with
it and I look forward to hearing the results of your efforts at
some future time.
Congressman Stark.
Representative Stark. Thank you, Mr. Chairman.
Commissioner Utgoff, thank you once again for being with us
and I guess thank you for brightening the Republicans' day.
I did want to ask you just----
Chairman Bennett. Can we at least say that all Americans
are probably happy about this, including a few Democrats?
[Laughter.]
Representative Stark. Well, no. That's the problem, Mr.
Chairman.
As I was going to say, at the beginning of the recession,
in March, 2001, correct?
Commissioner Utgoff. Yes.
Representative Stark. I believe there were 132\1/2\ million
people employed.
Is that correct?
Commissioner Utgoff. Yes.
Representative Stark. And how many people are employed
today?
Commissioner Utgoff. A little over 130 million.
Representative Stark. Two-and-one-half million fewer people
employed. And how many months of job growth at the level we had
last month would it take us to get back to the pre-recession
employment level?
I've got an answer here. Let me make it quickly.
Commissioner Utgoff. OK. I know roughly, but your answer--
--
Representative Stark. You tell me first.
Commissioner Utgoff. No, I don't have that calculation.
[Laughter.]
Representative Stark. I've got 19 months. Is that about
right?
Commissioner Utgoff. OK. That's about right.
Representative Stark. So we've got a long time, Mr.
Chairman, to go before we get back to where we were.
Now, just a little bit off the subject, but not completely.
In my other life, I worry about something obscure called
TANF. And you keep some figures about unemployment among women
who maintain families. And again, what my numbers show is that
while we had 710,000 unemployed women who are maintaining
families back in November of 2001, we're up now--and we even
went up in October over September--but up to 781,000.
That's not a big change, but I think those are ballpark
figures.
My question is, where we're requiring under TANF women to,
or TANF recipients, most of whom are women, to work 40 hours,
which is kind of an elusive number because there aren't many
40-hour jobs, a lot of 37, aren't we putting pressure on the
labor market in an area where very fragile families--that's my
editorial description of women who are working to maintain
families--isn't that putting pressure on their finding jobs by
pushing the welfare beneficiaries to work longer hours in the
private market?
Commissioner Utgoff. Well, as the economy improves, it is
likely that employment for all groups will improve,
particularly for groups that are having labor market problems.
That is their best situation, is to have an improved labor
market.
Representative Stark. OK. I guess I wish you'd said, if the
economy improves.
But how many jobs--and I know this is an area in which you
would still call this experimental or tentative data. But is it
not correct that whether or not the JOLTS program has been
determined to be accurate and technically correct, that we had
fewer jobs open at the end of August--I think 3 million is the
number--and that prior to that, we had something like 3\1/4\
million jobs?
Can you give me a little estimate? How many jobs are out
there that are open, and has that gone up or down?
Commissioner Utgoff. Yes, Mr. Galvin will answer that. He
has the figures.
Representative Stark. OK.
Mr. Galvin. Our JOLTS survey showed about 3 million
vacancies in our latest data point, August, 2003. That's down
from about 3.2 million a year earlier.
This is a very short series. We've only been putting it
together since December 2000.
Representative Stark. I'll give you the disclaimer. I know
that this is a very new and tentative figure that you're
keeping and I didn't mean to--but it's interesting, and mostly
interesting not so much in the change from 3.0 to 3.3, where,
if you're learning, there's a learning experience on how to get
this.
But the fact that somehow, we've got 9 to 10 million people
that we're trying to cram into those 3 million jobs. And that
to me is like trying to pour a quart of milk into an eight-
ounce cup.
Something doesn't fit. If we've got 3 million vacancies out
there and 9 million people, not to count the unemployed, the
part-time employed, we've got a shortage of jobs.
Is that right? Does that make sense?
Mr. Galvin. Well, again, we don't have much experience with
the relationship between these levels of openings and the
relationship of the employment levels.
Representative Stark. But if that's right, then we're short
6 million jobs somewhere, roughly.
Right? We've got roughly 10 million people looking, or 9.8,
and you've got roughly 3 million openings, as I look at it--
this is hypothetical, but doesn't that say that we've got about
three times as many people unemployed as we have jobs
available, if your figures are right?
Mr. Galvin. That's the relative size of the numbers. There
will always be some search unemployment, people, when they
leave jobs, will take some time to find other jobs.
Representative Stark. There's entropy in the system. I
understand that.
But I just wanted to get some order of magnitude here. So
that a couple hundred-thousand jobs doesn't make a real big
dent in that discrepancy of somewhere around 6 million jobs.
And that, Mr. Chairman, is what I was alluding to in my
opening remarks, is that there doesn't seem to be a program,
other than tax cuts, to deal with the 6 million people, or, if
poetic license, 5. But a big number of people who are looking
for work for whom openings don't exist.
Thank you.
Chairman Bennett. Thank you.
Mr. Ryan.
Representative Ryan. Thank you.
Commissioner, I wanted to go back to the difference between
the two surveys because that, too, is very fascinating to me. A
couple of questions.
Since the household survey counts the self-employed and the
payroll survey seems not to do that, is the payroll survey
missing a significant development in the labor markets?
Question number one.
Question number two: compared with the results of all the
other indicators we've been getting over the past week--and
we've gotten quite a few, and most of them are pretty good--
which employment survey, in your opinion, has been more
consistent with other economic indicators as they interact with
those?
Commissioner Utgoff. The question about self-employment, we
know from the household survey, we know how many people are
self-employed, and you can correct for that in comparing the
household and payroll series.
Self-employment has been up about a half-million, a little
more than half-a-million over the last year. And that accounts
for much of the difference over the last year.
But the difference since November 2001 has been greater
than that when the economy started at the trough of the
recession. It's more difficult to explain the difference since
then.
Representative Ryan. Would self-employment be the largest
piece of the puzzle, so to speak, to explain this anomaly, this
huge divergence between these two indicators, or these two
measurements?
Commissioner Utgoff. In the last year, that's been the most
discrepancy.
Representative Ryan. OK. What about a trend? Or looking at
the other indicators, which one seems to be a little more
consistent with the other indicators?
And do you see a trend emerging now that we have September
and October data, which seem to be moving very much in the same
direction, building momentum? Do you see a trend emerging?
Commissioner Utgoff. The BLS measures current conditions.
Representative Ryan. I know.
Commissioner Utgoff. We don't really predict what future
conditions will be.
Representative Ryan. And you're not willing to take note of
something that looks to be like a trend?
Commissioner Utgoff. There have been 3 months of job
increases.
Representative Ryan. OK. Manufacturing--that's the other
quick question, while I still have some time.
Now the big knock that you hear rhetorically between the
payroll survey and the household survey is it's really people
losing their jobs in manufacturing and going over to the
service sector.
I think that pretty much describes what some people are
saying.
Is there evidence of that?, number one. Number two: are the
manufacturing sector employment losses unique to this country,
or is it indicative of a worldwide trend that's occurring in
many countries around the world where factory employment and
manufacturing employment is down, perhaps due to productivity?
