[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




                    EXTENDING UNEMPLOYMENT INSURANCE

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

                                HEARING

                               before the

                    SUBCOMMITTEE ON INCOME SECURITY
                           AND FAMILY SUPPORT

                                 of the

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

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 10, 2008

                               __________

                           Serial No. 110-77

                               __________

         Printed for the use of the Committee on Ways and Means










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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL, JR., New Jersey       JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director
                  Brett Loper, Minority Staff Director

                                 ______

           SUBCOMMITTEE ON INCOME SECURITY AND FAMILY SUPPORT

                  JIM MCDERMOTT, Washington, Chairman

FORTNEY PETE STARK, California       JERRY WELLER, Illinois
ARTUR DAVIS, Alabama                 WALLY HERGER, California
JOHN LEWIS, Georgia                  DAVE CAMP, Michigan
MICHAEL R. MCNULTY, New York         JON PORTER, Nevada
SHELLEY BERKLEY, Nevada              PHIL ENGLISH, Pennsylvania
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida

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













                            C O N T E N T S

                                                                   Page

Advisory of April 3, 2008, announcing the hearing................     2

                               WITNESSES

Rebecca Blank, Ph.D., Robert V. Kerr Visiting Fellow, The 
  Brookings Institution..........................................    10
Heidi Shierholz, Ph.D., Labor Market Economist, Economic Policy 
  Institute......................................................    20
Maurice Emsellem, Policy Director, National Employment Law 
  Project........................................................    26
Alex Brill, Research Fellow, American Enterprise Institute for 
  Public Policy Research.........................................    42

                       SUBMISSIONS FOR THE RECORD

S. Eyre McKenrick, statement.....................................    86

 
                    EXTENDING UNEMPLOYMENT INSURANCE

                              ----------                              


                        THURSDAY, APRIL 10, 2008

             U.S. House of Representatives,
                       Committee on Ways and Means,
        Subcommittee on Income Security and Family Support,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:00 a.m., in 
room B-318, Rayburn House Office Building, the Honorable Jim 
McDermott [Chairman of the Subcommittee] presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                    SUBCOMMITTEE ON INCOME SECURITY
                           AND FAMILY SUPPORT

                                                CONTACT: (202) 225-1025
FOR IMMEDIATE RELEASE
March 15, 2007
ISFS-4

                     McDermott Announces Hearing on

                         Assistance for Elderly

                         and Disabled Refugees

    Congressman Jim McDermott (D-WA), Chairman of the Subcommittee on 
Income Security and Family Support of the Committee on Ways and Means, 
today announced that the Subcommittee will hold a hearing on assistance 
for elderly and disabled refugees. The hearing will take place on 
Thursday, March 22, 2007, at 12:30 pm in room B-318 Rayburn House 
Office Building.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. 
Witnesses will include affected individuals and those assisting them. 
However, any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The Supplemental Security Income (SSI) program provides cash 
benefits to elderly and disabled individuals who have very low incomes 
and limited resources. Maximum monthly benefits equal $623 per 
individual and $934 per couple. Prior to 1996, legal immigrants, 
including refugees and other humanitarian immigrants, were eligible for 
SSI on the same basis as U.S. citizens. As part of the 1996 welfare 
reform law, nearly all legal immigrants were made ineligible for SSI, 
except for refugees and other humanitarian immigrants who were allowed 
to receive SSI during their first five years in the United States 
(which was later extended to seven years).
      
    According to Social Security Administration (SSA), over 40,000 
refugees and other ``humanitarian'' immigrants in the United States 
could reach the seven-year cut-off for SSI over the next ten years. 
Some also may lose Medicaid coverage upon the termination of their SSI 
benefit. These elderly and disabled refugees have generally fled 
political and/or religious persecution in their home countries and have 
arrived in the U.S. with little, if any, income or assets.
      
    Obtaining U.S. citizenship would prevent the termination of SSI 
benefits, but a variety of issues make that difficult. One important 
barrier to citizenship within the seven-year period is lengthy delays 
in processing of citizenship and adjustment applications by the U.S. 
Citizenship and Immigration Services or USCIS. (Refugees and other 
humanitarian immigrants must first live in the United States for five 
years as a legal permanent resident before they are even eligible to 
apply for citizenship.) Processing backlogs have been caused by 
increases in the number of applications, computer problems, 
insufficient staffing levels in some areas, and lengthy background 
checks put in place after the September 11, 2001 terrorist attacks. 
Additionally, the application process involves multiple steps including 
a lengthy application, an in-person interview, a test of English 
proficiency and civic knowledge, and an application fee--all of which 
might present barriers for elderly or disabled refugees.
      
    In announcing the hearing, Chairman McDermott declared, ``Having 
fled persecution, many refugees come to this country with little more 
than the clothes on their backs. We need to live up to our nation's 
tradition of providing a helping hand to those most in need by 
extending assistance to refugees who are too elderly or too disabled to 
work.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the current limitation on providing SSI 
benefits to refugees and other humanitarian immigrants.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``110th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=18). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business April 5, 
2007. Finally, please note that due to the change in House mail policy, 
the U.S. Capitol Police will refuse sealed-package deliveries to all 
House Office Buildings. For questions, or if you encounter technical 
problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies on electronic submissions for printing the official 
hearing record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. All submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission listing the name, 
company, address, telephone and fax numbers of each witness.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://waysandmeans.house.gov.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.

                                 

    Chairman MCDERMOTT. The meeting will come to order. Today 
we are going to talk about unemployment insurance.
    If a hurricane had struck an American community today, we 
would immediately dispatch Federal aid. Within hours, people 
would know that help was on the way. Within days, people would 
be rebuilding their lives with the help of the Federal 
Government, in other words, with the help of the rest of the 
American people.
    A hurricane has struck the U.S. economy and we have not 
responded the way we should, in my view. Millions of Americans 
have been struck and they need our help. They deserve our help. 
The damage has been done to millions of Americans and Congress 
should tell these people that help is on the way, as it should 
be and as it has been in the past.
    Over the last 50 years, Congress has extended unemployment 
benefits on seven different occasions, 1958, 1961, 1972, 1975, 
1982, 1992 and 2002. It is not as though we are doing something 
radical or new here.
    These extensions were enacted because weak labor markets 
make it harder for dislocated workers to find new employment. 
Just saying ``get a job'' does not make any sense when there 
are not many jobs around.
    The evidence clearly suggests that it is time for Congress 
to once again extend assistance to the unemployed.
    I was therefore pleased to introduce bipartisan legislation 
with Mr. English to provide extended unemployment benefits in 
every State.
    The Emergency Extended Unemployment Compensation Act would 
help the over three million workers who are projected to 
exhaust their regular unemployment compensation in 2008.
    The extension of benefits would be very similar to the 
program enacted in 2002, providing 13 weeks of benefits in 
every State with an additional 13 weeks available in high 
unemployment states.
    The benefits would be paid for by the Federal unemployment 
trust funds which now have more than enough reserves to cover 
the cost. In my view, there is a bill improving the UI system 
that should have been passed months ago but it is still sitting 
over in the Senate waiting for consideration, so we are going 
to send them a second chance at making UI more responsive; this 
time by extending benefits.
    First, long term unemployment is now very high. In fact, 
the number of workers who have been jobless for longer than 6 
months is slightly higher today that it was when Congress last 
extended unemployment benefits in 2002.
    Second, the overall joblessness is growing. Over the last 
12 months, the number of unemployed Americans has increased by 
over one million. Whenever we exceeded that threshold in the 
past, our Nation was already well into a recession.
    With the number of jobs in our economy declining by over 
230,000 in the first 3 months of this year, there is every 
reason to believe that the number of jobless Americans will 
continue to increase in the coming months.
    Third, we have areas of high unemployment throughout our 
Nation. Certainly, some states have higher unemployment rates 
than others, but over 100 metropolitan areas today across the 
country have unemployment rates that exceed 6 percent. Some are 
as high as 10 percent, for example in the Los Angeles area.
    Fourth, and most economists agree, that extended 
unemployment benefits are one of the most effective forms of 
economic stimulus. After all, the unemployed have little option 
but to spend their benefits quickly. They do not go down and 
put it in their bank account because they do not have any money 
to buy bread and gasoline and pay rent.
    Gasoline costs, fuel costs for heating your home, and costs 
for food are going up; all of these things make it a good 
economic stimulus.
    I hope today we can develop a strong bipartisan consensus 
to promptly act on behalf of displaced workers who need help as 
they look for a new job.
    As I said earlier, the U.S. economy has been struck by a 
hurricane. Millions of Americans are affected. I do not want 
our response to the economic hurricane to look like our 
response to Katrina.
    We need to extend unemployment benefits and we need to do 
it now, and I yield to the Ranking Member, Mr. Weller.
    Mr. Weller.
    Mr. WELLER. Thank you, Mr. Chairman, for this timely 
hearing this morning. I appreciate the opportunity to join you 
here at this hearing.
    I note that in her January 29th Floor statement on the 
bipartisan economic stimulus package Congress was ready to 
pass, Speaker Pelosi said ``I think it's a good day for us here 
and let's hope for the Senate to take their lead from us and be 
disciplined, focused, fiscally responsible, and act in a 
timely, temporary, and targeted way on behalf of meeting the 
needs of the American people.''
    Mr. Chairman, I agree with the Speaker that we should act 
in a way that is timely, temporary and targeted and meets the 
needs of the American people when it comes to extending 
unemployment benefits.
    Today's unemployment rate is 5.1 percent. Recent months 
have seen job losses which while historically modest are no 
less painful for families involved.
    Yet today more than one-third of the states have 
unemployment rates of 4 percent or less. Two-thirds of the 
states have unemployment rates of 5 percent or less. More than 
one-half of the states, a total of 27, have unemployment rates 
within 1 percentage point of their all time low. Only two 
states today, Michigan and Alaska, have unemployment rates 
above 6 percent.
    Mr. Chairman, I ask unanimous consent to insert into the 
record recent Bureau of Labor Statistics information from the 
U.S. Department of Labor, statistics regarding unemployment 
rates for each State.
    Chairman MCDERMOTT. Without objection, so ordered.
    [The information referred to follows:]
    

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Mr. WELLER. Thank you, Mr. Chairman.
    This suggests that the current economic downturn is 
regional, with many states doing well and others not so well. 
Consistent with the Speaker's earlier challenge, any response 
we craft should be equally targeted.
    That is why I have introduced the TARGET Act, H.R. 5688. 
This legislation would help pay extended unemployment benefits 
in states where unemployment rates are 6 percent or higher, 
among other criteria.
    This builds off the current extended benefits program, 
whose unemployment rate thresholds many critics say are too 
high. The TARGET Act relaxes those unemployment rate thresholds 
so many states can qualify. It offers more weeks of benefits to 
long term unemployed workers. It provides more Federal funds to 
states that experience worsening unemployment.
    The TARGET Act reflects a different approach from prior 
temporary programs and most current proposals which would 
provide benefits no matter how low State unemployment rates 
might be, which is similar to the practice, Mr. Chairman, you 
have proposed.
    Why target benefits? For starters, because today's national 
unemployment rate is relatively low, reflecting the small 
number of high unemployment states today. So, the merits of a 
targeted over an untargeted approach are even stronger now then 
when Congress acted when unemployment rates were 5.7 percent or 
7 percent or higher.
    While we are at it, I also believe, Mr. Chairman, we should 
revisit last year's common ground on wage insurance, at least 
offering states the flexibility to test this approach of 
helping workers go back to work.
    I have introduced legislation to do just that. I know, Mr. 
Chairman, you have proposed creating a new Federal wage 
insurance program as well. It is an area where I believe we can 
work together.
    We should at least test whether this approach can help long 
term unemployment workers or those who might become so without 
this sort of help.
    Giving states this flexibility answers the Speaker's call 
for fiscally responsible proposals, so does a targeted approach 
to extending unemployment benefits. In fact, untargeted 
proposals cost ten times as much as my targeted proposal 
because untargeted proposals pay benefits in states where 
unemployment rates are low because jobs are easier to find.
    I note that I am not alone in proposing to target extended 
benefits. One labor leader recently wrote ``We propose a new 
100 percent federally funded program that goes into effect when 
unemployment reaches excessive levels. This program would 
extend benefits by 13 weeks when unemployment hits 5.5 percent 
and another 13 weeks when it reaches 6 percent, with the 
Federal Government paying the cost.
    If the best Congress can do is to reform extended benefits, 
then let's make sure that when the 3 month national 
unemployment rate reaches 5.5 percent the program is triggered 
in every State where joblessness has reached above 5 percent.''
    This quote is from an article called ``Rx for Recession: An 
Economic Strategy that Works.'' The article was written by the 
President of the Economic Policy Institute, an organization 
testifying today at the Chairman's request. I would note the 
article is on the AFL-CIO website in case anyone would like to 
read more.
    Mr. Chairman, thank you for calling this important hearing. 
I look forward to the testimony of our guests.
    Chairman MCDERMOTT. Thank you. The Members will have 5 days 
to enter any speeches or statements they want to make in the 
record.
    Dr. Blank, we will begin with you. Dr. Blank is a Visiting 
Fellow from the Brookings Institution. You have 5 minutes to 
tell us everything you know or at least the most important 
things you know.

