[Joint House and Senate Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-271
 
                THE EMPLOYMENT SITUATION: SEPTEMBER 2005

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 7, 2005

                               __________

          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]

HOUSE OF REPRESENTATIVES             SENATE
Jim Saxton, New Jersey, Chairman     Robert F. Bennett, Utah, Vice 
Paul Ryan, Wisconsin                     Chairman
Phil English, Pennsylvania           Sam Brownback, Kansas
Ron Paul, Texas                      John Sununu, New Hampshire
Kevin Brady, Texas                   Jim DeMint, South Carolina
Thaddeus G. McCotter, Michigan       Jeff Sessions, Alabama
Carolyn B. Maloney, New York         John Cornyn, Texas
Maurice D. Hinchey, New York         Jack Reed, Rhode Island
Loretta Sanchez, California          Edward M. Kennedy, Massachusetts
Elijah E. Cummings, Maryland         Paul S. Sarbanes, Maryland
                                     Jeff Bingaman, New Mexico

               Christopher J. Frenze, Executive Director
                  Chad Stone, Minority Staff Director


















0                           C O N T E N T S

                              ----------                              

                      Opening Statement of Members

Statement of Representative Jim Saxton, Chairman.................     1
Statement of Representative Carolyn B. Maloney...................     2
Statement of Senator Jack Reed, Ranking Minority.................     5
Statement of Representative Ron Paul.............................    11
Statement of Representative Loretta Sanchez......................    12

                                Witness

Statement of Philip Rones, Deputy Commissioner, Bureau of Labor 
  Statistics, accompanied by John Greenlees, Associate 
  Commissioner, Offices of Prices and Living Conditions; and John 
  M. Galvin, Associate Commissioner, Employment and Unemployment 
  Statistics.....................................................     3

                       Submissions for the Record

Prepared statement of Representative Jim Saxton, Chairman........    16
Prepared statement of Representative Carolyn B. Maloney..........    17
Prepared statement of Senator Jack Reed, Ranking Minority........    49
Statement of Deputy Commissioner Philip Rones, Bureau of Labor 
  Statistics, together with press release USDL 05-1946 entitled, 
  ``The Employment Situation: September 2005''...................    18




















                       THE EMPLOYMENT SITUATION: 
                             SEPTEMBER 2005

                              ----------                              


                        FRIDAY, OCTOBER 7, 2005

             Congress of the United States,
                          Joint Economic Committee,
                                                     Washington, DC
    The Committee met, pursuant to call, at 9:30 a.m., in room 
1334, Longworth House Office Building, the Honorable Jim 
Saxton, Chairman of the Joint Economic Committee, presiding.
    Representatives present: Representatives Saxton, English, 
Paul, Maloney, and Sanchez.
    Senator present: Senator Reed.
    Staff present: Chris Frenze, Robert Keleher, Colleen J. 
Healy, John Kachtik, Brian Higginbotham, Chad Stone, and Matt 
Salomon.

        OPENING STATEMENT OF HON. JIM SAXTON, CHAIRMAN, 
             A U.S. REPRESENTATIVE FROM NEW JERSEY

    Representative Saxton. Good morning. I would like to 
welcome Deputy Commissioner Rones, from the Bureau of Labor 
Statistics, and his colleagues before the committee this 
morning to discuss the September employment data. As we all 
know, both the household and establishment measures of 
employment in September have been affected by Hurricane 
Katrina. The catastrophic impact of Katrina on the Gulf Coast 
has caused a tragic loss of life and widespread destruction of 
property and businesses. Many of the affected businesses either 
have been unable to reopen or have only partially recovered and 
do not have the resources to continue to meet payrolls at 
previous levels. As a result, employment was essentially 
unchanged in September as measured by both employment surveys.
    According to the establishment survey, payroll employment 
shows an apparent decline of 35,000 in September, but this is 
not a statistically meaningful number. Household survey 
employment was also statistically unchanged. The unemployment 
rate edged up by two-tenths of a percent in December. It is 
likely the effects of the hurricanes will affect the employment 
data for the next several months. The hurricanes will also 
temporarily reduce the rate of economic growth in the second 
half of 2005.
    According to the Congressional Budget Office, the 
hurricanes will reduce the rate of economic growth by about a 
half a percentage point in the second half of the year. Some 
forecasters expect that reconstruction in the Gulf region will 
boost economic activity in the next year. The National 
Association for Business Economics survey projects that the 
economy will still grow at a rate exceeding 3 percent in both 
2005 and 2006. Unfortunately, the upward trend in employment 
growth was disrupted in September and may take a few months to 
fully recover. Nonetheless, the data reported today demonstrate 
a resilience in the U.S. economy in absorbing yet another 
severe shock.
    The Federal Government has responded to the hurricanes by 
providing $62 billion in disaster aid in addition to other 
Federal assistance triggered under a variety of programs. 
Others have sought as much as $250 billion in disaster aid, an 
amount viewed as excessive by many, including the Washington 
Post editorial page. The Congress will devote much time in the 
coming months to finding the right policy mix needed for the 
recovery of the Gulf Coast. Tax and regulatory relief for the 
employers and employees devastated by the hurricane should 
certainly be a part of the response.
    Mrs. Maloney, do you have an opening statement?
    [The prepared statement of Representative Saxton appears in 
the Submissions for the Record on page 16]

