[Senate Hearing 109-136]
[From the U.S. Government Printing Office]
S. Hrg. 109-136
THE 21ST CENTURY WORKPLACE: PREPARING FOR TOMORROW'S EMPLOYMENT TRENDS
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
EXAMINING ISSUES RELATING TO THE 21ST CENTURY WORKPLACE, FOCUSING ON
PREPARING FOR TOMORROW'S EMPLOYMENT TRENDS TODAY
MAY 26, 2005
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
MICHAEL B. ENZI, Wyoming, Chairman
JUDD GREGG, New Hampshire EDWARD M. KENNEDY, Massachusetts
BILL FRIST, Tennessee CHRISTOPHER J. DODD, Connecticut
LAMAR ALEXANDER, Tennessee TOM HARKIN, Iowa
RICHARD BURR, North Carolina BARBARA A. MIKULSKI, Maryland
JOHNNY ISAKSON, Georgia JAMES M. JEFFORDS (I), Vermont
MIKE DeWINE, Ohio JEFF BINGAMAN, New Mexico
JOHN ENSIGN, Nevada PATTY MURRAY, Washington
ORRIN G. HATCH, Utah JACK REED, Rhode Island
JEFF SESSIONS, Alabama HILLARY RODHAM CLINTON, New York
PAT ROBERTS, Kansas
Katherine Brunett McGuire, Staff Director
J. Michael Myers, Minority Staff Director and Chief Counsel
C O N T E N T S
THURSDAY, MAY 26, 2005
Enzi, Hon. Michael B., Chairman, Committee on Health, Education,
Labor, and Pensions, opening statement......................... 1
Garczynski, Gary, Past President, Home Builders Institute,
National Associaton of Home Builders, prepared statement....... 4
Erickson, Tamara J., Executive Officer, and Member, Board of
Directors, the Concours Group, Watertown, MA; Diana Furchtgott-
Roth, Director, Center for Employment Policy, the Hudson
Institute, Washington, DC; and Jared Bernstein, Director,
Living Standards Program, Economic Policy Institute,
Washington, DC................................................. 8
Prepared statements of:
Ms. Erickson............................................. 9
Ms. Furchtgott-Roth...................................... 22
Mr. Bernstein............................................ 30
Kennedy, Edward M., a U.S. Senator from the State of
Massachusetts, opening statement............................... 47
Prepared statement........................................... 48
Statements, articles, publications, letters, etc.:
Isakson, Johnny, a U.S. Senator from the State of Georgia,
prepared statement......................................... 65
THE 21ST CENTURY WORKPLACE: PREPARING FOR TOMORROW'S EMPLOYMENT TRENDS
THURSDAY, MAY 26, 2005
Committee on Health, Education, Labor and Pensions,
The committee met, pursuant to notice, at 10:00 a.m., in
room SD-430, Dirksen Senate Office Building, Hon. Michael B.
Enzi (chairman of the committee) presiding.
Present: Senators Enzi, Isakson, and Kennedy.
Opening Statement of Senator Enzi
The Chairman. Since it is 10 o'clock, I will call this
hearing to order.
I want to welcome everybody to this hearing on the 21st
century workplace. A lot of the information that we will be
gathering today will be usable not only in the Workforce
Investment Act, but in a number of issues that we will be
considering throughout the year. This committee has one of the
biggest workloads, I think, with 38 reauthorizations that we
need to do before the end of September, and we are well into
those and have passed quite a few out of committee already.
Today we will be looking for the answers to several
questions about the workforce of tomorrow. Among them, how will
tomorrow's workforce differ from today's? What kind of jobs
will tomorrow's employers be looking to fill? What skills will
tomorrow's workers need to fill those jobs? And, most
importantly, what can we do now to be sure that we are ready
when tomorrow arrives at our national doorstep?
Our ability to compete effectively in an ever growing
global marketplace has always been tied directly to our most
valuable natural resource--the working men and women of
America. Our workforce is and always has been the enduring
strength of our economy. If we are to maintain a leadership
role in the global economy, our workers will need to develop
the skills and training they will need to be a part of
tomorrow's workforce. They will need to keep these skills
current through the use of education and training programs that
will keep them in touch with the dramatic advances in their
career areas that are sure to come in the years ahead.
We have already seen the advances that have sent ripples of
change through every sector of our society. Those changes are
likely to not only continue but to come at faster and faster
paces. The new prize employee will be the one who can learn the
fastest, adapt to change the easiest, and apply those skills to
the job the quickest.
Tomorrow's workforce must possess problem-solving,
communication, and technological skills far more advanced than
its predecessor. To ensure the existence of such a workforce,
we must not only provide adequate lifelong opportunities for
education and training, we must also foster a culture that
values education and encourages the development of skills.
The future will also change the face of tomorrow's
workforce. We cannot afford to ignore the profound changes that
demographics will bring. An extraordinarily low birth rate and
the continuing exodus of the baby boom generation have caused
one observer to remark that our labor pool may soon be a
shallow puddle. These predictions are neither speculative nor
alarmist. They are simply another aspect of the future
workforce that must be anticipated and addressed.
One way to address these changes is to encourage the entry
of more nontraditional workers into the workplaces as well as
to tap the growing supply of older workers. Both will need
their own inducements to join the workforce that will range
from flex-time schedules to changes in Government policies that
currently serve to punish instead of encourage the
participation of seniors in the workforce. Both groups will
want advances and improvements in their quality of health care,
their retirement benefits, and other similar programs, if we
are successfully to convince them to remain in or return to the
Additionally, individuals who had planned on spending their
golden years traveling and visiting with grandchildren can be
attracted back to work by innovative policies. For example, one
large nationwide retailer allows employees to work 6 months in
one location and then transfer to another location. Through
this policy, an employee gains freedom and travel
opportunities, and the employer retains a trained and valuable
Employers will also be affected. The best way to address
their need for the more highly skilled employees will be to
offer and maintain their own training programs. With the cost
of high-tech equipment and the inherent need to keep machinery
active and operational as much as possible, business can no
longer afford a skills and talent gulf between skilled and less
skilled employees. While we may have some idea of what is
coming in the future in this area, we must admit that many of
the developments are unforeseeable. Employers will continue to
use technology to maximize effectiveness and to improve
employees' lives, but we must be sure that America's youth gain
the skills they will need to work in the even more technical
world to come.
Technological developments will continue to transform our
world as well as our workplaces. The developments of the past
century or maybe even just the last 5 years could not have been
predicted decades ago. These changes have enabled innovations
like telework, created the opportunity for greater workforce
participation for the disabled, and increased the speed and
efficiency in virtually all work applications.
Make no mistake, the global marketplace is not a thing of
the future. It is a fact of life today. The jobs it will create
will determine the standard of living of tomorrow's worker. If
we do not fully prepare our workforce to meet the challenges of
the future, our failure will soon be seen in a reduced living
standard of our workers. How we deal with these changes will
play a great role in determining the future of our Nation and
the strength of our economy. If we are to continue to maintain
our role as a leader in today's global marketplace, the
competition for skilled workers and advanced technology jobs is
a battle we dare not lose.
During today's hearing, we will be looking to our witnesses
to help navigate us through the lessons of the past, current
trends, and projected changes in a wide range of employment
factors to make sure we win this battle.
Senator Kennedy will not be able to be with us at the start
of the hearing this morning. He is doing a markup in Judiciary.
That is where they make amendments or approve nominees, and
that requires a quorum, which we had to do yesterday by calling
some people even out of Judiciary. So when he comes by, we will
give him an opportunity to make a statement at that point, and
his staff is here and will be taking notes, as is other staff.
We are very pleased to have the three witnesses here today
to help us understand what the workplace will look like in the
coming decades. I will introduce the witnesses all at once, and
then each of them will give statements, hopefully summarizing
their testimony to be about 5 minutes in length, and then we
will have questions.
First I would like to welcome Tamara Erickson, the
executive officer and member of the board of directors of
Concours Group, a management consulting firm based in
Watertown, MA. She holds a bachelor's degree from the
University of Chicago and an MBA from Harvard University. Ms.
Erickson has researched and published extensively on the topics
of coming demographic shifts, the ability of employers to
attract and retain older workers, and what she has titled ``The
New Employer-Employee Equation,'' a phrase which summarizes the
changing nature of what employees expect from work and how
employers can attract, retain, and engage quality employees.
We are also pleased to welcome Diana Furchtgott-Roth--did I
get that right?
Ms. Furchtgott-Roth. You did.
The Chairman. All right. Director of the Center for
Employment Policy at the Hudson Institute here in Washington,
D.C. Ms. Furchtgott-Roth holds master's degrees in philosophy
and economics from Oxford University and earned her B.A. cum
laude in economics at Swarthmore College. She has held several
important positions in three administrations, including chief
economist of the Department of Labor, chief of staff to the
Council of Economic Advisers, and associate director of the
Domestic Policy Council and Office of Policy Planning under the
former President George H.W. Bush.
We are also pleased to have Jared Bernstein, director of
the Living Standards Program at the Economic Policy Institute
here in Washington, D.C. Dr. Bernstein holds a Ph.D. in social
welfare from Columbia University and held the position of
deputy chief economist at the Department of Labor under the
We also invited to testify today Gary Garczynski, a past
president of the Home Builders Institute, which focuses on
workforce development for the construction industry, on behalf
of the National Association of Home Builders. Unfortunately,
due to an unavoidable conflict, Mr. Garczynski is not able to
join us today. However, his testimony will be submitted for the
record. This testimony details some of the creative ways the
home-building industry has reached out to nontraditional
employees to fill the severe and growing skilled employee
shortage facing the industry.
For example, the industry has worked with Job Corps Centers
to train and employ 2,000 kids a year, and they have created
programs targeting the homeless, court-involved youth, adult
ex-offenders, people with disabilities, people over age 55, and
women veterans. The goal of these outreach programs is twofold:
first, it spreads the message that the construction industry
offers good-paying jobs for skilled employees; simultaneously,
the programs test drive recruitment methods among
nontraditional employees that industry members can replicate in
the face of the upcoming 1-million-worker shortfall. In short,
it is a win-win and something I think many other industries
could learn from.
[The prepared statement of Mr. Garczynski follows:]
Prepared Statement of Gary Garczynski
Mr. Chairman, Ranking Member, and members of the committee, thank
you for this opportunity to testify. It is an honor and I am delighted
to have been invited to share with you what we in the home building
industry are doing to develop our workforce, address our labor
shortages and plan for the new century.
The National Association of Home Builders' (NAHB) 220,000 member
firms are involved in home building, remodeling, multifamily
construction, property management, subcontracting, design, housing
finance, building product manufacturing and other aspects of
residential and light commercial construction. Known as ``the voice of
the housing industry,'' NAHB is affiliated with more than 800 State and
local home builder associations (HBAs) around the country. NAHB's
builder members will construct about 80 percent of the more than 1.6
million new housing units projected for 2005, making the housing
industry one of the largest engines of economic growth in the country.
One of the most pressing problems facing our industry today is a
shortage of skilled workers. Factors contributing to this shortage
include record high numbers in the demand for the construction of new
homes, retirements in our industry, and dwindling interest in the
skilled trades among America's younger generations. Compounding the
problem has been insufficient training opportunities for those
considering a career in the industry. As you know, the number of
construction career programs offered by high schools, postsecondary
vocational schools and community colleges has declined dramatically
over the past 25 years, and training through the public workforce
development system is limited.
According to the Bureau of Labor Statistics, more than 240,000 new
workers are needed each year to meet the Nation's demand for housing.
Importantly, it is also estimated that within the next decade, our
Nation will need to construct 18 million new homes to meet demand, a
goal that will only be met by the addition of over a million new
skilled workers to our industry.
Many of you will recall that a few years ago Labor Secretary Elaine
Chao released the Department's workforce plan calling for the active
engagement of industry and the private sector in developing the
workforce of the 21st Century. NAHB has been involved in developing our
industry's labor force for more than 30 years through the Home Builders
Institute (HBI), our workforce development arm, and working with the
Department of Labor in particular, to address the need for skilled
Following Secretary Chao's announcement, NAHB's Immediate Past
President Bobby Rayburn met with the Secretary and her staff to
reassert our industry's commitment to working with the Department, and
to discuss the dire situation faced by the housing sector. Faced with
record demand, and confronting an ongoing shortage of workers, we were
very pleased when the Department subsequently identified construction
as a High Growth Industry. NAHB and HBI have continued to work with the
Department in a number of positive workforce development efforts.
Job Corps Training and Placement
For example, since 1974, HBI has partnered with the Department of
Labor to provide skilled trades training to young people enrolled in
Job Corps. Training is only part of what we do in Job Corps. HBI
instructors offer a direct connection to careers in our industry while
providing support and hope to some of our Nation's most at-risk youth.
HBI offers craft training programs in seven trades--brick masonry,
carpentry, electrical wiring, facilities maintenance, landscaping,
painting, and plumbing--and as the largest training partner in Job
Corps, HBI currently offers 148 programs at 69 centers in 40 States and
the District of Columbia.
Through our 800 State and local home builder associations, many HBI
programs on Job Corps campuses offer students access to work-based
learning and internship opportunities, as well as free membership to
NAHB through the NAHB Student Chapters program; and of course, access
to unsubsidized employment.
HBI's Job Corps programs help more than 2,000 students each year
start careers in our industry, and have resulted in a remarkable job
placement rate of over 90 percent. For those who qualify, there is the
HBI/Lowe's Building Careers Scholarship Fund which helps students
transition to the workplace by covering basic costs such as rent,
household goods or a car to get to work.
The commitment of the National Association of Home Builders and the
Home Builders Institute to help disadvantaged and at-risk youth find
stable and successful careers in our industry could not be stronger,
and we are proud of the partnership we have enjoyed with the Department
of Labor through Job Corps.
Project CRAFT for Court-Involved Youth
HBI has worked through similar public and private partnerships to
address our industry's need for qualified employees by targeting
specialized populations. Project CRAFT, (Community, Restitution,
Apprenticeship-Focused Training) is an award-winning program that helps
court-involved youth by teaching them construction skills and providing
them with a gamut of support services to ensure their successful
transition back into the ``real world.'' The building industry offers
these young people--who otherwise might have no options--a unique
ladder to economic success and independence.
Since the mid 1990s, there has been an increased awareness among
the private and public sector stakeholders of the need for vocational
education as a complement to educational remediation in the
intervention programs for adjudicated youth. A young person who earns a
GED must additionally acquire a set of work-based skills in order to
achieve career success. Career and vocational education programs like
Project CRAFT give these young people the extra training and
information they need to turn what they learned in their GED program
into a successful life-long career.
In 1994, the Department of Labor awarded a Youth Opportunity
Demonstration Grant to HBI to implement Project CRAFT pilots in
Maryland, Tennessee and North Dakota. The program brought together for
the first time business, juvenile justice, education and workforce
development in one program approach. Its essential components then, and
Partnership Building and Linkages
Comprehensive Service Delivery
Project CRAFT incorporates the apprenticeship concept of hands-on
training and academic instruction, including numeracy, literacy and
employability skills curricula. Students learn residential construction
skills while completing thousands of hours of community service
The replication of the CRAFT model began soon after the three pilot
sites evidenced their first 12-month outcomes. State and local agencies
began to partner with HBI to offer adjudicated youth the vocational and
holistic training piloted by Project CRAFT. The program is being
implemented at residential facilities, as well as a community-based
aftercare program for juveniles.
During program year 2003 (July 2003-June 2004), Project CRAFT
trained more than 400 youth in:
Florida, on four sites through the State Department of
Dallas, in partnership with SER-Jobs for Progress, the
Dallas County Department of Juvenile Justice and Work Source Dallas
Monroe Township, funded by the New Jersey Juvenile Justice
Nashville, Tennessee, through a Youth Offender
Demonstration grant from the U.S. Department of Labor, with the
Davidson County Drug Court, the Tennessee Department of Correction and
the Tennessee Board of Probation and Parole
Jackson, Miss., funded by the State Department of Human
Services, established in May 2004
Cumulative outcomes for these Project CRAFT programs in program
year 2003, not including the newest program in Mississippi, saw an
average wage upon placement of $8.58/hour with 85 percent of students
placed in jobs in the industry after graduation.
Job Corps and Project CRAFT are youth-focused programs where
industry and government produce tangible positive outcomes. These
programs have earned a reputation as worthwhile investments of
taxpayers' hard-earned dollars, a significant resource to the Nation's
building industry and a major contributor to the future success of
thousands of young people.
HEART for Homeless Veterans
HBI's HEART (Homeless Employment and Related Training) was
developed as a model pilot program funded by the Department of Labor
and is currently serving 30 homeless veterans and ex-offenders a year
in Columbia, South Carolina. Like our other training programs, HEART
provides these veterans with important skills training and career
information to obtain employment in our industry. The program is
conducted in cooperation with the Home Builders Association (HBA) of
Greater Columbia and the Alston Wilkes Society. After 7 successful
years, this program is hoping to secure continued funding after year's
end. HBI continues to hope that additional resources will become
available for us to be able to continue this worthwhile program.
Reentry Through TRADE
Serving a different population is Project TRADE (Training,
Restitution, Apprenticeship Development Employment), a program that
currently trains and places 210 adult ex-offenders a year in industry
jobs. TRADE is implemented in Colorado Springs in partnership with
ComCor, the State's largest community corrections provider and in
Sheridan, Illinois, in partnership with the Illinois Department of
Other programs that HBI has implemented include:
CRAFT SKILLS (Community Restitution Apprenticeship-Focused
Training Seniors Keeping Intensive Life Long Skills) which in
collaboration with the National Council on Aging (NCOA), offers adults
55 and over training and job placement in facilities maintenance.
Doors to Success introduces women veterans to the world of
careers in the residential building industry. HBI was funded by the
U.S. Department of Labor's Office of Veterans' Employment and Training
Services to help veterans transition to new careers in housing. This
program in particular, if replicated, has the potential for great
success as thousands of our military personnel, male and female, return
from tours of duty abroad and seek skills training and employment in
Project HOPE (Homebuilding--Opportunities for Positive
Employment) trained and placed people with disabilities for employment
in the home building industry in Denver with the Home Builders
Association (HBA) of Metro Denver, the Colorado Department of
Vocational Rehabilitation and the U.S. Department of Education's
Projects With Industry; and in Columbus, Ohio, in collaboration with
the Ohio Rehabilitation Services Commission (ORSC), the Hilltop
Community Development Corporation and Reynoldsburg Public Schools.
NAHB through HBI, has long worked with its State and local
affiliates to target non-traditional populations to help address the
industry's worker shortages. Many projects are still going strong
thanks to the industry's commitment, and the commitment shared by the
Federal and State Agencies and policymakers, who through their support
make it all possible.
Postsecondary Schools Meet the President's High Growth Job Training
In September 2004, the U.S. Department of Labor (DOL), under the
President's High Growth Job Training Initiative, awarded HBI a $4.2
million dollar grant to develop a new approach to building our Nation's
The program ``Building Today's Workforce for Tomorrow,'' will be
implemented at 10 sites over 3 years--the first four official grant
partners are located in Florida, Idaho, South Carolina and Virginia.
The sites will strive for virtually identical goals:
Recruit 250 participants into the program;
Develop an Associate's Degree that combines craft skills
training with academic credit;
Provide hands-on training in carpentry, electrical wiring,
plumbing and HVAC; and
Disseminate best practices and products nationwide to
assist others in replication.
Students will be instructed using HBI's widely popular Residential
Construction Academy Series textbooks and other instructional materials
developed by HBI with noted publisher Thomson/Delmar Learning. I have
brought an example of our teaching text with me today. The Series is
based on the first set of trade skill standards developed by NAHB's
members and educators following the guidelines outlined by the National
Skills Standards Board.
Another element making this new project exciting is the level of
collaboration among the various stakeholders. Facilitated by HBI, NAHBs
local associations, community colleges, local schools and workforce
development boards, the program will work to ensure that students
receive a well rounded education and exit with the ability to find
employment in the construction industry.
The $4.2 million will be disbursed at each of the 10 sites over the
next 3 years. Plans are to have the final six new sites start operation
on December 1, 2005.
Building on Skills to Build America's Future
In April of last year, the ``Skills to Build America's Future''
Initiative was launched as an outreach effort sponsored by the U.S.
Department of Labor and industry partners to educate young people and
workers in transition to the career opportunities available in the
skilled trades. NAHB is a principal partner in this effort along with
the Construction Industry Roundtable and the National Heavy & Highway
Alliance and its seven international unions.