 STATEMENT OF REBECCA M. BLANK, PH.D., ROBERT V. KERR VISITING 
               FELLOW, THE BROOKINGS INSTITUTION

    Dr. BLANK. I will try. Thank you, Chairman McDermott, 
Ranking Member Weller, other Members of the Subcommittee. I am 
honored to be here today.
    I want to make two primary points in this testimony. First, 
the unemployment rate cannot be easily compared today to past 
unemployment rates. If we had a similar population now as in 
earlier years, the current unemployment rate would be higher.
    Second, a variety of other labor force measures suggest 
that Americans who lose their job are facing serious economic 
problems.
    There are two primary reasons why unemployment rates in 
2008 are not entirely comparable to earlier periods. Most 
important is the shifting age distribution in the civilian 
labor force. As the baby boom ages, the share of workers in the 
older age groups is rising while the share of workers in 
younger age groups is falling.
    This tends to have the effect of lowering the aggregate 
unemployment rate because unemployment among older workers on 
average is lower.
    If you take the age specific unemployment rates in March 
2008 and weight them by the population distribution in 1990, 
you would find our unemployment rate would be a whole half 
point higher, very comparable to where it was at the beginning 
of the recession in 1990.
    In short, this shifting age distribution should change our 
expectations of what constitutes low unemployment. From the 
point of view of any worker, comparing themselves to their age 
peers, things are as bad or worse as they were in comparable 
times in the beginning of earlier recessions.
    There is another effect depressing unemployment rates and 
that is the rising share of young men in prison or jail. I 
suspect you all saw the report from the Pew Foundation saying 
one out of every 100 Americans is in prison these days. People 
in prison are not counted in our labor force statistics. We 
also do not count the Armed Forces.
    I have done a simple simulation that essentially adds the 
Armed Forces back into the civilian labor force and make some 
assumptions about what the prison population would look like if 
it were actually out there in the labor force. Obviously, it 
has a higher unemployment rate. It is disproportionately young 
men.
    It turns out that among men ages 16 to 34, the unemployment 
rate would rise to up near 8 percent if indeed we had again 
this population in the labor force and prison had not been 
growing.
    In short, by expanding the prison population, we have 
removed more and more young men from our labor market count and 
this also reduces aggregate unemployment rates.
    Finally, a last point that is important. Unemployment rates 
and employment statistics in general are lagging indicators of 
a recession. They rise during a recession and they often peak 
after the recession is over. The result is these are not a good 
indicator of where we are right now in terms of overall 
economic strength.
    The unemployment rate is hardly the only measure of labor 
market health, however, and let me emphasize five other 
indicators that are showing serious problems.
    First of all, in recent months, there has been a marked 
slowdown in employment growth. Year over year, employment 
growth was actually negative in March 2008.
    Secondly, these declines in employment are widespread 
throughout the economy. This is not a problem of a few sectors 
or a few industries.
    Third, wage growth has slowed over the last six months. The 
annual change in real earnings has been negative since October.
    Fourth, the share of the population that is working or 
looking for work has fallen over the past year, and fifth, the 
indicators of labor market slackness beyond unemployment are 
also at very high levels.
    My colleague, Dr. Shierholz, is going to talk more about 
long term unemployment.
    I would note that if you add the unemployed, if you add 
those who were working part-time and voluntarily, and those who 
are marginally attached to the labor market, those who have 
been looking for work but they have quit because they cannot 
find a job, you would find that nine percent of the labor 
market is in trouble in March 2008.
    If you believe like I do that the U.S. economy is almost 
surely in a serious recession right now, unemployment rates are 
likely to increase steadily in the months ahead.
    Should we enact extended benefits now or wait? I would 
recommend an extended benefits bill for two primary reasons.
    First, the unusually high rates of long term unemployment 
in the current economy suggests a growing share of the 
unemployed who are receiving unemployment benefits are going to 
exhaust them in the next few months without finding a job.
    Second, I believe we have waited too long in past 
recessions. We know that unemployment rates are a lagging 
indicator. Given the problems signaled by virtually all of our 
other economic indicators, we have every reason to believe that 
labor market problems will rise steadily in the months ahead, 
and we should take proactive measures now to protect workers 
who become unemployed.
    Finally, I just want to respond briefly to the proposal to 
provide extended benefits only to states with very high 
unemployment. Extended benefits primarily helps the long term 
unemployed because those are the people that are going to come 
on to extended benefits, and the proposal would make a lot of 
sense if long term unemployment was disproportionately 
concentrated in high unemployment states.
    The latest data we have available for this is for the year 
2007. If you take the five highest unemployment states in the 
year 2007, while they have about 13 percent of total 
unemployment, they have only 15 percent of the long term 
unemployment.
    If you enacted extended benefits only for that group, 85 
percent of the long term unemployed would not be covered.
    In short, now is the time to enact extended unemployment 
benefits. Waiting for the unemployment rate to rise higher 
would be a mistake.
    Thank you.
    [The statement of Rebecca M. Blank follows:]
  Statement of Rebecca Blank, Ph. D., Robert V. Kerr Visiting Fellow,
                       The Brookings Institution
    Rebecca Blank is the Henry Carter Adams Professor of Public Policy 
and Professor of Economics, University of Michigan, where she also 
serves as co-director of the National Poverty Center. She is currently 
on leave as the Robert V. Kerr Visiting Fellow at Brookings Institution 
in Washington, D.C. The views expressed in this testimony reflect her 
opinions and not those of any of the organizations with which she is 
affiliated.
    Chairman McDermott, Ranking Member Weller, and distinguished 
members of the Committee, I appreciate the opportunity to talk with you 
today about the state of the labor market and its implications for 
policy. I plan to make several remarks about the labor market and its 
current problems and then discuss the implications of these facts for 
the debate over extended benefits.
    The discussion of potential recession has dominated the economic 
news over the past few months. Yet the unemployment rate--one of our 
most-utilized measures of labor market weakness--has stayed relatively 
low. It was at or below 5% for the past two and a half years; the data 
release last Friday showed that it crept up to 5.1% in March 2008. 
While a significant increase, this is still lower than in many past 
recessions.
    Some have argued that this relatively low unemployment rate means 
that it's too early to think about extended benefits. In the past few 
recessions, extended benefits have not been enacted until unemployment 
rates were 5.7% or higher. I want to make two primary points in this 
testimony. First, the current unemployment rate cannot be easily 
compared to past unemployment rates. If we had a similar population in 
the labor force today as in earlier periods, our current unemployment 
rate would be much higher. Second, a variety of other labor force 
measures suggest that those Americans who lose their jobs are facing 
serious economic problems.
Changes in the Composition of the Labor Market Have Driven Unemployment 
        Rates Down
    There are two primary reasons why unemployment rates in 2008 are 
not entirely comparable to those from earlier periods.
    Most important is the shifting age distribution of the civilian 
labor force. As the baby boom generation has aged, the share of workers 
in older age groups has steadily grown, while the share in younger age 
groups has fallen. This has the effect of lowering the overall 
unemployment rate because older workers tend to have lower unemployment 
rates. Columns 1 through 3 of Table 1 show the unemployment rate by age 
group at the beginning month of each of the last two recessions, in 
July 1990 and March 2001, as well as our most recent statistics in 
March 2008. Columns 4 through 6 show how the share of workers within 
each age group has shifted over this time period. There is a steady 
growth in the share of older workers and a decline in the share of 
younger workers.
    It is apparent from Table 1 that unemployment is higher among every 
age group of workers in March 2008 compared to March 2001, and higher 
among most groups compared to July 1990 even though overall 
unemployment is lower. This is because the weights across the age 
groups have shifted.

                                                     Table 1
                        Unemployment Rate by Age and Labor Force Share in Selected Months
----------------------------------------------------------------------------------------------------------------
                                                                Unemployment Rate         Share of Labor Force
                                                                    (percent)                  (percent)
                           Ages                            -----------------------------------------------------
                                                             Mar-08   Mar-01  July-90   Mar-08   Mar-01  July-90
----------------------------------------------------------------------------------------------------------------
16-19                                                         15.8     13.4     15.0      4.4      5.6      6.2
20-24                                                          9.3      8.1      8.5      9.8     10.2     11.7
25-34                                                          5.3      4.3      5.6     21.7     22.6     28.5
35-44                                                          3.8      3.4      4.2     22.8     26.2     25.5
45-54                                                          3.5      2.8      3.3     23.3     22.2     16.1
55+                                                            3.4      2.6      3.1     17.9     13.3     11.9
 
Total Labor Force Share                                                                 100.0    100.0    100.0
 
Aggregate Unemployment Rate                                    5.1      4.3      5.5
 
Mar-08 Unemployment weighted by Mar-01 Labor Force Share                5.3
 
Mar-08 Unemployment weighted by July-90 Labor Force Share                        5.5
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Labor, Bureau of Labor Statistics, http://www.bls.gov/home.htm. Labor force shares by
  age and weighted unemployment rates are author's tabulations from BLS data.
Notes: July 1990 and March 2001 are the beginning months of the last two recessions, according to the Business
  Cycle Dating Committee of the National Bureau of Economic Research; March 2008 is the most recent month for
  which data is available. All reported data are seasonally adjusted.

    If you take the age-specific unemployment rates in March 2008 and 
weight them as if the labor force looked as it did in July 1990, the 
unemployment rate in 2008 would be 5.5% rather than 5.1%, the same as 
the actual unemployment rate of 5.5% in July 1990. Similarly, the March 
2008 unemployment rate would be 5.3% if age groups are weighted by the 
March 2001 labor force weights, far above the actual March 2001 
unemployment rate of 4.3%.
    In short, the shifting age distribution in the population should 
change our expectations about what constitutes low versus high 
unemployment. Because older workers have lower unemployment rates, base 
unemployment rates have fallen with an aging workforce. Hence, the same 
unemployment rate in March 2008 signals more problems than it would 
have in early 1990 or even in early 2001. From the point of view of any 
worker who compares herself to her age peers, unemployment is worse now 
than at those earlier moments in time.
    There is another effect depressing unemployment rates, and that is 
the rising share of younger men in jail or prison. I suspect most of 
you saw the report from the Pew Foundation in February noting that 1 
out of every 100 adult Americans are now in prison (Pew Center on the 
States, 2008). Our labor force statistics are based on civilian non-
institutionalized persons. Those in prison are not counted. This 
particularly affects younger men. Of course, the civilian labor force 
data also excludes those in the Armed Forces, all of whom are employed. 
This also disproportionately affects younger men.
    Rather than working with the civilian non-institutionalized 
population, I add Armed Forces personnel and those in jails and prisons 
to the population numbers and add Armed Forces personnel to the 
employment numbers. I do this calculation for 2006, the latest year for 
which all these data are available.
    It has hard to calculate an adjusted unemployment rate because we 
are not sure how many men currently in prison would be actively seeking 
work. For a back-of-the-envelope calculation, I assume that 80% of 
those in prison would be in the workforce if they were not in prison, 
and that the unemployment rate among these men would be 25%. (This is 
only slightly higher than the current 21% unemployment rate among young 
men ages 16-19.) Under these circumstances, the 2006 male unemployment 
rate would rise from its reported level of 4.6% to 4.9%.
    Of course, most of the men in prison or in the Armed Forces are 
younger. If I assume that all of these men are between the ages of 16 
and 34, I can look at the effect on employment-to-population ratios and 
on the unemployment rate for that group in the population. Taking 
account of both the Armed Forces and the large number of men in prisons 
or jails, the 2006 employment-to-population ratio among men ages 16-34 
would fall from 72.3% to 69.5%. Their unemployment rate would rise from 
its reported 2006 level of 7.2% to an estimated 7.8%.
    In short, by expanding the prison population, we have removed more 
and more young men from our labor market count. This reduces aggregate 
unemployment rates and raises employment shares, since these are often 
persons who would have difficulty finding jobs if they were not in 
prison.
    These two shifts--in the age distribution of the population and in 
the share of men who are part of the civilian labor force--mean that 
the equivalent unemployment rates are lower now than in the past. If we 
had a similar population now as in 1990, the unemployment rates in both 
periods would very similar. Hence, we can't just compare the level of 
today's unemployment rate to earlier periods without realizing that 
equivalent problems are occurring at a lower level of reported 
joblessness today than in the past.
    Finally, if we want to understand why unemployment rates look low 
right now, there is one other very important comment to make: 
Unemployment rates and employment changes are lagging indicators of an 
economic slowdown. Unemployment rates are typically low at the point a 
recession begins. They rise during a recession and often peak after a 
recession has ended. Hence, unemployment rates are NOT a good indicator 
of whether an economy has entered a recession. Figure 1 plots 
unemployment rates over the past 25 years. The shaded areas indicate 
periods of recession. In every recession, unemployment rates are low in 
the first month, and often peak after the end of a recession.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Because unemployment rises slowly, the political impetus to enact 
extended benefit legislation often occurs later in a recession, once 
unemployment rates are higher. Figure 1 indicates that extended 
benefits have been enacted quite late in past recessions. In fact, in 
both the early 1990s and the early 2000s, extended benefits were 
enacted after the official end of the recession (but at a time when 
unemployment rates were still rising.)
What Other Evidence Do We Have of Problems in the Labor Market?
    The unemployment rate is hardly the only measure of labor market 
health. Let me summarize five other indicators that suggest there are 
serious problems in today's labor market.
    First, recent months have shown a marked slowdown in employment 
growth. From March 2006 through March 2007, employment grew by 1.8%. 
Over this past year, from March 2007 through March 2008, employment 
actually declined by 0.1% Figure 2 shows the annual changes in 
unemployment from month to month; the recent slowdown in employment 
growth is clearly visible over the past year, and very reminiscent of 
the pattern at the beginning of past recessions.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Second, the declines in employment are widespread in the economy. 
In the last month, employment fell or was flat in almost every industry 
except health care services, food services, and local government. This 
widespread job loss is particularly worrisome, and I take it as a sign 
that we are almost surely in recession in this country. We don't have 
an economy with some weak spots and some areas of ongoing strength. The 
employment data suggests weakness in almost all sectors.
    Third, wage growth has slowed over the last six months. Figure 3, 
taken from a chart constructed by Jared Bernstein at the Economic 
Policy Institute (Bernstein, 2008), indicates that the annual change in 
real earnings has been negative since October. This is due to the 
combination of very slow growth in nominal wages and faster inflation, 
leading to a decline in real (inflation-adjusted) wages.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Fourth, the share of the population that is working or looking for 
work has fallen over the past year. If we're losing jobs, but 
unemployment hasn't increased, this means that some people are dropping 
out of the labor market entirely. This `discouraged worker' effect is 
often a sign that workers are pessimistic about their chances of 
finding a new job. The declines in labor force participation are 
particularly noticeable among high-risk groups of workers, namely, 
younger workers and those with low skill levels. If unemployment 
remains low because the number of discouraged workers is rising, that's 
not a good sign for the labor market.
    Fifth, indicators of labor market slackness are at high levels. 
Table 2 shows three alternative measures of labor market slackness. 
Overall unemployment rates are higher now than at the beginning of the 
2001 recession, but slightly lower than at the beginning of the 1990 
recession. Long-term unemployment measures the number of workers whose 
unemployment spell has lasted 27 weeks or longer. Long-term 
unemployment is currently quite high, with almost 1% of the workforce 
in long-term unemployment in March 2008.
    The standard unemployment rate measures those who actively looked 
for work. The Bureau of Labor Statistics also computes a measure of 
those they call ``marginally attached,'' which are those who want a job 
and have recently looked for a job, but are currently not looking 
because jobs are so scarce. They also measure those who are working 
only part-time because of economic reasons, the so-called `involuntary 
part-time workers.' If one expands the labor force to include 
marginally attached workers, and looks at the share who report 
themselves as either unemployed, marginally attached, or involuntarily 
working part-time, this is 9.1% of the labor force in March 2008, shown 
in Table 2. In March 2001, the beginning of the last recession, this 
number was only 7.3%.