         OPENING STATEMENT OF HON. CAROLYN B. MALONEY, 
               A U.S REPRESENTATIVE FROM NEW YORK

    Representative Maloney. Yes, thank you very much. I know 
that Senator Reed is voting, and he will be here and he does 
have a statement. I would like very much to welcome Deputy 
Commissioner Rones and his staff.
    I know that you must have been faced with an incredible 
challenge in producing this month's jobs report. It must have 
been incredibly hard. I commend you for overcoming the 
difficult circumstances you must have encountered.
    This month's employment report is obviously very dominated 
by Katrina, and it is impossible to know what it would have 
looked like without the hurricanes. The net loss of 35,000 jobs 
is well below what many analysts were predicting, so I am 
wondering if we have yet seen the full impact of the hurricanes 
in our job loss and in our job data.
    I do know that prior to Katrina, American workers were 
still waiting to see the benefits of the economic recovery. Job 
growth was sluggish, there was hidden unemployment, real wages 
were stagnating, and wage and income inequality was on the 
rise, which I find tremendously troubling.
    I believe this trend is very bad for our country, and I 
would welcome any comments by you on what we can do to try to 
adjust it. I hope the Bush administration is paying attention 
to these trends and will begin to address the growing economic 
insecurity that is felt by many American workers.
    I thank you for your time, and I really look forward to 
your statements. Thank you.
    [The prepared statement of Representative Maloney appears 
in the Submissions for the Record on page 17]
    Representative Saxton. Mr. Rones, we are anxious to hear 
your report this morning, so why don't you go ahead?

        STATEMENT OF PHILIP RONES, DEPUTY COMMISSIONER, 
                   BUREAU OF LABOR STATISTICS

    Mr. Rones. Mr. Chairman, and members of the committee, 
thank you for the opportunity to discuss the September 
employment and unemployment statistics that we released this 
morning. Commissioner Utgoff was under the weather this week, 
and she sends her regrets.
    Nonfarm payroll employment was little changed. It was down 
35,000 in September, and the unemployment rate increased from 
4.9 to 5.1 percent. September labor market developments 
reflected both the impact of Hurricane Katrina and ongoing job 
market trends. Over the 12-month period prior to September, 
nonfarm employment increased by an average of 194,000 per 
month, and the unemployment rate trended down from 5.4 to 4.9 
percent.
    Before looking at the data in greater detail, I would like 
to briefly review the extraordinary efforts that the Bureau of 
Labor Statistics, the Census Bureau and our State partners 
undertook to obtain information from our sample establishments 
and households in the areas affected by Hurricane Katrina.
    The hurricane struck the Gulf Coast on August 29th, prior 
to the reference periods for our September surveys. The 
severity and scope of the damage led us to carefully evaluate 
our data collection and estimation procedures. As a result, we 
modified some aspects of survey operations, and we announced 
those changes 2 weeks ago. We did not alter the concept or the 
definitions for either survey. In the payroll survey, employed 
persons are those who receive pay for any part of the pay 
period that includes the 12th day of the month. Therefore, 
people who were on payrolls in the aftermath of Hurricane 
Katrina were counted as employed even if they were absent from 
work. In the household survey, employed persons include those 
who are temporarily absent from their jobs, whether they were 
paid or not. To be classified as unemployed, persons must be 
actively looking for work and be available to take a job.
    In the establishment survey, BLS and our State partners 
worked especially hard to contact respondents in hurricane-
affected areas in September. We also modified our estimation 
procedures so that businesses that were closed following the 
storm, as well as firms that were still operating, would be 