To build on this outreach initiative, HBI will soon be launching a
similar effort to educate young people on the many career opportunities
available in the residential construction industry. Beyond the
traditional trades commonly associated with our industry, other
``skilled'' trades are also critical. The industry is in need of
accountants, engineers, estimators, managers, schedulers and marketing
people among many others. In all, there are more than 100 careers to
choose from in residential construction. The building industry today
more than ever, offers opportunities for people of all ages with every
kind of aptitude and skill, to build a successful career.
To conclude, yes, the housing industry is booming and full of
possibility. However, we must ensure that there are sufficient training
programs to train the 1 million new workers and to build the 18 million
new homes needed over the next decade. As a dramatic shortage of
workers in our industry leads to fewer homes being built, NAHB is
greatly concerned that the cost of housing will increase sharply,
forcing thousands of Americans out of eligibility for a mortgage and
hurting their ability to own a home.
NAHB and the Home Builders Institute work aggressively with all
available resources to provide information, programming, and
educational opportunities to those interested in starting a career in
our industry. Each year, HBI partners successfully with government to
help prepare the workforce for one of the Nation's fastest-growing and
most dynamic industries. Together, through the joint efforts of NAHB,
HBI and government, combined with the energy, focus and determination
of thousands of young workers, we are helping to build America.
Thank you, Mr. Chairman, Ranking Member, and members of the
committee for your time and interest in our efforts.
The Chairman. Welcome, all of you. Thanks for taking time
out of your busy days to share with us. Your full statements
will be a part of the record, and now we will hear from the
panel. Ms. Erickson?
STATEMENTS OF TAMARA J. ERICKSON, EXECUTIVE OFFICER, AND
MEMBER, BOARD OF DIRECTORS, THE CONCOURS GROUP, WATERTOWN, MA;
DIANA FURCHTGOTT-ROTH, DIRECTOR, CENTER FOR EMPLOYMENT POLICY,
THE HUDSON INSTITUTE, WASHINGTON, DC; AND JARED BERNSTEIN,
DIRECTOR, LIVING STANDARDS PROGRAM, ECONOMIC POLICY INSTITUTE,
Ms. Erickson. Thank you, Mr. Chairman. I am deeply honored
to be with you here today to discuss the 21st century
workplace. Our research very much supports the points you made
in your opening statement.
Senator, we in the American workforce are older, fussier,
and busier than ever. At the core, reshaping the relationship
between employees and employers is critically important.
Today's workforce already experiences alarmingly low levels of
engagement in work. Improving engagement--finding ways to
encourage individuals to invest more psychic energy in work--is
the single most powerful lever that most corporations have to
The 21st century workforce will be significantly different
than the workforce of the past century. It will be
chronologically older. Individuals over 55 will represent
progressively larger proportions of the workforce--11 percent
just 5 years ago in 2000, 20 percent 10 years from now in 2015,
and nearly one-third by 2050.
Lacking key skills. The workforce will not have the optimum
mix of talent needed by our industries. Many high-skill areas,
such as engineering disciplines, are already approaching
Global. In part as a result of labor and talent shortages
and in part to take advantage of cost arbitrage or market-based
opportunities, offshoring of work will continue to grow.
Highly diverse. The U.S. workforce in the 21st century will
be diverse in virtually every conventional dimension--race,
gender, age, religion, and cultural identity. But even more
significantly, it will be populated by individuals with widely
different values and assumptions about work itself.
Profoundly disengaged from work. Many employees today are
emotionally pulling away--detaching from work and depriving
businesses of immeasurable energy, innovation, and drive. Our
research indicates that only 20 percent of the U.S. workforce
today is currently significantly engaged in their work.
Improving engagement is probably the single most powerful lever
that many corporations have to improve productivity today.
The problem? Corporations as we know them today are not
ready. Hierarchical structures, rigid job designs, top-down
decisionmaking, and, particularly, unilateral employment
relationships are at odds with the values and needs of the 21st
century working. Fortunately, over the last several years,
significant advances in technology give us astonishing options
for altering the way businesses operate. Soon their spread will
make good on the promise of free, instant, and continuous
communication. Ubiquitous connectivity, digital, virtual,
personal, everywhere on everything and always on, will provide
extraordinary opportunities for coordination and collaboration.
With this, we can make work environments more competitive
and better for people at the same time. Over the next several
decades, small firms will proliferate. Growth will emerge from
lateral collaboration and bottoms-up creativity and innovation.
Organizations will be able to conduct their governance
processes in fundamentally different ways, with opinion
polling, market-based mechanisms, and even democratic elections
coming into the workplace.
As a result of these two forces, unprecedented demographic
change, coupled with astonishing technology-driven options for
how to run corporations, the nature of the relationship between
employees and employers will change substantially. Retirement
will be retired.
Now, I must say I feel like I am preaching to the choir on
this one. Senators seem to be a particular group of people who
already understand that the concept of retirement is outdated.
But, actually, 34 percent of all U.S. workers say they never
plan to retire. Today the average American can expect 20 or
more years of active, healthy life after traditional retirement
age. We need this talent, and we will adopt a more flexible
view of work to coax more to stay. Career paths will be bell-
shaped. Individuals will be able to continue to contribute to
businesses into their 70s, 80s, and beyond. Counterintuitive
entry points will be the norm. Individuals will begin entry-
level jobs at multiple points throughout their lives.
Cyclical and project-based work will proliferate. Already
49 percent of the workers who want to work after traditional
retirement say they would prefer cyclical work--3 months on, 3
months totally off--to part-time.
Job-sharing and other accommodations to blended lives will
be widely available. Health will be a core value, and health
care benefits will be the single unifying desire of the 21st
century workforce. And, overall, work arrangements will be fair
but not identical. Corporations will vary how individuals are
compensated, managed, and matched with different tasks.
How we as a society choose to invest in the unprecedented
pool of energy and capability that will be available in our
older workforce will have a major impact on our productivity as
a nation this century. Thank you for your leadership and
foresight in preparing for this exciting future.
The Chairman. Thank you very much.
[The prepared statement of Ms. Erickson follows:]
Prepared Statement of Tamara J. Erickson
The business challenge of the 21st Century is using the skills and
capabilities of our workforce effectively. This will require new and
more flexible approaches to the ``deal'' between employers and
employees and new and more ``democratic'' forms of corporate
organizations. Most importantly, it involves new assumptions about work
On the positive side, a rich pool of talent will be available.
Although it won't be the type of workforce we've come to rely on--
unlimited numbers of eager youth--many highly skilled individuals will
have the energy and desire to ``work.'' This century will usher in a
new life stage: for the first time in human history, we will have a
significant stage of non-child-rearing, productive adult life. Already
today, by the time their children leave home, most adults will have 25
years more of active, healthy life. How we as a society choose to
invest this unprecedented pool of energy and capability will have a
major impact on our productivity as a nation in this century.
On the negative side, corporations as we know them today are not
well aligned with the values of many individuals within this century's
workforce. Hierarchical structures, rigid job designs, unilateral
employment relationships, and cascading decisionmaking are at odds with
the idealistic values of the Baby Boomer cohort and the independence of
cohorts to follow. Our business organizations and employment policies
face significant challenge to adapt to the needs and values of the new
At the core, reshaping the relationship between employees and
employers is critically important. Today's workforce already
experiences alarmingly low levels of engagement in work. Improving
engagement--finding ways to encourage individuals to invest more
psychic energy in work--is the single most powerful lever that most
corporations have to improve productivity. After decades of downsizing,
rightsizing, and re-engineering, most corporations have virtually
exhausted their ability to squeeze increased productivity out of the
system through top-down pressure. The opportunity today is to raise our
engagement with work--to tap into the creativity and passion of the
Creating higher engagement levels is all about recognizing
individual strengths, needs, preferences, and values. Companies need to
shift the human resource paradigm from a focus on ``equality'' played
out by treating everyone the same, to ``fair, but customized''
reflecting different arrangements suited to individual needs and
Our landmark research has identified six archetypal relationships
between employees and employers. Individuals reflected by these six
segments differ in terms of the role that work plays in their lives and
the type of work experience that is most likely to create high levels
The Changing Workforce
The 21st Century workforce will be significantly different than the
workforce of the past century.
Chronologically older--Individuals over 55 will represent
progressively larger proportions of the workforce. We've just passed an
important crossover point. After a steady decline in the proportion of
older workers through the 1990s, the percent is now on the rise. The
proportion of over-55 workers declined from 18 percent in 1970 to 11
percent in 2000. By 2015, this group will have rebounded to represent
20 percent. Fueled by ever-longer life spans and lower birth rates,
older workers will continue to grow as a portion of the available labor
pool throughout the century. We can't afford not to leverage this
talent--our businesses will need both the numbers and, more
importantly, the skills represented in this growing cohort. And, as our
research shows, most mature employees are more satisfied and engaged,
happier on the job and better adjusted to the workplace than average
Limited in availability--The workforce will grow slowly or
decline in size in most developed markets. In the U.S., the workforce
is forecast to grow by only a fraction of a percentage point a year for
most of the first half of the century. The total working age population
will grow at 2-3 percent per decade from now through 2030 and then
increase to 3-4 percent per decade through 2050--still only a fraction
of a percent per year. By comparison, the rates have been 12-15 percent
per decade for most of the second half of the 20th Century. Industrial
growth will be constrained by the availability of labor if we continue
to operate in a 20th Century model.
Lacking key skills required to align with business needs--
The workforce will not have the optimum mix of talent needed by our
industries. There will be shortages of many key skill sets, and
excesses of other less-strategic capabilities. Many high skill areas,
such as engineering disciplines, are already approaching critical
shortages. For example, the average age of petroleum engineers in the
U.S. is approaching 54, while many of the oil companies still have
lucrative early retirement programs that will allow these scarce
resources to leave the workforce at 55. We are on the brink of critical
shortages in a number of key skill areas, assuming retirement
approaches remain unchanged.
Global--In part as a result of labor and talent shortages
and in part to take advantage of cost arbitrage or market-based
opportunities, off shoring or ``smart shoring'' of work will continue
to grow. By mid-century, most corporations will operate as connected
communities, with amorphous corporate boundaries encompassing a wide
variety of partners and contractor relationships. Regional ``hot
spots'' will form around the world--nodes of connectivity, talent, and
Physically dispersed--Even within one geographic location,
work will increasingly be done anywhere, anytime, rather than in fixed
locations on 9 to 5 schedules. Managing the workforce will become more
and more analogous to the challenge of managing customers--developing
relationships and maintaining active connections will be key.
Wrestling with complex lives--Away from work, nearly half
of employees today wrestle with parenting responsibilities, and more
than one-fourth struggle with personal or family health issues. Two-
thirds say they are coping with financial crises or trying to reduce
their debt. As life spans increase, the complexity of individual lives
will only increase. Balancing the needs of multiple generations and
competing priorities will continue to grow as a challenge.
Inventing a new life stage--As a result of increasing
health and longevity, most individuals will experience a new life
stage--a prolonged period of time after primary parenting duties are
fulfilled but before they will look, feel, or act ``old.'' This 20-30
year period, unprecedented in history, will offer exciting
opportunities for creation and contribution.
Highly diverse--The U.S. workforce in the 21st Century
will be diverse in virtually every conventional dimension--race,
gender, age, religion and cultural identity. However, our research has
found no significant differences by these conventional measures of
diversity in terms of overall job satisfaction, satisfaction with one's
immediate manager, or engagement level. Nor are there any significant
differences in how people relate to work or the workplace conditions
that bring out the best in employees. Yet the workforce is populated by
individuals with widely differing values and assumptions about work
itself. These divergent attitudes toward work will be the most
important forms of workplace diversity this century, challenging
employers to find innovative ways to understand and respond to
Profoundly disengaged from ``work''--Many employees today
are searching for ``more'' than they are able to draw from their work
experience. Mid-life's pivotal point today is more-often-than-not a
reflection on the impact of one's life on the world. As employees reach
whatever milestone triggers a sense of middle age, more and more are
reprioritizing to live up to the idealistic values formed as youth.
Increasingly, employees are asking whether the paths they have taken
are indeed consistent with the values they formed earlier in life.
Coupled with a general disillusionment with corporate life, many
workers are emotionally pulling away--detaching from work, and
depriving businesses of immeasurable energy, innovation, and drive. Our
research indicates that only 20 percent of the U.S. workforce is
currently significantly engaged in work.
These workforce trends represent a major challenge for U.S.
corporations--and a major opportunity. Our research provides compelling
evidence that meeting the evolving needs of employees effectively will
result in significantly higher engagement and, as a result, higher
productivity and bottom-line financial results.
Technology, Corporations, and the Nature of Work
While the characteristics of the workforce are changing, so too are
significant advances in technology driving the way our businesses
operate. These advances will both reinforce and enable the desires of
individual workers, allowing greater personal flexibility, autonomy and
participation and, as a result, increased corporate productivity.
Free and instant coordination--Technologies including
service-oriented web architecture, radio frequency identification
chips, and sensor nodes will provide extraordinary opportunities for
coordination and collaboration. Soon, smart objects, intelligent
sensors and ubiquitous connectivity will be everywhere, on everything,
and ``always on.'' Instead of processing data, businesses will be based
on processing information about events in real time. Instead of waiting
for operator input, sensor networks will respond directly to their
Highly efficient markets--The pressure on corporations for
increased levels of productivity will be unrelenting. The easy
availability of inexpensive coordination technology will make the
relationship between business and consumers much more efficient. More
efficient markets will threaten any firm whose business model embraces
inefficiencies. Consumers will find it easier to collect information,
compare prices, and select multiple providers based on the core
competencies of each.
True participative decisionmaking--Technology will allow
organizations to conduct their governance processes in fundamentally
different ways--ways that are more compatible with the values and
preferences of this century's workforce. Over the next several decades,
hierarchy will give way to lateral communication among relatively
autonomous, entrepreneurial groups. As it becomes both economically and
logistically feasible to obtain input from a large number of people,
opinion polling and even democratic elections will come into the
workplace. Market-based mechanisms allowing individuals to make their
own mutual agreements, as contractors and freelancers around specific
projects, will be commonplace within several decades.
A plethora of small, highly focused firms--Networked
technology facilitates the unbundling of integrated corporations,
leading to more focused companies. Smaller firms, specialized around
core competencies, will proliferate this century. Coordination-intense,
networked organizational structures will allow firms to adjust
continuously to changing requirements for different combinations of
skills and resources.
Strategies based on agile experimentation--Top-down
direction and annual strategic planning cycles will be replaced by
rapid waves of near-term experimental initiatives, brought into focus
by a shared view of a company's long-term strategic direction. Growth
will emerge from the creativity and innovation that comes from a shift
in control: top down to bottoms up--driven by engaged employees,
partners, and even customers.
The nature of work in this century will be both driven by and
responsive to the desires of the evolving workforce. Smaller
organizations and more flexible, participative processes reflect core
values and preferences of the coming cohorts of employees. At the same
time, the need to create a highly engaged network of diverse talent
will become critically important to meeting the agile operating styles
required for the 21st Century corporation.
The New Relationship Between Corporations and Employees
As a result of changes in the people who comprise our workforce and
of the technology that enables our work, the nature of the relationship
between individuals, the work they do, and the companies that they form
will change substantially during this century.
The end of ``retirement'' as we know it--Retirement is a
modern social experiment and our parents were the guinea pigs. For
almost all of history, until the early 1900s, people worked until they
died. Today, the average American retires at 62--and, with rising life
expectancies, can expect 20 or more years of active life. Over this
century, we will retire the concept of ``retirement'' as we know it
today--to be replaced by a more flexible view of work, intermingled
with periods of leisure throughout all of adulthood. Already, 34
percent of all U.S. workers say they never plan to retire. Our research
shows that the better educated the employee, the more likely he or she
is to want to work in retirement.
Bell-shaped-curve career paths--Rather than the cliff-
shaped career paths of the past century--individuals on an ever-upward
path toward ever-greater ``success''--21st Century careers will be
bell-shaped. A career deceleration phase in one's 50's through 80's
will parallel the career development phase of one's 20's through 40's.
After achieving peak levels of responsibility in one's mid-career,
individuals will be able to continue to contribute to businesses in
legitimate, respected, although less intense ways.
Counterintuitive hiring options--Individuals will enter
into new careers at multiple points throughout their lives. Older
workers will accept ``entry'' level jobs, as ways into new lines of
work or flexible options suited to a preferred lifestyle.
Flexible work arrangements--Going forward, more flexible
work arrangements are both necessary and possible. Corporations will
provide personal variability around how individuals are compensated,
managed, and matched with different types of tasks.
Cyclical or project-based--Project-based work will become
the norm--many workers will operate as ``intellectual mercenaries''
assembled by project over the Web, as needed. Already, 49 percent of
U.S. workers who plan to work during traditional retirement years say
that they would prefer cyclical arrangements--periods of full-time work
interspersed with periods of no work--over more conventional part-time.
Small firm employment--Those employees who do affiliate
with a single corporation will be increasingly likely to be employed by
small firms. Small firms will become more prevalent over the century
based on changes in technology. They also tend to be more attractive to
employees. Today, small firms on average have 2\1/2\ times more highly
engaged workers than do large corporations (32 percent versus 13
percent). Although large employers offer significantly more benefits,
they get less engagement in return.
Virtual work--More workers will work from home or other
flexible locations as technology continues to enable remote and mobile
work and workers who are accustomed to interacting through technology
become a dominate presence in the workforce. Today, almost three-
quarters of the U.S. workforce still work at a fixed location. However,
this percent will decline over the century as a confluence of
technological enablement, employee preference, and corporate cost
pressures drive organizations to seek ways to shift away from ``bricks
and mortar'' and associated overhead.
Personal technology--Young workers entering the workforce
today ``own'' their own technology--it is as much a part of their
personal being as wallets are to their parents. Soon the concept of
corporations supplying computers or cell phones will be as outdated as
the clothing allowances of the 1950s or company calculators of the
1970s. All tomorrow's employees will ask is that business ``beams them
in.'' Security will be replaced by selection as a core concern, since
hiring ethical individuals will be more effective than trying to
control access in an increasingly ubiquitous world.
Job sharing and other accommodations to blended lives--
Each for somewhat different reasons, today's worker cohorts are less
willing to devote all of their life's passion to ``work.'' Baby Boomers
want to devote a part of their energies to idealistic goals. Younger
cohorts have an inherent reluctance for institutional affiliation, and
a tendency to prefer independent relationships. Workers in this century
will be increasingly articulate in demanding work relationships with
corporations that allow them to retain the degree of control and
flexibility required to pursue other activities equally successfully.
Growing expectations for broad-based participation--The
new workforce will increasingly expect to participate in the business
in new ways, including democratic or market-based decisionmaking
processes and hands-on ability to experiment with new strategies and
the creation of products and services.
Fundamentally different patterns of personal learning and
corporate growth--The manner in which today's younger workers have
learned to learn is radically different from their parents' approach.
Rather than linear learning from authoritative sources, younger workers
tend to learn through a process termed ``bricolage''--pulling pieces of
information from a variety of sources and piecing them together. This
experimental learning approach, coupled with technology's increasing
micro-interactions and perfect recall--will carry over into the way
work gets done. Workers will move from episodic interactions to
Health as a core value--Health will continue to be a
growing touchstone for decisions in the home, workplace and community.
In the U.S., health care benefits will be the single unifying desire of
the 21st Century workforce. Among more detailed elements of the deal,
health care coverage is employees' top priority today by far, with half
again the preference accorded any other element. Our work identified
individuals who are working today only to receive health care benefits.
Fair, but not equal--Customized ``deals'' will be the
norm--fair, but not equal. Many human resource practices over the past
decades have been aimed at ensuring that all employees are treated
``equally.'' In fact, as our research convincingly demonstrates,
although fairness is important, people don't want to be treated the
same. The reasons people work, their sources of pleasure or
satisfaction, and the returns that they most appreciate differ quite
significantly. Understanding and responding to these differences is at
the heart of creating an engaged workforce.
The key to productivity is going forward is recognizing the variety
of reasons that people work--the different roles of work in our lives--
and shaping the employee/employer relationship in ways that
appropriately reflect this diversity.
Our work has identified six fundamentally different archetypes of
the relationship with work found within the workforce. The six segments
have distinct traits and preferences regarding work and its role in
their lives. There are significant differences in the levels of
engagement within each segment. And there is a significant correlation
between the extent to which employee preferences are met and their
engagement levels. Understanding and responding to these segments
represents the foundation for improving engagement.
The Employer/Employee Equation Segmentation Model
Today's workforce is made up of six employee segments, each with a
different set of drivers--ranging from the straightforward and
immediate need for money, to the longer-term desire to build a lasting
legacy for the future. Our proprietary segmentation model recognizes
the different role that work plays in people's lives. Employees in each
of these segments want different things from their work experience and
are engaged by a different set of employee ``deal'' elements.