                                 Table 2
                Alternative Measures of Labor Utilization
------------------------------------------------------------------------
                                                   Unemployment Rate
                                              --------------------------
                                                Mar-08   Mar-01  July-90
------------------------------------------------------------------------
Official Unemployment Rate                        5.1      4.3      5.5
 
Long-Term Unemployment Rate \1\                   0.8      0.5      0.5
 
Total unemployed + marginally attached            9.1      7.3    N/A
 workers + employed part-time for economic
 reasons, as a percent of civilian labor
 force + marginally attached workers \2\
------------------------------------------------------------------------
Source: U.S. Department of Labor, Bureau of Labor Statistics, http://
  www.bls.gov/home.htm
Notes: July 1990 and March 2001 are the beginning months of the last two
  recessions, according to the Business Cycle Dating Committee of the
  National Bureau of Economic Research; March 2008 is the most recent
  month for which data is available. All reported data are seasonally
  adjusted.
\1\ Share of labor force that has been unemployed for 27 weeks or more.
\2\ Marginally attached workers are persons who currently are neither
  working nor looking for work but indicate that they want and are
  available for a job and have looked for work sometime in the recent
  past. (Discouraged workers, a subset of the marginally attached, have
  given a job-market related reason for not currently looking for a
  job.) Persons employed part time for economic reasons are those who
  want and are available for full-time work but have had to settle for a
  part-time schedule.

    Figure 4 shows long-term unemployment as a share of overall 
unemployment. As of March 2008, 16.7% of the unemployed had been 
unemployed for more than a half year. This is substantially higher than 
in 1990 (at 12.9%) or 2001 (at 11.1%). This suggests that a substantial 
fraction of those who lost jobs in 2007 are having serious difficulties 
finding reemployment.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



Do Extended Benefits Make Sense in the Current Labor Market?
    If you believe the U.S. economy is entering a serious economic 
slowdown, unemployment rates are likely to increase steadily in the 
months ahead. Should we enact extended benefits now or, as in past 
recessions, wait for the unemployment rate to rise further? Even 
adjusting for population shifts, the unemployment rate is still lower 
than it was when extended benefits were put in place in past years. 
This might argue for waiting.
    I would recommend an extended benefits bill for two primary 
reasons. First, the unusually high rates of long-term unemployment in 
the current economy suggest that a growing share of the unemployed who 
receive unemployment benefits will exhaust them without finding a job. 
Extended benefits can particularly assist long-term unemployed workers 
who are having difficulty finding jobs.
    Second, I believe that we waited too long in past recessions. 
Waiting until after a recession has ended to enact extended benefits 
makes little sense. We know that unemployment rates are a lagging 
indicator. Given the serious problems signaled by many economic 
indicators, there is every reason to believe that labor market problems 
will rise steadily in the months ahead. We should take proactive 
measures to protect workers who become unemployed, rather than waiting 
until the problem has grown much larger.
    Let me respond to two concerns often raised with regard to extended 
benefits. Unemployment Insurance is received by only a minority of the 
unemployed, and the share receiving UI has been falling in recent 
years. Only 34% of the unemployed received UI at the end of 2007 (U.S. 
Department of Labor, 2007). For the many unemployed who are not 
eligible or who do not take unemployment benefits, extended UI benefits 
will have little effect on their economic situation.
    I would note that those who face long-term unemployment are much 
more likely to be eligible for and to receive UI. In part this is 
because a higher share of the long-term unemployed are displaced 
workers, who lose jobs due to plant closures or large-scale layoffs. 
Virtually all of these workers are eligible for unemployment insurance 
and many of them receive information encouraging them to apply. A 
recent study by CBO notes that more than 60% of those in long-term 
unemployment spells receive UI benefits (CBO 2007). This is the group 
most likely to benefit from extended benefits.
    (Of course, the very low receipt of UI among the unemployed is an 
important issue, but beyond the scope of this morning's hearing. In the 
longer run, reform of the entire UI program is necessary if you want 
more unemployed workers to have access to an economic cushion when they 
lose their jobs.)
    Another concern about extending UI benefits focuses on the unequal 
distribution of unemployment across the states. Some states have very 
high unemployment at present, in excess of 6%, particularly some of the 
upper Midwestern states like Michigan or Ohio. Other states have 
relatively low unemployment rates, below 3%. If long-term unemployment 
is concentrated in high unemployment states, it might make sense to 
limit extended benefits only to states with particularly high 
unemployment rates.
    Unfortunately, long-term unemployment is not particularly 
concentrated in the high unemployment states. Long-term unemployment 
data by state is not reported by the BLS, but these numbers can be 
calculated. Using data provided by the Economic Policy Institute for 
the year 2007, Table 3 groups the states in four groups. The top group 
is the five states with the highest rates of unemployment. These states 
contain about 10% of the labor force, but 13% of the unemployed. The 
share of long-term unemployed in these states is 15%, quite close to 
their share of overall unemployment. This means that long-term 
unemployment is not disproportionately concentrated in high-
unemployment states. Indeed, if you provided extended unemployment 
benefits only to these high-unemployment states, 85% of the long-term 
unemployed would not benefit.
    The bottom of Table 3 shows the 24 states with the lowest 
unemployment rates. These states constitute 53% of the labor market, 
and 47% of the unemployed. Among the long-term unemployed, 46% are in 
these lower-unemployment states. In short, concentrating extended 
benefits only on high unemployment states will not help the vast 
majority of long-term unemployed, who are present in all states. If we 
were to focus extended benefits on a small group of high unemployment 
states, we would be denying assistance to the majority of the long-term 
unemployed.

                                 Table 3
      National Labor Force and Unemployment Shares Grouped by State
                        Unemployment Levels, 2007
------------------------------------------------------------------------
                                       Share of                Share of
                                         Labor     Share of    Long-term
                                         Force    Unemployed  Unemployed
                                       (percent)   (percent)   (percent)
------------------------------------------------------------------------
5 states with highest unemployment
 rates
(5.6% <=UR<=7.2%)
Michigan, Mississippi, Alaska, South      9.7        13.1        15.0
 Carolina, Ohio
 
5 states with second highest
 unemployment rates
(5.0% <=UR<=5.5%)
Kentucky, California, Arkansas,          15.8        18.3        16.5
 Oregon, Rhode Island
 
10 states with the next highest
 unemployment rates
(4.6% <=UR<=5.0%)
Missouri, Illinois, Wisconsin,           18.4        19.1        20.8
 Nevada, Tennessee, North Carolina,
 Maine, West Virginia, Minnesota,
 Connecticut
 
24 states with the lowest
 unemployment rates
(2.6% <=UR<=4.5%)
Washington, New York, Massachusetts,     52.9        47.4        46.3
 Indiana, Pennsylvania, Georgia,
 Texas, Oklahoma, New Jersey,
 Kansas, Florida, Vermont,
 Louisiana, Iowa, Colorado, Arizona,
 New Hampshire, Maryland, Alabama,
 Delaware, Virginia, South Dakota,
 Nebraska, Hawaii
------------------------------------------------------------------------
Sources: Annual labor force and unemployment data by state published by
  the Department of Labor, Bureau of Labor Statistics, Local Area
  Unemployment Statistics (LAUS). Available at http://www.bls.gov/LAU/.
  Long-term unemployment data comes from an Economic Policy Institute
  (EPI) analysis of Current Population Survey data, Economic Snapshots:
  ``Extending unemployment benefits stimulates economic and helps
  workers.'' January 30, 2008. Available at http://www.epi.org/
  content.cfm/webfeatures_snapshots_20080130.
Notes: Long-term unemployment data available for 44 states only. Missing
  long-term unemployment data for Idaho, Utah, Wyoming, Montana, North
  Dakota, and New Mexico due to small sample size. National shares do
  not total to 100 as a result of these omissions.

Conclusions
    Given all of these facts, now is the time to enact extended 
unemployment benefits. This will assist the long-term unemployed as 
they continue to search for work. The unusually high share of long-term 
unemployed workers at this relatively early stage in the economic 
slowdown is a warning sign; history suggests these numbers will grow as 
the recession affects more and more jobs. Waiting for the unemployment 
rate to rise higher before we act would be a mistake.
References

Bernstein, Jared. 2008. ``Real wage reversal persists.'' Economic 
Snapshots. Washington, D.C.: Economic Policy Institute. February 20. 
Available at http://www.epi.org/content.cfm/
webfeatures_snapshots_20080220se.

Congressional Budget Office. 2007. Long-Term Unemployment. Washington, 
D.C.: Congress of the United States. October. Available at

http://www.cbo.gov/ftpdocs/87xx/doc8770/10-31-LongtermUnemployment.pdf

Pew Center on the States. 2008. One in 100: Behind Bars in America 2008. 
Washington, D.C.: Pew Charitable Trusts. February. Available at http://
www.pewcenteronthestates.org/uploadedFiles/One%20in%20100.pdf.

U.S. Department of Labor, Employment and Training Administration. 
Unemployment Insurance Data Summary. 3rd Quarter 2007. Washington, D.C.: 
U.S. Department of Labor. Available at http://workforcesecurity.doleta.gov/
unemploy/content/data.asp.

                                 

    Chairman MCDERMOTT. Thank you very much.
    Dr. Shierholz, who is an economist from the Economic Policy 
Institute. Dr. Shierholz?