better represented in the estimates. In the household survey, 
Census Bureau interviewers worked under difficult conditions to 
interview sample households in the Gulf Coast. Interviews were 
not conducted in the two parishes that were under mandatory 
evacuation orders. These extra steps undoubtedly helped us to 
get a better picture of the national labor market situation for 
September.
    Turning to the data from our payroll survey, one way to 
roughly gauge the impact of the hurricane on job growth in 
September is to compare the over-the-month employment change 
with the monthly average for the prior year. The change 
recorded for September, a loss of 35,000 jobs, is about 230,000 
less than the average monthly gain over the previous 12 months. 
Using this simple approach to gauge the hurricane impact 
assumes that in the absence of the storm, employment growth 
would have followed its recent trend. To test that assumption, 
we constructed a rough estimate of the change in payroll 
employment from August to September, excluding all the sample 
units in the disaster areas. This exercise showed that total 
nonfarm employment would have increased by an amount in line 
with the prior year's average. We will know more about the 
hurricane's impact when local employment estimates become 
available later this month.
    As we look at the official September data for specific 
industries, I would note that job losses in the storm-related 
areas may have been offset or exacerbated by developments in 
the rest of the economy. In September, retail trade employment 
overall was down 88,000. There was a particularly large 
employment decline in food and beverage stores. Much of this 
decline reflects industry restructuring and associated store 
closures unrelated to the hurricane. In leisure and 
hospitality, the job total fell by 80,000 in September in part 
due to the hurricane. There were large losses in food services 
and drinking places, and in amusement, gambling, and recreation 
establishments.
    Employment in professional and business services increased 
by 52,000 over the month, with a large gain in temporary help 
services. The employment increase in temporary help services 
for September was more than twice as large as the average 
monthly gain for the prior 12 months. It is possible that some 
of the September growth was due to the hiring of workers to 
assist in post-hurricane recovery efforts.
    Health care added 37,000 jobs over the month, continuing 
its long-term growth. Employment also continued to trend up in 
financial activities.
    In the goods-producing sector of the economy, construction 
added 23,000 jobs in September, equal to the average monthly 
gain for the prior year. Manufacturing employment was down by 
27,000. Much of the decline reflected a strike in the aerospace 
industry that took 18,000 workers off payrolls.
    Turning to some of the major labor market indicators from 
our household survey, the number of unemployed persons rose by 
270,000 over the month, and the jobless rate increased from 4.9 
to 5.1 percent. Most of the increase in unemployment occurred 
among job losers, and the labor force participation rate held 
at 66.2 percent in September.
    In summary, payroll employment was little changed in 
September, and the unemployment rate rose to 5.1 percent. It is 
clear that Hurricane Katrina adversely affected labor market 
conditions in September. However, we cannot quantify precisely 
the overall effects of the disaster and its aftermath on the 
September employment and unemployment figures. We hope to get 
additional insight as more data becomes available.
    Of course, my colleagues and I would now be glad to answer 
any of your questions.
    Representative Saxton. Thank you very much, Mr. Rones.
    [The prepared statement of Mr. Rones appears in the 
Submissions for the Record on page 19]
    Representative Saxton. Senator Reed was delayed by a vote 
in the Senate this morning, so he has asked that he be granted 
some time here to give his opening statement. So we will 
proceed with your opening statement.