Importantly, our work has shown that average engagement levels vary
from segment to segment. For example, in general, people who view work
solely or primarily as a source of money have the lowest levels of
engagement. Those who view the role of work in their lives as a
mechanism for meeting social needs or creating a lasting legacy, have
significantly higher levels of engagement. One bottom-line conclusion
from our research is that more money does not, by itself, produce
higher engagement levels. Even more significantly, our work has found
that the reasons why people are more or less engaged vary by segment
and has identified which factors are most important to each type of
These results are significant and very encouraging. Just as with
the segmentation of consumer markets, employers can understand the
segment distribution in their workforces. They can target segments that
are best suited to the nature of the work within their business and
shape powerful employer brands to attract the desired talent. They can
then adjust work situations and elements of the employment deal to meet
the needs and expectations of key segments so as to bring out the best
in terms of engagement and therefore performance.
The six segments are introduced below, starting with the group with
the highest average engagement level and ending with the lowest.
Self-Empowered Innovators represent individuals for whom work is
about building something with lasting value. Workers in this segment
are entrepreneurial, hard-working, creative, well-educated and self-
empowered. They are an organization's most engaged group of employees.
They consider themselves leaders and have frequently assumed the role
of senior-level manager, with many self-employed or heading their own
companies. For them, work is a source of great personal satisfaction.
They are the most likely to define success as being true to themselves,
and agree that a good deal of their pride comes from their work and
careers. They are the most likely of all employees to say they are
impassioned and energized by their work, and that time passes quickly
on the job. Half say they will never retire. Individuals in this
segment are not highly motivated by traditional rewards, such as
additional compensation, vacation time, or even a better benefits
package. Instead, they are looking for work that continues to empower
and stimulate them, enables them to continue to learn and grow, and has
a greater social purpose.
For Fair & Square Traditionalists work is about the American
dream--a steady, predictable path to success. These individuals are
highly reliable and loyal workers seeking traditional rewards. They got
where they are by putting their noses to the grindstone, working hard,
and being team players. In return, they want to be fairly rewarded for
their efforts through concrete, traditional compensation like good
benefits and a solid retirement package. The group is slightly below
average in terms of education but above average in household income.
They are pleased with their success, and often describe themselves as
family men and women, high achievers, and leaders among their peers.
They have less interest in ``softer'' work benefits like stimulating
work, enjoyable workplaces, work that is worthwhile to society, or even
flexible work arrangements. And they are the least drawn to riskier
compensation like stock or bonuses. They seek stable and secure
environments, have the longest average tenure with their employers, and
have the second highest engagement level among the six segments.
Accomplished Contributors view work as an opportunity to be part of
a winning team. These individuals are engaged by their work and by
contributing to the organization's success. They take pride in what
they do, are willing to put in extra effort, value teamwork, and seek
an atmosphere that is cooperative and stimulating. To them,
``contribution'' is the name of the game, and they like to do work that
is worthwhile to society. This group is loyal, hard-working, reliable,
capable, and typically very experienced. They place less value than
most others do on individualistic rewards such as more money or
vacation, and express less need for flexible work arrangements.
Instead, they place strong emphasis on work that is personally
stimulating, work environments that are congenial and fun, colleagues
who cooperate, and employers who provide stability and job security.
Maverick Morphers seek lives filled with change and adventure--work
is one of multiple opportunities to achieve these goals. These
individuals tend to be well-educated, successful, and restless. They
thrive on exciting work and personal success. They're not afraid to
take chances, try new things, and shape the rules to fit their
lifestyles. Frequently working for smaller organizations or self-
employed, they are often senior-level managers, despite their relative
youth. Growth and opportunity and variety are what drive them, and they
value organizations where they can work with other bright people and do
work that is inherently worthwhile. They own their careers and pioneer
new ways of working. They are the most likely to want flexible
workplaces and work schedules that enable them to work on their own
terms and pursue their own interests. Confident in their abilities,
they are the most likely to seek out bonus compensation and stock to
reward their accomplishments. Organizations need to work hard to retain
them, as they actively explore their career options and their tenures
with employers on average are brief.
For Stalled Survivors, work is a source of livelihood but not yet
(or not currently) a very satisfying part of their lives. For a variety
of possible reasons, work for these individuals is largely ``on hold.''
The youngest workforce segment, many are just starting off in their
careers, getting married, having children, or pursuing interests
outside of work. They are busy trying to balance their lives--
personally, financially, and emotionally. They tend to feel that they
are pulled in too many directions, and often describe themselves as
stressed out from their many obligations. At this time in their
careers, they are looking for employers who can make it a little easier
to cope. They frequently seek out an improved work/life balance through
more flexible work arrangements, and they value additional pay and
vacation and family benefits such as childcare and maternity/paternity
leave. They also value employers who offer environments that are more
congenial and fun. They likely view their current challenges as a
temporary phase, and many are seeking new roles and positions at work
that will enable them to get more in control of both their careers and
Demanding Disconnects view work as generally frustrating and see
its value largely in terms of near-term economic gain. They derive the
least satisfaction from their employment and return the least
commitment to their employers. Although they wish for stability,
security, and greater recognition and reward, many are frustrated by
the nature of their work, lack of opportunity, or perceived unfairness
in their employment arrangements. Some are simply disgruntled. Many
feel dead-ended--that they have gotten as much as possible out of their
current positions and want to move on. They admit they are not high
achievers or leaders. Most feel that their organizations do not bring
out the best in them. Some are struggling with low income, more focused
on making ends meet than on deriving personal fulfillment from their
work. They expect a lot in return for their labor and place high value
on traditional compensation and benefits packages, while expressing
less interest than other segments in work that is enjoyable, personally
stimulating, or worthwhile to society. We believe some could be more
highly engaged with different work designs.
This groundbreaking segmentation offers specific insight into how
best to engage each group in the evolving workforce. There's simply too
much potential energy, commitment, and productivity going to waste not
to consider a fundamentally new relationship between employees and
Why Engagement Matters
Informed by our comprehensive body of research, several things are
clear about engagement in the 21st Century workplace:
Engaged workers are more productive and contribute
positively to financial success. For many companies, improving
engagement is undoubtedly one of the single most powerful levers
available to improve productivity.
Today, low engagement represents a major opportunity for
improvement across corporate America. If not addressed, low engagement
will be a growing limitation for most corporations--hindering a
business' ability to operate effectively in 21st Century conditions.
Different people are ``engaged'' by different things. Not
everyone wants the same things from work.
Customization of the employee experience broadly--
including the nature of the work itself, management style, as well as
components of compensation--is possible, practical, and the key to
A truly engaged employee expends discretionary effort to help
accomplish the goals of the enterprise. The engaged employee is excited
by the work, spreads that excitement to others, and is committed to
both personal accomplishment and group success. The engaged employee is
motivated to go ``above and beyond'' what the job requires.
Engagement is above and beyond simple satisfaction with the
employment arrangements or basic loyalty to the employer--
characteristics that most companies have measured for many years.
Although satisfaction and engagement often trend together, they're
different phenomena arising from different sources. Satisfaction is
about sufficiency--enough pay, benefits, and flexibility to work and
live, and no major problems or sense of unfair treatment to sour one's
attitude toward the employer. Satisfaction is the cost of entry into
the business environment of the future.
Engagement, in contrast, is about passion and commitment--the
willingness to invest oneself and expend one's discretionary effort to
help the employer succeed. For engaged employees, time passes quickly;
they identify with the task at hand, resist distractions, spread their
enthusiasm to others, and care deeply about the result.
Today, neither satisfaction nor engagement levels are high among
American workers. A slight majority of employees tell us that they're
somewhat satisfied with their jobs. But only 20 percent are really
engaged. The components of engagement present a dismaying pattern
American workers feeling disengaged from their work.
A growing body of research unequivocally demonstrates the strong
correlation between employee engagement and tangible results, including
customer satisfaction, productivity, profitability, and shareholder
return. Engaged employees are simply good for business. The costs of
low engagement are difficult to calculate but must be enormous. They
add up day-by-day and employee-by-employee as people do the minimum
necessary to get by and withhold the discretionary behaviors--insight,
originality, judgment, humor, leadership, friendship--that can make for
a high-performance organization.
Making Work More Engaging
Why are employees not enjoying their work more? Why are only 20
percent genuinely engaged in their work and committed to their
employers? Why do well under 50 percent say that their work includes
collaboration with bright and experienced people, provides
opportunities to learn and grow, or that it is worthwhile to society?
Why do fewer than 50 percent say their workplace is congenial and fun,
that employees cooperate and teamwork is the rule, or that people are
respected for their abilities and given ample chance to exercise them?
Why are one in five looking for a major career change, and one in five
looking for a new job? Why do 42 percent say they experience feelings
of burnout? Why do more employees (33 percent) feel that they're at
dead ends in their jobs than say they're working on exciting new
projects or assignments (28 percent)?
Low engagement levels demonstrate that for most employees the
current ``deal'' isn't working well. Our research shows that employers
place too much emphasis on compensation and benefits and the tangible
elements of the employment relationship, and too little emphasis on the
heart of the deal--the human relationships, values, and work design
itself and what the integrated experience of all these factors does for
the heart and soul of the employee. Is the employee experience
inherently stimulating and meaningful?
Employers chronically underestimate the fundamental importance to
employees of stimulating work, and very few employers have a realistic
sense of how many employees feel dead-ended and why. In fact, employees
place extremely high value on work and workplace. When our nationwide
survey had employees state their relative preference for 10 basic
elements of the employment deal, the security items--comprehensive
benefits package and comprehensive retirement package--topped the list.
But the next three items were all about work and workplace: work that
enables me to learn, grow and try new things; workplace that is
enjoyable; and work that is personally stimulating. The most innovative
and accomplished and already-engaged employees value work and workplace
the highest, often above the security items.
A successful employee experience starts with the job itself--work
that is inherently meaningful and interesting to each employee, work
that enables individuals to exercise their personal capabilities and
strengths. People who love their work invest more of themselves in
their jobs, perform better, improve more, and stay longer. Putting
aside specific skills and educational accomplishment, the best
employees--those that businesses most want to keep--are those who enjoy
performing. They like to accomplish their work, and along the way they
like to learn, teach, improve, invent and serve.
Unfortunately, work seems more likely to be enervating, rather than
energizing, for most workers today. Driven by the quest for cost
control and efficiency, many employers still err on the side of
designing work processes too much around the output and too little
around the worker. Employers err on the side of demanding scripted or
repetitive action by workers, rather than asking workers to engage
their energies and their brains. And the result is robotic performance
and high turnover. Some people will stay in jobs despite the inherently
uninteresting and unenjoyable work. They may be dependent on the
compensation and benefits, unconfident in their chances of finding
better work elsewhere, or just hanging on until retirement. Such people
may stay with an employer, but they're not engaged, not giving their
all, and so the organization performs below potential.
Most of us probably know from experience or can imagine what
unexciting work feels like--repetitive, tedious, no variety, no
learning, no visible result, no connection to what you do best. We also
know that exciting work has the opposite characteristics. Nevertheless,
does everyone want work to be highly stimulating, variable,
challenging? To some degree, yes. Granted, people vary greatly in their
preference or tolerance for pace, pressure, ambiguity, and variation
from the norm. Many people prefer routine and many jobs provide it, but
``routine'' doesn't have to mean boring, unvarying, or unchallenging.
Good work design has the right mix of human skill and flexible
options with automation and standardization, bringing out the best in
both. It's far better to enrich jobs and enable people to use their
skills than to render work routine and treat people as cogs in the
wheel of automation. Enriching work is how you engage people's
intellect, energy, effort, and commitment. The fundamental idea of this
century is not to take people out of the equation, but rather to get
more out of technology and more out of people. Unlike the late 1980s
and early 1990s, when the people side of process redesign went largely
ignored in the headlong rush toward computer systems installation and
corporate downsizing (which often backfired when too few people were
left to do the same old work), today there is an opportunity to combine
flexible technology with engaged employees and create the work of the
The quality of management--the ability of managers to connect with
individual employees in meaningful ways--is a critically important
element of the employee experience. Unfortunately, the performance of
managers today is perceived as poor: only 36 percent of employees say
they are satisfied with the support and guidance received from their
direct managers. Opinions of top management are lower still, and most
employees do not trust the top management of their organizations. Only
17 percent strongly agree that ``top management displays integrity and
morality'' and only 13 percent believe that ``top management is
committed to advancing the skills of our employees.'' Previous research
has found a strong correlation between engagement and ``good''
management. Our hypothesis is that the inherent definition of ``good''
reflected in these studies is the ability of one individual to
understand and relate effectively to the unique needs and preferences
Customization counts. It is unequivocally clear that different
people want different things in return for their work. Paradoxically,
corporations that offer everything to everyone--typically our largest
firms--are also the ones that tend to have the lowest levels of
engagement. By creating more focused and individually-specific
``deals''--ways of compensating employees for the work they do,
companies can heighten engagement--and potentially save money, as well.
Compensation approaches need to blend the appropriate mix for the
firm's targeted segments, ranging from tangible economic returns to
psychosocial benefits such as a sense of building something meaningful
or simply fun or adventure, and from long-term rewards such as pensions
and a lasting legacy to short-term necessities of salary and health
Finally, the overall values of the corporation--the philosophy of
senior management and the messages they send--must be internally
consistent with the other elements of work, and clearly communicated to
current and prospective employees.
Our work found a number of very encouraging examples of firms with
high levels of employee engagement. Interestingly however, there was
almost no consistency among these firms around specific practices--each
firm seemed to have very different human resource approaches. What
these firms did have in common was alignment--every element of their
employees' experience was internally consistent and aligned one with
the other--and geared to appeal to a specific slice(s) of the
Bottom line, what must U.S. companies do for success in this
century? Focus on people.
Going forward, companies must put the same energy into optimizing
the relationships with and within the workforce as they have invested
in optimizing processes and technologies in the 20th Century. By all
means, companies must continue to employ technology to its fullest
potential, ensuring that every member of the corporation, from the
Board of Directors to entry-level employees, has the skill to employee
technology comfortably and appropriately. But this century will be
about something fundamentally different--rather than standardizing work
and work relationships, the 21st Century will both require and allow
greater variation. Having people do what each individual is good at--
collaborating, understanding variable and complex information, and
putting their intelligence, creativity and social skills to work, is
now the key. Aligning all the elements of the employee experience--
everything that touches or influences the workforce, including the
style of management, the nature of the job, forms of compensation, and
even the fundamental messages and philosophies of the firm's leadership
team--with each other and with the preferences of targeted employees,
is at the core of creating a highly engaged and productive workforce.
That is--or should be--the promise of the 21st Century workplace.
Our Underlying Research: A Comprehensive Study of the Workforce
Our conclusions are based on three major research studies related
to the evolving workforce, stretching over a 3-year period. These
projects encompassed hundreds of individual interviews and focus
groups, as well as a comprehensive and statistically-valid survey of
the U.S. workforce. This work has yielded an unprecedented
understanding of what employees want from work and how corporations can
create the ``ideal deal.''
Our initial project, Demography is De$tiny, examined the impact of
demographic trends on the workforce and assessed the key values that
each generational cohort brings to the workplace. One of the major
conclusions of this research was that low engagement is a major--and
growing--issue facing corporations, especially among the Baby Boom
generation, who, as they enter their 40s and 50s, are increasingly
beginning to question the role of work in their lives. This work also
found that the workforce is increasingly diverse--not only in terms of
gender and ethnicity, but also in age and generation, background and
experience, lifestage and lifestyle, and what people need and want in
the employment relationship.
Excelling at Employee Engagement identified leading practices for
increasing engagement from dozens of firms in the U.S., Canada and
Europe. A principal conclusion from that research was that
customization of the workplace experience for each individual lies at
the heart of engagement success. This research also revealed the link
between engagement and various measures of business success; anecdotal
evidence, for example, suggests that there is a powerful link between
engagement and productivity. We also found influences on many
``softer'' performance variables, such as innovation and resilience.
The New Employee/Employer Equation (Project EEE) is a
groundbreaking research effort undertaken jointly by The Concours Group
and Age Wave, with the assistance of Harris Interactive, to develop a
deeper understanding and superior segmentation of the American
workforce. It was conducted in 2004 and sponsored by a consortium of 24
major organizations. This work developed a powerful proprietary
approach to segmentation of the workforce. Our research confirmed the
importance of employee ``fit'' and how the right employee ``deal'' can
enhance engagement for each segment.
The nationwide survey of employees at the heart of Project EEE was
one of the most ambitious attempts ever to understand the American
workforce. Our scope included (1) the psycho-demographic
characteristics of each individual, (2) current levels of engagement,
and (3) preference and satisfaction with elements of the employment
deal. Interviews were conducted online June 2-16, 2004, with 7,718
adult employees who work 30 hours per week or more for a primary
employer. Results were weighted to ensure that the data accurately
represent the U.S. adult workforce (those working 30+ hours per week).
Figures for age, sex, race, education and income were weighted where
necessary to bring them into line with their actual proportions in the
working population. ``Propensity score'' weighting was also used to
adjust for respondents' propensity to be online.
Although specific projections are my own, this testimony is based
on extensive collaboration with numerous colleagues at The Concours
Group, particularly Robert F. Morison, Executive Vice President and our
firm's Director of Research, as well as with Ken Dychtwald, Ph.D., one
of the world's leading demographers and founder of the firm Age Wave.
The research was sponsored by 24 of the world's leading corporations.
The Chairman. Ms. Furchtgott-Roth?
Ms. Furchtgott-Roth. Mr. Chairman, I am extremely honored
to testify before your committee today on the challenges of the
21st century workforce.
America's dynamic workforce has always faced changes.
Americans once worked primarily in agriculture, and then in
manufacturing, and now in services. Transitions from declining
to growing industries have been relatively easily achieved
because of the flexibility of the U.S. economy and U.S. labor
markets. As a result, the United States has one of the lowest
unemployment rates, as you can see from Figure 1, in the
industrialized world, and one of the highest rates of job
creation. We are home to millions of entrepreneurs.
As we move further into the 21st century, challenges will
come in the aging of our workforce and increased global
competitiveness. We need to consider the best strategies for
promoting the flexibility of our labor markets to deal with
The consumption demand of an aging and increasing
population could lead to tight labor markets unless we have
high productivity growth, increased labor force participation,
and additional immigration. In America's dynamic and flexible
economy, we already see two of these forces--higher
productivity growth and increased labor force participation of
older Americans--all working to help offset the demographic
changes that are underway.
Fortunately for the United States, the labor force
participation of older Americans is increasing. A higher
percentage of older Americans work than do senior citizens of
many industrialized countries. In Figure 2 over here, we can
see that 14 percent of Americans 65 and older remain
economically active, a figure in major industrialized countries
only exceeded by Japan. In France, Italy, Germany, Canada, and
Australia, the percentage ranges from 1 to 7 percent.
One noteworthy trend has been toward a higher proportion of
older workers working full-time. This may be a result of the
removal of the Social Security earnings test for workers age 65
and older in 2000. In 2004, on average, 77 percent of workers
age 55 or older worked full-time. Figure 3 shows that the labor
force participation rate of older Americans has increased
steadily over time, reaching a high of 37 percent in April
Some may say that older Americans have to work more because
they are less well off, but data show the opposite. The
economic conditions of older Americans is above average and
The flexibility of U.S. labor markets enables older workers
to choose the pattern of labor force participation that best
fits their needs. The removal of Social Security earnings tests
ensures incentives to remain in the labor force. And income tax
reductions since 2001 have increased the incentive for everyone
to remain economically active.
But the flexibility and range of choices needs to be
further increased, not just for older Americans but for
everyone. Removing restrictions that prevent private sector
workers from having the choice of comp time or overtime pay for
overtime hours worked would provide additional flexibility that
would make it easier for all Americans to participate in the
labor force. Currently, only products workers who work overtime
hours are allowed to take comp time off instead of overtime
pay. Under the Fair Labor Standards Act, private sector workers
are not given this option.
Let me give you an example of how this could work for a
senior citizen. Say that a grandmother worked 50 hours rather
than 40 hours 1 week and wanted to take some time off to see
her grandchildren rather than receiving overtime pay. A choice
of 1\1/2\ hours of comp time instead of 1\1/2\ hours of pay
would allow her to do that. She might want to catch up on
errands or catch up on sleep. This would also encourage other
groups such as working mothers to enter the workforce. As a
working mother with six children, I am fully aware that there
are many important parts of a worker's life, including time
with family. Extra time spent 1 week is manageable if there is
an option to take more time off at another point.
Global competitiveness is the second major challenge for
the American economy. It is here to stay, and we need to face
it head on rather than hiding from discussions of outsourcing.
Yes, it is estimated that U.S. firms outsource about 300,000
jobs a year, but foreign companies employ directly at least 6
million workers in the United States, and indirectly provide
another 6 million more jobs.