STATEMENT OF HEIDI SHIERHOLZ, LABOR MARKET ECONOMIST, ECONOMIC 
                        POLICY INSTITUTE

    Dr. SHIERHOLZ. Good morning, Chairman McDermott, Ranking 
Member Weller, and distinguished Members of the Subcommittee.
    My name is Heidi Shierholz and I am a labor market 
economist at the Economic Policy Institute. I am delighted you 
are holding a hearing on this urgent issue of extending 
unemployment insurance benefits, and I appreciate the 
opportunity to share my views.
    As Dr. Blank said, the unemployment rate at 5.1 percent in 
March is not at a historically high level, but it is higher 
than average for the beginning of a recession. The unemployment 
rate at the start of the last ten recessions averaged 4.7 
percent.
    The fact is, as she mentioned, the unemployment rate is a 
lagged indicator of an economic slowdown with low levels at the 
beginning of the recession and steep increases during a 
recession.
    In this testimony, I will present evidence about why the 
current unemployment rate in no way precludes an immediate 
extension of UI benefits, and in fact, the analysis I will give 
of historic and projected trends in long term unemployment 
along with other key economic indicators strongly suggests that 
immediate action is warranted.
    I will start by focusing on long term unemployment, which 
we'll define as the share of the unemployed who have been 
unemployed long term, and that is a crucial measure in this 
context because six months is when most workers exhaust their 
UI benefits.
    Currently, long term unemployment is extremely high given 
where the unemployment rate is. Over the course of the last 60 
years, when the unemployment rate was around where it is right 
now, long term unemployment averaged 10.5 percent.
    In other words, historically, when we are in a situation 
where we are right now, 10.5 percent of the unemployed were 
unemployed long term. Over the current business cycle, that 
number is 18.5 percent.
    In other words, many more workers are stuck in long term 
joblessness right now than would be expected given the 
unemployment rate.
    It also shows that the unemployment rate alone is 
insufficient in capturing just how difficult it is for many 
workers to find a job in the current labor market.
    As we both mentioned, unemployment rates are lagged 
indicators of an economic slowdown, and with the March 
employment report showing job losses for the third straight 
month, it is very likely that we have entered into a 
potentially severe economic downturn, so the question arises 
how many more long term unemployed workers do we expect to see 
before the economy turns up again.
    To address this question, we used unemployment projections 
from Goldman Sachs to project long term unemployment through 
the end of 2009, and what we project is that by the end of 
2009, 21 percent of the unemployed will be long term 
unemployed. That is 1.4 percent of the total labor market or 
2.1 million workers.
    That 2.1 million figure is up 64 percent from the 1.3 
million unemployed that we see right now.
    I will end this testimony with a brief comparison of 
various economic indicators today to when the decision was 
first made to extend UI benefits during the last recession in 
February 2002.
    What we find is that according to a host of key economic 
indicators, the economy is currently at least as bad off as it 
was then. Both GDP and median real wages are now growing at a 
much slower rate than they were at that time. In fact, median 
real wages have actually declined 1.2 percent over the last 
year.
    The exhaustion rate, which is the proportion of UI 
claimants who have exhausted all of their UI entitlement, is 
the same now as it was then.
    There is a lower employment rate right now. There is a 
lower labor force participation rate right now, a higher 
percent of the unemployed are long term unemployed, and 
crucially, the same percent of the labor force is long term 
unemployed right now as it was when Congress first enacted 
benefits at the start of the last recession or in February 
2002.
    What these figures tell us is that the economy is in at 
least as precarious a position as it was when Congress extended 
benefits during the last recession.
    Long term unemployment is already a problem that merits 
prompt action and it is only expected to get worse as the 
economic downturn deepens.
    I strongly urge Congress to extend unemployment benefits 
immediately. I would like to just add at the end that it is 
important to note that extending benefits will be effective on 
two fronts.
    First, it will get support to those families who have lost 
the most in the economic slowdown, and second, it will provide 
an important and effective economic stimulus.
    The Congressional Budget Office has estimated that a 
national UI extension program would put more than $1 billion 
per month in hands of the long term jobless and their families.
    Furthermore, other estimates show that one dollar of 
unemployment insurance boosts the economy by $1.73. This is due 
to the fact that the long term unemployed who are likely to 
have depleted their savings tend to immediately spend their 
entire benefits on necessities found in their local economy.
    Extending UI benefits would give the economy a more than 
$1.7 billion boost per month at a time when it needs it the 
most. Immediately extending unemployment benefits is not only 
the right thing to do for families of the long term jobless in 
this demonstrably slow and slowing labor market, it is also 
very smart economic policy.
    Thank you, and I would be happy to answer any questions.
    [The statement of Heidi Shierholz follows:]
   Statement of Heidi Shierholz, Ph. D., Economist, Economic Policy 
                               Institute
    Good Morning Chairman McDermott, Ranking Member Weller, and 
distinguished members of the Subcommittee on Income Security and Family 
Support. My name is Heidi Shierholz and I am an economist who studies 
labor market issues at the Economic Policy Institute. I am delighted 
that you have chosen to hold a hearing on the urgent issue of extending 
unemployment insurance and I appreciate the opportunity to appear 
before you today to share my views.
    The unemployment rate--at 5.1% in March--is not at an historically 
high level, but it is higher than average for the beginning of a 
recession. The unemployment rate at the start of the last ten 
recessions--going back 60 years--averaged 4.7%, including 4.3% at the 
start of the last recession in March 2001. The fact is that the 
unemployment rate is naturally a lagged indicator of an economic 
slowdown, exhibiting low levels at the beginning of a recession and 
sharp increases during a recession. In what follows I will present 
evidence on why the current unemployment rate should in no way preclude 
the immediate extension of unemployment insurance benefits. To the 
contrary, my analysis of historical and projected trends in long term 
unemployment, as well as a comparison of where relevant economic 
indicators are today compared to when Congress first extended benefits 
during the last recession, strongly indicate that an immediate 
extension is warranted.
Long Term Unemployment is Unusually High
    Long term unemployment--defined here as the share of the unemployed 
who have been jobless for more than six months--is a crucial measure in 
this context because six months is the mark at which most workers 
exhaust their regular unemployment insurance benefits. Currently, long-
term unemployment is unusually high given the unemployment rate. Figure 
1 presents the unemployment rate and long-term unemployment over the 
last forty years. Two things pop out when looking at this plot: first, 
the two series follow a similar cyclical pattern, peaking after the end 
of each recession (recessions are shaded in the plot), and second, long 
term unemployment also follows a generally upward trend and is 
currently much higher relative to the unemployment rate than in the 
past. The fact that a much higher portion of the unemployed have been 
unemployed long-term shows that the unemployment rate alone is 
insufficient in capturing how difficult it is in today's labor market 
for many people to find a job.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: Author's analysis of Bureau of Labor Statistics data.
    Historically, when the unemployment rate was near where it is now, 
long term unemployment averaged 10.5%. During the current business 
cycle, however, when the unemployment rate was near current levels, 
long term unemployment averaged 18.5%.\1\ Figure 2 shows the dramatic 
difference in long term unemployment in the current labor market 
compared to the historic average. Taken together, figures 1 and 2 show 
that a great many more workers are stuck in long-term joblessness than 
would be expected given the relatively low unemployment rate.
---------------------------------------------------------------------------
    \1\ The historic average includes data from 1948 up to (but not 
including) the current business cycle. An employment rate ``near'' 
where it is now means within a quarter of a percent.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: Author's analysis of Bureau of Labor Statistics data.
How Many More Long-Term Unemployed Can We Expect During the Current 
        Economic Slowdown?
    As mentioned above, unemployment rates are lagged indicators of an 
economic slowdown. With the March employment report showing job losses 
for the third straight month, we believe we have entered into a 
potentially severe economic downturn, and an important question to 
consider is how many workers are expected to experience long-term 
unemployment before the economy turns up again. To address this 
question, we used unemployment projections from Goldman Sachs, labor 
force projections from the Congressional Budget Office, and a simple 
statistical model to project long-term unemployment through the end of 
2009.\2\ Figure 3 presents the projections. We project that by the end 
of 2009, 20.8% of the unemployed will be unemployed long-term. The 
number of long-term unemployed would be 1.4% of the total workforce, or 
2.1 million workers--up 64% from the 1.3 million long-term unemployed 
today.
---------------------------------------------------------------------------
    \2\ We regressed the long term unemployment rate on the 
unemployment rate and the unemployment rate lagged one quarter. All 
variables in the model were first-differenced. This produced an 
adequate model with white noise residuals and a good fit (DW: 1.62, R-
sq: 0.64). We then forecasted the long term unemployment rate through 
2009 using unemployment rate projections from Goldman Sachs. Finally, 
using the Goldman Sachs forecasts of the unemployment rate, our 
forecasts of the long term unemployment rate, and CBO forecasts of the 
labor force, we backed out long term unemployment both in levels and as 
a percent of the unemployed.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: Author's analysis of Bureau of Labor Statistics data. For 
information on projections see Footnote 2.
Highly Educated and Experienced Workers are Disproportionately Hard-Hit 
        by Long-Term Unemployment
    With so many workers either in or headed for long-term 
unemployment, the question arises--who are these workers? An analysis 
of microdata from the Current Population Survey, the same data used to 
calculate the official unemployment numbers, illustrates the 
characteristics of these workers. Table 1 presents shares of the total 
unemployed (column 1) and the long-term unemployed (column 2) by 
subgroup for January 2008, the latest date these data are available. 
Comparing these two columns shows which subgroups of jobless workers 
are over- and under-represented among the long-term unemployed. For 
example, while workers aged 45 and over make up 28.4% of the 
unemployed, they make up 36.7% of the long-term unemployed. In other 
words, these experienced workers are overrepresented among the long-
term unemployed; if unemployed, workers aged 45 and over are unusually 
likely to be unemployed long-term. On the other hand, while workers 
aged 16-24 make up 32.0% of the unemployed, they make up only 24.8% of 
the long-term unemployed, meaning that young workers are 
underrepresented among the long-term unemployed. Education subgroups 
paint a similar picture: while only 13.5% of workers with a bachelor's 
degree or more are unemployed, 16.3% are long-term unemployed, meaning 
that the most educated workers are overrepresented among the long-term 
unemployed. The reverse is true for less-educated workers, who are 
underrepresented among the long-term unemployed. When looking at the 
breakdowns by occupation, we find a similar story; white collar workers 
are overrepresented among the long-term unemployed, and blue collar 
workers are underrepresented. This table shows that even the most 
educated and experienced workers are not sheltered from the effects of 
the slowing economy on the labor market.

                        Table 1: Shares of Unemployed and Long Term Unemployed in Jan '08
----------------------------------------------------------------------------------------------------------------
                                                                  Share of Total   Share of Long
                                                                    Unemployed         Term         Difference
                                                                                    Unemployed
----------------------------------------------------------------------------------------------------------------
All groups                                                              100%          100.0%            0.0%
 
Age
16-24                                                                  32.0%           24.8%           -7.2%
25-44                                                                  39.6%           38.5%           -1.0%
44+                                                                    28.4%           36.7%            8.2%
 
Education
High school or less                                                    62.6%           60.4%           -2.2%
Some college                                                           23.9%           23.3%           -0.6%
Bachelor's degree or more                                              13.5%           16.3%            2.8%
 
Occupation
White collar                                                           39.0%           43.5%            4.5%
Services                                                               23.2%           23.5%            0.3%
Blue collar                                                            37.7%           32.9%           -4.8%
----------------------------------------------------------------------------------------------------------------
Source: Author's analysis of Bureau of Labor Statistics data.\3\

    March 2002 was the first time unemployment insurance benefits were 
extended during the last recession. We end this testimony with a brief 
look at various economic indicators available when that decision was 
made (February 2002) compared to the same indicators today. These 
figures are presented in Table 2. What we find is that according to a 
host of key economic indicators, the economy is currently at least as 
bad off as it was in February 2002. Both GDP and median real wages are 
now growing at a much slower rate than they were then--in fact median 
real wages declined 1.2% over the last year. Also, the Exhaustion 
Rate--the proportion of claimants who have exhausted all of their 
unemployment insurance entitlement--is the same now as it was then. 
Furthermore, a higher percent of the population was employed in 
February 2002 than now, a higher percent of the population was 
participating in the labor force, and a lower percent of the unemployed 
had been unemployed long-term. And crucially, the percent of the labor 
force that is long-term unemployed is the same today as it was when 
Congress extended unemployment insurance benefits during the last 
recession. These figures tell us that, despite the currently low 
unemployment rate relative to when extensions were first enacted during 
the last recession: 1) the economy is in at least as precarious a 
position as it was at that time, and 2) an immediate policy response is 
now warranted.
---------------------------------------------------------------------------
    \3\ White collar occupations are management, business, financial, 
professional, sales, office, administrative support, and related 
occupations. Blue collar occupations are farming, fishing, forestry, 
construction, extraction, installation, maintenance, repair, 
production, transportation, and material moving occupations.


       Table 2: Economic indicators from February 2002 and today.
------------------------------------------------------------------------
                                           February 2002    March 2008
------------------------------------------------------------------------
GDP Growth                                      1.6%            0.6%
Median Wage Growth                              1.9%           -1.2%
Unemployment Insurance Exhaustion Rate           36%             36%
Employment to Population Ratio                 63.0%           62.6%
Labor Force Participation Rate                 66.8%           66.0%
Long Term Unemployment                         14.9%           16.7%
Percent of Labor Force Long Term                0.8%            0.8%
 Unemployed
Unemployment Rate                               5.7%            5.1%
------------------------------------------------------------------------
Source: Author's analysis of data from the Bureau of Labor Statistics,
  the Bureau of Economic Analysis, and the Department of Labor's
  Unemployment Insurance Chartbook. GDP Growth is annualized quarterly
  growth from 2001Q4 and 2007Q4. Median Wage Growth is annual growth of
  usual weekly earnings for full time wage and salary workers from
  2001Q4 and 2007Q4.