So is it a unique trend to America or is it a worldwide
trend? And is the claim valid that the difference between these
two surveys indicates that people working in higher-paying
manufacturing jobs are losing those jobs and going to service
jobs? Whether they're higher- or lower-paying, we don't know.
But is there a lot of validity to that claim?
Commissioner Utgoff. No, that wouldn't be correct because
the payroll survey picks up people in both the manufacturing
and in the service industries.
So that a shift would not affect the total numbers.
Representative Ryan. That's helpful. Thank you.
What about worldwide versus America trends?
Commissioner Utgoff. A decline in manufacturing employment
has been widespread throughout the developed countries.
Representative Ryan. So the decline is worldwide. Is that
pretty much a productivity story?
Commissioner Utgoff. Yes, the decline in manufacturing
employment for many developed countries is a productivity
story.
Representative Ryan. OK. I think that's all I have.
Chairman Bennett. Senator Reed.
Senator Reed. Thank you very much, Mr. Chairman.
Thank you, Commissioner. How does the current level of non-
farm payroll employment compare to the level at the start of
the recession in March, 2001?
Commissioner Utgoff. It's roughly 2.4 million jobs.
Senator Reed. Less, today.
Commissioner Utgoff. Yes.
Senator Reed. And we've been now about 31 months in
declining jobs.
So today's news is good news. But the question I think we
all have is, is it sufficient to begin replacing simply the
jobs that we've lost over these last 31 months? Just as
importantly, are we potentially generating new jobs because of
new entrants into the labor force?
I think Secretary Snow talked about 200,000 jobs a month,
which is a revision downward of his previous suggestion. We
grew about 124,000 jobs this month.
Commissioner Utgoff. 126,000.
Senator Reed. 126,000. So we're falling short of enough
jobs to begin to basically fill the gap.
Is that correct?
Commissioner Utgoff. Yes.
Senator Reed. So it's good news. But in context, we've got
such a long way to go to rebuild employment, that we're not
over the hump yet by any stretch of the imagination, even by
Secretary Snow's calculations.
Is that accurate?
Commissioner Utgoff. Well, Secretary Snow's calculations
would be that about 200,000 jobs a month is more than is needed
to reduce the unemployment rate. You need about 125,000 to
about 150,000 jobs a month to reduce the unemployment rate.
Senator Reed. And we had 126,000 new jobs, so there's a
slight reduction this month. This month.
Could you comment on the participation rates, the trends,
because information that I have suggests that there is a
growing number of people not participating in the labor force,
therefore, not being counted as unemployed technically, but
certainly not with employment.
Can you comment on that?
Commissioner Utgoff. Well, participation rates have
declined about 1 percent since the peak of the cycle.
Participation rates tend to weaken during a recession and
then tend to strengthen during the recovery period.
Senator Reed. But as these participation rates strengthen,
and correct me, then you have more people looking for jobs. And
essentially, that could be a break on the unemployment rate
going down.
Am I correct, as more people enter the force?
Commissioner Utgoff. Well, when the economy is at a level
state, an increase in the participation rate will tend to put
upward pressure on the unemployment rate.
But the relationship is if jobs are growing faster than the
labor force is growing, then the unemployment rate will still
decline.
And what you see in practice is that during periods of
recovery, employment increases faster than the labor force. And
the reverse in a recession.
And during the late 1990s, for instance, there was a strong
increase in the participation rate and the unemployment rate
went down.
Senator Reed. Do you anticipate that happening in the
months ahead? Do you have any sense of that?
Commissioner Utgoff. No.
Senator Reed. And that's because you haven't sampled it or
because the data is unclear, or you don't do it?
Commissioner Utgoff. The BLS does not make projections.
Senator Reed. Well, again, I think this is good news today.
But the struggle is not over. We have a long way to go to
replace 2\1/2\ million jobs that were lost in the last 31
months.
And there are still some variables, one of which is the
participation rate, which is unclear yet. You look backwards,
but you don't look forward.
And so, again, I think we should take some comfort from the
numbers, but not satisfaction that the job is done.
I guess the other question I would raise in terms of--what
would the unemployment rate be if the participation rate had
stayed the same rather than changed?
Would we have had higher unemployment numbers?
Commissioner Utgoff. That's unclear because the people who
participate in the labor force, you have to ask how many of
them become unemployed and how many of them go straight into
employment.
So you really can't say what the unemployment rate would be
if the participation rate stayed the same.
Senator Reed. And the final question, the reports of
significant productivity increases, which raises perhaps in my
mind--it might not be accurate in terms of the statistics or
the models--sometimes it's the result of a replacement of
workers by machines, computers, et cetera.
If productivity grows dramatically, does that take the
pressure off hiring? Does that mean that companies, because of
mechanization, computerization, new techniques, that they can
still have impressive gains in their bottom line without hiring
more people?
Commissioner Utgoff. In the short run, productivity can put
downward pressure on jobs.
But in the long run, productivity increases are what's
needed for economic growth and for employment growth.
So it's a question of whether we're talking about the
short-run or the long term.
Senator Reed. How would you define the short run?
Commissioner Utgoff. In the matter of years.
Senator Reed. Years.
Commissioner Utgoff. Yes.
Senator Reed. So that there is the possibility, unclear
yet, that because of the significant productivity increases,
which might be driven by capital investment rather than
employment, that that could be another downward pressure on
employment.
Commissioner Utgoff. That's correct.
Senator Reed. Thank you very much, Commissioner. Thank you.
Chairman Bennett. Mr. Putnam.
Representative Putnam. Thank you, Mr. Chairman.
I'd like to follow up on the productivity line. To what
degree do we attribute the gains in productivity to structural
changes in the economy like the continued advances in
information technology, the continued automation of
manufacturing?
And to what degree are they more temporal than structural
in that people are fearful of their jobs so that there is some
angst and therefore, this emotional productivity that is
derived that is not sustainable, to what degree are the
productivity gains structural versus temporal?
Commissioner Utgoff. I can't answer that question. I have
no data to answer that question.
Representative Putnam. We don't know, then, we don't have a
good sense then of what is driving these productivity gains.
Commissioner Utgoff. Well, there have been strong increases
in output and it has been suggested that this was due to a
heavy investment in IT technology in the late 1990s.
Representative Putnam. The IT technology has been something
that you and Mr. Greenspan and others have attributed
tremendous productivity gains to for a number of years now.
Do you have a sense of how long we can ride that wave? How
long will the IT improvements continue to fuel the
productivity?
Is that a long-term structural increase in productivity
that will be with us for some time, or are we on the backside
of the IT productivity curve and we need to find the next big
thing?
Commissioner Utgoff. I really can't answer that question.
But I would note that business investment has been up.
Representative Putnam. OK. What's the regional nature--is
there a regional nature to the employment numbers?
And if you would elaborate on who's winning and who's
losing? And is there a regional nature to the productivity?
Commissioner Utgoff. We don't have regional measures on
productivity. But the changes in employment have been
widespread throughout the country.
Mr. Galvin. I'll search for that.
[Pause.]
Representative Putnam. While you're doing that, give me
some sense of the historical unemployment average since World
War II.
What is the average unemployment rate in this country in
the post-war economy?
Commissioner Utgoff. Can I get back to you on that?