Increased global competitiveness is just another reason for
keeping our labor markets flexible and trying to extend that
Figure 4 shows an index of labor market flexibility
measures for the G-7 countries, and it shows that the United
States has the lowest amount of employer mandates governing the
hiring and firing of workers. And this is associated with a
vibrant labor market that benefits American workers.
In Figure 5, we can see that not only are a higher
proportion of Americans employed, but those Americans work
longer hours every year than do their counterparts in other
countries. In 2003, data show that Americans worked on average
1,792 hours per year, far more than in Canada, the U.K., Italy,
France, and Germany.
One reason they do this is that lower tax rates permit them
to keep more of what they earn. Figure 6 shows a comparison of
labor costs paid in Social Security and income taxes for the G-
7 countries in 2004. An average American would pay 30 percent
of his salary in taxes compared with 31 percent for a British
worker, 32 for Canadian, 46 percent for the Italian, 47 percent
for the Frenchman, and 51 percent for the German. Only the
Japanese work is taxed less and, not surprisingly, worked more
hours than his American counterpart.
We saw that Americans have lower unemployment rates than do
other countries, and in Figure 7 we can see that when they are
unemployed, they find jobs faster. Only 12 percent of the
unemployed in the United States are unemployed for more than a
year, compared with 33 percent for Japan, 34 percent for
France, 50 for Germany, and 58 percent for Italy. So in Italy,
of everybody unemployed, 58 percent have been unemployed for
more than a year.
One impossible challenge, as you point out, Mr. Chairman,
is figuring out what technology is going to be 10 years from
now. As you said, we could not imagine what technology we have
now. We do not know where our technology is going to lead us in
2015 or 2025. But we do know that our employers are going to
need to adapt to whatever comes along, and we need to give them
the tools to do so. We also need to protect the intellectual
property of our investors and our entrepreneurs and our
inventors and not allow other countries to pirate our ideas.
The United States leads the world in creativity, and we need to
protect our intellectual property.
In conclusion, just as we now have more flexible labor
markets than our major competitors, we need to expand that
flexibility as we move forward into the 21st century. We need
to make our workforce more attractive by giving everyone the
option of comp time instead of overtime. We need to lower taxes
rather than raising them. We need to decrease mandates rather
than increasing them.
Thank you for giving me the opportunity to appear here
The Chairman. Thank you very much.
[The prepared statement of Ms. Furchtgott-Roth follows:]
Prepared Statement of Diana Furchtgott-Roth
Mr. Chairman, members of the committee, I am honored to testify
before your committee today on the subject of the challenges of the
21st century workforce.
America's dynamic workforce has always faced changes. Americans
once worked primarily in agriculture, then in manufacturing, and now in
services. Transition from declining to growing industries has been
relatively easily achieved because of the flexibility of the U.S.
economy and U.S. labor markets. As a result, the United States has one
of the lowest unemployment rates (see Figure 1) and one of the highest
rates of job creation in the industrialized world. We are home to
millions of entrepreneurs.
As we move further into the 21st century, challenges will come from
many fronts. Two specific issues are the aging of our workforce and
increased global competitiveness, and these are the subject of my
testimony today. These phenomena will be with us over the next few
decades and we need to consider the best strategies for promoting the
flexibility of our labor markets to deal with them. Today I will talk
about some consequences of each of these changes.
America's Aging Workforce
As the large ``Baby Boom'' generation of Americans ages, the
demographic structure of the economy will shift and the proportion of
Americans over age 55 will increase significantly. In addition to the
aging of the ``Baby Boom'' generation, increases in longevity will
raise the proportion of older Americans.
Today the estimated U.S. population aged 55 or over is 67 million,
equaling 20 percent of the total population. This group is expected to
grow to 106 million by 2035, and comprise 28 percent of the population.
Total population will increase from 296 million in 2005 to 378 million
Americans age 65 or older comprise nearly 37 million people, or
11.0 percent of today's population. Over the next 30 years this group
will grow fastest. Their numbers will more than double to 77 million by
2035. During the same period, Americans in the prime working age group,
25 to 54, will increase by only 14 million (11 percent).
The consumption demand of an aging and increasing population will
lead to tight labor markets unless we have high productivity growth,
increased labor force participation, and additional immigration. In
America's dynamic and flexible economy, we already see two of these
forces--higher productivity growth and increased labor force
participation of older Americans--already at work to help offset the
demographic changes that are underway.
Labor Force Participation of Older Workers
Fortunately for the United States, the labor force participation
rate of older workers is increasing. We also see more older workers
working full-time weekly schedules. Increased labor force participation
of older workers is a positive sign that America's open and flexible
labor markets are providing opportunities for older Americans who
choose to remain economically active.
A higher percentage of older Americans work than do senior citizens
of many other industrialized countries. In Figure 2 we can see that 14
percent of Americans 65 and older remain economically active, a figure
in major industrialized countries only exceeded by Japan. In France,
Italy, Germany, Canada and Australia the percentage ranges from 1 to 7
Improved health and greater longevity are changing traditional
attitudes about retirement. Many Americans see continued work in their
60s and 70s, either part-time or full-time, as a source of vitality as
well as a source of income.
In 2004, the last full year for which data are available, the U.S.
labor force included on average 23 million workers age 55 or older. Of
these, 18 million were age 55 to 64 and 5 million were age 65 or older.
In 2004, the 23 million Americans age 55 or older in the labor force
comprised 16 percent of the labor force. Thirty-six percent of
Americans age 55 or older were in the labor force in 2004.
From 1995 to 2004, the labor force participation rate for every
group of older Americans increased. For the 55 to 64 age group the
labor force participation rate increased from 57 percent to 62 percent.
For the 65 to 74 age group, the labor force participation rate
increased from 18 to 22 percent.
The labor force participation rate of Americans age 55 or older,
both men and women, has been rising since 1993. In 2004, the labor
force participation rate for men age 55 or older was 43 percent. For
women age 55 or older, the labor force participation rate in 2004 was
Employment and Unemployment Experience of Older Americans
Older workers consistently experience lower unemployment rates than
do younger age groups. In 2004 the unemployment rate for Americans age
55 or older was 3.7 percent, compared to the overall average
unemployment rate of 5.5 percent. Older workers are more likely to be
self-employed: 17 percent of workers age 65 or older were self-employed
in 2004, compared to 11 percent of age 55 to 64 workers and 8 percent
of age 45 to 54 workers.
One noteworthy trend has been toward a higher proportion of older
workers working full-time. This may be a result of the removal of the
Social Security earnings test for workers age 65 or older in 2000. In
2004, on average, 77 percent of workers age 55 or over worked full-
time. In 2004, 23 percent of workers ages 55 and above usually worked
part-time weekly schedules (down from 28 percent in 1994). Figure 3
shows that the labor force participation rate of older Americans has
increased steadily over time, reaching a high of 37 percent in April
Economic Conditions of Older Americans
Some may say that older Americans have to work more because they
are less well off. But data show the opposite: the economic condition
of older Americans is above average and steadily improving.
According to the 2000 Census, Americans age 65 or older were more
likely than younger groups to own their own home (78 percent), to earn
interest from financial assets (70.5 percent) or to own stocks (29
percent). The median net worth of families headed by persons 65 to 74
years old in 2001 was $176,000, up from $122,000 (real 2001 dollars)
from 1992. For families headed by persons 75 or older, the median net
worth was also higher in real terms--$151,000 in 2001 compared to
$107,000 in 1992.
In 2002, the proportion of Americans age 65 or older with incomes
below the poverty level was smaller than the overall population
proportion of persons below the poverty level--10 percent of the age
65+ group compared to 12 percent of the overall population. In 1970, 25
percent of Americans age 65 or older were below the poverty line, and,
as recently as 1993, the proportion was 12 percent.
Increasing Flexibility for Americans in the U.S. Labor Market
The flexibility of the U.S. labor market enables older workers to
choose the pattern of labor force participation that fits their
preferences and needs. The removal of Social Security earnings tests
for workers age 65 or older ensures incentives to remain in the labor
force if desired. Income tax reductions since 2001 have increased the
incentive to remain economically active.
However, flexibility and the range of choices need to be further
increased, not just for older Americans but for everyone. Allowing all
private sector American workers the choice of comp time or overtime pay
for overtime hours worked would provide additional flexibility that
would make it easier for Americans to participate in the labor force.
Currently, only public sector workers who work overtime hours are
allowed to take comp time off in lieu of overtime pay. Under the Fair
Labor Standards Act, private sector workers are not given this option.
With our aging workforce, we need to encourage as many people as
possible to work if they choose to do so.
Let me give you an example of how this could work for a senior
citizen. Say that a grandmother has worked 50 hours rather than 40
hours 1 week, and wants to take some time off to see her grandchildren
rather than receiving overtime pay and working regular hours the next
week. A choice of 1\1/2\ hours of comp time instead of 1\1/2\ hours pay
would allow her to do that. She may wish to catch up on errands, or
catch up on sleep. The option of comp time rather than overtime pay
could tempt such a person into taking a job rather than staying home.
A choice of comp time rather than overtime pay would also encourage
other groups, such as working mothers, to enter the workforce. As a
working mother with 6 children, I am fully aware that there are many
important parts of a worker's life, including time with family. Extra
time spent at work 1 week is manageable if there is an option to be
able to take more time off at another point.
In the same way, biweekly work programs would allow Americans to
divide their work hours between 2 weeks rather than 1. With 80 hours of
work in a 2-week period, excess hours in 1 week could be made up with
decreases in the next. This is especially important for those with
What is important is that private sector hourly workers be given
the same choice as those in the public sector. One reason that so many
women choose to work in government is the flexibility of comp time.
Global competitiveness is a second major challenge for the American
economy. New forms of communications and more efficient mobility make
it easier to import goods from abroad and to export products to other
countries. In March, our exports of $102.2 billion were at a record
high and were 7.1 percent higher than a year earlier.
We cannot shy away from increased global competitiveness. It is
here to stay, and we need to face it head on rather than hiding from
discussions of outsourcing. Yes, it is estimated that U.S. firms
outsource about 300,000 jobs a year, but foreign companies employ
directly at least 6 million workers in the United States, according to
the Department of Commerce, and indirectly provide an equal number jobs
for millions of others.
Increased global competitiveness is yet another reason for keeping
our labor markets flexible and trying to extend that flexibility. As
President Clinton's former Chairman of the Council of Economic
Advisers, Martin Neil Baily, has written in his 2004 book Transforming
the European Economy, coauthored with Jacob Kierkegaard,
``The key to economic growth in high-income countries is
adaptability and flexibility. Only flexible economies are able
to adapt to internal shifts, global developments from beyond
their borders, and new technological advances, while generating
productivity growth and new jobs required to achieve true
social cohesion.'' (page 6)
Figure 4 shows an index of labor market flexibility measures for
the G-7 countries in 2003, the latest year available (data for 2004
will be published this July). This shows that the United States has the
lowest amount of employer mandates governing the hiring and firing of
workers of the countries examined.
This is associated with a vibrant labor market that benefits
American workers. In the United States 62 percent of the working age
population is employed, compared with 57 percent for Japan and 52
percent for the four major European countries. Employment growth in the
United States has been far higher than in Japan and Europe, as can be
seen in Figure 5.
Not only are a higher proportion of Americans employed, but these
Americans work longer hours every year than do their counterparts in
many other countries. In 2003, OECD data show that Americans worked on
average 1,792 hours per year, compared with 1,718 hours in Canada,
1,673 hours in the United Kingdom, 1,591 hours in Italy, 1,453 hours in
France, and 1,446 hours per year in Germany. Of major industrialized
countries, only workers in Japan work more hours per year than
One reason Americans work more is that they have lower tax rates
and so keep more of their earnings. Figure 6 shows a comparison of the
percent of labor costs paid in social security and income taxes for the
G-7 countries in 2004. These data are for a single person without
children who earns the average production worker's wages. The American
would pay 30 percent of his salary in taxes, compared with 31 percent
for the British worker, 32 percent for the Canadian, 46 percent for the
Italian, 47 percent for the Frenchman, and 51 percent for the German.
Only the Japanese worker is taxed less, at 27 percent, and, not
surprisingly, worked more hours than his American counterpart.
We saw above that Americans have lower unemployment than do other
major industrialized countries, and we can see in this figure that when
they are unemployed they find jobs faster--they are unemployed for a
shorter period of time. Figure 7 shows that only 12 percent of the
unemployed are unemployed for a year or more, compared with 33 percent
for Japan, 34 percent for France, 50 percent for Germany, and 58
percent for Italy. The only major country that does better than the
United States is Canada, with only 10 percent unemployed for more than
One impossible challenge of the 21st century is forecasting what
technology is going to be 10 years from now. Ten years ago, in 1995,
most Americans did not have cell phones, they did not have e-mail, and
they could not even own blackberrys because they had not been marketed.
With these new inventions productivity is rising substantially. We do
not know where technology is going to lead us in 2015 or 2025. But we
do know that our employers are going to need to adapt to whatever comes
along, and we need to give them the tools to do so. We also need to
protect the intellectual property of our inventors and entrepreneurs,
and not allow other countries to pirate our ideas. The United States
leads the world in creativity, and theft of intellectual property has
been estimated to cost us hundreds of billions of dollars.
In conclusion, just as we now have more flexible labor markets than
our major competitors, we need to expand that flexibility as we move
forward into the 21st century. We need to make the workforce more
attractive by giving everyone the option of comp time instead of
overtime. We need to lower taxes rather than raising them. We need to
decrease mandates rather than increasing them.
Thank you for giving me the opportunity to appear here today.
The Chairman. Mr. Bernstein?
Mr. Bernstein. I, too, thank the committee for the
opportunity to testify today and applaud you for addressing the
challenges facing our workforce both now and in the coming
Economists and policymakers have stressed the opportunities
of the global economy and the dangers of pushing back against
them. Like others in my field, I agree with these sentiments:
when the global economy calls, you had better up the phone.
Yet surely it is the case that globalization creates both
winners and losers, both here and abroad, now and in the
future. Many in our manufacturing workforce have watched their
jobs and their factories leave for other countries, and now in
an era where white-collar jobs can increasingly be offshored,
even our most skilled workers face competition from workers
with similar skill sets yet far lower wages.
Millions go without health insurance, see their pensions
erode, and watch their incomes stagnate while the benefits of
economic growth flow freely to those at the top. We are just
now coming out of the longest jobless recovery on record, and
for many in the working class, wage growth continues to lag
inflation, even while profits and productivity soar.
This committee is well aware of these developments, and I
take it as given that deriving a policy framework for
addressing both the upsides and downsides of globalization is
the main reason for today's hearing.
About 80 percent of the jobs lost to trade over the last
business cycle were held by those with noncollege educations.
But half of those jobs paid in the top half of the wage scale.
So as intuition would suggest, jobs lost to trade, particularly
those in manufacturing, are good jobs for those without college
educations. The loss--in some recent periods, the
hemorrhaging--of manufacturing employment is one of the most
frequently cited costs of our protracted trade deficit in
manufactured goods. Most recently, the sharp decline in the
price of accurately transmitting information to faraway places
has created the potential to bring millions of skilled workers
into competition with our white-collar workforce, and the
implicit supply shock from bringing these workers online is
likely to create the opportunity for global labor arbitrage,
creating downward pressure on white-collar wages.
Over a period where our economy has consistently expanded,
become far more productive, and become far more globally
integrated, the hourly wage of the median male, as shown in the
figure up there--historically a building block for the living
standards of middle-income families--was unchanged over 30
years, between 1973 and 2004. It ended up at precisely the same
level in real terms. At the same time, the 95th percentile wage
ended the period up 30 percent over its 1973 level. To the
extent that globalization was improving economic outcomes over
this period, by this measure, its benefits eluded low- and
The figure in my written testimony plots the receipt of
employer-provided health care and pension coverage for college
graduates starting out in the workforce. I chose this group
because, as newly minted college grads, they presumably suffer
less from any skills deficits than those with a terminal high
school degree. Yet these workers' skills have failed to
insulate them from the loss of pension and health coverage. The
challenges of globalization must also be viewed in the context
of changes in our workforce, particularly regarding the
pressures of balancing work and families. Today, two-thirds of
mothers with children work in the paid labor force. In fact,
given male stagnation of hourly wages, as shown in this slide,
extra work by wives has been a critical factor in preventing
the decline of the incomes of middle- and low-income married
families with kids.
Now, how can we best meet the challenges that I have set
forth? Many who consider this question focus less on direct
policies to insulate our workers from shouldering more of the
risk inherent in expanded globalization and more on the
prospective difficulties facing future employers finding enough
skilled workers. In fact, the mantra of a skill shortage is so
often repeated that it seems beyond question. Yet in an economy
with scarce policy resources, it is essential to examine the
evidence for and against the alleged coming skill shortage. I
have done so in my written testimony and find the evidence to
be weaker than you might expect. I will not take the time to go
through the arguments in detail. I will say that the predicted
occupational shifts that should be forthcoming over the next
decade should raise the demand for workers with at least a
college degree by 1 percentage point over 10 years. Given the
expected increase in the supply of college graduates, we are
likely to meet those projected skill demands. Of the 30
occupations adding the most jobs over the next decade, only
eight call for a college degree.
It is also very hard to square these concerns regarding our
present and future skills mismatch with the post-1995
productivity acceleration, a trend that is highly inconsistent
with the warnings of skill shortages years back. Those shaping
workforce policies based on these types of predictions should
know that the past is littered with inaccurate claims based on
demographic projections because, contrary to the oft-made
claim, demographics are not destiny. Too many other factors can
and do intervene such that demographic change always explains a
relatively small share of future outcomes.
Back in the mid-1980s, researchers at the Hudson Institute
warned that skill demands would mean higher unemployment for
less skilled workers. Their base-case prediction by these
forecasters for unemployment in 2000 was 7 percent. In fact,
the unemployment rate was 4 percent in that year, and the 2000
rate was driven down in large part by the tightest low-wage
labor market in decades.
Turning finally to policy recommendations, I am mindful
that even the mildest forms of work protections are criticized
by opponents as a destructive response to globalization to
future workforce pressures. Under the guise of ``flexibility,''
it is argued that in an increasingly global economy we can no
longer afford labor protections that date back to an era when
our economy was far less globally integrated. This strategy
threatens to take our workforce policy in exactly the wrong
direction. We cannot both shift more risk onto our workforce in
an era of increasing economic insecurity and inequality and
expect them to embrace globalization. Neither, of course, can
we build walls around our economy.
Instead, we must think in terms of providing our workforce
with both the tools and the protections they need to maximize
the benefits of globalization. Some ideas consistent with that
goal: expand trade adjustment assistance to workers in all
sectors, covering all countries with whom we normally trade;
protect and enhance workers' rights to organize, as articulated
in the Employer Free Choice Act; take the responsibility for
health insurance coverage out of the workplace and more toward
a single-payer, universal approach to health care, based on
expanding Medicare to the nonelderly; raise the minimum wage
and modernize the unemployment insurance system; remove tax
incentives for companies to shift jobs overseas; ensure
universal access to pre-K so every 3- and 4-year-old in the
Nation has a quality learning environment; ensure access to
higher education for all who want to attend college by paying
the costs of postsecondary education for every child in America
who can qualify; help working parents balance work and family
by implementing paid family and medical leave, paid vacation
and sick days.
These are the policies designed to ensure that one of our
greatest resources--the American workforce--has both the skills
and the security they need to meet the challenges they face
moving forward into the 21st century.
I thank you for the opportunity to testify today.
[The prepared statement of Mr. Bernstein follows:]
Prepared Statement of Jared Bernstein
I thank the committee for the opportunity to testify today, and
applaud you for addressing the challenges facing our workforce both now
and in the coming decades.
My testimony will focus on these challenges through the lens of
globalization. The term, according to the International Monetary Fund,
refers to the increasing integration of economies around the world,
particularly through trade and financial flows.\1\
\1\ See http://www.imf.org/external/np/exr/ib/2000/041200.htm.
There can be no doubt that our economy is far more globally
integrated than ever before. Thirty years ago imports plus exports
amounted to 10 percent of our gross domestic product. Now they amount
to 25 percent of GDP. Like other large forces of change, globalization
is an inevitably evolving part of our economic lives. Advances in
technology, most recently the decline in the cost of transmitting
information, have diminished barriers between nations and expanded the
U.S. marketplace far beyond our borders.
Economists and policymakers have stressed the opportunities
embedded in these developments, and the danger of pushing back against
them. Like others in my field, I agree with these sentiments: when the
global economy calls, you'd better pick up the phone!
The benefits of globalization include the growth-enhancing ability
of countries to tap their comparative advantages, the expansion of our
export markets, and the price savings associated with imports.