 OPENING STATEMENT OF HON. JACK REED, RANKING MINORITY, A U.S. 
                   SENATOR FROM RHODE ISLAND

    Senator Reed. Thank you, Mr. Chairman, very much. Again I 
apologize. We had a vote on the defense appropriations bill, 
which is something that no one can miss.
    Thank you again, Mr. Chairman. This is a very important 
hearing because it is our first look at the jobs data that 
begins to reflect the impact of Hurricane Katrina. I want to 
commend Deputy Commissioner Rones and all of the members of the 
Bureau of Labor Statistics for producing this month's 
employment statistics under truly extraordinary circumstances. 
Thank you very much.
    Obviously, this month's employment report is dominated by 
the devastating impact of Hurricane Katrina on the gulf coast. 
The human costs were tragic and the property losses staggering. 
For the economy as a whole, the net job losses in September 
were 35,000. That is substantially below what markets were 
expecting, which may reflect the difficulty we face in getting 
a clear picture of the impact of the hurricane on employment.
    We don't know what this month's employment report would 
have looked like without Katrina, but we do know that prior to 
Katrina, the labor market was still feeling the effects of the 
most protracted job slump in decades. The growth in payroll and 
employment since job losses peaked in May 2003 has been modest 
by the standards of most economic recoveries, and we haven't 
seen very many months of truly healthy job growth.
    Although the unemployment rate has come down, it is still 
considerably higher than the 4 percent rate achieved in the 
expansion of the 1990s. There is evidence of hidden 
unemployment, with labor force participation and the fraction 
of the population with a job still at depressed levels.
    And finally, of course, there is the disappointing 
performance of wages. The typical worker's earnings are not 
keeping up with their rising living expenses. Gasoline prices 
have been high, and home heating costs are expected to be 
substantially higher this winter than they were last winter. 
The real wage gains we have seen in the past year or so have 
been concentrated in the upper reaches of the wage 
distribution, while real earnings in the middle or lower 
portions of the distributions are falling.
    I am troubled by the fact that President Bush wasted little 
time exercising his power to lift a Federal law governing 
workers' pay on Federal contracts in the hurricane-ravaged 
areas. That provision, known as the Davis-Bacon Act, requires 
Federal contractors to pay the prevailing or average wage in 
the region. According to the Department of Labor, the 
prevailing wage for construction labor is about $10 an hour in 
New Orleans, where last year the overall poverty rate was about 
2 percentage points higher than the national average, and 25 
percent of children lived in poverty.
    It is certainly hard to take seriously the President's 
rhetoric about wanting to lift families out of poverty while 
legitimizing sub-par wages for workers rebuilding their 
communities on the gulf coast. The Davis-Bacon wage protection 
for workers should be restored immediately.
    The American economy is resilient and forecasters expect 
that reconstruction efforts in the wake of the gulf hurricanes 
will stimulate the recovery in jobs from the depressed levels 
we see in this month's job report. I hope they are right. But I 
also hope that President Bush knows that many American workers 
do not feel they are part of the economic recovery. That was 
reflected in the Conference Board's consumer confidence index 
which dropped by 17.9 percent last month, its largest decline 
since October of 1990, and the University of Michigan's index 
of consumer sentiment, which posted its largest drop since 
December 1980. Economic insecurity is not just growing, it is 
becoming palpable.
    I look forward to Deputy Commissioner Rones' statement and 
further discussion of the September employment situation. I 
thank the Chairman for allowing me these words. Thank you.
    Representative Saxton. Thank you, Senator.
    [The prepared statement of Senator Reed appears in the 
Submissions for the Record on page 50]
    Representative Saxton. Mr. Rones, when I received word of 
the announced data this morning, I was somewhat surprised. I 
anticipated that there would be significant loss of employment 
due to the hurricanes, which I believe goes without saying, 
actually occurred. Yet we saw a loss of employment nationwide 
of only 35,000 jobs which is, as I noted earlier, statistically 
insignificant.
    The question is this: If we lost hundreds of thousands of 
jobs, then what accounts for the mild, statistically 
insignificant measure of job losses?
    Mr. Rones. The best way to look at the job loss is not just 
looking at that net loss of 35,000. It is really looking at the 
difference between that and what we would have normally 
expected to get based on recent trends.
    A simple calculation of that tells us that we were about 
230,000 below the normal trend. That is probably a better 
measure of the hurricane effects. We also have to keep in mind 
that there were quite a number of particularly larger companies 
that continued to pay people. So even though those people were 
displaced from their jobs, by our definitions they were still 
employed because they were still on employer payrolls. Clearly, 
we are seeing a substantial hurricane effect in our data.
    Representative Saxton. And while we are seeing a 
substantial hurricane effect, what could be said about the job 
growth picture or job loss picture nationwide?
    Mr. Rones. What we were able to do is run our employment 
data, leaving out the establishments from the hurricane-
affected area. So basically we are looking at what happened in 
the rest of the country as kind of a baseline. In fact, the 
employment grew right on trend, roughly 200,000 or so for the 
month of September, which was pretty much what we were getting 
before the hurricane.
    Representative Saxton. Is the level of September payroll 
employment statistically different from that of August?