Representative Putnam. I'm striking out here. Give me this
sense.
There used to be a number that was considered an
unemployment rate that was largely considered full employment.
Has that number shifted over the last several decades?
Commissioner Utgoff. Well, for a while unemployment rates
in the area of 5 percent were considered what you would call
the natural rate of unemployment.
The experience in the late 1990s has called that into
question.
Representative Putnam. But up until the mid-1990s, that was
largely considered the natural number.
Commissioner Utgoff. Yes.
Representative Putnam. And the unemployment today is what?
Commissioner Utgoff. 6 percent.
Representative Putnam. 6 percent.
Commissioner Utgoff. Yes.
Representative Putnam. So a percent over what, until
recently, may have been considered the standard natural
unemployment rate in the country.
Commissioner Utgoff. Right.
Representative Putnam. Thank you. Have you had any luck,
Mr. Galvin?
Mr. Galvin. Well, I've got the unemployment rate with me
back to 1956. I don't have averages over that period.
You asked for the long-term unemployment average back to
World War II.
Representative Putnam. Well, the 1950s will do. You're
still way beyond my time, so----
[Laughter.]
Mr. Galvin. 1950s, it was in the 4.2 percent vicinity in
1956.
Representative Putnam. OK. And let me go back to the
Commissioner, if I may, just for a final question.
Does your household survey, and this is something that the
Chairman and Mr. Ryan have gotten into extensively. Do you feel
that it adequately captures independent contractors and the
self-employed and the budding small businesses?
Is it really an adequate model to capture those folks?
Commissioner Utgoff. It does capture those categories of
workers.
Representative Putnam. OK. Thank you very much.
Thank you, Mr. Chairman.
Chairman Bennett. Mr. Hill.
Representative Hill. Thank you, Mr. Chairman. Thank you,
Commissioner, for being here.
I want to get into some of the ways of how you conduct your
household survey.
Can you kind of explain how you do it? Do you contract it
out? Do you do it in-house?
Commissioner Utgoff. The Census Bureau conducts a survey of
households under contract to BLS.
Representative Hill. What kind of questions are you asking?
Commissioner Utgoff. There are a number of questions on the
survey.
Did you search for work in the last 4 weeks? If not, do you
want a job? And it just goes through many categories of labor
force status.
Representative Hill. And what's the sample?
Commissioner Utgoff. The sample is about 60,000 households
a month.
Representative Hill. OK. I want to get into what--by the
way, Mr. Chairman, I am encouraged by this data here. I'm one
Democrat who hopes that this economy is going to be recovering.
I'm from Indiana. And we've lost a lot of jobs in my
District. And in particular, we've lost a lot of manufacturing
jobs.
In your survey, as Congressman Ryan was talking about
earlier, we have had a loss in this last month of manufacturing
jobs.
And the question I have for you, do we know what kind of
jobs these are, these manufacturing jobs, that have been lost
and we are continuing to lose?
Commissioner Utgoff. The manufacturing losses have been
throughout subsectors of the manufacturing industry. They have
been, for part of this last 2 years, concentrated in durable
goods, and in other things like textiles.
Representative Hill. OK. The reason why I ask you about how
you conduct your survey, do you ask questions as to what kind
of manufacturing job a person had that they lost?
Commissioner Utgoff. The payroll survey, the other survey,
goes to employers. And they are classified under a system that
tells you what industries they are in so that you can group
them and describe them.
So we don't ask the people what industries they're in. We
ask the employers.
Representative Hill. OK. What I'm trying to get at,
Commissioner, is I'm trying to determine whether or not these
manufacturing jobs are going to come back.
Is there any way when you're asking your questions, can you
determine whether or not there is the possibility--what I'm
trying to get at, are these permanently lost jobs or are they
jobs that some day we can regain?
Do you have any idea when you're asking your questions?
Commissioner Utgoff. The BLS doesn't project activities in
the future. But I can say that since the 1950s, and even before
that, manufacturing's share of employment has declined fairly
steadily.
Representative Hill. And you said earlier that this is not
unique just to the United States, that this is worldwide.
Commissioner Utgoff. In most developed countries.
Representative Hill. How about non-developed countries?
Commissioner Utgoff. Well, in some non-developed countries,
manufacturing has increased.
Representative Hill. Could you cite some of those
countries?
Commissioner Utgoff. We don't produce information on
manufacturing or any other jobs in developing countries.
Representative Hill. OK.
Senator Sarbanes. China, obviously, one would think. Just
the man in the street would say China, wouldn't he?
Representative Hill. Yes, they would.
Commissioner Utgoff. Well, the conventional wisdom and the
anecdotal evidence seems to be that China has had a very large
increase in manufacturing jobs.
Senator Sarbanes. Right.
Commissioner Utgoff. But again, we don't measure those.
Representative Hill. Commissioner, what I'm trying to get a
feel for is these jobs in manufacturing that are being reported
lost every month, I'm trying to get a feel for whether or not
they are ever going to be coming back. Or are they lost
forever?
And what I take it, and in your data that you collect, you
can't make that determination.
Commissioner Utgoff. No, our data is for current and
previous periods.
The long-term trend has been that manufacturing as a share
of employment has gone down.
Representative Hill. OK. Congressman Ryan was also talking
about the shift from manufacturing jobs into the service
sector, that people who have lost their manufacturing job that
are now in the service sector.
Do we have any idea what difference in wages that person is
experience? Is it a decrease in wages? An increase in wages?
Do you ask that question in your surveys?
Mr. Galvin. We do not track on a current basis employees
from one job to another job. We could get you information after
the hearing about average salary levels in the service sector
versus the manufacturing sector.
Representative Hill. OK. Thank you, Mr. Chairman.
[Response of Mr. John Galvin to Representative Hill appears
in the Submissions for the Record on page 60.]
Chairman Bennett. Senator Sessions.
Senator Sessions. Mr. Chairman, I'll pass.
Chairman Bennett. All right.
Senator Sarbanes.
Senator Sarbanes. Well, thank you very much, Mr. Chairman.
Commissioner, welcome. It's nice to see you again.
I want to take just a moment to address the subject you
were addressing with Congressman Putnam on the concept of
NAIRU, the Nonaccelerating Inflation Rate of Unemployment.
A number of people don't accept that concept, including
Alan Greenspan, who has testified about that at some length.
And the figure has been all over the lot, depending on
who's invoking it, and for what purpose. But it's very clear
that in the recent past, we experienced 4 percent unemployment
without an inflation problem. And that led everyone to sort of
revise their views. And of course, the Chairman of the Federal
Reserve spoke at great length about the marked increase in
productivity.
The Humphrey-Hawkins bill had a 4-percent unemployment
rate. So it was premised on the view that we could get down to
that rate before we encountered an inflation problem.
Everyone said, oh, it can't be done, and then of course, we
did it.
And I just want to put that into the history bank, as it
were, because the recent past, at least, and earlier times,
going back some number of years, have had unemployment down in
the 4-percent range without an inflation problem.
So if one adopts this concept, and I'm not arguing for
adopting it, I just want to address it--the non-accelerating
inflation rate of unemployment--that would suggest that we
could go down to 4 percent and not get an inflation problem.