Similarly, the expansion of financial and labor markets has the
potential to create greater competition, more efficient markets, and
Yet, it is surely the case that globalization creates both winners
and losers, both here and abroad. Many in our manufacturing workforce
have watched their jobs and even their factories leave for other
countries, and now, in an era where white-collar jobs can increasingly
be offshored, even our most skilled workers face competition from
workers with similar skill sets yet far lower wages.
As we discuss these matters today, tens of millions of workers go
without health insurance, see their pensions erode, and watch their
incomes stagnate while the benefits of economic growth flow freely to
those at the top. We are just now coming out of the longest jobless
recovery on record, and for many in the working class, wage growth
continues to lag inflation, even while profits and productivity soar.
In such a climate, the view that forward-looking people must
happily embrace whatever outcomes globalization yields is not
productive. While the benefits of globalization are prodigious, many
who have been hurt by trade competition feel devalued when elites
stress solely those benefits and ignore the negative impact of these
trends on working families. Moreover, if policymakers do not
acknowledge and try to address these costs, we will increasingly
encounter a public that views protectionism as the best way to insulate
themselves from the downside of global competition.
I believe this committee is well aware of this danger, and that
deriving a policy framework that addresses both the upsides and
downsides of globalization is a main reason for today's hearing. Toward
that end, I begin by presenting a set of economic outcomes that have
evolved over the past few decades, as our economy has become more
global. I stress that correlation is not causation, and that increased
exposure to global competition is but one of many factors responsible
for these changes. Where possible, I try to quantify its role.
Following that, I assess the policy responses offered to strengthen
the competitiveness of our 21st century workforce. Two common lines of
argument are skill enhancement and further deregulation of U.S. labor,
product, and financial markets are the necessary components of a more
competitive workforce. While improving access to educational
opportunities is critical to improving living standards to many who
currently lack such access, further deregulation--for example, reducing
our labor standards--is likely to be counterproductive. Instead of
making us more competitive, it will have the effect of shifting more
economic risk onto our workforce, thereby amplifying the negative
effects of globalization.
My testimony ends with a set of policy ideas designed to enhance
our competitiveness while helping to provide a greater safety net to
those whose economic fortunes have been subjected to greater risk. The
goal of this policy set to harness the benefits of globalization in
order to address its costs. Washington Post columnist E.J. Dionne, put
it well in a recent piece, when he noted that the challenge for policy
makers in this area is ``. . . how to create enough security so that
Americans can embrace a dynamic economy without fear. Paradoxically,
throwing more risk onto individuals leads to risk-avoidance. Risk-
taking requires a certain amount of risk-sharing.'' \2\ These
sentiments guide the policy ideas I offer below.
\2\ Washington Post, May 20, 2005.
The Challenges Facing Today's Workforce
In order to best plan for strengthening the workforce of the
future, we need to understand the challenges facing today's workers.
This section briefly touches on the most relevant examples.
Employment Trends: As we show in State of Working America, 2004/05
(Table 2.32--hereafter, referred to as SWA), over the last business
cycle (1994-2000), 77 percent of the jobs lost to trade were held by
those with non-college educations, but half of the jobs paid in the top
half of the wage scale. Thus, as intuition would suggest, jobs lost to
trade, particularly those in manufacturing, are good jobs for those
without college educations. And a simple, but underappreciated fact is
worth noting here: only a minority of our workforce, 30 percent, has a
college degree or higher in 2004.
The loss--in some recent periods, the hemorrhaging--of
manufacturing employment is one of the most frequently cited costs of
our protracted trade deficit in manufactured goods. Most recently,
manufacturing employment peaked in March of 1998; since then, the
sector has shed 3.3 million jobs, including an unprecedented period of
43 consecutive months of job losses. Since that peak, manufacturing as
a share of total employment has fallen from 14.1 percent of total
employment to 10.7 percent. While this is a continuation of a very long
trend--manufacturing has been shrinking as a share of total employment
for decades--that trend accelerated over this period, as did our
manufacturing trade deficit.
More recently, the sharp decline in the price of accurately
transmitting information to far-away places has created the potential
to bring millions of skilled workers from abroad into competition with
our white-collar workforce. The implicit supply shock from bringing
these workers ``online'' is likely to create the opportunity for
``global labor arbitrage,'' in the words of Morgan Stanley's chief
economist Stephen Roach, creating downward pressure on white-collar
\3\ See, for example, http://www.globalagendamagazine.com/2004/
In the globalization debate, these issues have been discussed under
the rubric of ``offshoring.'' At this point, there is little solid
evidence of the offshoring's impact on jobs and wages, though anecdotes
abound, particularly regarding the slow recovery in our IT sector. It
is important to note that the lack of evidence at this point is due to
the inability of our statistical system to capture this dynamic. Below,
I suggest some ways in which we might do a better job of keeping track
of how many jobs are ``offshored.''
Most economists believe that even with increased offshoring, IT
will again be a strong job-growth sector (hiring in IT has been
depressed since 2001 due largely to the bursting of the tech bubble).
In this regard, offshoring is likely to show up more in the
compensation trends of our domestic workers in affected sectors than in
their employment trends.
Wage Trends: Figures 1A and 1B show real hourly wage trends for men
and women at various wage percentiles. For men, note the long-term
decline in the real value of middle- and low-wages, while the 95th
percentile wage climbed fairly steadily.
Relative to the role of globalization, two important points can be
drawn from the trends in 3a. First, over a period where our economy
consistently expanded, became far more productive, and became far more
globally integrated, the hourly wage of the median male--historically a
building block for the living standards of middle-income families--was
unchanged over 30 years! In 2004 dollars, it started at $15.24 in 1973
and ended up at $15.26 in 2004. At the same time, the 95th percentile
ended the period over 30 percent above its 1973 level. To the extent
that increased globalization was improving economic outcomes over this
period, by this measure, its benefits eluded low- and middle-wage men.
Recent work by my EPI colleague Larry Mishel has examined these
male wage changes from the perspective of increased trade. A consensus
figure from the inequality literature finds that trade explains about
20 percent of the increase in wage inequality. Between 1979 and 2004,
the male median wage fell 4 percent while the 95th percentile male wage
was up by 32 percent. In today's dollars, this amounts to a growth in
the hourly wage gap between these 2 percentiles of about $12. Taking 20
percent of that gap and assuming full-year work translates into an
income loss of $4,700, a significant loss for these workers and their
\4\ The hourly gap grew by $11.82. This figure times
Second, notice that for middle- and low-wage women, as well as for
men throughout the pay scale, real wages climbed steeply from 1995-
2000, before flattening most recently. Prior to this period, most
economic analysts argued that the limited skills of these workers were
responsible for their weak wage outcomes. Yet skills had nothing to do
with the wage acceleration of the latter 1990s; it was largely a
demand-side phenomenon, as the unemployment rate headed for a 30-year
low and the job market tightened up for the first time in decades.
The period serves as a critical reminder that policymakers must not
limit their analysis to the supply-side, as in skill-based solutions,
but consider the host of other factors that influence the opportunities
for work and the quality of jobs. Over this period, taxes became more
progressive, yet contrary to supply-side lore, investment soared and
productivity accelerated. The minimum wage was increased and the Earned
Income Tax Credit, a generous wage subsidy to low-wage workers, was
significantly expanded. The Federal Government balanced its budget for
the first time in 30 years, and the signal of fiscal rectitude was
reassuring to financial markets, helping to push down the long-term
borrowing rate, further boosting investment and productivity (Blinder
and Yellin, 2001). Again, I note that none of these policies targeted
alleged skill deficits, yet together they had a demonstrably positive
affect on our workforce, reconnecting, albeit for too few years, the
fortunes of many in the working class to the overall growth in the
The momentum of the formerly full-employment job market kept real
wages rising through mid-2003, but since then, the combination of
slower nominal wage growth and faster inflation have led to declining
real wages, particularly for less advantaged workers. For example, as
shown in Figure 2, on a year-over-year basis, the hourly wages of blue-
collar manufacturing workers and non-managers in services have failed
to beat inflation for 12 months running.
Unlike wages, compensation growth has been beating inflation, but
this is due to the rising costs faced by employers of providing
healthcare and pension coverage. Even so, as shown in Mishel and
Bernstein (2005), compensation significantly lags productivity,
especially compared to prior periods.\5\ We show, for example, that in
past recoveries, real compensation grew 72 percent as fast as
productivity, suggesting the benefits of greater efficiency were more
broadly shared with the workforce. This time around, compensation has
been rising 37 percent as fast as productivity.
\5\ See: http://www.epinet.org/content.cfm/webfeatures snapshots
Of course, the gap between workers real wages and productivity is
far greater. Data from the Employment Cost Index--a closely watched
source of compensation and wage data for all civilian workers (and thus
more comprehensive than the production worker series in Figure 2)--
reveals that while benefit costs have been driving compensation ahead
of inflation, wages have grown far more slowly. In fact, the year-over-
year growth of the ECI wage and salary component has been 2.4 percent
for the past three quarters, the lowest growth rates for this series
since its inception in the early 1980s. Since 2001q1, real ECI wages
have grown at an annual rate of 0.7 percent while productivity has
expanded 4 percent per year, an historically unprecedented gap between
paychecks and productivity.
Where, then, if not into compensation, has the growth been going?
It has largely flowed to profits, which have soared since the
recession, creating a historically unique pattern. Over prior business
cycles, profits (including interest income) have accounted for 23
percent of the growth in corporate-sector income, on average, with
total compensation accounting for the remaining 77 percent. In the
current business cycle, the distribution is almost reversed: profits
have claimed nearly 70 percent of total growth in the corporate sector,
while increases in compensation (from increased employment and higher
hourly compensation) have received just over 30 percent of total income
Employer-Provided Pension and Health Coverage: Figure 3 plots the
receipt of employer-provided health care and pension coverage for
college graduates starting out in the workforce. The group is chosen
for the analysis because as newly-minted college grads in the
workforce, they presumably suffer less from an alleged skills' deficit
than those with terminal high-school degrees. Yet, these workers'
skills have failed to insulate them from the loss of pension and health
coverage, as the share with employer-provided health care has been
drifting downward for decades, while the trend in pension coverage has
been stagnant or falling with the exception of the latter 1990s. Most
recently, a decline in pension coverage for young college graduates is
evident at the end of the figure.
To make matters worse, due to the shift from defined benefits (DB)
to defined contributions (DC), pensions have become less secure for
those who still have them. In the early 1980s, those who received
pension coverage were about four times more likely to have a guaranteed
pension benefit upon retirement than one subject to the outcome of the
employee's investments and the employer's match. This ratio flipped in
the mid-90s and DC pensions are now more prevalent than the DBs. The
fact that these trends are befalling skilled workers suggests that
policymakers need to think beyond skill-enhancement to re-secure health
and pension coverage for these workers.
Balancing Work and Family: The challenges of globalization must
also be viewed in the context of changes in the composition of our
workforce over time, particularly regarding the pressures of balancing
work and family. As is widely recognized, the share of women in the job
market has about doubled since we started tracking the statistics in
the late 1940s, while that of men has consistently fallen. In 1950,
women were 30 percent of the workforce, now they account for just under
half. Today, about two-thirds of mothers with children work in the paid
labor market; even among moms with kids under 6, a solid majority work,
with employment rates just below 60 percent.
In fact, given male wage stagnation (see Figure 1a), extra work by
wives has been a critical factor in preventing the decline of incomes
among middle- and low-income married families with children. As we show
in SWA, low and moderate-income wives (in the first two income
quintiles) increased their hours of work by between 60 and 70 percent
between 1979 and 2000, while middle income wives increased their hours
by about half. \6\ Higher income wives started from a significantly
higher base and their hours grew less in percentage terms. They too,
however, increased their hours by about one-third over the 1980s and
\6\ See pages 100-106.
Translating these large percentage increases into the equivalent of
full-time work gives a sense of how much more time these working wives
spent in the paid labor market. Moderate- and middle-income wives added
over 3 months, while wives from low- and high-income families added
over 2 months.
In the absence of these added hours of wives' work, family incomes
would have fallen for the bottom 40 percent of married couple families
with children, and would have risen only 5 percent for middle-income
families over the 2 decades from 1979-2000. Instead, thanks to wives'
contributions, their incomes rose, by 8 percent for the bottom fifth,
16 percent for the second fifth, and 24 percent for the middle fifth.
These gains, of course, did not come without putting considerable
stress on working families. From the perspective of workforce policy,
the relevant question becomes: which policies can help families balance
their need and desire to work and pursue careers, while giving them the
time and resources they need to raise their families. I address these
issues in the policy section below.
Income inequality: As noted in the introduction, the economic
dynamics associated with globalization creates winners and losers. One
way this has played out in recent years is through increasing
inequality, as workers in sectors and occupations more complementary
with increased global integration have claimed far more of the
economy's output than those in competing sectors. For example, managers
in manufacturing may benefit through outsourcing work to cheaper
overseas platforms while blue collar workers may be displaced.
According to the most comprehensive income data, developed by the
Congressional Budget Office, the after-tax, inflation-adjusted incomes
of the bottom fifth of households grew 5 percent between 1979 and 2002.
For households in the middle fifth, the average gain was 15 percent;
for the top fifth, 48 percent, and for the top 1 percent, 111 percent
(see Figure 4). Over this same period, our economy has become
increasingly more productive, and while technological advances are the
main factors cited for these gains, some economists credit trade as
well, particularly for generating lower prices. In fact, productivity
increased 53 percent, 1979-2002, but as these inequality statistics
reveal, the benefits of this greater efficiency eluded most in the
working and middle classes.
This evolving gap is shown in Figure 5, which plots the
relationship between productivity growth and the real income of the
median family. From the late-1940s to the mid-1970s, the living
standards of middle-income families increased in lock-step with
productivity growth, as the benefits of the expanding economy were
shared evenly by all who played a role in that expansion. Since then,
the wedge of inequality has severed this relationship, despite the fact
that middle-income families are working harder than ever before.\7\ As
can be seen at the end of the figure, this problem has worsened in
recent years. Between 2000 and 2003 (the most recently available income
data), productivity expanded by 12 percent while median family income
fell by 3 percent. In fact, the gap between the two series in 2003 is
the largest on record, going back to 1947.
\7\ Between 1979 and 2000, the annual hours of work of middle-
income, married-couple families increase by over 500 hours, largely due
to the contribution of working wives (Mishel et al., 2004).
Recent Trends: Most recently, the formerly jobless recovery has
left us with a labor market that remains slack, and while we've
achieved some decent growth numbers in terms of GDP and especially
productivity, the incomes of middle-income families fell each year
between 2000 and 2003. As shown in SWA, Table 1.2, the post-2000 income
losses are more than explained by the decline in annual hours worked, a
function of the protracted labor market contraction. Poverty also rose
over these years, and rose most for the least advantaged, like single-
moms who are more vulnerable now that our safety net seems better
designed for booms, not busts.\8\
\8\ See Greenberg and Bernstein, 2004.
On the plus side, our economy is steadily creating jobs again,
albeit at a rate which jobs lags past recoveries. Over the past 12
months, for example, employment has been expanding, on net, at an
average rate of 181,000 per month. In the last recovery, the monthly
figure for the comparable point in the business cycle was 300,000. The
current unemployment rate stands of 5.2 percent is low in historical
terms, but that figure presents far too rosy a picture of the job
market--it is biased downward by the fact that millions gave up the job
search due to perceived lack of demand and are thus not counted among
the unemployed. This bias is also evident in the extent of long-term
unemployment, which currently looms as a much larger problem than we
would expect, given an unemployment rate in the low fives.\9\ A better
measure of current demand--employment rates--remain quite depressed,
especially for African-Americans, males in particular.\10\
\9\ See http://www.epi.org/content.cfm/webfeatures snapshots
\10\ See: http://www.epinet.org/content.cfm/webfeatures snapshots
These are some of the problems facing many in the current
workforce. Surely, some of them are more closely linked to global
competition than others. For example, the slump in manufacturing
employment is closely linked to the expanding trade deficit, while the
slow growth in IT employment has more to do with the bursting of the
tech bubble. Declining real wages amidst strong profit growth may well
relate to the global wage arbitrage noted above, but it is equally a
function of the slack leftover from the jobless recovery.
The larger point is that a policy framework for the 21st century
workforce needs to grapple with these realities. The question for
policymakers is then how, in an increasingly global economy, do we meet
these challenges while enhancing our competitiveness? How can we
harness the economic benefits of globalization in such a way as to
pushback against greater inequality, ensuring that the living standards
of working and middle-class families benefit from advances in trade and
technology as much as those at the pinnacle of the income pyramid?
Demographics Are Destiny . . . Not!
Interestingly, many who consider these questions focus less on
direct policies to insulate our workers from shouldering more of the
risk inherent in expanded globalization, and more on the prospective
difficulties facing future employers (Hudson Institute, 1987 and 1997).
Here, I briefly discuss two threads of their concerns: the future
skills shortage, and the challenge of future demographic trends.
The Skills of Our Current and Future Workforce are Important, But
They're Not the Whole Story \11\
\11\ Some of this text is adapted from Bernstein (2004).
No serious analyst could question the value and importance of a
skilled workforce. Years of economic research has established that an
increasing supply of skilled workers is a critical input into
production, leading to higher productivity growth and better living
standards throughout the economy. Great innovations that have helped to
establish our world-class economy are clearly linked to the quality of
Many critics of the American education system, however, argue that
we already fail to produce enough skilled workers to meet employers'
demands and that this shortfall will only worsen. And few who have
examined this issue can doubt that access to quality education is
blocked for many deserving, yet disadvantaged, Americans. In fact, the
mantra of a skills-shortage is so often repeated it seems churlish to
Yet, in an economy with scarce policy resources, it is essential to
examine the evidence for and against the alleged coming skills
shortage. There's little question that the Federal Government will
remain in the business of investing in workers skills, of course, but
should these investments crowd out other, more direct ways of enhancing
the security of our workforce? Here are a number of reasons to question
the existence of a skills mismatch of a magnitude that would lead us to
The most frequently cited evidence for a skills shortage
over the past few decades is the increase in the college wage premium.
But the rise in the college premium has been partly driven by shift in
economic structures that have served to lower the wages of less
educated workers, such as the loss of manufacturing jobs, fewer unions,
lower minimum wages, and, excepting the latter 1990s, high average
unemployment rates. When many of these factors pushing down low wages
were reversed in the latter 1990s, the growth college wage premium
Contrary to the skills'-deficit argument, the real wages
of college graduates have not been consistently bid up. Figure 6 shows
that for about 10 years, from the latter 1980s through the mid-1990s,
the real wages of young college graduates were flat. Their premium may
have been rising over this period, but as just noted this was partly
due to the structurally-induced decline in wages of less-educated
workers. Presumably, a true skills shortage should lead to rising
absolute wage levels, not simply relative wage gains. As in the wage
percentile figures above (1B and 1B), this figure also reveals the
boost these workers got from the full-employment labor market of the
latter 1990s, and the reversal of that positive trend in recent years.
Once again, the importance of demand as a wage determinant is evident,
though this emphasis is generally absent from the supply-side skills
Occupational employment shifts show steady, not
accelerating growth of skill demands. It is critical to note that skill
demands have always risen over time and will continue to do so.
However, the ``skills mismatch'' claim argues that the rate of skill
demands has increased. In Bernstein and Mishel (2001), we present an
index of occupational skill demands and show that it has proceeded at a
steady pace over the past 25 years.
The quality of our labor supply has increased
significantly, and will continue to do so. We have doubled the share of
college educated workers, including those with advance degrees, from
14.6 percent in 1973 to 29.5 percent in 2004. Conversely, we have cut
the share of high-school dropouts from 28.5 percent in 1973 to 10.3
percent in 2004.
Still, it is possible to accept that while the case for skill
shortages in our current economy is weak, given increased
globalization, future skill demands will outpace the supply of skilled
Given the ongoing upwards shift in the share of the workforce that
is college-educated, recent BLS projections of job growth by occupation
do not paint a picture of difficult-to-meet skill demands. While most
of the fastest growing occupations call for at least a college degree,
these occupations are growing from a low base and are thus not
contributing the most jobs to the future economy. Conversely, of the 30
occupations adding the most jobs over the next decade, only eight call
for a college degree.\12\ Summing over all the occupations, they are
expected to add 12.6 million jobs over the next decade, yet only 28
percent are expected to require at least a college degree. As we show
in SWA, Table 2.48, these predicted occupational shifts should raise
the demand for workers with at least a college degree by one percentage
point over 10 years. Given the expected continued increase in the
supply of college graduates, we are very likely to meet these projected
\12\ See http://www.bls.gov/emp/mlrtab4.pdf.