    Mr. Rones. The level is not. That is, the decline of 35,000 
is not statistically significant. Again, in this special 
circumstance, I would look at it differently. I would say that 
compared to what we would have gotten--and again our estimate 
for the rest of the economy gives us a good foundation for 
that--we were about 230,000 down. A change like that would 
clearly be statistically significant.
    Representative Saxton. The same could be said about the 
household employment levels?
    Mr. Rones. The household employment is essentially 
unchanged.
    Representative Saxton. Does the data reported today suggest 
that the underlying trend in job growth continues, if one were 
to set aside the temporary effects of the hurricane versus a 
follow-on to my original question?
    Mr. Rones. Yes. I think that is definitely the case. I 
think that is what we see in the remainder of the country, a 
continuation of recent trends.
    Representative Saxton. Were you able to see any data that 
give any insight into the continuing effects of the hurricanes 
in the region affected?
    Mr. Rones. Certainly in the employment data that we have on 
hand, we see effects across the industry range. When we get the 
State data, which will be available in 2 weeks, we will have a 
much better view of the geographically isolated effects.
    We were able to take a cursory look at the firm-specific 
data in this region, and clearly we are seeing disemployment 
effects across the industry range.
    Representative Saxton. Have you been able to look at it on 
a state-by-state basis--I suspect that Louisiana and 
Mississippi were the States with the most difficult situation--
and talk a little bit about that for us?
    Mr. Rones. Again, the official data for the States won't be 
available for 2 weeks. The State analysts have spent some time 
reviewing all the data for their States specifically. But from 
our national sample, we are able to take a cursory look at the 
State data. Again, it is clear that the weakness is isolated in 
those States. I am talking specifically about our payroll 
employment data.
    Representative Saxton. Could you highlight industry data in 
today's report that seem to have been significantly affected by 
the hurricane?
    Mr. Rones. When we do that exercise where we look at the 
rest of the economy, that is, geographically, the rest of the 
Nation, as compared to the hurricane-affected areas, we see 
declines across the board. Some of things that show up in the 
national statistics that I talked about in my statement would 
be, for instance, the leisure and hospitality industry might be 
partly a result of that.
    On the flip side, some of the growth in temporary help 
might be the first signs that some temporary workers are on 
duty in Louisiana and Mississippi doing some of the recovery 
work.
    Representative Saxton. Thank you. One more question. Have 
you noticed on an industry-by-industry basis the effects on the 
oil and gas extraction industry?
    Mr. Rones. Let me get those numbers for you.
    Representative Saxton. Sure.
    Mr. Rones. Employment in oil and gas extraction was up 
1,000. That may be partly due to the payment status of 
employees, even on those rigs that were closed, many of those 
people may have been paid.
    Representative Saxton. So you don't really know whether 
that 1,000 gross is a real number or whether it is because 
people have just remained on payrolls?
    Mr. Rones. Right. It doesn't necessarily reflect how many 
people are actually on duty. What it does reflect is their 
payment status.
    Representative Saxton. Thank you. Mr. Reed.
    Senator Reed. Thank you very much, Mr. Chairman.
    And again, Commissioner Rones and your colleagues, you are 
doing an exceptional job under very difficult circumstances, 
and I thank you for that.
    I just want to probe, if I could, some of the methods you 
had to adopt to come up with these statistics and see what 
biases might be included in that approach. As I understand it, 
businesses that did not respond to the payroll survey were 
treated as having zero employment. What bias might that lead to 
in terms of over- or undercounting?
    Mr. Rones. The businesses that would have been treated that 
way are just those in the most affected areas: The places that 
were under water, the places that were evacuated, the places 
that had extreme damage. So our assumption was that those 
people were not working, even if we didn't get a report. It 
seemed like quite a reasonable assumption. We didn't carry that 
assumption to the remainder of the disaster counties or other 
areas in those States. So while the bias from that would be a 
potential upward bias, we did as much as we could to contact 
those firms. If we were unable to do that, we tried to actually 
get secondary sources, even through the Internet, as to whether 
those companies were working or whether they were paying their 
employees. So despite the potential bias that you mentioned, I 
think we were probably able to do a pretty good job of 
estimation.
    Senator Reed. Going to a related issue, there are some 
businesses that were keeping people on the payroll at least 
temporarily, although there was no work because of the 
conditions in their company. And those workers might not 
ultimately go back to work, but at least in the short run they 
are being kept on the payrolls.
    That could understate the negative job impacts of the 
storm, and that is another potential bias. How have you tried 
to deal with that, Commissioner?
    Mr. Rones. We have maintained our concepts, so in these 
data, we are reflecting the payroll status. What you will see 
is, in coming months, those effects will show up. As an 
example, we have had some announcements from some of the 
government entities in the New Orleans area, where they have 
kept people on payrolls, that they will cut back. So we will 
pick that up in future months.
    Senator Reed. So in this situation, these numbers will 
potentially get worse as companies who, in the immediate shock 
of the storm, maintained employment, now are realizing they 