Conclusion
    Despite the current relatively low unemployment rate, long term 
unemployment is already a problem that merits prompt action and it is 
only expected to get worse as the economic downturn deepens. For 
individuals seeking work in this economy, the search is likely to be 
long, putting an enormous strain on the families of the over two 
million workers projected to be long-term unemployed in the next 15 
months. We strongly urge Congress to extend unemployment benefits 
immediately.
    It is important to note that extending UI benefits would be 
effective on two fronts. First, it would support the families who have 
lost the most in the current economic slowdown, and second, it would 
provide an important and effective economic stimulus. The Congressional 
Budget Office has estimated that once up and running, a national UI 
extension would put more than one billion dollars per month in the 
hands of jobless workers and their families. Furthermore, Mark Zandi of 
Economy.com estimates that every dollar spent on unemployment insurance 
boosts the economy by $1.73.\4\ The effectiveness of the UI stimulus is 
due to the fact that the long-term unemployed, who are likely to have 
depleted their savings, tend to quickly spend essentially every dollar 
they receive on necessities found in their local economy. Thus, 
extending UI benefits would give the economy a more than 1.7 billion 
dollar boost per month at a time when it needs it the most. Immediately 
extending unemployment benefits is not only the right thing to do for 
the families of the long-term jobless in this demonstrably slow and 
slowing labor market, it is also very smart economic policy.
---------------------------------------------------------------------------
    \4\ Congressional Budget Office, ``Options for Responding to Short-
Term Economic Weakness'', January 2008, and M. Zandi, ''Assessing 
President Bush's Fiscal Policies,'' Economy.com, July 2004.
---------------------------------------------------------------------------
    Thank you and I am more than happy to answer any questions you may 
have.

                                 

    Chairman MCDERMOTT. Thank you very much. I neglected to say 
both of your testimonies will be entered into the record in 
full. Thank you for condensing it to 5 minutes.
    Mr. Emsellem, who is Co-Policy Director at the National 
Employment Law Project: you are on.

   STATEMENT OF MAURICE EMSELLEM, POLICY DIRECTOR, NATIONAL 
                     EMPLOYMENT LAW PROJECT

    Mr. EMSELLEM. Chairman McDermott and Members of the 
Subcommittee, thank you for this opportunity to testify on the 
subject of unemployment in today's struggling economy, and the 
urgent need to extend unemployment benefits.
    You have heard testimony about the new realities of 
unemployment in today's economy, especially the problem with 
long term joblessness, which underscores the immediate need to 
extend unemployment benefits.
    In my remarks, I will focus more specifically on the 
increase in unemployment claims and the vast numbers of workers 
exhausting their benefits compared to prior recessions, and the 
critical role that extended unemployment benefits play in 
boosting the nation's economy, especially those communities 
hardest hit by the recession and housing crisis.
    Every day we at the National Employment Law Project hear 
from more and more families across the country who now find 
themselves jobless through no fault of their own, struggling to 
keep their homes and pay the sky rocketing costs of food and 
gas, all on an average unemployment check of $290 a week.
    We know from polling and State surveys that one in four of 
these unemployed families will be forced to leave their homes 
or move in with family and friends, and that they spend more 
than 40 percent of their limited unemployment benefits just to 
cover their housing costs. The rest of the unemployment check 
is spent on other basic necessities including transportation, 
food and health care.
    The ranks of these workers struggling to get by on their 
limited State unemployment benefits have increased 
significantly in the past year.
    This week, 2.9 million Americans were collecting State 
unemployment benefits, which exceeds the number who were 
collecting benefits even after the surge in unemployment claims 
after Hurricane Katrina.
    Over the next 12 months, that means that more than three 
million workers will exhaust their jobless benefits if Congress 
does not extend their limited 26 weeks of assistance, and that 
does not include the more than 800,000 workers who have already 
exhausted their State benefits in the past year and are still 
looking for work.
    Despite the plight of these four million Americans, this 
week the Bush Administration and others have argued that now is 
not the time to extend jobless benefits, that the labor market 
is still in good shape compared to prior economic downturns.
    In addition to the issues raised by the earlier testimony, 
I would like to point out that the Administration's position 
ignores the fact that far more workers are also exhausting 
unemployment benefits today compared to prior recessions.
    Thirty-six percent of workers are now running out of their 
State unemployment benefits without finding new work. That 
compares with 32 percent when the last recession began in 2001 
and 28 percent when the 1990 recession began.
    While the total number of workers who have collected 
unemployment benefits in the past 12 months is comparable to 
the last two recessions, the number of workers exhausting their 
benefits in the past year, a staggering 2.7 million people, 
exceeds both of the past two recessions by over half a million 
workers.
    Contrary to the Administration's position, now is the time 
to extend benefits.
    The unemployment system was not only set up to help 
families cope with the hardships of unemployment and find new 
work, it was also created as an insurance policy to help 
stimulate the economy.
    The program was designed to build reserves in the Federal 
unemployment trust funds during good economic times and to get 
hard cash circulating right away during hard times. That is 
exactly what the program has done.
    According to a major study of several prior recessions, 
unemployment benefits boost economic growth by $2.15 for every 
dollar of benefits circulating in the economy.
    Now with consumer confidence falling to record lows, it is 
critically important to send the message not just to unemployed 
families but to their friends and neighbors as well, that 
Federal help is on the way.
    Thus, this Congress should act now to avoid the experience 
of the 1991 recession when, as economist Mark Zandi argues, the 
serious slump in consumer confidence was due in part to the 
refusal to immediately extend benefits by the first President 
Bush.
    Once more, an immediate extension of jobless benefits will 
go a long way to help prevent a more serious housing slump, 
which has already devastated whole communities.
    As I mentioned, unemployed families spend a 
disproportionate share of their benefits to pay their mortgage. 
In fact, a national study found that unemployment benefits 
reduced the chances that a worker will be forced to sell the 
family home by one-half.
    Again, the sooner the extension is in place, the greater 
the impact it will have to support the struggling housing 
market.
    Finally, Chairman McDermott and Congressman English, we 
want to express our strong support for the bill you have 
introduced to extend benefits. We believe that it provides 
immediate relief to workers and that it will also boost the 
economy while giving Congress the discretion to re-evaluate at 
the end of the year whether more help is needed.
    Lastly, I would just like to comment briefly on Congressman 
Weller's bill, if I may, and I just have a few more seconds to 
go.
    I would like to mention first that the bill only provides 5 
weeks of benefits to selected states that can only afford to 
pay 50 percent of the benefits, and never in the history of the 
unemployment program has there ever been a temporary extension 
that only applied to some states, not the whole country.
    More to the point, if you take a look at the bill, right 
now there is no State that qualifies for extended benefits 
under Congressman Weller's bill. In fact, Michigan, with an 
unemployment rate of over seven percent for the past 19 months 
does not qualify either.
    There are serious problems with that approach as well, and 
that is why we favor your bill, Chairman McDermott.
    Thank you.
    [The statement of Maurice Emsellem follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Chairman MCDERMOTT. Thank you very much.
    Mr. Brill, who is a Fellow with the American Enterprise 
Institute for Public Policy Research.
    Mr. Brill.

     STATEMENT OF ALEX M. BRILL, RESEARCH FELLOW, AMERICAN 
        ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH

    Mr. BRILL. Thank you very much. Chairman McDermott, Ranking 
Member Weller, Members of the Subcommittee, thank you for the 
opportunity to testify on the topic of unemployment insurance.
    My name is Alex Brill, and I am a Research Fellow at the 
American Enterprise Institute.
    I would like to address just three points from my written 
testimony and discuss each in a bit of detail.
    First, while growth of the U.S. economy is near zero, a 
disaggregate inspection reveals both strong and weak components 
and regions in our economy.
    Second, the optimal duration of unemployment insurance 
requires a balancing act. Unemployment insurance is necessary 
for many workers but too much UI will hamper labor markets, 
raise unemployment and slow growth.
    Third, targeted and temporary extended UI is appropriate in 
some labor markets and the most efficient policy would be one 
that is precisely targeted.
    First, regarding the economy. Indicators for the first 
quarter of 2008 suggest that growth remained very slow and was 
possibly negative. However, our economy is an amalgamation of 
numerous sectors, industries and distinct labor markets.
    The U.S. economy expanded.6 percent in the fourth quarter 
of 2007, but the components of growth performed quite 
differently. For example, export growth added eight-tenths of a 
percentage point to GDP, while the decrease in motor vehicle 
output reduced growth by.9 percentage points.
    Nevertheless, the national unemployment rate increased 
three-tenths of a percentage point from February to March and 
rose to 5.1 percent, and jobs have on net declined for 3 months 
in a row.
    Even after controlling for shifts in the workers' age, 
unemployment is lower than when extended benefits were passed 
by Congress in February 2002.
    Both initial claims and long term unemployment as a share 
of total employment have increased over the past year but 
remain low by historical comparison.
    Similarly, labor markets are performing differently across 
the country and across industries. From February 2007 to 
February 2008, 20 states saw a decrease in their unemployment 
rate. Forty-three states and the District of Columbia saw 
employment gains in February 2008.
    Second, the theory of optimal unemployment insurance design 
requires a balancing act between two competing forces. On the 
one hand, labor market rigidities, liquidity constraints and a 
tax system that discourages savings makes it appropriate for a 
program such as UI to help workers be able to find the best 
available job.
    On the other hand, too much unemployment insurance will 
lead to an increased duration of unemployment through a 
decreased incentive to find a job. This will lead to a higher 
unemployment rate and lower levels of economic output and 
growth.
    The optimal duration of unemployment benefits is a function 
of current labor market conditions which are inherently local 
in nature.
    Therefore, if Congress considers an expansion to 
unemployment insurance, it is important to design a targeted 
program that to the extent possible provides additional 
benefits only to workers where labor markets are slack and only 
on a temporary basis.
    I will conclude by noting that unemployment insurance is a 
key Government policy and it affects the ability for workers to 
find optimal job search opportunities and it affects the degree 
of labor market flexibility in our economy. Labor market 
flexibility is a key for economic growth.
    The International Monetary Fund estimated in 2003 that if 
Europe were to adopt labor market institutions and structures 
similar to the United States that their economy could 
experience an additional economic growth of up to 5 percent.
    Thank you.
    [The statement of Alex M. Brill follows:]
               Statement of Alex Brill, Research Fellow, 
        American Enterprise Institute for Public Policy Research
    Chairman McDermott, Ranking Member Weller, and Members of the 
Subcommittee, thank you for the opportunity to testify this morning on 
the topic of unemployment insurance. My name is Alex Brill, and I am a 
research fellow at the American Enterprise Institute (AEI). This 
morning, however, I am conveying my own views and not those of the AEI 
or any other organization with which I am affiliated.
    My testimony today will address five topics: first, the current 
economic outlook from an aggregate, sector and regional perspective; 
second, the theoretical concepts for optimal unemployment insurance 
design; third, the importance of labor market flexibility for economic 
growth and lessons from Europe; fourth, extended unemployment insurance 
as a tool for economic stimulus and finally, alternatives to consider 
to the existing UI system.
Current Economic Outlook
    At present, the aggregate growth of the U.S. economy is at a near 
standstill. Growth in the fourth quarter of 2007 was a paltry 0.6 
percent (all GDP growth figures are annualized rate) and indicators for 
the first quarter of 2008 suggest that growth remained very slow and 
was possibly negative. An excessive supply of residential housing, 
inflated home prices, and turmoil in the credit markets are at the 
center of the current economic weakness. Other sectors and industries 
could become ensnarled as well. The outlook for the economy for the 
remainder of 2008 is highly uncertain. Many economists expect an 
improvement in the second half of the year, though such a timely return 
back toward trend growth depends on a prompt recovery of credit markets 
and financial institutions.
    While the performance of the aggregate U.S. economy is a useful 
thumbnail for gauging the simple trends of the economy, our economy is 
an amalgamation of numerous sectors, industries and distinct labor 
markets. Looking more closely at specific sectors and geographic areas 
reveals considerable variation in our economic performance. Our economy 
is clearly faltering in some areas while growth remains relatively 
robust in other areas.
    Consider the fourth quarter of 2007, the most recent period for 
which we have complete data. In the aggregate, the U.S. economy 
expanded 0.6 percent but the components of GDP performed very quite 
differently. The service sector of the economy grew 3.1 percent while 
the goods-producing sector contracted 1.6 percent. Export growth added 
0.8 percentage points to GDP while the decrease in motor vehicle output 
reduced the overall growth by 0.9 percentage points.\1\
---------------------------------------------------------------------------
    \1\ See ``Gross Domestic Product: Fourth Quarter 2007 (Final),'' 
Bureau of Economic Analysis News Release, March 27, 2008, Appendix A. 
Accessible at http://www.bea.gov/newsreleases/national/gdp/2008/pdf/
gdp407f.pdf.
---------------------------------------------------------------------------
    GDP growth varies considerably by region as well, though government 
statistics are not as timely for state output as they are for state 
employment or industry production. That said, the Far West, Rocky 
Mountain, and Southwest regions of the U.S. have been growing 
considerably faster than the Plains, Great Lakes, and New England 
states. For example, Washington State grew 5.6 percent in 2006 while 
Illinois grew 3.0 percent.\2\
---------------------------------------------------------------------------
    \2\ See ``Gross Domestic Product (GDP) by State, 2006,'' Bureau of 
Economic Analysis (BEA) New Release, June 2, 2002. Accessible at http:/
/www.bea.gov/newsreleases/regional/gdp_state/gsp_newsrelease.htm
---------------------------------------------------------------------------
    Similarly, labor markets are performing differently across the 
country and across industries, with some areas of elevated unemployment 
and other areas where jobs are still relatively plentiful. For 
examples, employment in the healthcare sector increased nearly 1 
million from January 2003 to September 2006 and has since grown by an 
additional 530,000 jobs. In the construction sector, employment also 
increased by about 1 million from January 2003 to September 2006 but 
has since fallen by 400,000 jobs.
    By state, the employment situation varies considerably as well. 
During the twelve months from February 2007 to February 2008, twenty-
six states and the District of Columbia saw an increase in their 
unemployment rate and twenty states saw a decrease in their 
unemployment rate. In February, the unemployment rate was the highest 
in Michigan at 7.2 percent and lowest in Wyoming at 2.7 percent. Figure 
1, reproduced from the Bureau of Labor Statistics (BLS), illustrates 
the variation in unemployment by state for February 2008.
    Forty-three states and the District of Columbia saw employment 
gains in February 2008. The largest percent increases in employment 
were in Wyoming, Texas, Utah, Washington, and Colorado. Seven states 
experienced declines in employment, the largest of which were Rhode 
Island, Michigan, Florida, Wisconsin, and Nevada.\3\
---------------------------------------------------------------------------
    \3\ See ``Regional and State Employment and Unemployment: February 
2008,'' Bureau of Labor Statistics News Release, March 28, 2008. 
Accessible at http://www.bls.gov/news.release/pdf/laus.pdf
---------------------------------------------------------------------------
Figure 1. Unemployment rate by State, February 2008