A final point here is that it is very hard to square concerns
regarding our present and future skills mismatch with the post-1995
productivity acceleration--a trend unforeseen by any of the futurists
who were warning of skill shortages years back. This is a particularly
steep challenge for the skill-shortage adherents, since productivity
growth, more so than test scores or educational attainment, is prima
facie the best measure of the extent to which the skills of the
workforce are promoting or hindering economic growth. Trend
productivity growth accelerated by about 1 percent per year in the
latter half of the 1990s--from 1.5 percent to 2.5 percent per year--and
has since accelerated about another 1 percent (though many experts
suspect that this added boost is less sustainable). Contrary to a
skills deficit story, the acceleration of this most important economic
indicator suggests that the skills of our workforce in tandem with
capital investment and technological innovation appear to have given
rise to a new golden era of accelerated productivity growth.
Productivity experts expect this accelerated trend to continue into the
\13\ See Jorgensen et al., http://www.newyorkfed.org/research/
What About an Older, Slower-Growth Labor Force?
A related set of concerns reflects the fact that our workforce is
increasingly older, and, as the baby boomers begin to age out of the
system and are followed by smaller birth cohorts, will grow more slowly
than in the past. Like the case for skills mismatch, there is a grain
of truth here. In fact, one of the few things we can predict with a
modicum of accuracy is the demographic composition of the future
population (though that of the workforce is a tougher call), since we
know the age and demographics of those alive today, and have some ideas
about immigration (though, as shown below, this is an area that has
proved hard to predict).
However, those who intend to shape workforce policy based on these
predictions should know that the past is littered with widely
inaccurate claims based on demographic projections, because, contrary
to the oft-made claim, demographics are not destiny. Too many other
factors can and do intervene such that demographic change always
explains a relatively small share of future outcomes.
Take, for example, an unrelated prediction I raise here because it
is quite instructive in this regard. Based on the age structure of
groups in the population with higher than average propensities to
commit crimes, criminologists in the 1980s warned that crime rates in
the 1990s would accelerate. In fact, crime rates plummeted in the
1990s, once again taking demographers by surprise.\14\
\14\ A number of reasons have been offered for the divergence
between the predicted and actual outcomes, including a surprisingly
strong economy, heightened punitive measures, and, according to
controversial work by Leavitt and Donahue, (2000), more abortions
decades hence (see Bernstein and Houston, 2000, re the other factors).
Closer to home, let us briefly look at some of the predictions made
in the mid-1980s in the Hudson Institute's influential publication
Workforce 2000. Warning that skill demands would mean higher
unemployment for less-skilled workers, the base-case prediction by
these forecasters for unemployment in 2000 was 7 percent. In fact, the
unemployment rate that year was 4 percent (see Figure 7). Moreover, as
shown in Bernstein and Baker, 2003, the rate was driven down largely by
the tightest low-wage labor market in decades.
This is not to fault the Hudson Institute's forecasters--no one
else saw the unemployment rate headed for a 30-year low. The point is
that by focusing on the static demographic, economic, and policy data
they had at hand, they missed a set of developments that swamped these
factors. These include the acceleration of immigration--they assumed
that Hispanics would grow by 22 percent as a share of the labor force,
1985-2000; the actual figure was 33 percent. They further assumed that
Hispanic employment would fall from 6.4 percent of total employment to
5 percent; instead, it rose to 11.5 percent. They (and everyone else)
failed to foresee that faster productivity growth that allowed the
Federal Reserve to let unemployment fall below the consensus rate for
full employment; they could not account for policy changes like welfare
reform and the expanded Earned Income Tax Credit that sharply raised
the labor force participation rates of single mothers.
Phenomena like these, and each period is replete with them,
consistently foil demographic-based forecasts.
Most recently, along with skill shortages, demographic forecasters
have added the slower growth of the future labor force to their list of
concerns.\15\ In large part, this concern stems from the economic
identity noting that the rate of GDP growth equals the rate of
productivity growth plus that of the labor force. Thus, if the labor
force grows less quickly, it implies slower GDP growth, ceteris
\15\ See, for example, http://www.aspeninstitute.org/
Yet what determines future living standards, on average, is GDP per
capita (of course, the living standards of families at different income
percentiles is very much a function of how average growth is
distributed). If GDP and population both grow more slowly, the outcome
for GDP per capita is an empirical question.
An instructive short-run prediction comes again from the economic
assumptions behind the BLS projections for growth over the next 10
years. As shown in Figure 8, GDP is expected to grow more slowly in the
forecast years, by 0.2 percent. Yet population growth will slow by
slightly more than this, by 0.3 percent, from 1.2 percent per year to
0.9 percent. The outcome is that GDP/capita will grow at the same rate
over the two periods.
This is but one short-term forecast and as such, may not change the
minds of those convinced of a coming labor shortage in the more distant
future. But here again, the point is that there are ``many moving
parts'' to consider when deciding where to place scarce policy
resources. The labor force may well grow more slowly in decades to
come, but that will not necessarily lower GDP per capita. Faster
productivity growth is already helping to offset the slower growth of
the labor force. Finally, important shifts are underway regarding the
age at which people leave the job market. Between 2000 and 2004, the
only age cohort with an increasing rate of employment was those age 55
and up. Their employment rates grew by 3.4 percentage points, while
those of 16-24-year-olds fell by 5.8 points and those of 25-54-year-
olds fell by 2.5 points. Such changes can be unforeseen by
Policy Recommendations: Not Walls, But Nets
How can we best use the information presented thus far to frame the
policy debate over how to amplify the benefits of globalization without
ignoring the costs? The purpose of any policy set in this area is to
strengthen the ability of our 21st century workforce to compete without
forcing its participants to shoulder a disproportionate share of the
risks embedded in a more dynamic, competitive global economy.
Too often, even the mildest forms of worker protections are
criticized by their opponents as a destructive response to
globalization. These same opponents point to existing regulations like
overtime rules, minimum wages, and various types of social insurance,
already weakened by years of attack and neglect, as hurting our ability
There is simply no evidence to support these claims. The history of
such labor protections shows no correlation between them and any of the
important macro-economic indicators of our competitiveness, including
investment, productivity, or the growth of real national income. These
protections are, however, more closely related to how both the fruits
of that growth and the degree of economic risk are shared.
Under the guise of ``flexibility,'' it is argued that in an
increasingly global economy we can no longer afford labor protections
that date back to an era when our economy was far less globally
integrated. To help our workforce compete, the argument goes, we must
dismantle policies wherein the government attempts to internalize some
of the risk inherent in market outcomes, even while the degree of risk
has been ratcheted up by globalization.
This strategy threatens to take workforce policy in exactly the
wrong direction. As the Dionne quote presented earlier stressed, we
cannot both shift more risk onto our workforce in an era of increasing
economic inequality and insecurity and expect them to embrace
globalization. Neither, of course, can we build walls around our
Instead, we must think in terms of providing our workforce with
both the skills and the security they need to maximize the benefits of
globalization. To do so implies the creation of a broad safety net that
ensures that the living standards of all working families grow with the
overall economy. Our policy set should be designed to diminish the
growing gap between productivity and the wages, incomes, and economic
security of our workforce.
Here are some ideas consonant with that goal:
Expand Trade Adjustment Assistance to workers in all
sectors and covering all countries with whom we normally trade;
Protect and enhance workers' right to organize as
articulated in the Employee Free Choice Act;
Take the responsibility for health insurance coverage out
of the workplace; establish an employer/labor commission with the
assignment of recommending a single-payer, universal approach to
healthcare, based on expanding Medicare to the non-elderly;
Raise the minimum wage;
Modernize the Unemployment Insurance system with the goal
of increasing eligibility and coverage for those with shorter and more
interrupted work histories;
Get better information on the extent of offshoring;
Remove tax incentives for companies to ship jobs overseas;
Ensure universal access to pre-kindergarten so every 3- or
4-year-old in the Nation has a quality learning environment and arrives
at kindergarten prepared to learn;
Ensure access to higher education for all who want to
attend college by paying the costs of postsecondary education for every
child in America who can qualify: require the student to pay back over
time from increased wages;
Provide scholarships to any low-income individual who
studies science, math, engineering or technology, both for undergrad
and postsecondary education;
Help working parents balance work and family by
implementing paid family and medical leave, paid vacation and sick
The theme behind these ideas is that preparing for tomorrow's
workforce calls for a balanced approach. Policies of this ilk
acknowledge the importance of improving K-12 education and providing
access to higher education. But they also take as a given that the set
of challenges facing our workforce now and in the future cannot be met
by a skills agenda alone. A large majority--70 percent of our current
workforce--is not college educated, and these workers continue to make
vital contributions. Yet, for many, living standards have fallen even
while the economy expands.
Balancing the needs of workers and employers means rejecting calls
that invoke globalization as a rationale for greater risk shifting.
Cutting social insurance benefits, shifting retirement savings into the
stock market, pushing back on overtime protections and minimum wages,
ignoring the glaringly obvious need to protect and expand our health
care and pension systems--these harmful trends have all been
rationalized under the guise of preparing our workforce to compete in
the global economy.
The reality is that such policies can only lead to greater economic
insecurities while dispiriting and devaluing one of our national
treasures: the American workforce. Instead, the future demands a
progressive policy set that harnesses our great resources to propel our
workforce forward with both the skills and the security they need.
Aspen Institute. 2003. Grow faster together. Or grow slowly apart. How
Will America Work in the 21st Century? New York, NY: Frankfurt Balkind.
Bernstein, Jared and Dean Baker. 2003 The Benefit of Full Employment:
When Markets Work for People. Washington, DC, Economic Policy
Bernstein, Jared. 2004. ``The Changing Nature of the Economy: The
Critical Roles of Education and Innovation in Creating Jobs and
Opportunity in a Knowledge Economy.'' Testimony, Committee on Education
and the Workforce, U.S. House of Representatives.
http://www.epi.org/content.cfm/webfeatures viewpoints changing economy
Bernstein, Jared and Lawrence Mishel. 2001. ``Seven reasons for
skepticism about the technology story of U.S. wage inequality.'' In
Berg, Ivar and Kalleberg, Arne. I. eds. Sourcebook of Labor Markets:
Evolving Structures and Processes. New York, New York: Kluwer Academic/
Bernstein, Jared and Ellen Houston. 2000. Crime and Work. Washington,
D.C.: Economic Policy Institute.
Blinder, Alan and Janet Yellin. 2001. The Fabulous Decade:
Macroeconomic Lessons from the1990s. New York, New York: The Century
Donohue, John J. and Levitt, Steven D., ``The Impact of Legalized
Abortion on Crime'' (2000). Quarterly Journal of Economics http://
Johnston, William B. 1987. Work Force 2000. Indianapolis, Indiana:
Jorgenson, Dale W., Mun S. Ho, and Kevin J. Stiroh. 2004. ``Will the
U.S. Productivity Resurgence Continue?'' Volume 10, Number 13--December
2004. New York, NY: Federal Reserve Bank of New York.
Judy, Richard W. and Carol D'Amico. 1997. Work Force 2020.
Indianapolis, Indiana: Hudson Institute.
Mishel, Lawrence, Jared Bernstein, and Sylvia Allegretto. 2005. The
State of Working America, 2004/2005. Ithaca, New York: Cornell
U.S. Department of Labor, BLS. 2004. Monthly Labor Review, February
2004. Washington, D.C.: Bureau of Labor Statistics.
The Chairman. I want to thank all of you for your
information, not only that you just shared verbally, but that
is in your full statements. It is a very comprehensive work
that all of you did that will provide us with a lot of very
valuable information. Of course, what we have asked you to do
by being on the panel is to be futurists. We are asking you to
see into the future and predict what is going to happen so that
we can do laws that will prepare for those predictions, and of
course, we are hoping that you are extremely accurate too. One
thing I have learned being around here is it is much easier to
predict about the past, but that is not the luxury that we
have, and I do appreciate in your testimony the extra work that
you went to to provide us with that information.
I think the future is kind of scary, and every day the
options get a little bit more limited. I am not sure that we
have the excitement generated in the schools over the
challenges and the opportunities that they face. It is real
easy to think about the declining workforce and the scarcity
that there will be of people that can do the jobs, and then the
opportunity to say, ``Well, that is okay, they are bound to
hire me because there will be so few of us.'' I hope that we
can build the excitement out there so that they are learning
how to learn so that they can do the kinds of jobs that we
cannot even envision at this point.
Any of you have any ideas on how we can generate that
excitement among the kids? We keep talking about outsourcing
jobs, but a lot of the jobs that get outsourced are not
necessarily because of lower wages overseas, although that is a
part of the problem, but a lot of them are because we do not
have the people trained to do the jobs that are needed, and I
think that is going to increase in the future. So how do we
make them aware of the jobs that are going to be coming up and
the skills that they will need to have, which means the kind of
learning that they are going to have to be doing, learning how
to learn. They will have to retrain. They will not be able to
take a job like their parents or their grandparents had where
they go to work for one employer, they work there 30 years and
they retire. I am not even sure most of the young people are
looking at that as a particular goal these days. They are
looking at the excitement of the job. How are we going to
increase the excitement for them to be willing to take on the
futuristic type of things rather than the traditional, which
will get outsourced? Any ideas?
Ms. Erickson. I would offer a few comments. Our research
certainly shows that what young people want today in a
workplace is very different from what their parents were
expecting, and as you said, Senator, the excitement is a huge
factor. The ability to be flexible, the ability to work on a
variety of different things. We found examples in our research
of individuals who would not accept an employment arrangement,
but insisted that the company structure it as a contract
relationship because they want the psychological freedom to be
able to move to different things and work on a project basis,
and frankly, take time off when that is of greater interest to
So we are wrestling with a workforce that is becoming
increasingly interested in part-time, flexible, contract,
project, different ways of structuring their relationship with
their employer that are quite different from the kinds of
relationships that we have seen in the past. I think as our
companies are better able to offer that, it will surely get our
young people more excited about the prospects that work offers
Ms. Furchtgott-Roth. Well, I would say that although I have
shown these graphs showing how much better the United States is
doing in many areas, primary, elementary and secondary school
education is not one of them. University education is, but we
are hearing from all different sources, we are hearing from
employers that people with high school diplomas do not have
enough math and reading and writing skills. We are looking at
tests, comparative international tests. We see that our
children score near the bottom in math and science.
And the Hart-Rudman Commission, when it came out with its
report in 2001, had two major warnings. The first, there was
going to be a terrorist attack in the United States, which
happened on September 11th. The second was that our children
are not getting enough math and science education. That second
recommendation has been completely--the second warning is being
We need to do something to change the structure of
education. We need to do something to have more competition in
schools. We need to enable principals to have more authority
and teachers to have more authority. We need to enable schools
to fire teachers who are not doing a good job. We need to have
more of the voucher systems that we see in Cleveland and
Milwaukee and not condemn our poor children to low-quality
schools in poor areas of town, but allow them to get out of it.
Here I worked at the Department of Labor, just a stone's
throw from many poor schools. If I had wanted to go on my lunch
hour and teach a seminar in economics at one of these schools,
I would not have been allowed to do it because I am not teacher
certified. Here we are talking about getting older people back
in the workforce. There are experts who graduate, who retire
with Ph.D.'s at 55 or 60. They would like nothing more than to
go teach a class. It would be good for them. It would be good
for the children. They have incredible expertise in math,
science, reading, writing. They are not allowed to do it. They
do not have the teacher certificate.
I mean these are things we need to change. We would have
more competition. We need to raise the standards. We need to
put more exciting teachers in. That way the children will be
motivated to have high standards and to get better jobs.
The Chairman. Thank you.
Mr. Bernstein. I think my observation is that the
excitement about participating in the economy of the future
among our kids today depends largely on the class and the
families that they grow up in, the kinds of options and
opportunities they have in their youth. Often our school system
gets blamed for the fact that too many children show up to
school without the schools and the health care they need to be
able to be active participants. That is why one of my policy
recommendations was ensuring universal access to pre-K for 3-
and 4-year-olds, so these kids arrive at kindergarten prepared
Ensure access to higher education for those who want to
attend college but do not have the means to do so. Provide
scholarships to low-income individuals who study science, math,
engineering and technology. All of these are ways to use our
extensive resources to correct the inequities and inequalities
that I think create the very dynamic that you described. I
would not say that there is a widespread lack of excitement
about the future. I would say that excitement is concentrated
among those who have been placed in the economy in places of
opportunity, in families that have higher incomes, in families
who have benefited from the very concentrated growth of
incoming wealth over the past couple of decades.
I would disagree with many of the ideas that Diana just
suggested simply because I am afraid that those kinds of
flexibilities have not shown to be associated with better
outcomes, but in fact have reinforced the types of inequalities
that I think have created the very dynamic you describe.
These problems of a lack of confidence, optimism about the
future come, I would say, less from off-shoring and
globalization and more from the economic conditions and the
inequalities within which too many children are growing up
The Chairman. A lot of thoughts there and a little bit of
divergence, but maybe bring that back together a little bit
though. I was with a friend of mine who was a lifelong
schoolteacher and huge defender of the public schools and a
member of the union, and he said to me--now, Wyoming is very
rural. We do not have a lot of options on school. In fact it is
all public school. I am in a town of about 26,000 people and it
is 145 miles from the next town of equal or greater size. And
he said to me, ``If somebody started a private school here, I
think that about 80 percent of the kids would go to it.'' I
said, ``Why?'' He said, ``So there would be some discipline and
competition. We have gotten rid of competition to increase
self-esteem, and what we have done is taken the kids who have
the lowest self-esteem and relegated them to low self-esteem.
They do not have that chance of competition to see that they
could do a little bit better and grow a little bit there.''
It was a shock to me. I would appreciate your reflections
Ms. Furchtgott-Roth. I think competition is absolutely
vital. Imagine if we drove from here to New York and there was
only one fast food chain, and it was McDonald's and everything
else was banned? There would be no incentive for McDonald's to
provide a good meal at any good price.
The same with education. There is no choice for these poor
children. The better off people can have the choice of the
Sidwell Friends or St. Alban's. I do not know where you send
your children, Jared, but I am sure it is not the local school
down here on Capitol Hill. They have choices. The other people
do not. Lower-income people do not have choices. They have to
send the children to the one school that provides low-quality
service even though we have been putting more and more money
into education. We spend about the highest amount on education
per capita of any industrialized country. We get some of the
What we need is more competition. We need more choices. It
is elitist to say low-income people can not choose their
schools. When there are vouchers offered, there is lines of
people trying to get these vouchers to get their children out
of the public school system, send them to some of the parochial
Catholic schools that have better discipline or some of the
other choices that there are that are better organized.
That is what we need to have. It works in every other
sector of our economy. Competition raises standards that would
work in education.
The Chairman. Mr. Bernstein?
Mr. Bernstein. I would not disagree that a town like the
one you described would possibly benefit from more competition.
The problem that I see the way you framed it is that who would
get to go to that private school? The problem again is not one
of the overall quality of our K-12 education system. There are
public schools that people in this room would be very happy to
send their children to, but there are public schools, as you
suggested, that we would not.
So it is a matter of distribution, and once again, it is a
matter of giving the public schools--which in my view has been
one of the greatest--talk about great natural resources, our
public education system has historically been one of the
greatest resources we have created, and it has largely
contributed to the very prodigious productivity that we are
seeing today. The majority of our students that are in our
workforce today came through the public school system and you
can see the results in a workforce that is more productive than
it has ever been.
Once again, the problem is distribution, and if you
splinter off the private schools and voucher systems--I worry
about this under those conditions--what you are going to end up
with is just yet another dimension of elitism and inequality
built into the education system which has ideally in many years
of our country been a great equalizer. So the goal needs not to
be to peel resources away from the public system, but to
increase its resources so that it can perform that role of
being that great equalizer that it always has.
The Chairman. Strangely enough, I am with you.
The point that he was making was the need for more
discipline, that we have gotten a little lax on that. I know
when I went to school that if I did something wrong and it was
reported to my parents, there was no appeal, that I might be
able to say something after I had my punishment but not before.
My daughter is a teacher now and I know that occasionally she
calls and lets a parent know that somebody did not turn in
their homework or something like that, and she is always
distressed that it becomes her fault.
So we have had a little change there. So I think his
comment was more to the discipline, and since he is a
basketball coach, probably the competitiveness too and some
wishes for some reversal there.
We have been joined by Senator Kennedy. I would like to
give him an opportunity to make a statement at this point and
then we will pursue some more questions.
Opening Statement of Senator Kennedy
Senator Kennedy. Thank you very much, Mr. Chairman, and I
am very grateful to you for having this hearing.