I just want to add that for the record.
Now I want to address this morning the long-term
unemployment situation, which is an issue I'm quite interested
in because it directly relates to whether we should extend
unemployment benefits again, as we have done in previous
economic down-turns, and whether the increase in jobs we see
this month is adequate to, in effect, put that problem on the
shelf.
My own strongly held view is that it is not, and I want to
try to walk through this problem with you.
We define the long-term unemployed as those unemployed for
more than 26 weeks and continuing to look for work.
Is that right?
Commissioner Utgoff. That's right.
Senator Sarbanes. How many such individuals were there in
October?
Commissioner Utgoff. It was about 23 percent of the
unemployed, 2 million persons.
Senator Sarbanes. 2 million.
Commissioner Utgoff. A little more than 2 million.
Senator Sarbanes. How many long-term unemployed workers
were there a year ago?
Commissioner Utgoff. 1.7 million.
Senator Sarbanes. So we've gone from 1.7 to 2 million
unemployed.
In January of 2001, how many long-term unemployed were
there?
Commissioner Utgoff. 660,000.
Senator Sarbanes. So since January of 2001, we've gone from
660,000 long-term unemployed--people out of work for more than
26 weeks and looking for work--and we're now at 2 million.
Is that correct?
Commissioner Utgoff. Yes.
Senator Sarbanes. So the number has tripled over that
period of time.
Commissioner Utgoff. That's correct.
Senator Sarbanes. OK. Now, what percentage of the total
unemployed who are looking for work are long-term unemployed
workers?
In other words, if we take the unemployed workers, people
looking for work, what percentage of that are long-term
unemployed?
Commissioner Utgoff. 23 percent.
Senator Sarbanes. 23 percent. What was that percentage a
year ago?
Commissioner Utgoff. 20.5 percent.
Senator Sarbanes. So it's gone from 20.5 percent to 23
percent since last year.
Is that correct?
Commissioner Utgoff. That's correct.
Senator Sarbanes. Now, historically, that's a pretty high
figure, isn't it?
Commissioner Utgoff. Relatively, yes.
Senator Sarbanes. And it's been fairly high over most of
this year, hasn't it?
What's the figure roughly been over the course of this
year?
Commissioner Utgoff. It's been in the low 20s, 22 to 23.
Senator Sarbanes. I've been informed that the last time the
figure of long-term unemployed was this high for such a
continuous period--in other words, 21-, 22-, 23-percent--was 20
years ago, in 1983.
Would that be correct?
Commissioner Utgoff. Yes.
Senator Sarbanes. Now what's the median duration of
unemployment for all unemployed workers?
Commissioner Utgoff. 10.3 weeks.
Senator Sarbanes. The median duration of unemployment for
all unemployed workers?
Commissioner Utgoff. Is 10.3 weeks.
Senator Sarbanes. You're giving me the median or the
average?
Commissioner Utgoff. I was giving you the median. The
average is 19.1 weeks.
Senator Sarbanes. OK. 19.1 weeks. And how long has it been
above 19 weeks, the average?
Commissioner Utgoff. Since April.
Senator Sarbanes. And am I correct that we have to go back
about 20 years to find comparable figures in terms of the
average duration of unemployed, for all unemployed workers?
Commissioner Utgoff. Yes.
Senator Sarbanes. Would you take issue with me if I was to
say that the issue of the long-term unemployed is as serious
now as it has been in 20 years?
Commissioner Utgoff. Yes. The percent of the unemployed who
are out of work for 27 weeks or longer has increased and is
approximately the way it was in the early 1980s.
Senator Sarbanes. Mr. Chairman, I've gone through this step
by step because I think it's very important to understand these
figures.
I still remain very seriously concerned about the condition
of the long-term unemployed. I think we picked up some jobs and
I'm pleased to see that.
The rate has dropped a tenth of a point.
Have you seen any sign that people are coming back into the
labor market? We have this phenomenon, apparently, that when
unemployment goes up, people drop out of the labor market.
But when they think that employment is picking up again,
they come back into the labor market. As a consequence, the
unemployment rate may in fact go up or not go down markedly,
even though we're picking up jobs because more people are
coming back in looking for jobs.
Do you see any signs of that phenomenon?
Commissioner Utgoff. The participation rate tends to weaken
in a recession and then to strengthen in a recovery.
Senator Sarbanes. Right.
Commissioner Utgoff. An increase in the participation rate
might put pressure on the unemployment rate.
But what you can see over the long term, as an economy
recovers, that employment increases faster than the labor
force. So you see increasing participation with a declining
unemployment rate.
Senator Sarbanes. Right.
Commissioner Utgoff. As we saw in the late 1990s, where the
participation rate increased, but the unemployment rate went
down as well.
Senator Sarbanes. Yes. Do you see increases in the
participation rate taking place yet?
Commissioner Utgoff. No, we do not see any increases in the
participation rate.
Senator Sarbanes. Do you anticipate that there would be
increases in the participation rate on the basis of past
history?
Commissioner Utgoff. Yes. I would say that in a recovery
period, participation rates tend to increase.
Senator Sarbanes. So that the job production you will need
in order to bring down the unemployment rate would be greater
in order to encompass or accommodate an increase in the
participation rate.
Would that be correct?
Commissioner Utgoff. Yes.
Senator Sarbanes. Thank you very much, Mr. Chairman.
Chairman Bennett. Thank you.
Senator Sarbanes. Obviously, as we discuss extending the
unemployment insurance issue, I'll be referring back to these
figures.
Chairman Bennett. I understand that and I think it's a
useful exercise to go through because this recovery, while it
looks very strong in some of the macro numbers, still has some
problems connected with it in the areas that you are
describing.
Commissioner Utgoff, to continue to flog the same horse
because I want to have as accurate numbers as possible, is it
possible that the productivity rate is overstated, because if
the payroll survey is too low--and we're talking about the gap
again--but if the payroll survey is too low, that would
artificially change the equation and suggest that the
productivity number is too high.
Commissioner Utgoff. That's correct, if the payroll survey
were incorrect.
Chairman Bennett. So if we start to get increased jobs,
even though the productivity number is higher than the GDP
number, wouldn't that suggest that there has to be some
mathematical adjustment to the payroll number?
I'm back to the Greenspanesque example of these are all of
the parts of the equation. And typically, you say if
productivity is higher than GDP, you're going to lose jobs. And
GDP has to be higher than productivity in order to create new
jobs.
But if we're in a situation where the productivity number
is higher than the GDP number, and we're still creating jobs,
doesn't that say that the payroll number has to be adjusted?
Commissioner Utgoff. Well, it would also depend on the
hours.
But in general, you need more GDP growth than productivity
growth to create jobs.
Chairman Bennett. Yes. But I'm saying, we've had this last
quarter where the GDP number was 7.2. We've got a productivity
number of 8.1, which would suggest a loss of jobs. And yet, for
the last 3 months, we've had an increase in jobs.
Commissioner Utgoff. But that's for----
Chairman Bennett. A very short period of time. I
understand.
Commissioner Utgoff. The quarter that's covered is before
the job growth began.
