[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
__________
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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
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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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