can't, and New Orleans is a good example?
    Mr. Rones. It will definitely go both ways. At the same 
time that people are being let go because their companies or 
the government agencies can't pay them anymore, other companies 
will be coming back on line as their electricity comes back and 
services are restored. So how that washes out, it is hard to 
predict. But there will be factors that go both ways.
    Senator Reed. Now, with respect to the household survey, 
you indicated very clearly that you could not conduct 
interviews in Jefferson and New Orleans Parish. And the 
procedure to make up for that lack of information was to survey 
in other parishes?
    Mr. Rones. No. What we did in our household survey was 
basically keep with our normal estimation procedures. And it 
doesn't work particularly well for this disaster because the 
way it works is, other people who did report end up 
representing those who didn't.
    In the payroll survey, we were able to make reasonable 
assumptions about the status of people. We talked about if a 
firm is shut down in a disaster area that is under water, we 
can say that they weren't employed. That is a reasonable 
assumption. But the household survey concepts make it difficult 
for us to do that. So if you lost your job down there, how are 
we going to classify you next month? Are you unemployed? Well, 
we don't know whether you are looking for work because we don't 
know where you are. And you have to be actively looking for 
work to be classified that way.
    Chances are many of those people at the time of the survey 
would have been out of the labor force; that is, they were 
taking care of family business or taking care of household 
problems. They were not actively looking for work. They were 
not available for work. And finally, others may have viewed 
their job loss as temporary, so they expect to be recalled. 
Under our concept, those people would have been employed.
    So we just had no good basis to simply assign a labor force 
status for the people that we didn't get information for.
    Senator Reed. So for the household survey, you are much 
less confident about the accuracy versus the payroll survey?
    Mr. Rones. I think that is a fair statement. What I would 
suggest, though, for those who are interested in unemployment, 
is to look at the unemployment insurance claims data. Now, 
normally we would say that the claims are far more restrictive 
a concept than our total unemployment. That is always the case.
    But the Department of Labor has expanded its eligibility 
requirements for people who might not otherwise have qualified 
for unemployment insurance. And, in fact, what we see is, that 
leading up to the hurricane we had weekly claims of about 
320,000 each week, and it was pretty stable. If you look at the 
last 4 weeks, the Department of Labor data showed that claims 
have been at least 300,000 higher than we would have expected. 
And so that is a reasonable gauge of unemployment, probably a 
better gauge than we can get from our household surveys.
    Senator Reed. And with that gauge, what would be the 
unemployment rate--do you have it off the top of your head?
    Mr. Rones. Well, if there was an increase of 300,000 in 
unemployment, it would raise the rate two-tenths
    Senator Reed. So that number would be 5.3?
    Mr. Rones. Well, we are reporting 5.1, but we are probably 
picking up some of that unemployment. So perhaps it could have 
gone up a tenth, but that is speculation on our part.
    Senator Reed. Let me just quickly turn to another issue. I 
know this is an employment hearing, but the BLS also is 
collecting price information. One of the questions that the 
Chairman alluded to is the effect of the storms not just on 
employment in the energy sector, but on energy prices. It is my 
assumption and presumption that energy prices were accelerating 
well in advance of Katrina, and I would sense--I would ask if 
that is accurate.
    And second, what is your notion of how Katrina will affect 
these energy prices overall.
    The final point, how will that contribute to the CPI? If 
you have any thoughts.
    Mr. Rones. I will ask Dr. Greenlees to answer that.
    Senator Reed. Thank you.
    Dr. Greenlees. Well, on the question of whether energy 
prices were accelerating prior to the hurricane, that is 
certainly correct.
    The most recent data in the Consumer Price Index, which is 
our most broad measure of inflation, are for August. We will 
publish the September CPI data on October 14th.
    But through August of this year, energy prices facing 
consumers have been increasing at a seasonally adjusted annual 
rate of 25.7 percent. So that is significantly higher than in 
recent years.
    On the question of whether increases will result from the 
hurricane, we don't have a direct method of determining any 
subsequent increase in energy prices or gasoline prices in the 
CPI that would be attributable to the hurricane as opposed to 
anything else. We wouldn't be doing that sort of analysis. But 
the question is, do we expect to see further energy price 
increases? Well, the answer would be, again, yes.
    There are data for September that are published by the 
Energy Information Administration of the Department of Energy 
that suggest that there have been significant increases in 
gasoline prices during September. And we would expect those to 
show up in the Consumer Price Index. The weight of gasoline, 
for example, in the CPI is such that if, for example, there was 
a 10 percent increase in gasoline prices, that would raise the 
CPI by about five-tenths of a percent by itself.
    Senator Reed. Thank you very much, Dr. Greenlees. Thank you 
very much, Commissioner.
    Representative Saxton. Senator, I can't resist the 
opportunity to follow up on Senator Reed's last question and 
Dr. Greenlees' remarks. I think the hurricane situation has 
demonstrated full well the vulnerability that this country 
faces in terms of its energy supply and disruptions in the 
energy supply.
    It seems to me that while we are going to vote on the 
energy bill later today, that we continue to ignore the basic 