This is for the third quarter.
Chairman Bennett. Yes. But the increase in jobs was in
August, September and October. And that's the third quarter.
Don't I have that right?
[Pause.]
It's July, August, and September. OK. Well, the July
increase was the smallest increase we have. So, OK.
So we have August and September. So all right. So you're
saying, third quarter, August and September, you've still got
to get October's numbers. And the GDP numbers, you do have
October's numbers.
Commissioner Utgoff. No. I'm saying that there was not a
complete overlap between the 3 months where employment
increased and the quarter from which productivity and GDP were
measured.
Chairman Bennett. So there's 1-month difference.
Commissioner Utgoff. Yes.
Chairman Bennett. Yes, OK.
Senator Sarbanes. On-the-job numbers or on the productivity
and GDP growth numbers?
Commissioner Utgoff. The job numbers are more current than
the GDP and productivity numbers.
Senator Sarbanes. OK. Thank you.
Chairman Bennett. Yes, all right. Jobs fell in July, grew
in August, September and October.
Commissioner Utgoff. Yes.
Chairman Bennett. OK. And August, September and October are
the third quarter.
But you're saying the GDP numbers are lagging? Help me
understand this. I thought I had it and then----
Commissioner Utgoff. July, August and September are the
third quarter.
Chairman Bennett. OK. Sure. Sorry about that. All right.
Let's talk about the manufacturing sector. You said that
unemployment--pardon me--employment in manufacturing has been
going down historically now for half a century or so.
Commissioner Utgoff. Yes.
Chairman Bennett. Not only in the United States but
throughout the developed world.
Commissioner Utgoff. It hasn't been going down
consistently. But what I said was that manufacturing, as a
share of total employment, has been going down steadily since
the 1940s or 1950s.
Chairman Bennett. OK. But output has been going up.
Commissioner Utgoff. Yes, over that period.
Chairman Bennett. So the long-term trend is that employment
as a share of the economy has been going down while output has
been going up.
I think that's important to note because the employment has
not been going down because the jobs have been exported. The
employment has been going down in the long-term trend because
productivity has been going up.
And whether it's robots or computers or simply better
management, just-in-time inventories, things of that kind,
we've been continually as a society squeezing costs out of
manufacturing and seeing the output go up with fewer and fewer
workers.
And of course, long term, that's a trend we want to
encourage.
When I discuss this sometimes with student groups, I say,
if you look at history, at one point in our country, when
Thomas Jefferson was President, agriculture was almost the
entire economic activity of the country, with manufacturing
being a very small percentage.
Agriculture has continued to shrink in terms of the amount
of employment in agriculture, and yet, our output in
agriculture has gone up very dramatically as we become more and
more efficient in the way we farm.
And agriculture now as a percentage of jobs is a relatively
small part of the economy. But agriculture, as part of GDP,
continues to be a very significant factor.
And I think it's a sign of the growth and maturity of an
economy that the same thing that happened to agriculture is now
happening to manufacturing. And it's becoming a smaller
percentage of the economy, but the overall output continues to
go up as we become more and more efficient.
And when people say, yes, but service jobs are flipping
hamburgers at McDonald's, service jobs are writing software for
Microsoft at six figures a year.
And that is part of the reason why the manufacturing sector
continues to go through the changes that it does.
Do you have any reaction to that?
Commissioner Utgoff. I think your analogy between farming
and manufacturing is a fair one.
Chairman Bennett. Thank you.
Mr. Ryan.
Senator Sarbanes. Do you have any figures, Commissioner,
that verify how much of the loss in manufacturing jobs is
because of the increase in productivity and how much of it is
because manufacturing jobs have moved overseas and the products
that we used to produce here are now being produced over there
and imported into the country?
Do you have any analysis on that?
Commissioner Utgoff. No, we don't have any such analysis.
Senator Sarbanes. So we don't know how much is from--at
least you don't know how much is from one cause as opposed to
the other cause.
Commissioner Utgoff. No.
Chairman Bennett. Mr. Ryan.
Representative Ryan. I was very interested in the last
dialog that the Chairman just had. I want to just go down the
same path, if I could.
Third-quarter growth, July through September, gave us 7.2
percent economic growth. The productivity numbers are from
when, exactly?
Commissioner Utgoff. Same time.
Representative Ryan. Same time, right?
Commissioner Utgoff. Yes.
Representative Ryan. OK. So the rule of thumb is you have
to outpace the growth in productivity with GDP to get jobs back
in the economy.
That's pretty much a general rule of thumb.
Is it not the case at the beginning of an economic
expansion that productivity is typically over-estimated because
firms are expanding and they're working more hours. The
denominator and the productivity formula is usually under-
valued because that's not being caught up in the payroll survey
or in the other surveys?
Isn't it the case that, in the beginning of an expansion,
you don't capture all of the additional jobs or the additional
hours worked? And so, you actually over-estimate productivity
in some cases.
Therefore, the required level of economic growth that is
needed to get jobs back into the economy may indeed have to be
lower than what we currently expect.
Is that not typically a trend?
Commissioner Utgoff. We have no evidence about any
consistent problem in estimation.
Representative Ryan. OK. Let me ask it this way, then.
When we're measuring productivity, we do output divided by
workers and the hours that they work.
Correct?
Commissioner Utgoff. Yes.
Representative Ryan. OK. And when we're seeing that jobs
are increasing, when we have economic growth at a level that
appears to be lower than the level of productivity, that begs a
few questions, does it not, as to whether or not the required
level of economic growth to get jobs back into this economy is
sufficient or not?
So doesn't it beg some questions about what really is the
productivity number in this economy, given that the first
numbers on productivity are so high that you would think that
we have to grow even faster than we are to add jobs. But when
we're actually adding, according to the payroll survey, 126,000
jobs to this economy in this last month, it raises a question
about whether in fact, productivity growth may not be as high.
I hope that productivity growth is high because that's very
good for the long-term standard of living for this country.
It's good for wages. It's good for our standard of living in so
many ways.
But my basic question is, is the Greenspan theory playing
itself out here that our productivity numbers may not be as
high, given that we are really producing some jobs now at these
rates?
Commissioner Utgoff. The productivity numbers when we
publish them at first are the best job that we can do with
available information.
I'm not aware of any consistent revisions that would
indicate the pattern that you're talking about.
Representative Ryan. OK. And do you not see any unique
behavior in these statistics that suggests that? Not a trend,
but do you see anything different?
Mr. Galvin.
Mr. Galvin. Our numbers show from the productivity program,
non-farm business output rose 8.8 percent in the third quarter,
which is slightly higher than what GDP rose in the third
quarter.
Representative Ryan. I know it's not an apples-to-apples
kind of a thing. But it seems that, with the kind of growth
rate that we're getting in GDP, and the productivity gains--
ideally, we want high GDP and high productivity, which will get
us really good jobs, and a very much higher standard of living.
And it seems that that is exactly what's occurring right
now. Would that be an accurate statement?
Commissioner Utgoff. Both the economy and the productivity
numbers are growing.