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: ``Regional and State Employment and Unemployment: February 
2008,'' BLS News Release, March 28, 2008.
    Proper comparisons between the current labor market data and 
previous labor market statistics are difficult for a number of reasons. 
First, there is no obvious benchmark period for comparison. We do not 
know where we are precisely in the business cycle. Second, the 
structural and demographic characteristics of the labor market have 
changed. While some may choose to compare current labor market data to 
conditions at the onset of the last recession, that date (March 2001) 
was not known to be a business cycle peak until much later in the year. 
Indeed, economists still debate if that was the appropriate date for 
the turning point at all. A more appropriate comparison may be to 
compare current labor market conditions to conditions when unemployment 
benefits were first extended.
    Second, the labor force has changed considerably over time as it 
has become older, more educated, and contains more foreign-born 
workers. All three groups are associated with lower levels of 
unemployment. And finally, the characteristics of the jobs in our 
economy have changed and the relative share of jobs that are unionized 
has declined.
    The characteristics of the current unemployment situation can be 
summarized as follows. The unemployment rate, 5.1 percent in March, is 
low by historical measure, though shifts in demographics and industry 
composition have contributed notably to its decline. The unemployment 
rate increased significantly from February to March. While gross job 
creation and gross job destruction are both over 2 million a month, net 
job creation has been negative for three consecutive months. Neither 
the long-term unemployment rate nor the share of unemployed that are 
long-term unemployed are high by historical average. Both initial 
jobless claims and long-term unemployment as a share of total 
employment have increased over the past year but remains low by 
historical comparison (See Figure 2 and Figure 3). Finally, aggregate 
labor market conditions, even after controlling for shifts in the 
workers' age, are better than when extended benefits were passed by 
Congress in February 2002 (See Table 1).

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




                 Table 1. Unemployment Rate by Age Group
------------------------------------------------------------------------
                                                   Unemployment Rate
                                                       (percent)
                     Ages                     --------------------------
                                                Mar-08   Feb-02   Aug-91
------------------------------------------------------------------------
16-19                                            15.8     16       18.9
20-24                                             9.3      9.7     10.8
25-34                                             5.3      5.8      7
35-44                                             3.8      4.4      5.3
45-54                                             3.5      3.9      4.6
55+                                               3.4      3.9      3.9
 
Aggregate Unemployment Rate                       5.1      5.7      6.9
 
Mar-08 Unemployment weighted by Feb-02 Labor               5.2
 Force Share
 
Mar-08 Unemployment weighted by Aug-91 Labor                        5.5
 Force Share
 
  Note: February 2002 and August 1991 were when Congress first voted
to provide extended UI benefits in previous cycles
  Source: Bureau of Labor Statistics for distribution of worker's and
unemployment rate by age category. Concept based on Rebecca
Blank (2008)
------------------------------------------------------------------------

Theoretical view on optimal unemployment insurance
    The theory of optimal unemployment insurance design suggests a 
balancing act between two competing forces. On one hand, labor market 
rigidities (such as minimum wage, union bargaining powers, and 
employment protections), liquidity constraints for many households 
(namely the inability for many households to borrow against future 
earnings), and a tax system that distorts the decision between current 
consumption and savings (thereby discouraging precautionary savings for 
unemployment spells), make it appropriate for a program such as 
unemployment insurance to assist displaced workers so that they have 
resources to obtain the next best employment opportunity.
    On the other hand, too much unemployment insurance (determined by 
the duration of benefits, the replacement rate of previous wages or 
both) will lead to an increased duration of unemployment through a 
decreased incentive to find a job. This will lead to a higher 
unemployment rate and lower levels of economic output and growth.
    Furthermore, the unemployed are a heterogeneous population. 
Unemployed workers have varying degrees of precautionary savings 
(including zero) and may or may not have spousal income to rely on 
during a period of unemployment. As a result, optimal unemployment 
insurance varies across the unemployed population and therefore a 
single benefits rule is inherently imperfect.
    The optimal duration of unemployment benefits for a given worker is 
also a function of current labor market conditions that are inherently 
local in nature and skill specific. Therefore, when conditions 
deteriorate in a particular labor market, it is reasonable to offer 
additional benefits since finding a job is likely to take longer. Of 
course, the current law extended benefit (EB) program is designed to 
address these concerns by providing additional benefits for states with 
high and rising unemployment. However, due to a variety of changes to 
the U.S. economy, population, and labor market, these triggers may be 
too high to be effective. In general, the triggers for the current law 
EB program were set when the natural rate of unemployment was 
considerably higher. Therefore in today's economy, EB is considerably 
less likely to be triggered during a period of weak labor markets than 
when it was first implemented.\4\
---------------------------------------------------------------------------
    \4\ The Congressional Budget Office estimates the natural rate of 
unemployment in the U.S. to be 5.0 percent, a decrease of over 1 
percentage point since 1981 when the extended benefits program was last 
changed. See Brauer, David, ``The Natural Rate of Unemployment,'' 
Working Paper Series 2007-06 Congressional Budget Office, April 2007.
---------------------------------------------------------------------------
    Therefore, when Congress considers changes to unemployment 
insurance to provide additional assistance to unemployed workers, it is 
important to design a targeted program that, to the extent possible, 
provides additional benefits only to workers where labor markets are 
slack and only on a temporary basis.
The Stimulus Digression
    I would like to emphasize that the benefit of a well-designed UI 
system is that it promotes labor market efficiencies and long-run 
economic growth. One commonly emphasized economic perspective of 
unemployment insurance (UI) is that providing extended benefits is an 
effective tool for economic stimulus. I disagree and believe that while 
a well designed system, which compensates for labor market 
imperfections and rigidities will boost economic growth in the long-
run, providing UI benefits that exceed the optimal level and duration 
will not provide measurable positive short-term stimulus.
    Why do I believe that there are only small short-term effects? 
First, while providing additional dollars to unemployed workers is 
likely to result in a relatively large share of those dollars being 
used to stimulate aggregate demand, there is a potentially offsetting 
effect as workers may remain out of the workforce longer. As a result, 
they will not contribute to aggregate supply and not receive as much 
income as they would if employed. Second, even the most generous 
proposals for extending unemployment benefits are small relative to the 
$14 trillion U.S. economy. Furthermore, estimates of the multiplier 
effect of UI cited by some policy analysts (Chimerine, et al. 1999) 
relate to the effects of the current program, not the marginal effect 
of an expansion of the program. Finally, Harvard University Professor 
of Economics Martin Feldstein testified in 2007 that notes, ``[w]hile 
raising unemployment benefits or extending the duration of benefits 
beyond 26 weeks would help some individuals . . . it would also create 
undesirable incentives for individuals to delay returning to work. That 
would lower earnings and total spending.'' \5\ UI policy should be 
based on labor-market efficiency, not short-run stimulus.
---------------------------------------------------------------------------
    \5\ The Senate Finance Committee, ``Testimony of Martin Feldstein'' 
January 24, 2007 http://www.senate.gov/%7Efinance/hearings/testimony/
2008test/012408mftest.pdf
---------------------------------------------------------------------------
Labor market flexibility
    Unemployment insurance is a key government policy that affects the 
degree of labor market flexibility in an economy and labor market 
flexibility is a key for economic growth. Countries with more generous 
unemployment insurance tend to have higher levels of unemployment and 
slower growth. The International Monetary Fund's 2003 World Economic 
Outlook noted that ``The persistence of high unemployment in a number 
of industrial countries . . . is arguably one of the most striking 
economic policy failures of the last two decades. A wide range of 
analysts and international organizations--have argued that the cause of 
high unemployment can be found in labor market institutions.'' \6\ The 
IMF also estimates that if Europe were to adopt labor market 
institutions and structures similar to the United States that economy 
could experience additional economic growth of five percent.
---------------------------------------------------------------------------
    \6\ The IMF, World Economic Outlook: Growth and Institutions, 2003.
---------------------------------------------------------------------------
    While extending unemployment benefits beyond 26 weeks is only one 
change in labor market protections among the many differences that 
exist between the U.S. and Europe, it is one that in a full-employment 
economy would tend to raise unemployment and slow economic growth. As 
the following charts indicate, the U.S. had a lower unemployment rate 
and a lower long-term unemployment rate lower in 2006 compared to most 
OECD countries. The U.S. also has smaller public expenditures on labor 
market programs as a share of GDP, less labor market regulations, and 
lower income and social security tax burdens for average workers than 
most OECD countries. Over the last ten years, the U.S. economy has 
grown faster on a per capita basis than all of Western Europe except 
Ireland, Spain, and Sweden. Taken together, this data suggests that 
increasing the generosity of unemployment benefits to be more similar 
to other developed countries could likely lead to higher unemployment 
and slower growth in the U.S.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



Alternatives to current unemployment insurance program
    I would like to conclude my testimony by noting that alternatives 
to the current unemployment insurance program could be designed to 
adequately address the limited liquidity of a large fraction of 
unemployed and other short-comings in labor markets without creating a 
discouraging job search. For example, Joseph Stiglitz and Jungyoll Yun 
(2005) \7\ propose combining an unemployment insurance system with the 
public pension system (Social Security). Martin Feldstein and Daniel 
Altman (2007) \8\ propose unemployment insurance savings accounts 
(UISAs), where workers would contribute a share of their wages and be 
allowed to draw from the account should they become unemployed. The 
UISA accounts would provide an incentive for workers to find employment 
promptly. Only those with a negative balance in their account would 
face the biased incentives which exist in the current system.
---------------------------------------------------------------------------
    \7\ Stiglitz, Joseph and Yun, Jungyoll ``Integration of 
unemployment insurance with retirement insurance,'' Journal of Public 
Economics, Vol. 89. December 2005, pp. 2037-2067. http://
www2.gsb.columbia.edu/faculty/jstiglitz/download/
2005_Unemployment_Insurance.pdf
    \8\ Feldstein, Martin S. and Altman, Daniel. ``Unemployment 
Insurance Savings Accounts.'' in James Poterba, ed., Tax Policy and the 
economy. Vol. 21. Cambridge, MA: MIT, 2007, pp.35-58.
---------------------------------------------------------------------------
    Other alternatives are also worthy of consideration, including 
mandating that employers purchase private insurance to provide 
unemployment insurance to their workers, or offering reemployment 
incentives to encourage shorter unemployment spells. Wage insurance is 
yet another alternative or complimentary policy that could assist 
workers during changes in labor markets. Finally, more incremental 
reforms could also improve the efficiency of the current system such as 
reforms to improve the experience rating system--which currently 
imprecisely relates the employers' history of laying of workers to 
their unemployment tax.
Conclusion
    While the U.S. labor market has deteriorated in the last few 
months, aggregate conditions are not worse than they were when extended 
UI benefits were enacted in 2002. More important than national 
statistics are those related to specific labor markets and industries. 
Any legislation to provide additional unemployment benefits should be 
carefully targeted to limit the moral hazard effect. Furthermore, any 
extension of benefits should be temporary so not to continue when the 
economy returns to trend growth. Finally, I encourage the Committee to 
consider fundamental reforms to the UI system as alternative approaches 
may improve labor market efficiencies, raise employment and strengthen 
the U.S. economy.
    I am happy to answer any questions.