I want to thank our witnesses. We are, as the chairman
knows, trying to be in three places, in the markup on that
asbestos bill, and Senator Specter is after all of us in terms
of making sure we are there to try and finish up that
legislation. It is very complex and complicated. It has
I think this in many respects is one of the most important
hearings that we will have in this Congress because it is
really a defining issue about where this country is going and
how it is going to get there in terms of our future. I know the
chairman is very much aware of this. I have listened to him
speak on a number of different occasions.
But the basis issue, it seems to me, is whether we are
going to be consumed by globalization or whether we are going
to be challenged by it. Whether we deal with it in terms of
individuals and our country and if we are going to be the main
competitor and lead the world in terms of world economy while
also ensuring our own national security. You see these trend
lines in India and China in terms of the graduates, numbers of
engineers, and then you look at what is happening in the United
States now and see we are down to about 50,000 and half of
those are foreigners. A good percent of those are returning
rather than remaining.
And to look at where the research centers, not just the
outsourcing of jobs, where these new research centers are
going, into India and Bangalore and these other areas. And then
look where they are going just in terms of weaponry. Without
getting into classifications, most of these nations have stolen
most of the weapons systems that we have at the present time.
It is only a question of time before they are able to replicate
and duplicate and build on them.
So we must understand that we are in a real challenge at
this time and take the steps that are going to be necessary
here at home. I think I would be interested to the extent that
our panelists can help us explain what we can expect and
reasonably do to get other nations to try and live up to some
international codes of conduct too. We are going to be faced
with this issue with some of the prospective trade agreements
that are going to be coming at us in the remainder of this
Congress. And we have heard a lot of discussion. There is
always a lot of talk when these matters come up before us.
There have been some agreements that have actually been put in
effect that have some positive results, but I would be
interested in hearing from them what they might expect. Even if
we do the things that we need to have done here--and I am not
sure we are on the path to do all of those, but maybe our
panelists could tell us what we ought to expect and what we
ought to try and work on for these other countries, to make
sure that no matter what we do in terms of investing in people
and investing in research and development, that we are not just
going to be sort of consumed by the rush to the bottom.
Jared, do you want to take first crack?
Mr. Bernstein. Sure.
Senator Kennedy. I will put my whole statement, with your
permission, in the record.
The Chairman. Without objection.
[The prepared statement of Senator Kennedy follows:]
Prepared Statement of Senator Kennedy
The essence of the American dream is that if people work
hard and play by the rules they can provide security for their
families. But more and more Americans today are finding that
their security is slipping away, and if we do not take steps to
protect them it will continue to erode.
Economic security is being increasingly undermined by
globalization. It's becoming harder for children to expect to
do as well as their parents. Costs are rising while wages and
benefits are falling. Americans are working longer and harder
without enjoying the fruits of their labor.
The 2001 recession hit the Nation hard--millions of
employees lost their jobs, and many of those jobs still haven't
come back. The slow recovery was made worse by the pressures of
globalization. More than ever before in our history, American
workers are competing against workers around the world.
Sadly, this competition has become a race to the bottom--
whoever is willing to work for the lowest wages gets the work.
That's why more and more American jobs are going overseas.
We've lost nearly 3 million manufacturing jobs since 2001. Most
are good, middle-class jobs, with decent wages and benefits.
And it's not just blue-collar jobs--millions of high-paying
white-collar jobs are now at risk of being shipped overseas,
especially computer jobs, and even many business and management
This competition from abroad is also pushing down wages.
Americans are working harder than ever, pushing productivity to
record levels. But all that hard work is going into profits
instead of employees' wages. Profits are up more than 70
percent since the recovery began, while wages have fallen in 7
of the last 12 months.
The sad truth is that the globalization is threatening the
middle-class. I remember when Americans who worked hard could
support their families.
But today, middle-class jobs are hard to find.
Increasingly, our workforce is dividing into workers with high
skills in the right fields, who can still find high-paying jobs
with benefits, and the rest, who are left to compete for low-
paying work without benefits.
Over the next decade, 7 of the 10 occupations that the
Bureau of Labor Statistics predicts will add the most jobs are
low-paying jobs, such as cashiers, food workers, retail
salespersons, and janitors. At the same time, demand will
increase for highly skilled workers in a few key fields, such
as nursing and college teaching, that can't be shipped
overseas, or in occupations that the global economy keeps in
high demand, such as managers, accountants, and computer
We must deal effectively with both sides of this division.
We must invest in our economy to create more high paying jobs.
We must strengthen labor protections, so that workers aren't
harmed by globalization but share in the prosperity they
At the same time, we must invest in higher education and
job training to fill the high-paying jobs of the future and
help ensure our future competitiveness in this global economy.
Today, more women, people of color, and older Americans are
in the workforce than ever before. Women now make up just under
half of the labor force, which also means more parents are in
the workplace. Today, in 70 percent of American families, all
parents are working, either one single parent or both parents--
the exact opposite of 1960, when 70 percent of all families had
at least one parent at home full-time. Workers today, and in
the future, will need more flexibility, such as guaranteed paid
sick days and expanded Family and Medical Leave in order to
balance their work responsibilities more fairly with their
families' basic needs.
Minorities are also becoming a larger part of the
workforce--in the last 20 years, the proportion of minorities
in the workforce has grown by more than 45 percent. But
minorities consistently have higher unemployment and receive
lower pay than whites. In the global economy, our prosperity
depends on making the best use of the talents of every American
worker. When minorities don't have equal economic
opportunities, our economy suffers.
The workforce is also becoming older as the baby boom
generation ages, and older workers are losing economic
insecurity. Between soaring retiree health costs and
increasingly threatened pensions, many employees can't afford
to retire. Our retirement system itself has shifted to require
workers to bear more and more risk. That makes it even more
important to protect Social Security and preserve retiree
health benefits and pensions.
American workers face risk and insecurity in their daily
lives and in their future. The global challenge is jeopardizing
the very heart of the American Dream. But it doesn't have to be
this way. Our economy can work for everyone if we make the
right choices. We can create the same spirit of innovation,
invention, and progress that brought us the automobile, the
airplane, and the computer. Year after year, we brought the
American dream closer for all our citizens, and we can't afford
to let it slip away again.
I look forward to the testimony of our witnesses on these
all-important issues, and to working with our colleagues to
ease this unfair burden.
Mr. Bernstein. I think there are a number of things we can
do. I appreciate the concerns that you raise. First of all, we
need to, as I have stressed throughout, increase the access to
higher education to many of our own citizens who are currently
blocked, yet not by their skills. They could be fine and deep
contributors to our economy if they had access to college
educations. Too many minorities have the ability through the
system to enter universities, but fail to complete them in many
cases because of the income constraints they face. So the first
thing we need to do is use resources to ensure access to higher
education for anyone who wants to and can attend college by
paying their costs for every qualifying child. We can require
that student to pay back the loan over time from their
At the same time we need to, obviously, have serious and
enforceable rules in our trade agreements that try to stave off
any kind of a race to the bottom that you mentioned. When we
expand in global trade the benefits are very significant, but
we are often expanding into countries whose norms and cultures
and wage structures and rules are very different from ours, and
in many cases have the potential to undermine ours, and we can
use rules embedded in our agreements to try to prevent that
Finally, I think one has to face that a very basic answer
to your question is that these trends, while they have great
upside potential, also have great downside risks, and
therefore, particularly if we want our workforce to embrace
this challenge of globalization, we have to repair and increase
the safety net such that it reaches all those who are
potentially hurt by these trends.
Just to give one example. Our trade adjustment assistance
program right now applies only to manufacturing workers who are
displaced with trade by certain countries. Expanding that to
cover all workers in all sectors with every country with whom
we have normal trade relations would be a first step. That is
the type of safety net we have to build to provide workers with
the security, use the benefits of globalization to provide
workers with the security they need to participate and meet the
Senator Kennedy. Basically if there are going to be winners
and losers, what you are talking about is that we ought to at
least even this out. The economy will expand and grow, but the
people are going to pay for it, individuals, and rather than
putting the whole burden on those individuals who are not
really making the judgments themselves but are basically caught
up in this, that they are not going to bear the full burden on
Ms. Furchtgott-Roth. It is really a vital and very, very
important question that you have raised, because here in our
discussions with China we are talking about textile and textile
quotas, and we are really being harmed very little by those
because in fact if we placed more restrictions on China we
would probably get textiles from somewhere else. But we are
losing hundreds of billions of dollars because of intellectual
property theft, and they are breaking these laws left, right
and center. They are doing nothing to enforce it, and we are
doing nothing about it. I mean our DVDs are being pirated, even
our furniture patents. People in North Carolina, they complain
that the Chinese are copying those and selling those without
giving them the rights that they are due. They are just copying
our material, selling it, stealing it, and we are doing
nothing. I mean we need to make them live up to the laws that
they have signed, and we need to stand up for our companies. We
need to get some of these, at least try to get these DVDs,
pirated DVDs off the streets. Star Wars come on sale there,
pirated on the streets before it opens in the theaters here.
We need to make a real effort to do something about that
because we are losing hundreds of billions of dollars a year.
And our competitive advantage is in creativity and intellectual
property. So that is a vital question. We need to do absolutely
more about it.
Senator Kennedy. Would you put currency fluctuations into
that mix too, you know, particularly with regard to China or
are we getting too far from the real problem on this?
Ms. Furchtgott-Roth. Well, you see, China I think is
hurting itself by pegging the yuan to the dollar and so
eventually China is going to have to shift this policy to avoid
just protests and high inflation in its own country. They are
going to have to deal with the yuan, and they are going to deal
with it. They do not have to deal with pirating our products,
so they are not going to do that on their own, whereas they are
going to adjust their currency on their own because it is
Senator Kennedy. Tamara?
Ms. Erickson. I was just going to add that from a business
perspective certainly protection of intellectual property is
one of the most critical issues. Think about it in terms of
what we will have going forward over the next several decades.
It will be, as Diana said, our intellectual abilities and our
creativity, and so anything we can do to foster that and
protect that is where I would certainly suggest that our focus
be aimed. I just wanted to add to the conversation about
education the importance of educating people and exposing them
to the kinds of tools and technologies that will be available.
This is probably not a practical idea, but think about a
program that would give every young person a Blackberry and
give them access to learning how to use e-mail and operate in a
21st century world. So much of what people need to do is to
understand how the world is going to operate, how decisions are
going to be made. And while we certainly need math and science,
we also need people just to have exposure to the world, and any
way we can help our young people gain that I think will be very
Ms. Furchtgott-Roth. If I could add, USTR keeps track of
the documents piracy and the piracy by other countries, but
they do nothing. We do not do anything, they do not do
Senator Kennedy. May I continue to proceed?
The Chairman. Yes.
Senator Kennedy. Let me ask you a little bit, just looking
at that chart over there on the 50th and 10th. I mean, as
somebody who has been interested in the minimum wage over a
long period of time, I think what we have seen is--I was just
reading Fortune Magazine about a week ago, and in the back part
of it they have the list of all the profits, the business top
500 at 15 percent profits on this. We have enormous increase in
productivity, incredible accumulation of capital in these major
companies and corporations. That is mentioned, I believe, in
your earlier testimony. If not, we have got the documentation
about how people are working longer, if you take the number of
hours as compared to where we are in the industrial countries,
we are working longer, we are working harder. We have increased
our productivity rather significantly over this period of time.
I do not know how much more in terms of the productivity,
got both members of the family working now which added to
family both income and productivity. I do not know how much
more we are going to be able to squeeze out of the American
workers, when you have both the accumulation of capital and you
are getting these very sizable profits, and we are looking at
sort of globalization. How are we going to make sure that
whatever burden we are going to be bearing in this whole kind
of an expanse is going to be sort of evenly shared here in our
Mr. Bernstein. I think that is a key question, because as
you suggest, the growth of the economy over the past few years
has been very unevenly shared. We have actually posted some
decent growth rates, and our productivity growth has been
really quite spectacular. Yet, as I show in my testimony, year
over year the wage of the blue collar worker in manufacturing
or nonmanager in services has fallen consistently year over
year for every month for the past 12 months. So here we have
productivity growing, yet income is falling. Every year between
2000 and 2003, the most recent data we have for the median
family, productivity grew, and in 2002 and 2003 the economy
expanded, yet median family income fell in real terms.
As you suggest, over the period that you see wage decline--
and the slide up there is for men--family incomes were
constrained by, of course, by that decline in real hourly wages
for men, but that decline was counteracted in large part by so
many more women going into the workforce working more hours per
year. And that is what made the difference in terms of middle
family incomes. That is how they got their incomes up, by
working more to compensate for the decline in male wages. So
one of the answers to your question is that we have to do
everything we can to reconnect the growth in this economy to
the living standards of middle income families and to the wages
of those workers in, say, the bottom 80 percent, who are
falling behind even as the economy expands.
Now, how do we do that? You mentioned the minimum wage.
Well, that is a great example of one way to lift wages at the
very bottom of the wage scale, interestingly, and contrary to
theoretical predictions, moderate increases in the minimum
wage--and we have been doing that since the mid' 30s so we have
lots of evidence--moderate increases in the minimum wage are
not associated with employment losses. The last time Congress
raised the minimum wage by legislation was 1996, so it has
fallen considerably since then, probably over 20 percent in
So revisiting that issue would be a great way to boost the
bottom. It does not do that much for the middle. For the middle
there are another set of policies that I argue would help
connect the economy to middle income families living standards,
and I elaborate on them in the testimony. In part they have to
do with trying to reabsorb some of the risk that is inherent in
a more global economy, strengthening pensions, strengthening
health insurance, trying to lower unemployment, as well as, of
course, providing workers with access to greater skills. I
think that program would get part of the way there.
Senator Kennedy. I understand now Britain is $9.50 an hour.
They are going to $10 at the end of this year, and they have
1,200,000 children out of poverty with this. They have the
second best economy in Europe, outside of Ireland. They are the
number one. And they have virtually seen a decline in their
unemployed, and it has had a very significant--I listen to
Gordon Brown, who is the Chancellor of the Exchequer and
probably the most successful Secretary of Treasury or Office of
Management and Budget all combined into one, the most
successful both economist. And he talks about the same point on
certainly the low-income wages, and hopefully we will have a
chance to do something about it.
Thank you, Mr. Chairman.
The Chairman. Thank you. I appreciate your being here, and
your full statement will be in the record and the questions you
I am going to have some more questions for Mr. Bernstein on
the chart that he has there, but I have to look up a couple of
things before I can even phrase those. It just seems to me like
if that is by wage percentile I am surprised that the 50th
percentile varies from the 50th percentile.
Mr. Bernstein. I am not sure I understand the question. The
50th percentile varies from the 50th percentile?
The Chairman. Yes.
Mr. Bernstein. Oh. Why is it not always just 50 all the way
The Chairman. If it is the 50th percentile, why is it not
the 50th percentile?
Mr. Bernstein. Oh, okay.
The Chairman. And you are taking a very limited sample
there and building fluctuation in, which has to stay that way
Mr. Bernstein. No. This is a very typical approach in
economics. See, if it were 1 year, yes, I would agree with you.
Yes, in 1995 the 50th percentile is the 50th percentile, it
does not change. But every year the median workers earns a
different level of pay. The median worker is simply the worker
right in the middle of the pay scale. That worker can earn $10
1 year, $11 the next year, and so that is what is driving the
trend that you see here. We could have used average wages, it
would have been the same story. The median is the 50th
percentile in every year, but that level changes year to year.
The Chairman. Since everyone here is a statistician we
followed that precisely.
I will ask some more questions, but on detailed ones----
Senator Kennedy. You have to understand that our chairman
is an accountant, the only one. So if you catch these, we
always pay special attention because he always has some
insights into these figures, and we learn that every day under
our chairman. Thank you.
The Chairman. To get back to some of the more definite
questions here, Ms. Furchtgott-Roth, in your testimony, you
indicated that changing the Fair Labor Standards Act to allow
for compensatory time and flex-time would serve as an incentive
for increased labor participation by a number of nontraditional
employees. Are there other laws or regulations or policies that
we have, that if modified, would attract more individuals into
Ms. Furchtgott-Roth. Absolutely. First of all, there is a
large empirical literature that shows that lowering taxes
attracts more secondary workers into the labor market because
they get to keep more of what they earn, and in the charts that
are in my testimony that I presented earlier, showing that
countries with lower tax rates have higher--more people work,
people work longer hours, that is borne out.
Second, current regulations make it very difficult for
people to hire, small businesses to hire because of the
paperwork. My husband owns his own small business. He has owned
it for about 3 years. He tried to hire someone a couple of
years ago, just an administrative assistant to help him. He got
so much material from the IRS that he gave up. He decided he
was going to do this on contract or do it himself. It is just
impossible for small firms, very difficult for entrepreneurs to
hire people and deal with all this paperwork, and that could be
Third, if health insurance was more easily accessible, if
the association health plans were able to be expanded, if
people could buy health insurance across States, that would
make it a lot easier for small businesses to hire people also
because a lot of people, given that we have the system where
health insurance is connected with employment and we are
probably not going to be able to get rid of that very soon, it
is linked. Association health plans where associations could
offer large groups to small businesses, group rates to small
businesses, that would be another thing that would be very
helpful in increasing hiring. So I would say those three
The Chairman. Thank you.
Ms. Erickson, did you have some comments on that? I
appreciated your comment about how the workforce of the future
might be relying on cyclical workers, where they are on 3
months, off 3 months.
Ms. Erickson. That is what our research finds, yes. People
would prefer that as a way of working. We are finding all kinds
of interesting arrangements coming forth, people who are
working only for health care coverage for no wage, people who
are working in a cyclical fashion, 3 months on, 3 months off,
as well as more traditional kinds of job sharing and so forth.
So that flexibility coming in and the health care options, one
of the things I mentioned in my testimony is that health care
remains the single unifying core value that we find when we
survey the workforce. That is the one thing everybody is
Beyond that, preferences vary all over the map. Some people
want more risk in their arrangement, some people want less,
more security, etc. And so other than health care, our research
would indicate that the more flexibility we can provide for
people to shape their own arrangements, the better it will be
to attract nontraditional people into the workforce.
The Chairman. Mr. Bernstein, in your comments you made
reference to needing a single payer insurance system. Can you
expand on that a little bit?
Mr. Bernstein. I was nodding my head when Ms. Erickson
noted the concerns over health care. We talk a great deal about
these concerns regarding workers who are--there is something
like 45 million uninsured in our country. We have about half
the workforce who does not even have a health care plan or is
not participating in one. My view is that if we wanted to in
one bold stroke tremendously improve the quality of employment
in this country and significantly reduce the economic
insecurity that I tried to stress was one of the downsides of a
more globalized economy, not taking anything away from the
extensive benefits, but that shifting of insecurity and risk
onto the workforce when you have a more globalized marketplace
could be significantly reduced with a health insurance system
that in my view was--that was taken out of the workplace.
The costs and the inefficiencies to employers of having to
provide health care to their workers are starting to be
increasingly and glaringly evident and obvious. I think it is
really dampening the ability of our businesses to compete.
If you look at some of the other industrialized countries
that we compete with, they tend to have single payer health
care systems, and these systems mean that they are spending in
some cases about half as much of their economy on health care
with outcomes on average about the same.
That does not mean that everybody is going to get better
health care under this system. There are those who I think
under a single payer system, particularly those at the very top
of the health care distribution who would end up with care that
was more closer to the average. But I believe that for many
people, and not the least the tens of millions of uninsured,
moving toward a single payer system based on expanding
Medicare, which has a great record with low administrative
costs and solid outcomes, we could achieve those goals that I
have laid out.
The Chairman. Thank you.
To follow up on the question I started with, Ms.
Furchtgott-Roth, there are currently laws, policies and
regulations that have unintended consequences of discouraging
labor force participation rates for people 55 and over and for
women workers. Are there some of those and what would they be?
Ms. Furchtgott-Roth. I would say that there are three
things, as I mentioned, the paperwork, the health insurance,
which I agree with Mr. Bernstein needs to be separated from the
workplace, but I would suggest separating it by having
competition in the supply of doctors rather than having a
universal health care system because the European countries
that have these single payer systems, you have problems with
waiting lines, rationing, lack of medical equipment. And so
even though it is universal, it is not that good, and you see a
lot of them coming to the United States for health care. Also
you see people from Canada, which has a single payer system,
coming to the United States for health care.
Teacher certification is another thing that prevents older
Americans and women from teaching and entering the workforce.
Even though we need more teachers, experts without teaching
certificates are not allowed to teach, and this would be a job
that secondary workers would enjoy doing. It would fulfill a
need in our community.
The Chairman. Thank you.
Now, we talked about adjusting to the change in
demographics and the changing workforce by all of us, the
employees, the employers, the policymakers need to make
corresponding adjustments in our thinking about work and the
workplace. What are some of the adjustments that need to be
made? What are some things that we ought to be looking at? Ms.