Representative Ryan. All right. Well, I won't go down this
road any more, but I'd like to talk with you another time about
getting deeper into these statistics to see what the
productivity story is, in fact, and the link between GDP and
productivity and what is that magic intersection of the numbers
to produce jobs in this economy?
Commissioner Utgoff. We be happy to answer your questions.
Representative Ryan. Right. Thanks.
Chairman Bennett. Mr. Putnam.
Representative Putnam. Pass, Mr. Chairman.
Chairman Bennett. Senator Sessions.
Senator Sessions. Thank you. Thank you, Mr. Chairman, and
it is great to be here.
Certainly, productivity I've always thought was good. And
we definitely believe that increased jobs is good. So when you
have them both, that's better than the alternative, I think,
Mr. Ryan, for sure.
I was looking at the Reuters article about first-time
unemployment claims, which I think is pretty stunning to me,
looking at the numbers.
They report that initial claims--that is, somebody who's
lost their job and made their first claim for unemployment--
fell in the week of November 1st, 43,000 to 348,000, which
results in, it seems to me, about a 12-percent decline in
first-time claims for unemployment.
Have you discussed that earlier today?
Commissioner Utgoff. No, I haven't.
Senator Sessions. Of course, that pays off, does it not, in
the weeks and months to come.
In other words, if a person making those unemployment
claims, they may be on unemployment for months before they get
another job.
But if you have a net kind of drop, what would you share
with us about that? How do you see those numbers and the
importance of them?
Commissioner Utgoff. To smooth out the series because it
has variation in it, you look at the 4-week moving average of
the claims.
That tends to be a leading indicator of the unemployment
rate.
Senator Sessions. This is a pretty hard number, is it not?
In the surveys, people can complain about it. But do you have
confidence in the accuracy of these reported claims for
unemployment compensation, that seems to me to be a hard number
that's not much dispute about.
Commissioner Utgoff. Well, the BLS does not collect those
numbers.
Senator Sessions. But they come from states.
Commissioner Utgoff. Yes.
Senator Sessions. Who maintain the unemployment
compensation payments.
Commissioner Utgoff. Yes.
Senator Sessions. Well, it seems to me that those numbers
are based on actual checks being paid by the states and ought
to be accurate, and I've heard little dispute about it.
I think that's good news.
And I won't beat the dead horse about the good news of
productivity and job increases. That means, it seems to me, at
least it means that something good is happening if you can
sustain a 7-percent or more productivity increase and also a
nice job increase at the same time.
Jobs are critical to us, Mr. Chairman, and there are a lot
of things that impact that. We think about them. If we allow
energy prices to continue to soar--we have an energy bill right
now that will allow some things to happen--I think we could
contain the cost of energy increasing productivity.
We have some efforts to reduce litigation costs on American
industry that's at least double or more than that of the rest
of the world.
We've got environmental costs that we hold very dear. But
if we're passing laws or regulations that impose environmental
costs that are not producing benefits for the environment, then
that is a burden on our productivity that makes us more
difficult to compete in manufacturing around the world.
Fair trade is important. I think we've not always been
effective in insisting on fairness in trade.
I'm concerned about immigration. Illegal immigrants are
here by the millions and they take jobs. And the numbers I saw
in the paper today, there were 2.3 million, I believe,
immigrants in 2001 and half of those were reported to be
illegal.
I don't know if those numbers are correct or if they're
being confirmed. But that does take jobs out there.
And of course, the tax burden on private industry is
significant.
I am really intensely interested in the job question. I
think Americans need to be able to have a decent job and we
need to ensure that we take policies that protect that. The
unemployment rate is not extraordinarily high by the worst of
times.
Six percent--I guess it's dropped down to six now. That's
still too high. So we're concerned about it.
And Mr. Chairman, you've been doing an excellent job with
these hearings. I'm so sorry I was tied up in this Medicare
conference this morning. I'm trying to get some information on
that bill, that I could not be with you.
We appreciate your leadership and your insight into these
numbers.
I thank you again and yield my time back.
Chairman Bennett. Thank you. I'm going to turn to Senator
Sarbanes again. But I've just come across some information that
I think would answer a question that the Senator has raised.
This is a report that appeared in The Wall Street Journal
on the 20th of October of this year.
``Factory Employment Is Falling Worldwide'', is the
headline. Study of 20 big economies finds 22 million jobs lost.
Even China shows decline.
This is very interesting. Quoting from the article, it
says:
Contrary to conventional U.S. beliefs, research found that
American manufacturing workers weren't the biggest losers. The
U.S. lost about 2 million manufacturing jobs in the 1995 to
2002 period, an 11-percent drop.
Brazil had a 20 percent decline. Japan's factory workforce
shed 16 percent of its jobs, while China's was down 15 percent.
The Director of Global Economic Research at Alliance,
Joseph Carson, says that the reasons for the declines are
similar across the globe. Gains in technology and competitive
pressure have forced factories to become more efficient,
allowing them to boost output with far fewer workers.
Indeed, even as manufacturing employment declined, said Mr.
Carson, global industrial output rose more than 30 percent.
And here is the chart that shows the countries that lost
the most and the countries that gained the most. I am
interested that the country that gained the most manufacturing
employment in the period of 1995 to 2002 was Spain, with 24
percent increase, followed by Canada, with 22 percent increase.
Then the Philippines with 6.9, Taiwan, 4.7, Mexico, 1.1
percent, Malaysia, 1 percent, the Netherlands, 0.9, Australia,
0.3.
India is the median at zero.
And then the losses start: Italy, France--France lost 1.9,
Germany, 5.6, Sweden, 6.9, the United States, 11.3, South
Korea, 11.6, Russia, 11.7, the United Kingdom, 12.4, China,
15.3, Japan, 16.1, and Brazil, 19.9.
This is a very interesting survey that perhaps challenges
conventional wisdom in both parties and in the media at large.
And I will be happy to share the hard copy with Senator
Sarbanes or anyone else who is interested.
Senator Sessions. Mr. Chairman, on that point, it sounds
counter-intuitive, but if we develop new technology so that 90
people can do what 100 did the previous year, I'll ask your
wisdom on this. It appears what happens is that those 10 people
don't do nothing. They do something productive. Whereas before,
if you could do it with 90, then they really weren't productive
because the work could be done for less people.
And that tends to produce growth in the economy, it
appears. I've never quite understood it, but it surprises me
how we continue to down-size our work force all over America
and it's more productive. But the net result is our
unemployment rates are not exceedingly high by historical
terms.
Chairman Bennett. Well, Senator Sarbanes has pointed out
that the historical number is kind of in the eye of the
beholder and it has historically been all over the place.
Senator Sessions. Well, on the percentage basis of 6
percent----
Chairman Bennett. I was taught in college that 6-percent
unemployment was full employment. And we've demonstrated that
that is not true.
I think your point, Senator Sessions, about the people who
lose their jobs don't do nothing, they go off to some place
else, is very clear.
And I go back to my analogy about what happened in
agriculture and what's happening in manufacturing.
Senator Sessions. That wrestles with those numbers in
manufacturing. And then it transfers work to the service
sector, which is sometimes bad for people, that the payment may
not be as good as it had been. And that certainly has occurred.