                                 

    Chairman MCDERMOTT. Thank you very much. Thank you all for 
your testimony.
    I just have to observe before I ask a question of Dr. 
Blank, the last issue that was decided in 1935 in the passage 
of the Social Security Act was whether or not to include 
unemployment insurance. The argument was that if you gave 
unemployment insurance, they would lose their incentive to find 
another job. That idea has not gone away. It still exists in 
this city, and I think it has been proven wrong over and over 
again.
    Dr. Blank, I want to ask a question about the issue of the 
unemployment situation broader than this whole issue that we 
are talking about here today.
    The unemployment insurance has not been reformed for a long 
time, but the workforce has changed dramatically. We put a 
reform bill into the Trade Assistance Adjustment bill, and it 
is sitting over there.
    I would like to hear you talk about if we pass that, what 
would happen to the unemployment situation and the benefit 
situation in this country?
    Dr. BLANK. I very much agree with you that there is a need 
for broader unemployment insurance reform beyond the issues of 
extended benefits that are the primary topic today.
    Right now, I think it is just slightly over a third of all 
of the unemployed actually receive unemployment insurance, and 
one issue that----
    Chairman MCDERMOTT. Do they pay into the fund?
    Dr. BLANK. Most people, their employers are paying into the 
fund, but people do not get unemployment insurance for a 
variety of reasons. Their job does not last long enough. In 
some number of states, if you have very low wages or very low 
hours, you can't collect unemployment insurance. For instance, 
part-time workers, even though their employers pay in, cannot 
collect unemployment insurance.
    The way in which the job terminates matters a great deal, 
so that a voluntary termination is almost never eligible for 
unemployment insurance. Involuntary terminations depend upon 
the State.
    The result is a shrinking share of workers who become 
unemployed have any access to this particular benefit. That 
reflects a lot of changes in the state of the workforce and how 
well our current unemployment insurance system operates.
    I think it is long overdue to talk about long term reforms 
to that entire system.
    I should note for extended benefits, and this is important, 
the extended benefits tend to go to long term unemployed 
workers, and long term unemployed workers are much more likely 
to be receiving unemployment insurance. The reason is they are 
much more likely to have been workers for whom their entire 
area is being affected, they are often displaced workers, their 
plant has closed or a whole number of people have been laid off 
at the same time, and that is the group that is 
disproportionately likely to get UI.
    Sixty percent of the long term unemployed receive UI, so 
extended benefits, it will not get all of them, but it does 
target a pretty high share of the long term unemployed.
    Chairman MCDERMOTT. Give me the panel's opinion of the 
effect of increasing prices of gasoline and food in terms of 
the benefits that are paid to people. The State of Washington 
pays X number of dollars a month. I don't know when it was last 
increased, but gasoline has gone up and food costs have gone 
up.
    What is the effect today in terms of the buying power of 
the benefit packages that people actually are receiving?
    Dr. BLANK. I can cite some evidence which is based on 
historical evidence, a study by Jonathan Gruber at the 
Massachusetts Institute of Technology who looked at the effects 
of unemployment insurance in cushioning consumption.
    Workers who became unemployed and received unemployment 
insurance had about a 7 percent drop in their consumption in 
the next several months. Workers who did not receive 
unemployment insurance had a 22 percent drop in consumption.
    Obviously, if you become unemployed and prices are rising 
at the same time, which is what is happening in today's 
economy, you would imagine those numbers might look even 
bigger.
    Mr. EMSELLEM. The unemployment check, as I mentioned, on 
average is only $290 a week. There are a lot of states that are 
even lower than that. Gas is up $0.93 from a year ago. If you 
are out looking for work and live in a rural area and you 
really need to commute to go looking for jobs, it has a 
devastating impact. That does not even include the cost of 
housing and other basic expenses that have gone up.
    Other studies have shown, CBO has shown, that unemployment 
extensions reduce poverty, the incidence of poverty, folks 
falling into poverty as a result of becoming unemployed by 
almost one-half. It has a very significant impact on the 
economic well-being of folks who are unemployed, not to mention 
the fact that it really does do a lot to help people get back 
to good jobs, not just regular jobs. That is part of the debate 
about----
    Chairman MCDERMOTT. If I hear you correctly, the bill that 
Mr. Weller is suggesting would have--no one would receive 
benefits from that bill today?
    Mr. EMSELLEM. That is correct. The bill requires not only 
that the State has an unemployment rate exceeding 6 percent on 
average over the past 3 months, but their unemployment rate 
also has to have increased over 10 percent over either the past 
2 years.
    You have the higher unemployment states like Michigan that 
had unemployment over 7 percent for 19 months, their 
unemployment rate is way high but it has been high for a long 
time.
    Chairman MCDERMOTT. It has not increased?
    Mr. EMSELLEM. It has not increased, and that is the 
situation with the last recession, that is the problem. That is 
the part of the permanent extended benefits program--that is 
another part of it that is real problematic.
    Last recession, even in your bill, Congressman McDermott, 
the trigger--not in your bill, but in the last recession's 
bill, in your bill, you accommodate this, it also required this 
increase in unemployment for high unemployment states, which 
left a lot of states dropping off even though they had very 
serious unemployment. Your bill corrects for that problem.
    Chairman MCDERMOTT. Thank you. Mr. Weller will inquire.
    Mr. WELLER. Thank you, Mr. Chairman. I would note based on 
your question, I would be happy to work with you to tweak that 
trigger so that benefits would go to those who need them.
    I think there is bipartisan agreement that we want to 
ensure the unemployment benefits reach those in the states that 
need help and those who need help.
    You look at the statistics, and before I ask my question, 
Mr. Chairman, I do want to ask unanimous consent to insert into 
the record at this point a memo from the Congressional Research 
Service comparing extended benefits' proposals that have been 
introduced this year, including our respective bills, 
information from the Department of Labor about State extended 
benefits' programs, three quotes from experts about how 
extended unemployment benefits can affect unemployment 
durations, and four, data comparing labor market conditions 
today with those in 1996.
    Chairman MCDERMOTT. Without objection, so ordered.
    [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    