Ms. Erickson. I will start on that. First of all, we need
to recognize that there is really a new life stage that will be
available in the U.S. labor pool. If you think about it, by the
time most of us trickled out the door, our parents were
probably old. They probably felt old. They were probably ready
to have a much easier life. By the time our children leave
home, hopefully, we are not going to feel old, we are not going
to be old. We are going to have 20 or 30 more years of healthy
active life to contribute. It will be in many ways the first
time in human history that we have had an adult nonchildrearing
stage of life.
Think about what we can do with that. I mean it is an
unprecedented opportunity. Everybody who has had the empty nest
syndrome hit I think knows kind of the burst of energy that
that can provide in terms of creativity and jumping back into
new things. We are going to have a whole generational cohort
that will have that sense of energy.
So part of it is for employers to think outside the box and
forget some of the stereotypes that we have been wedded to,
that people need to retire at 60, that is crazy. They are going
to have 20 more years where they can contribute very, very
productively to business. We need to stop thinking about
traditional employment relationships where you are the
employee, and we need to think about more flexibility and more
contract and more ability for people to come and go in terms of
different arrangements they would like to have. That kind of
flexibility and customization is really at the core.
What I would say in sum is we need to get employers to stop
thinking about equality in the sense of treating everyone the
same, and think about fairness in terms of treating people
flexibly but fairly.
Ms. Furchtgott-Roth. Right, yes. Yes, I would say that we
do not know what is going to come up in 2015, 2025, 2035. We
need to make sure that the workforce is as flexible as possible
in order to deal with these things so employers can hire one
person who wants to telecommute, or another person who wants to
be contracted out, or another person who wants to work 80 hours
a week, and just make it possible for people to balance their
total schedules, adjust their time, have comp time instead of
overtime pay, or give them as much flexibility as possible
because every individual needs his or her own tailored package,
and we want to make it as easy as possible for that to happen.
Mr. Bernstein. Well, I would like to take a slightly
different view in the following sense. I think someone
listening to much of our discussion would think that one of the
goals of our group is to ensure that more people are working
more hours as they get older.
I hope that I am doing what I am doing until I am in my
70s, 80s, whatever. I enjoy it. It is not physically taxing,
and I hope I continue to have the opportunity to contribute in
this way. But there are those, I think we could all agree, who
ought to be able to retire in their mid 60s if they want to.
When I look at the employment rates, as other panelists
have mentioned, of the group 55 plus and note that that is the
only group whose employment rates have been rising over the
past 4 years, and they have been rising steeply, I wonder just
how much of that is voluntary people wanting to work more and
how much of it is what I think we hear anecdotally is because
they are concerned about their pensions, they are concerned
about their health care.
Therefore, I would argue that one of the things we need to
do to provide for the workforce of the 21st century is ensure a
much stabler and more secure pension and health care system for
the elderly. I would say especially pensions because I think
Medicare provides a good health care safety net for them, but
to make sure that the pension system that we have in place--and
I am thinking largely of Social Security--remains as strong a
safety net as it has been, so that when people voluntarily want
to get out of the workforce--if they want to stay in they ought
to be able to and we ought to enhance their ability to do so,
but for those who want to or need to get out at traditional
retirement ages, I think they ought to be able to.
The Chairman. Thank you. All very insightful comments, that
brings to mind though the statement--I am sure this was meant
to be humorous--and the statement went something like this:
``Don't retire. Did you ever notice that most of the people who
die are retired?''
Of course, I think that was written by the same person that
did the book about do not go to a hospital because most people
who die, die in a hospital.
As you are probably aware, we are in the process of
reauthorizing the Workforce Investment Act and will consider
other legislation that is aimed at providing lifelong education
and training opportunities for current and future workers.
Because of the way the workforce is changing, we know that
school is never out and learning cannot ever be over. Even in
the same job people have to learn the new techniques that come
along. Can you comment on the importance of training and skills
acquisition to our future workforce needs, especially for the
older and the nontraditional workers? Go ahead.
Mr. Bernstein. I will start. Since you mentioned the
Workforce Investment Act, let me say something specifically
about that. I have noted and documented in an article for the
American Prospect, with co-author Steve Savner, that some of
the activities under that bill discovered a great combination
that I will bet you all of the panelists here would agree with,
that when local employers work with local training initiatives
to identify future areas of skill demands and of future job
openings, you have a much more successful training program than
when you simply take people in and give them a set of skills
that you think maybe they will need.
So I think what we ought to be contemplating in this type
of policy is a closely-knitted relationship between those who
provide workforce training and employers on the ground, again,
with a local focus on future pockets of demand in particular
communities. That way you link workers up with jobs. Just
providing them with skills without jobs, they will be all
dressed up with nowhere to go. Providing them with the skills
they need for forthcoming jobs seems to me to be a great way to
The Chairman. Ms. Furchtgott-Roth?
Ms. Furchtgott-Roth. The Department of Labor already has
One Stop Centers that bring together people who are looking for
jobs and employers and training centers. These centers are
really very important in training dislocated workers for new
jobs. Training is really vital for the future, as we have seen.
The returns to a college education are going up considerably.
We need to make sure that our children are prepared for
college, encouraged to go.
We need to make greater use of the community colleges and
give people more flexibility over what training they can get.
The idea of the personal reemployment accounts, where they
would be able to pick where they would go rather than staying
at the Federal Government training center. The Department of
Labor spends $10 billion on training, that is billion rather
than million, and other domestic agencies spend another 5
billion. Many of these programs are wasteful and duplicative,
such as we have WIA--WIA is Workforce Investment Act, WIA
Adult, WIA Dislocated Worker, WIA Youth, and the Wagner-Peyser
Employment Service systems.
So you go into one of these One Stop Centers, you can go to
WIA on one side, Wagner-Peyser on the other. They do provide
exactly the same thing. Last year only 200,000 people were
trained at a spending level of 10 billion. That is $50,000 per
person, so this is just not an efficient way of doing this. It
is really important that you are looking at reauthorizing this
Workforce Investment Act and making changes, to consolidate
some of these programs into one program, the WIA Plus
Consolidated Grant Program, that will give each State a grant
to provide training services, because we in Washington cannot
say what each individual State needs. If we could take some of
this money, give it to the States, let the State decide what
kind of training is best for their particular mix of unemployed
workers and new workers, then we would be a lot further along.
The Chairman. Ms. Erickson, did you have any observations
on the Workforce Investment Act?
Ms. Erickson. Well, again, just to reinforce that the
continuing education is certainly highly important. There
almost are multiple dimensions that we need to think about it
in. Some of our key professions are coming up against very
critical shortages, and granted, that is a small percent when
you look at it in the overall total, but for example, the
average age of a petroleum engineer in the United States today
is 53, and most oil companies still have early retirement
programs that allow those individuals to retire at 55. So we
are about 18 months from having a significant proportion of our
petroleum engineering capability in the United States retire.
The oil companies are preparing for that by looking for oil
petroleum engineering capability in Indonesia and places
offshore. That is a tragedy, and that comes about because we
have not had the educational system that has brought enough
people in the United States up through that particular highly
specialized, small discipline.
So as we look at education we need to look I think at some
of those leading edge capabilities which just by keeping them
here keep our research facilities here, keep that intellectual
capital development component of our economy vital, as well as
the more broad-based training that we have been talking about
The Chairman. Thank you.
Senator Isakson. Thank you, Mr. Chairman. I deeply
apologize for being late, so I probably should not even ask a
question. So what I might do is just say amen to what Ms.
Erickson just said.
I just left a hearing on the nuclear energy issue, and two
panels, and the problem you talked about in terms of petroleum
engineering is precisely the problem we have in nuclear energy.
We have a workforce capital shortage of immense proportions.
Having once chaired a State board of education, and looked at
what all the problems and difficulties we were having, one
thing I concluded was aside from all the things we needed to do
in the educational institution to improve what we were doing,
we needed in this country to start glorifying the right things,
not sometimes the entertaining things. And by that I mean the
professions and the jobs of the 21st century, and doing a good
enough job of getting that attention to children early enough
in their early years or their adolescent years so that they
would know these careers even existed.
I think--and this is a comment, obviously, not a question--
but, Mr. Chairman, for what it is worth, I think one of the
things that we do not think about enough is providing the
perceptions for our kids to be exposed to of what opportunities
are really out there, and some of them do not ever get them
because they grow up in a home where those perceptions are not
there because it is a second or third generation of high school
education or less and their environment or their economic
status does not expose them to that. Obviously, it does not get
exposed on TV or the media.
One of the things we have got to do is start selling the
opportunities that America offers. Second, on your point about
the exporting is exactly correct. I mean these companies are
going offshore and they are going out to find these people
because that is where the technical people are.
One last thing and this is also a comment, but I can get
three things off my chest at once and it will be really good.
There are a lot of people that have great concerns about
free trade and great concerns about the lower-wage countries
and some of the jobs that have gone over there. And I would
like some reaction from you all to this. I cannot help but
think that the best thing for America in the 21st century would
be these developing nations to start having the same pressures
we have already had and addressed. If every country had a
minimum wage, if every country had an OSHA, if every country
had the amount of workforce protections that we have had, the
base cost of them producing their product would rise and we
would once again compete not as much on price but on quality,
where I think we in this country would excel.
As an observation, I think one of the things open and free
trade has the potential to do for us is to expand the horizons
of those developing nations so that they begin to have the
natural pressures we went through as a country in the first
part of the 20th century that brought about the remarkable
changes that we have had.
That is all I have to say, and that really was not a
question, but any observations you all want to make are fine.
Ms. Erickson. I think the one observation perhaps we all
would offer--we spoke about it a bit before you arrived--is
just to add intellectual property protection to your list as
one that is really critically important as well.
Senator Isakson. Agreed.
Ms. Furchtgott-Roth. And it is not just petroleum engineers
that are getting to be in their 50s. The whole of the skilled
trades, we have carpenters, we have----
Senator Isakson. Nurses.
Ms. Furchtgott-Roth. Yes, exactly, that whole group of
trades, it is becoming less fashionable to go into those
trades, and so the people there in their late 40s, 50s, people
who repair air conditioners, people who fix heaters, that whole
group of people and that kind of--we need to show people that
this is a good area to go into, these are very high-paying
jobs, relatively high-paying jobs, and these are good careers
for apprenticeships and people who would want to do something
Mr. Bernstein. I appreciate your comments, Senator, and I
would like to make three points. One is that I think you were
talking in kind of a longer-term view, but I think it is
important to raise that in the current economy there is
actually a cyclical component to some of the problems you have
mentioned. For example, the unemployment rates among computer
programmers went from very low 1 and 2 percent rates, which is
purely frictional--that means if you were a computer programmer
in the mid 1990s you either had a job or were looking for a
good one--to well below the average to well above the average,
5, 6, 7 percent in San Jose after the bubble burst. Those rates
have yet to come down, so we actually still have an excess
supply of these very workers that we were talking about being
in short supply. But that is very cyclical. Over the longer
term hopefully those workers will become reabsorbed.
But getting to your second point, it is more challenging to
reabsorb them if we are competing with workforces with a
similar skill set in other countries where their wages are one-
tenth of ours, and certainly, one of the motivations for going
and using those workers either through offshoring or through
H1-B or whatever, is because of their lower price.
In that regard I wholly endorse and think it is critically
important your platform for trying to raise the level of the
playing field a bit, and I think that is and ought to continue
to be an integral part of our trade agreements. Whether those
components of our trade agreements are enforceable or not and
how we enforce seems to me a great area of inquiry.
Senator Isakson. You cannot force them, but I do think as
those countries begin to realize some economic prosperity,
relatively speaking, from actually being traders with America,
the natural human tendency, as their plight in life improves is
to seek the types of things we have in the United States of
America today. I mean most of the stuff that we have in
workforce protection evolved by worker pressures as the workers
became more plentiful and as they became more economic--that is
a natural phenomenon that will take place. We cannot make it
happen through trade agreements because we cannot impose
domestic law on a foreign government, but it is something that
I believe the pressure in time will help us.
I agree with your comment on the cyclical nature. I will
say this, having done a lot of seminars with computer based
people who were out of work, which was a large component in my
area where I live, metropolitan Atlanta area, one of the
reasons we are working so hard on the Workforce Investment Act
is getting some of these people and professions that went from
a specialty to a commodity, who there might not just be those
jobs any more, to get them to retrain rather than to continue
to try and find what does not exist any more. I think to a
certain extent that is what happened in technology, which is
why the Workforce Investment Act is very important.
I know I have used my time now, Mr. Chairman. Thank you.
The Chairman. Appreciate your comments. That brings to my
mind that my wife and I went into the shoe business at about
the time Italians started making shoes, and at that time
companies in the United States were importing these really
cheap shoes. Inexpensive, I should say. No, they were cheap.
Everybody had to have them because they were so low-priced.
Then Italians discovered what was happening in the shoe market,
and as you know, today Italian shoes are the most expensive
shoes. I still will not go with the best constructed, but they
are the most expensive, and part of that is what has happened
within the industry and with the wages.
And what Ms. Erickson said, that figure that I saw that is
very distressing to me, deals with electrical engineers. A year
ago in the United States evidently we graduated 59 electrical
engineers who were born in the United States. We graduated a
lot more than that but they were not born in the United States.
So we are importing a lot of people to learn these skills, and
then some of them stay on to use those skills in the United
States. Some of them take back to other countries to put them
in a better competitive economic position. It is kind of a
worrying trend when we have less people going into those things
that need science and math. So we have to reverse that.
I wanted to ask one more question. Ms. Furchtgott-Roth,
your testimony--and I appreciate the charts that you have, they
are very helpful--but you made some comparisons particularly
with the European workforce. Can you share with us some,
capsulize some of the lessons that you think we can draw from
comparing those European workforce data with our own, and
perhaps even focus a little bit on nontraditional workers there
as opposed to here?
Ms. Furchtgott-Roth. Yes. Well, Europeans have a higher
rate of unemployment, shorter hours of work, stagnant job
creation and stagnant productivity in GDP. Senator Kennedy did
mention his conversation with Gordon Brown, the Chancellor,
where he had talked about the growth in jobs in Britain. It is
true jobs in Britain have grown, but they are all public sector
jobs. They have not created any private jobs over the past 2 or
Martin Bailey, Chairman of President Clinton's Council of
Economic Advisors, has studied this issue carefully. A few
months ago he published a book entitled ``Transforming the
European Economy.'' It is a very thoughtful book, and I have it
right here. In contrast to people who say the solution for the
United States is to increase taxes, to reduce inequality, raise
the minimum wage and have more mandated benefits, he says the
following: He says the current system in major European
countries is fatal for employment. Wage rates for low-skilled
workers are inflexible. Payroll taxes are very high and inflate
company employment costs along with other employer mandates.
Benefit levels paid to the unemployed and to many others on a
variety of social welfare programs are kept high relative to
after-tax wages and are paid for prolonged periods. This system
discourages employers from hiring and workers from taking jobs.
And he goes through several recommendations for Europe,
basically to make it more flexible, to reduce some of these
mandates, to time limit some of the unemployment insurance
benefits, basically to make Europe more like us in order to
make it get the same levels of GDP growth, productivity growth,
job creation that we have. So I highly recommend it, published
in September by Martin Neil Bailey, former Chairman of
President Clinton's Council of Economic Advisors, called
``Transforming the European Economy.''
The Chairman. Thank you.
Would anyone else wish to--Ms. Erickson?
Ms. Erickson. One comment I would like to add to that, I
spoke about engagement, people's feeling of passion and
excitement about their work. All the studies indicate that
engagement levels, while very low in the United States, are
even lower in Europe, that people's sense of passion for their
work is very low in European countries. You can speculate why
that is true. We believe from our work that it is for many of
the reasons that were just said, the work is inflexible. The
structures are rigid. The variety is not there, and people are
turned off. And so a lot of the productivity challenge we have,
I would even go so far as to say a lot of the education
challenge we have is around getting people excited about work.
Kids will get excited about learning if they feel like their
parents are excited about the work they are doing. If we have
parents who are turned off by work, what child is going to feel
excited about preparing for the future of a work future that
they are living in a home with an example of somebody who is
dreading going out to that 9 to 5 job every day.
So in many ways, creating more excitement, creating more
engagement with the work we do is to me the most relevant goal
that we need to think through as we shape a variety of
The Chairman. Mr. Bernstein?
Mr. Bernstein. I think when you lump Europe all into one
group and talk about this kind of Euro-sclerosis that Diana was
referencing, I think you miss nuances that are very important.
There are countries within Europe that have had very impressive
job growth even with the set of protections that Diana was
arguing against. Ireland is one case where they have had a
tremendous IT boom. The Netherlands has also expanded
employment and output. And by the way, in each one of these
countries, their rates of productivity growth are analogous to
ours, and in some of them, their levels of productivity are now
comparable to ours. And that is one of the reasons why the
OECD, the Organization for Economic Cooperation and
Development, that looks at all these economies, has been very
hard pressed to link the kinds of policies that protect workers
in the workplace to the disappointing economic outcomes that we
have heard about. There are lots of reasons why countries do
not perform well, and it actually turns out that these social
protections do not show up as one of them.
Importantly, at the same time, we focused only on the cost
of these social protections. The benefits are quite deep. Child
poverty in Scandinavia, in Germany, in France, are half of
child poverty here. Not the market outcomes. Market outcomes,
child poverty is about the same, but when they fiscally
redistribute, their child poverty rates are about half of ours.
They actually have more income mobility than we do, not less.
So these are dynamic economies, and I think to ignore that is
to I think reduce the argument to a level that is not
The Chairman. Did you have any further comments?
Senator Isakson. I was going to say, having just heard both
sides of the argument with regard to that--I am a Swede and was
in Sweden a couple years ago, which is one of those countries I
imagine you were referring to in your last comment. There is a
level at which workforce guarantees and regulation is healthy,
and there is a level where it is suppressive and oppressive and
demotivational, and that is where we have to be very careful as
a country to never move to--and I can say this because I am a
Swede--I think they got to that point. That is one of the
problems that they have been dealing with.
So we have to be very careful. You want to have a safe
workplace and you want to have a quality workplace and you want
to have workforce protections, but you can mandate on business
so much and you can carry it to a point to where its embedded
cost is counterproductive, which is why we have congresses and
why we have experts and why we talk about these things. But
there is a balance. You can way too far on the regulatory end.
The Chairman. Thank you very much.
I want to thank the witnesses for their testimony and the
questions that they have answered. The record will stay open
for 10 days. You can expand on any of the comments that you
have made or observations that you have on anything that has
been said here today. We also may be submitting some additional
questions to you, ones that are very specific to your
testimony, we usually reserve for outside of the hearing itself
that allows us to make more detailed comparisons. So we will
get into some more specifics on some of the countries that were
mentioned and other things to, and we will be open to any other
ideas you have for how we can get the workforce ready for
tomorrow's challenges and opportunities. Thank you very much.
The hearing is adjourned.
[Additional material follows:]
Prepared Statement of Senator Isakson
Recently, economist Robert J. Samuelson wrote that, ``Our
aging society is the central problem. Everything else is just a
footnote.'' He was talking about the implications of an
increasingly older American workforce on Social Security, but
he could have been talking about the resultant lack of workers
As the baby boomers approach retirement, our economy faces
a serious workforce shortage. Within the next 15 years, it is
estimated that 80 percent of the native-born workforce will be
over 50 years of age.
However, beyond the graying of America, our biggest
challenge lies in the changing skills our workers will need to
compete in an ever more globalized economy.
We must embrace, not shy away from, this global
interconnectivity. This interconnectivity provides a myriad of
both challenges and opportunities. Our Nation's comparative
advantage will no longer be simply confined to our natural
resources or our manufacturing capability, instead it will lie
with our Nation's people and their ability to invent, innovate,
market, and create.
To that end, our next generation of workers needs us to
provide them with flexible, top-notch 21st century training
with tools to compete.
The fact that this next generation of workers will need
skills that differ with those needed by the current generation
is not new. Economic change is a fact, not an inconvenient new
problem. Certainly, the agrarian workers of the 19th century
would be lost in the factories in which their sons and
daughters made their livings.
What may be new is the acceleration, the pace of change.
This rapid pace of change results in a situation where workers
cannot assume the job for which they train at age 20 will still
remain when they turn 50.
Recently, one of America's most important businesses
leaders, Bill Gates, told the National Governors' Association
that American high schools cannot teach our kids what they need
to know today.
Today's interconnected world makes it possible for people
around the globe to compete and collaborate with American
workers. In this light, Bill Gates' message is clear: the
status of American education is inadequate to equip the next
generation of workers to compete against those abroad who will
have had higher quality educational opportunities available to
them. I look forward to working with my colleagues to address
this and other pressing educational challenges.
[Whereupon, at 11:38 a.m., the committee was adjourned.]