And some things develop well for them. They do
exceptionally well.
Chairman Bennett. I should, in the spirit of full
disclosure, point out that there are those who dispute the
numbers I've just quoted.
Particularly, and understandably, Jerry Jasinowski,
President of the National Association of Manufacturers, says
these numbers are not right. There are other economists that
support them.
But I find it an interesting study that should be part of
this conversation.
Senator Sarbanes, did you have a second round?
Senator Sarbanes. Mr. Chairman, before Senator Sessions
leaves, I ought to just note that these people who he said lost
their jobs and then went off and did other things, one of the
other things they do is they become part of the long-term
unemployed.
So it all depends on the context of your economy.
In January of 2001, we had 660,000 people, long-term
unemployed, out of work for 27 weeks or more.
Now we have 2 million. We had 1.7 million a year ago. So
that's one of the places they go to, regrettably, I might say.
Mr. Chairman, I just wanted to draw out of the Commissioner
a few more figures before we close out here this morning.
How many people are working part-time for economic reasons?
As I understand, we have 8.8 million unemployed. Is that
correct, what you would categorize as unemployed?
Commissioner Utgoff. Yes, 8.8 million people are
characterized as unemployed.
Senator Sarbanes. All right. Now, how about those working
part-time for economic reasons? How many of them are there?
Commissioner Utgoff. 4.8 million.
Senator Sarbanes. 4.8 million. And do you have any estimate
on how many have dropped out of the labor force, or what's a
reasonable number that might flow back into the labor force?
Commissioner Utgoff. We do not predict how many people
would come back into the labor force.
Senator Sarbanes. Well, what's the participation rate right
now?
Commissioner Utgoff. It's 66.1 percent.
Senator Sarbanes. And what was it 2 or 3 years ago?
Commissioner Utgoff. It's declined a percentage point since
the peak, March of 2001.
Senator Sarbanes. And a percentage point translates into
how many people?
Commissioner Utgoff. Today about 1.5 million.
Senator Sarbanes. 1.5 million. You calculate a different
unemployment figure, as I recall, factoring in all of the
various groups that are left out of the standard unemployment
figure.
I know that part-time for economic reasons is one of those.
Is there another category, other categories?
Commissioner Utgoff. There's another category of
discouraged workers.
Senator Sarbanes. How many of those are there?
Commissioner Utgoff. 239,000.
Senator Sarbanes. What's the unemployment rate when you
take in all categories into account?
Commissioner Utgoff. You mean all the categories that you
talked about?
We have discouraged plus marginally attached workers. Then
you have the unemployed for part-time.
Senator Sarbanes. Right. If you factor all of that in, what
do you get as the unemployment rate?
Commissioner Utgoff. This is not seasonally adjusted, but
it was 9.5 percent.
Senator Sarbanes. 9.5 percent. Has it been running above 10
percent this year, or is that generally where it's been?
Commissioner Utgoff. In the last 3 months, it's not been
above 10 percent.
Senator Sarbanes. It's not been above 10 percent.
Commissioner Utgoff. No.
Senator Sarbanes. OK. Thank you very much.
Now, Mr. Chairman, I'd like to put one other question. A
number of years ago, we worked hard, a number of us in the
Congress, to get the BLS new quarters there down at the
railroad station.
My question is, has that worked out OK? Are you
appropriately situated in terms of your physical environment?
And second, is the budget you're getting from the OMB and
the Congress adequate to your challenges? Or do you feel that
you're really in any significant way constrained, fiscally
constrained in terms of carrying out your responsibilities?
Commissioner Utgoff. First, the Postal Square building is a
beautiful building and we're very happy to be there.
As you know, the BLS was scattered throughout town before
that. It's much better to have everybody in the same building
and the building is a very nice building.
Senator Sarbanes. OK. Good. It's close to the Congress,
too.
Whether that's a plus or minus, I don't know.
[Laughter.]
Commissioner Utgoff. We walk up here.
[Laughter.]
Senator Sarbanes. And what about your budget?
Commissioner Utgoff. Our budget has been adequate. We have
not had any significant decreases in our budget.
Senator Sarbanes. Do you have enough resources to do what
you have to do?
Commissioner Utgoff. All of us could do more things with
more resources. But we are funded to do the research and data
collection that we have done in the past.
Senator Sarbanes. All right. There aren't any upgrades and
revisions in indices or other measuring tools used by the BLS
that you think need to be really addressed that would require
some sort of plus-up in your resources in order to get that
done?
We're always confronted with updating the various series
that you use. Where are you on that front?
Commissioner Utgoff. In every one of our surveys and on our
reports, we always see things that we could do to make them
better, and we have had some new initiatives funded in recent
years. That's adequate to keep us doing the work that we have
been doing.
Senator Sarbanes. Thank you, Mr. Chairman.
Chairman Bennett. Thank you very much. We appreciate your
patience as we wrestle with these issues here on the Committee.
The hearing is adjourned.
[Whereupon, at 11:05 a.m., the hearing was adjourned.]
Submissions for the Record
=======================================================================
Prepared Statement of Senator Robert F. Bennett, Chairman
Good morning and welcome to today's employment hearing. Like
virtually every other economic statistic reported in the past month,
the employment numbers released today are definitely good news for the
American worker. No matter how you cut it, the economy is adding new
jobs at a rapid pace and will likely continue to do so for the
foreseeable future.
The official payroll statistics indicate that the U.S. economy
created 126,000 new jobs in the month of October, the third month in it
row that payroll employment rose. The revised numbers now indicate that
125,000 jobs were added in September. The unemployment rate declined to
six percent.
The household survey reported that employment increased by an
astounding 441,000 in September. According to the household survey, our
economy has now essentially replaced all of the jobs lost during the
2001 recession and the number of jobs is now at an all-time high.
I believe that today's employment numbers, along with the steep
drop in new jobless claims and the large increases in productivity and
output, indicate quite clearly that the U.S. economy is returning to a
period of strong growth.
For instance, the Bureau of Labor Statistics reported yesterday
that productivity grew at an annual rate of 8.1 percent in the third
quarter of 2003. Some of my colleagues tend to gnash their teeth at the
high productivity growth of late, lamenting that firms are learning how
to do without workers. However, our experience in the last 30 years
tells us that periods of rapid increases in the productive capacity of
our economy are almost always accompanied by low unemployment.
Increasing our standard of living and employment at the same time
requires healthy productivity growth.
Today's data remind us again of the ongoing divergence between
total employment as measured by the two surveys conducted by the BLS.
While the payroll survey reports a decline of roughly 750,000 payroll
jobs since the end of the recession in November 2001, the household
survey still reports nearly one-and-a-half million newly employed
workers since then. I encourage the BLS to continue researching this
discrepancy and welcome any additional information you might provide us
on this topic.
It is too easy for the party in power to take the blame when the
economy slows, and for that reason it is all too tempting to try to
take all the credit when things turn around. In reality, government
holds little sway over the business cycle, despite what some may think
or desire. Our economy floundered in the middle of the year 2000 in
large part due to a hangover from the high-tech boom, likely abetted by
a rise in interest rates. The stagnant economy was prolonged by the 9/
11 disaster and the resultant uncertainties in the Middle East, high
energy prices, and the various scandals in the financial markets. That
our economy steadily expanded in the face of so many potentially
calamitous events in succession is a testament to the ability and
dedication of the American worker as well as to our economic system.