elements of finding other ways, through creativity and using 
different types of science, to develop efficient ways to fuel 
our economy, literally fuel our economy--other than petroleum. 
It is a frustration to me to have watched this go on over these 
many years and for our bills that we are considering today--
which I don't intend to vote for--continue along the same lines 
when, in fact, technology exists to get us away from petroleum.
    I would just say to my companions here on the dias, you may 
check out a couple of bills that I have introduced that I call 
``Set America Free'' legislation, which would move us toward 
alternative fuels. It would move us toward biofuels. It would 
move us in transportation toward hybrid automobiles. Again, 
these technologies already exist. They are already being 
produced. We are just not using them.
    Mr. Paul.
    Representative Paul. Thank you, Mr. Chairman. I have just 
one brief question. So far today, we have heard that the 
hurricane is very important in affecting the unemployment 
statistics. We talk about other events like 9/11 and oil shocks 
and how this will affect the economy and unemployment.
    I am wondering if any of you give consideration to monetary 
policy and its effect on the business cycle, and thus affecting 
the unemployment rate? How often do you take that into 
consideration, and do you consider it very important issue?
    Mr. Rones. We have a strict rule in the Bureau of Labor 
Statistics that we avoid policy analysis so that you can be in 
a position where you can trust that the statistics and the 
analysis that we put out are unbiased. So on that basis, I 
would say that I really don't have an opinion on the effect of 
monetary policy on employment.
    Representative Paul. So you are saying you don't have an 
opinion that monetary policy could have on it? I am not saying 
what the effect is or what monetary policy you should advocate, 
but do you think there is a connection?
    Mr. Rones. As a trained economist, I would certainly grant 
you that there is a potential effect of monetary policy on the 
economy.
    Representative Paul. Thank you.
    Representative Saxton. Thank you. Ms. Maloney.
    Representative Maloney. Thank you, Mr. Chairman, and I 
intend to look at your ``Set America Free'' bill. I agree with 
you completely that we should be moving to hybrid cars and 
alternative energies. We should have done it a long time ago. 
So I may be joining you in that effort.
    I am very concerned, Mr. Rones, about the reports of the 
growing gap between the haves and the have-nots. This is not 
good for anyone. I just would like to ask what has happened to 
the average hourly earnings of wage and salary workers since 
the economy finally started to create jobs in May of 2003; and, 
specifically, has the increase in wages over that period been 
less than the increase in the cost of living?
    Mr. Rones. The average hourly earnings of production 
workers rose from 15.31 in May 2003 to 16.15 in August 05. 
Those are seasonally adjusted figures. That is an increase of 
5.5 percent. So over the same period, the CPI rose by 7 
percent.
    Representative Maloney. So wages have really lagged far 
behind the growth in productivity over the past 4 years, would 
you say?
    Mr. Rones. We have certainly experienced strong 
productivity growth in recent years. Output per hour in our 
nonfarm business sector rose more than 14 percent from the 
second quarter of 2001 to the second quarter of this year. Over 
the same period, the average hourly earnings for production 
workers rose by 10.7 percent, so definitely less than the 
increase in productivity.
    Representative Maloney. Is that an unusual trend? 
Productivity increases so much over wages?
    Mr. Rones. In the long term, there tends to be a 
relationship between productivity and wages. In relatively 
short periods of time, you can see them going in directions 
that aren't consistent with the long-term trend. So I would say 
it is unusual, but it is not typical of the long-term trend.
    Representative Maloney. The Bureau of Labor Statistics 
publishes data on the usual weekly earnings of full-time 
workers, including some information about the wage 
distribution; is that correct?
    Mr. Rones. That is correct. That comes from our household 
survey.
    Representative Maloney. Our staff has calculated that from 
the fourth quarter of 2000 to the fourth quarter of 2004, 
median earnings have increased by just .2 percent per year 
after inflation. Does that seem about right to you?
    Mr. Rones. Yes, that is very close. I think our 
calculations for that period are .15 percent, which could round 
to .2, so that is about right.
    Representative Maloney. Over that same period, hasn't there 
been widening inequality, with growth at the top of the 
distribution but a decline at the bottom?
    Mr. Rones. So over that same 4-year period that you asked 
about in the previous question, the way we look at this is we 
look at deciles. You take the earnings distribution of the 
population and break it into tenths. So if we look at the ninth 
decile, which is the highest earners, their earnings went up 
13.7 percent over that period. If you go to the bottom end of 
the distribution, it is somewhat less; it is 8.5 percent.
    Representative Maloney. Quite a bit less. Hasn't that 
inequality gotten worse in the most recent four quarters, with 
the real growth only at the top, the 90th percentile, and 
declined elsewhere; and the largest decline at the very bottom, 
the tenth percentile?
    Mr. Rones. Over the past year--so the most recent data we 
are looking at would be the second quarter. Over that year, 
weekly earnings at the ninth decile--again, those are the 
highest earners--are up about 3.1 percent in nominal terms. 
Earnings at the first decile are up just 1 percent.
    So given that the CPI is up 3 percent over that period, we 
would say that in the ninth decile there is a very, very slight 
increase in real earnings, where at the bottom of the 
distribution there is a decline in real earnings.
    Representative Saxton. Thank you very much.
    Ms. Sanchez.