That is not to say that government cannot spur the economy. The
Bush tax cuts enacted in 2001 undoubtedly softened the blow of the
events that befell the economy and served to make the recession
shallower than it otherwise would have been, and the tax cuts passed
this year provided some needed impetus at the right time.
Dr. Utgoff, it is always a pleasure having you visit us, but we
especially enjoy it when you come bearing such good news. Welcome to
the Joint Economic Committee, and we look forward to hearing your
testimony.
Prepared Statement of Representative Jim Saxton,
Vice Chairman
It is a pleasure to join in welcoming Commissioner Utgoff once
again before the Joint Economic Committee.
Today's employment report is good news for American workers.
Payroll employment increased 126,000 in October, while the September
increase was revised upward to 125,000. October marks the third
consecutive increase in payroll employment after accounting for the
revised increase in August. The household measure of employment
increased by 441,000 in October, while the unemployment rate slipped
one-tenth of a percentage point to 6.0 percent. The improvement in the
employment data reported today reflects the progress made in emerging
from the economic slowdown of recent years.
The economic weakness that began with the bursting of the stock
market and technology bubbles early in 2000, followed by recession,
terrorist attacks, and wars, now appears to be over. Although the
economy has shown great resilience in recent years, the unusual
combination of shocks, and the investment-led nature of the economic
slowdown, made the timing of the recent economic acceleration highly
uncertain.
Consecutive declines in business investment had undermined economic
growth since the fourth quarter of 2000. However, data from recent
quarters show that investment and economic growth is on the rebound.
The provision of tax relief in 2003, including the boosting of write-
offs for investment, is widely credited for the recent strength of the
economy. The 7.2 percent growth of GDP in the third quarter of 2003
indicates that this policy of tax relief has worked as intended. Recent
increases in both ISM indexes, durable goods orders, and construction
show that the economic expansion is broadly based.
As has been noted previously, the best prospect for job growth is
created by a strong economic expansion. As the economy continues to
grow as predicted by the Blue Chip Consensus forecast, it is reasonable
to expect sizable employment gains into the future. Several quarters of
healthy economic growth through next year, as the Consensus forecast
suggests, should bring sustained and significant growth in employment
and opportunity for American workers.
__________
Prepared Statement of Representative Pete Stark,
Ranking Minority Member
Thank you Chairman Bennett for holding this hearing. I would like
to welcome Commissioner Utgoff and thank her for testifying here today.
The Bureau of Labor Statistics' October employment situation
continued to paint a disappointing labor market picture. The
unemployment rate was essentially unchanged at 6.0 percent. And by any
meaningful measure, the jobless recovery drags on. When we need a few
hundred thousand jobs a month, only 126,000 payroll jobs were added in
October. Nearly 9 million Americans remain unemployed--with over 2
million out of work for 6 months or more.
This level of job creation, while better than expected, is probably
not strong enough to keep up with the growing labor force, let alone
erase the enormous jobs deficit any time soon. With this rate of job
growth, it will still take another 19 months to climb out of the jobs
hole we're in. The Democratic staff of the JEC has estimated that,
because the labor force is growing, somewhem between 135,000 and
170,000 jobs per month need to be added to payrolls just to keep the
unemployment rate from rising--that's only to maintain the status quo,
not reduce unemployment.
Treasury Secretary John Snow recently predicted that about 2
million payroll jobs, or roughly 200,000 jobs per month, would be
created over the next 12 months. This represents a substantial scaling
back of expectations from what the Administration was predicting
earlier this year, and it implicitly concedes that President Bush's
record on job creation is going to be the worst of any President since
Herbert Hoover.
In October, President Bush tied his father's dubious record as
payroll jobs failed to return to their pre-recession level 31 months
after the recession began (Chart 1). In fact, this is the only
administration since Hoover's with a decline in total payroll jobs
(Chart 2). We are in a deep hole in terms of job creation, and one that
is far worse than in past business cycles (Chart 3). President Bush is
presiding over the most persistent jobs slump since the 1930s, and he
will smash--by a wide margin--the modern (post World War II) record for
job creation futility currently held by his father.
Indeed, if Secretary Snow's estimate of 200,000 jobs per month
proves to be on target, the non-farm payroll deficit of 2.4 million
jobs will not be erased until October 2004.
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Prepared Statement of Kathleen P. Utgoff, Commissioner,
Bureau of Labor Statistics
Mr. Chairman and Members of the Committee, I appreciate this
opportunity to comment on the labor market data we released this
morning.
Non-farm payroll employment rose by 126,000 in October, following
increases in August and September that totaled 160,000, after revision.
I would note that the payroll survey estimates for the prior 2 months
are always subject to revision as we receive reports from additional
survey respondents. The increase in payroll employment over the last 3
months contrasts with declines in the February-July period that
averaged 85,000 per month. Several service industries added jobs in
October. Manufacturing employment continued to decline, although at
slower pace than earlier in the year. The unemployment rate, at 6.0
percent, was essentially unchanged over the month.
Professional and business services added 43,000 jobs in October,
with gains in many of its component industries. Employment in temporary
help services continued to rise and is up by 150,000 since April.
Employment in private educational services grew by 23,000 in
October. Job gains over the last 3 months have more than offset
declines that occurred in June and July. Over the year, employment in
private education expanded by 56,000. Health care and social assistance
added 34,000 jobs, with noteworthy gains in doctors, offices and in
child day care services.
In the leisure and hospitality sector, employment in food services
and drinking places rose by 23,000. Job growth in food services has
picked up in recent months; since July, employment has increased by
57,000. Within retail trade, food stores added 13,000 jobs in October.
Employment in food stores was boosted by the hiring of additional
workers in anticipation of strikes.
Employment in construction was little changed over the month, but
the industry has added 147,000 jobs since its most recent trough in
February. In October, employment in credit intermediation decreased by
10,000, reflecting the decline in mortgage refinancing activity.
Manufacturing job losses continued in October (-24,000). Declines
in the sector have moderated in recent months, particularly in durable
goods manufacturing. In October, both the factory workweek and overtime
were unchanged.
After posting a small increase in September, employment in air
transportation fell in October. Since reaching its most recent peak in
March 2001, the industry has lost more than 20 percent of its jobs.
Average hourly earnings for production or non-supervisory workers,
at $15.46, were essentially unchanged in October. Over the year,
average hourly earnings rose by 2.4 percent.
Looking at some of the measures from our survey of households, the
October unemployment rate of 6.0 percent was about the same as in
September. The jobless rates for all the major worker groups showed
little change over the month. About 8.8 million persons were
unemployed, of whom 2.0 million had been without a job for 27 weeks or
longer. Employment as measured by our household survey rose over the
month.
In summary, non-farm payroll employment rose by 126,000 in October.
Since July, employment is up by 286,000. The unemployment rate, at 6.0
percent in October, was about unchanged.
My colleagues and I would be glad to answer any questions you might
have.
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