              STATEMENT OF HON. LORETTA SANCHEZ, 
             A U.S. REPRESENTATIVE FROM CALIFORNIA

    Representative Sanchez. Thank you, Mr. Chairman. Thank you, 
gentlemen, for being before us.
    I have several questions and they go along two lines. One, 
I would like to talk a little bit about what is going on with 
Katrina, if you can; and secondly, just overall, what I see 
looming on the horizon for the economy and things that are 
worrying me.
    If you were a victim of Katrina, where would you go--where 
would you go to file unemployment? I mean, were there--could 
you go if you were a refugee in Texas and do that? So have you 
seen any of the real impact on people who are--I know that you 
said that some people stayed employed, like with the city. But 
yesterday the city announced half of its workers would go off.
    So I am wondering about the logistics so we can figure out 
when we will really see the impact of something like Katrina.
    Mr. Rones. I think we are seeing the impact, because one of 
the first things the Department of Labor did was to make sure 
that the people in the area had a way to file for unemployment 
insurance benefits.
    There were special grants given to the affected States to 
increase their capacity to accommodate this flow of claimants. 
The Department of Labor has contracted for--I think it is 150 
counselors--to work at employment centers, not only in 
Louisiana, Alabama, Mississippi, but in all the States 
surrounding it that got substantial numbers of refugees, to 
help people in their transition to jobs in those areas. I think 
that is a system that worked pretty well.
    When I say that the unemployment insurance claims were more 
than 300,000 above what they would have been under a normal 
situation, that would be a substantial portion of the people 
who are displaced from jobs.
    Representative Sanchez. You know, I am also worried about 
this prevailing wage rollback by the President. The biggest 
reason is, of course, people who are used to making $18 or $36 
an hour now may make $8 or $9 an hour. How do you think that 
will affect these people?
    Have you guys looked at the prevailing wage reduction in a 
construction area like that? I ask this question because I am 
assuming that with the Federal moneys coming in, that 
construction will at some point start to pick up in that area 
and we will see a significant number of new jobs created 
because of rebuilding after Katrina. But what I have seen in my 
particular area is people maybe not being unemployed but being 
underemployed.
    In other words, they used to have a $36-an-hour job with 
benefits and now they have two part-time jobs, one at $7 an 
hour and one at $8 an hour, neither of which carry benefits.
    Would you anticipate that type of a situation given that--a 
very basic pillar called prevailing wage in the construction 
industry may go away in Katrina?
    Mr. Rones. I wouldn't comment on the policy decision to 
waive the Davis-Bacon.
    Representative Sanchez. I am asking in your economist role, 
what would you anticipate would happen there with 
underemployment?
    Mr. Rones. What I would say is we have a lot of experience 
with measuring the effects of worker displacement. Typically it 
is for other reasons. As a supplement to our household survey, 
every 2 years we look at worker displacements, and what we find 
is that it is not unusual for people who lose jobs, for any 
reason--and I would include the hurricane in that context--to 
take a considerable amount of time to find work, and for those 
who find work to find work at lower wages. So that is a fairly 
typical impact of worker displacement.
    What we also find is many people, maybe even the majority 
of people, relatively soon after displacement, are able to get 
jobs that are comparable to their original jobs.
    Representative Sanchez. But in this particular case, the 
Federal Government is pretty much lowering the mandate, so 
people probably won't find comparable jobs. If you are a 
carpenter who used to make $36 an hour, I think it is going to 
be very difficult for you to go back into the same arena and 
make those $36 an hour now that the prevailing wage has been 
undone by the President, wouldn't you say?
    Mr. Rones. I wouldn't phrase it that way because of our 
different roles. But I understand that you are saying that 
there will be a reduction in the pay rate for jobs in the 
construction industry. We will wait to measure that in our 
surveys and to see what the effect is.
    One thing we do know is that employment pay rates are 
subject to the laws of supply and demand. There will be an 
unprecedented demand for construction labor in that area. 
Again, economic theory would tell me that that would tend to 
drive up the prevailing wages in that area.
    Representative Sanchez. So you think it is going to go 
above the prevailing wage rate?
    Mr. Rones. No. I am saying that when you have an increase 
in demand of that magnitude, economic theory would tell you 
that wages tend to go up.
    Representative Sanchez. I know my time is up----
    Representative Saxton. Excuse me----
    Representative Sanchez. I would like to just put on the 
record that the President has, in fact, lowered the prevailing 
wage rate. He is hoping that the cost per hour will come down.
    Representative Saxton. Mrs. Sanchez, if you could please 
summarize, if you haven't already.
    Representative Sanchez. Mr. Chairman, let me repeat what I 
just said. President Bush, I think, has lowered the prevailing 
wage rate because it is his hope that people will make less per 
hour when they go in these construction jobs. That is the whole 
reasoning behind lowering the prevailing rate. Thank you.
    Representative Saxton. Mr. Rones, thank you for being with 
us this morning. We appreciate it very much.
    I was interested in the comment that you made. It occurred 
to me about the same time when Ms. Sanchez was asking her 
question, that with the population in the area dispersed the 
way it is, and workers in that population dispersed, who would 
like to go back home, and with the amount of reconstruction or 
construction that there is to be done, certainly the demand for 
labor will increase. It would be very difficult to discern what 
effect that would have on the cost of labor in the area, given 
the fact that we know that there is going to be a high demand 
and given the questions involved in where the labor is and 
whether there will be an adequate supply of labor. So it could 
very well be, as you suggest, that the cost of labor could 
increase.
    Mr. Reed.
    Senator Reed. Mr. Chairman, I don't have a question. I 
believe neither does Ms. Maloney, but I think Congresswoman 
Sanchez has a question.
    Representative Saxton. We are not going to have a second 
round. We are going to let Mr. Rones go. Thank you for coming 
this morning. We appreciate very much your participation and we 
look forward to seeing you in the months ahead.
    Mr. Rones. Thank you very much.
    [Whereupon, at 10:24 a.m., the committee was adjourned.]



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