    Mr. WELLER. Thank you, Mr. Chairman.
    Mr. Brill, as we have noted here, in this economy where 
high unemployment occurs appears to be regional. In the most 
recent data available, 19 states have unemployment rates of 4 
percent or less. Five states have 3 percent or less 
unemployment, which is pretty incredible when you think of the 
economy.
    In February 2008, there were only two states that had 
unemployment rates above 6 percent, Alaska and Michigan. 
Twenty-seven percent of states are currently within 1 
percentage point of their all time low unemployment rate. That 
includes the Chairman's home State of Washington.
    The unemployment rates in 42 states are currently half or 
less of their all time high's.
    It appears that where there is high unemployment, it tends 
to be in certain regions of the country.
    Can you help us identify currently where the weakest labor 
markets are today? What regions? Any particular states and what 
industries?
    Mr. BRILL. Thank you. As you noted, there is considerable 
diversity across the country with regard to the situation with 
the labor markets. Some states have rising unemployment and 
others have fallen.
    Forty-three states and the District of Columbia saw 
employment gains in 2008 and the largest gains were in Wyoming, 
Texas, Utah, Washington and Colorado. On the other hand, seven 
states experienced declines in employment, the largest of which 
were Rhode Island, Michigan, Florida and Nevada.
    This is a result of the fact that the economies vary State 
to State. For example, the auto sector, which has been hurt 
significantly, and the housing sector, which has been hurt 
significantly in certain regions in the country, the economies 
are particularly weak in those areas.
    Parts of California have unemployment rates over ten 
percent, and the overall rate in California is high. The rate 
is high as well in Michigan, as was noted earlier.
    A lot of states have very low unemployment rates, and that 
is a result of a number of factors. As Dr. Blank noted, age 
issues are a factor. Other factors include unionization rates, 
states with higher degrees of unionization tend to have higher 
unemployment rates.
    Factors include the percentage of workers that are foreign 
born. Although foreign born workers tend to be younger and less 
educated than the overall workforce due to characteristics 
generally associated with higher unemployment rates, foreign 
born workers tend to have lower unemployment rates as a 
population. There is considerable variation.
    Certainly in states where unemployment is a problem and 
unemployment rates are high, it is important to provide 
sufficient UI support to help those people get jobs.
    Mr. WELLER. I think all of us really want to help those in 
need of help, and we want to find a way to get the resources to 
those who need help, and we always have limited resources. So, 
there is no unlimited amount of resources available.
    South Dakota is fortunate to have 2.6 percent unemployment 
compared to other states like Michigan and Alaska that have the 
highest unemployment.
    Does it make sense to provide proportionately the same 
amount of expanded resources to states like South Dakota? There 
are some people that do need help. Should we be targeting to 
those who need help or should we just across the board give the 
same benefits, the same resources to everybody?
    Mr. BRILL. With regard to states that have very low 
unemployment, I think it is important to remember that what we 
are considering is extending from the current system. Of 
course, we have a system that provides generally 26 weeks of 
unemployment benefits.
    For those in states that are currently experiencing 
relatively low unemployment, those workers are eligible for UI. 
We could discuss the issue of unemployment reforms and we could 
discuss whether those workers in those low unemployment states 
are properly cared for, but when the question becomes providing 
extended benefits because these situations are particularly 
worse, then no, I think it is inappropriate to provide the 
limited resources in the low unemployment states.
    Mr. WELLER. I realize I am pushing the limits of my time 
and on other colleagues of mine, I have questions I would like 
to ask as well.
    Both the Chairman and I have proposed creating an expanded 
wage insurance program as a way to help unemployment workers 
get back on their feet and get back into the workforce.
    I have suggested that we give states the ability to 
experiment, just like the Chairman back when he was a State 
legislator was a leader on unemployment insurance issues within 
his State, Washington State, and did a number of things which 
provided examples of what may or may not work to other states, 
I believe states should have the ability to experiment and do a 
trial program for wage insurance.
    Do you think wage insurance offers a solution to help 
workers who are unemployed get back to work?
    Mr. BRILL. I think wage insurance is a very interesting 
idea as an alternative or a complement to the current system. 
To be honest, I am not sure exactly how it should be designed 
and I think the notion of State flexibility and the opportunity 
to experiment because we do not have the experience to know 
exactly how this program should be formulated, but to give the 
opportunity for states to try. I think that is an opportunity 
for us to learn and potentially provide a new benefit or a more 
efficient benefit for all workers.
    Mr. WELLER. Thank you, Mr. Brill. Mr. Chairman, you have 
been generous in allowing me to go beyond my 5 minutes. Thank 
you.
    Chairman MCDERMOTT. Thank you. Mr. Davis will inquire.
    Mr. DAVIS. Thank you, Mr. Chairman. Thank you for letting 
me get ahead of my esteemed colleague to my left, Mr. Stark.
    Let me pick up on Mr. Weller's observations. I have a lot 
of respect for Mr. Weller and I think this Committee will miss 
his thoughtfulness, but as he knows, when someone says 
something nice like that, it is a code for going on to bash his 
bill.
    [Laughter.]
    Mr. DAVIS. Let me use my State as an example. I would ask 
unanimous consent, Mr. Chairman, to put in the record a news 
release from the Alabama Department of Industrial Relations 
regarding unemployment numbers for the State of Alabama.
    Chairman MCDERMOTT. Without objection, so ordered.
    [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. DAVIS. There are 67 counties, Mr. Brill, in my State. 
Our State unemployment rate would be described as a low one. 
Our unemployment rate for the entire State is 3.7 percent. We 
actually are one of the states that have dropped in 
unemployment from January to February. It looks very rosy.
    However, 23 counties in my State out of 67 have an 
unemployment rate above 6 percent. It is about one out of 
three. Some of those rates are as high as 10 and 11 percent.
    I would suspect if I were to get similar numbers from the 
Georgia Department of Industrial Relations, my friend, Mr. 
Lewis here, from South Carolina or Mississippi, I would see 
that phenomenon repeat itself.
    It is very common, particularly in the American South, that 
there are wide disparities in unemployment rates within states. 
Frankly, it does the many people living in those 23 counties in 
Alabama no good to say to them, well, you are lucky to be 
living in a State with low unemployment, therefore you do not 
qualify for an extension of your benefits.
    Any kind of a process that ties or triggers an extension of 
benefits to so-called high unemployment states is going to 
leave out a lot of states, as the panel has very correctly and 
aptly pointed out. It is also going to leave out a lot of 
people living in counties within states that have low 
unemployment.
    I think it makes a broader point that perhaps we ought to 
become more focused on it from a public policy standpoint. Why 
are we having these vast disparities within states.
    Literally, if you knew the profile of Alabama, you could 
look at some of these counties and you could look at the 
counties that are adjacent to them and you see three or four or 
5 percent gaps in a span that takes you maybe 10 minutes to 
drive sometimes.
    That does not make a whole lot of sense economically, and I 
think it raises a very interesting question, and I wonder if 
the South is somewhat unique in that regard that we are having 
pockets of vast unemployment whereas in the overall sea, it is 
a lot more positive.
    Maybe you would like to comment on that trend or that 
phenomenon.
    Mr. BRILL. I would just note that I do not know that it is 
unique to the South. For example, I know that in parts of 
California, there are unemployment rates that are very high and 
others where it's much lower.
    I would suggest that this disparity would indicate that 
even more targeting may be appropriate. I do not know the 
administrative feasibility of this, but perhaps what we should 
consider is opportunities to allow states to provide benefits, 
to allocate their benefits appropriately to particular 
counties.
    Mr. DAVIS. That would be one answer. Another answer would 
be to do what the Chairman wants to do, which is to extend 
unemployment benefits across the board, recognizing that any 
approach which tries to slice out in favor of a particular area 
is going to leave a lot of people out. That is why I favor the 
Chairman's bill.
    Let me turn to the second observation. One of the things my 
friend Mr. Stark points out that I think is a very interesting 
point here is that it would not cost the Government any new 
money. It would not run up our deficit in any way. It would not 
require any offsets for us to increase unemployment insurance 
benefits as we are drawing from a fund we have already created. 
That is a point that needs to be made.
    It leads to my last point. There is a broad philosophic 
difference, I think, that exists here, Mr. Brill. Some of us 
remember, I suspect before you were born or around that time, 
President Ronald Reagan liked to say that he thought that 
unemployment insurance was a prepaid vacation plan for free 
loaders.
    We thought we kind of buried the idea in the 1990s but the 
Speaker was telling me yesterday that she was in a meeting at 
the White House with some of the President's advisors on April 
7, 2008 that were saying they think unemployment insurance is 
an incentive for people not to work.
    I wish that we would leave that mindset for a very simple 
reason. Whether or not someone wants to work is based on 
whether or not jobs are available. That is about 90 percent of 
it. The remaining ten percent of it is whether you have a 
mindset or desire to go out and work, but the idea that people 
are going to be pulled into a mindset that says I do not want 
to work because of unemployment benefits, frankly ignores a lot 
of what conservatives tell us.
    I thought it was conservatives who talk about the cultural 
roots of the willingness to work or the cultural roots of a 
desire to participate in the community.
    If conservatives believe there are strong cultural roots to 
whether or not one wants to work, then surely you do not think 
a little bit of money from the Federal Government is going to 
displace that, but I yield back my time.
    Chairman MCDERMOTT. Mr. Camp will inquire.
    Mr. CAMP. Thank you, Mr. Chairman. I appreciate Mr. Davis' 
comments. I do just want to say that I do not want to get into 
that argument too much, but Lawrence Summers, an official of 
the Clinton Administration, takes that same view. This is not 
just Republicans who believe that his quote is to fully 
understand unemployment, we must consider the causes of record 
long term unemployment. Empirical evidence shows that two 
causes are welfare payments and unemployment----
    Mr. DAVIS. Can I put that evidence in the Indiana primary?
    Mr. CAMP [continuing]. Please. It is my time. Welfare 
payments and unemployment insurance. I just want to set the 
record straight that there are Democrat officials who take the 
view--I do not necessarily subscribe to that view. I do think 
we want to have some balance here in our discussion.
    I have a question for the entire panel. If you could just 
answer yes or no. My question is should Congress extend 
unemployment benefits by another 3 months in those 19 states 
where unemployment is four percent or lower?
    If you could just answer, please, yes or no. I will start 
with Dr. Blank.
    Dr. BLANK. Yes, because it targets assistance to those who 
are long due unemployed in those states.
    Dr. SHIERHOLZ. I take exactly the same position. It just is 
going to the long term unemployed so it is implicitly well 
targeted. It is okay to do it even in the low unemployment 
states.
    Mr. EMSELLEM. I do not understand the question. Are you 
saying just limit it to the 19 states?
    Mr. CAMP. No. Should they extend unemployment benefits or 
employment benefits by another 3 months in those 19 states 
where the rate is 4 percent or lower.
    Mr. EMSELLEM. Yes, and I will tell you why. If you take a 
look at the chart in our testimony for each State, there are 
large numbers of long term unemployed in all those other 
states, as was mentioned.
    Mr. CAMP. Thank you. Mr. Brill?
    Mr. BRILL. No, I do not think it is appropriate.
    Mr. CAMP. I appreciate Mr. Davis' unemployment statistics, 
but we have, in Michigan, many counties with over 13 and 14 
percent unemployment in our State, and I do want to ask for the 
three of you who answered yes, if it makes sense to extend 
benefits in those states, for example, states like I think Utah 
is below 4 percent, when and where does it not make sense to 
extend unemployment benefits? Is there ever a level?
    Mr. EMSELLEM. In my mind, it is not a geographic issue. It 
is about supporting the long term unemployed. It is about 
responding to the crisis of long term unemployment.
    If you have a large plant in your community that happens to 
have 3 percent unemployment and you were laid off and it is 
hard to find a job in that community as a result of a major 
layoff, those folks need extended unemployment benefits.
    That is why Congress never in the history of the program 
has just responded with an extension that only helps some 
states. They have always helped the whole country because it is 
also about helping the whole economy.
    Mr. CAMP. Utah is going to get extended unemployment with a 
rate at 3 percent. Last year, Michigan was at seven percent, 
and we had nothing.
    My question is we are going to give benefits to a State 
where the unemployment rate is 3 percent, yet last year we had 
a State with 7 percent unemployment and they are not going to 
have any benefits for last year at all.
    I guess I would like to hear Dr. Blank and Mr. Brill 
comment on that. My time is very limited. I am sorry.
    Dr. BLANK. The question here is how many of the long term 
unemployed are in Michigan and more are in Michigan than in 
some other states. Therefore, extended benefits are going to 
help more people in Michigan than they are going to help in 
some other places.
    Long term unemployment, as Dr. Shierholz notes, is 
unusually high for this point in the economic cycle, and seems 
to be spread across a large number of states.
    If the goal of extended benefits is essentially to assist 
people who run out of their insurance, who still need some 
additional help because there are not necessarily jobs 
available, it does not matter whether that person is in Utah or 
Michigan. I think the goal of the program should be to help the 
long term unemployed.
    Mr. CAMP. Mr. Brill?
    Mr. BRILL. I would just note that the idea of extended 
benefits is extended relative to the current system. The 
current system allows for 26 weeks of unemployment insurance in 
all states. Given that, most workers who receive unemployment 
benefits receive unemployment for significantly fewer than 26 
weeks and the average or the median varies, but most workers 
are on for a few weeks, 10 weeks or 11 weeks.
    To some extent, we already have an extended benefits 
program. We provide up to 26 weeks.
    The question of how many weeks should be available is a 
more fundamental reform-oriented question. As you noted, 
Michigan last year versus Michigan this year, there are people 
in Michigan with long term unemployment problems and that is a 
more fundamental question.
    Mr. CAMP. Thank you. Thank you, Mr. Chairman.
    Chairman MCDERMOTT. Thank you. Mr. Lewis will inquire.
    Mr. LEWIS. Thank you very much, Mr. Chairman. Thank you for 
holding this hearing today.
    Mr. Brill, maybe I am missing something. I do not quite 
understand what you meant by saying states with greater or 
higher union workers would have higher unemployment. Could you 
explain that?
    Mr. BRILL. Mr. Lewis, there is a variety of factors that 
determine----
    Mr. LEWIS. A State like Michigan or New York or Ohio where 
you have a high degree of organized labor or labor activity?
    Mr. BRILL. That is right. To be honest, I am not sure 
exactly why, but I know it is the case that, in those states, 
the natural level of unemployment, even when the economy is 
doing well, tends to be slightly higher than in other states 
where there is----
    Mr. LEWIS. If you follow that argument, then workers should 
not be organized.
    Mr. BRILL. It may be a result of the industries that are 
involved in the unemployment rates inherent in those industries 
more so than the notion of being organized in general, or there 
may be issues relating to the bargaining matters and natures 
thatperiodicallyaffect the unemployment rate.
    Mr. LEWIS. Thank you. Dr. Blank, I believe in your 
testimony you suggested that many people in the workforce, who 
have been in the workforce, have literally given up. They are 
unemployed. They are no longer being counted.
    We do not get a true reflection of the people. They are no 
longer looking for work. I would like for you to elaborate.
    Dr. BLANK. The Bureau of Labor Statistics actually has in 
recent years been collecting better information on that group, 
a group they call the ``marginally attached,'' people who have 
looked for work in the recent past but say they have stopped 
looking for work because they have not been successful, so 
discouraged workers is sort of the common term for this group.
    That is also a group that has been growing quite rapidly. 
It is another sign of a serious economic slowdown, that people 
are discouraged enough that they have even stopped looking.
    Mr. LEWIS. Dr. Blank, the President and his allies have 
argued that we should wait to pass additional stimulus 
legislation until the tax rebate sort of works its way and fits 
in and makes things better.
    How long do we think people should wait?
    Dr. BLANK. It is always dangerous as an economist to try to 
forecast where we are going in the economy.
    Mr. LEWIS. Are we in a recession already?
    Dr. BLANK. I think we are clearly in a recession according 
to all the indicators. Time will tell. This always get 
determined a year later. I think it is going to be very 
unlikely that it does not turn out that we are in a recession 
at this point in time.
    The challenges, the things that we often do in a recession, 
which is ease up on monetary policy and make credit easier, are 
not working very well because of the very unusual situation in 
the credit markets, and that is the reason to think about doing 
fiscal stimulus.
    I personally think that the fiscal stimulus package could 
have gone further. I would have liked to have seen extended 
benefits in that package. I would like to see some 
consideration of additional benefits that go particularly to 
the very bottom end of the income distribution such as 
additional food stamp benefits, something that we know are 
really going to get in the hands of people for whom most of 
these price increases are most devastating.
    Mr. LEWIS. Dr. Shierholz, do you have an opinion?
    Dr. SHIERHOLZ. I am sorry.
    Mr. LEWIS. How long should we wait?
    Dr. SHIERHOLZ. I think we should implement these 
immediately. First, there are 1.3 million long term unemployed 
right now, and getting support to these people is really 
important. If we do not implement this right now, we lose, as 
Dr. Blank said, the stimulative effect. Getting this done right 
now has the best chance to have it work its stimulative effect 
on the economy.
    Mr. LEWIS. Thank you. Thank you, Mr. Chairman.
    Chairman MCDERMOTT. Thank you. Mr. Stark will inquire.
    Mr. STARK. I must admit to some confusion here as to 
Government policy. My dear friend and colleague, Mr. Davis, did 
happen to look at my comments or questions, talking about 
possibly spending $13 billion under Mr. McDermott's bill, and 
that the money is in a trust fund, as I understand it, so there 
would be no increase to the deficit.
    Somehow in our wisdom, at just about the same time, we plan 
to--we risk the opportunity to spend $30 billion to bail out 
Bear Stearns, with no idea where those dollars would come from.
    I would like to ask which of those programs, the $30 
billion of new deficit or the $13 billion of trust funds that 
we have already accumulated, which program would help more 
people and can we identify the beneficiaries?
    Dr. Blank.
    Dr. BLANK. I think the question--I do not know about the 
numbers of people helped. Certainly it is clear that the 
benefits will go to different places in the income 
distribution. That, I think, is the most important difference 
between these two programs.
    [Laughter.]
    Mr. EMSELLEM. We can say for certain, as I mentioned, 
according to our estimates, over three million Americans will 
get help as a result of the extension. That is a very large 
number and almost another million who have run out in the past 
year and are still looking for work.
    Mr. STARK. That bill is going to bail out free enterprise 
and we are helping protect all our retirement funds; right? 
Keep the banking system from collapsing. Would that be your 
answer?
    Mr. BRILL. I would note that the $30 billion involved in 
Bear Stearns is a different $30 billion than the cost of the 
unemployment insurance, and that----
    Mr. STARK. Money is money.
    Mr. BRILL [continuing]. One involves the guarantee versus 
the guarantee expenditures. I would also note that obviously 
those decisions were controversial and deserving of scrutiny, 
but at the same time, it is important to have a functioning 
financial market, particularly given the weakness in the 
housing market, and it is important to have good credit.
    Mr. STARK. It does not help me in my second dilemma, and we 
are talking about states and the status, articulately explained 
about different counties. I have the same problem in 
California. I have a bunch of cities bumping 10 percent and the 
rest of the State is doing pretty well in some areas.
    Some industries, as I think you pointed out in your 
testimony, the medical care delivery system has a lot of jobs 
open, if you can qualify, although there are some service jobs 
in that sector.
    A lot of focus here on which State. I keep wondering what 
difference it makes. Where do you live, Mr. Brill?
    Mr. BRILL. Here in Washington.
    Mr. STARK. In D.C., in the District?
    Mr. BRILL. Yes.
    Mr. STARK. You are in an area with almost six percent, but 
if we get on the Metro 5 minutes in either direction from your 
house, you are at 3.4 or 3.5 in Maryland or Virginia. Why 
should somebody who loses their job at the end of the Metro 
line have any less opportunity than you do to get extended 
benefits?
    What does your geographic location, and admittedly, this is 
different from trying to measure the difference between South 
Dakota and California, but why are we not doing this on an 
individual basis and forgetting about residency?
    Mr. BRILL. I admit that it would be imprecise and as I 
suggested to Mr. Davis, we could consider opportunities for 
states to have flexibility even within the State.
    My point is the economy is always having different 
unemployment rates in different parts of the country, and 
individuals are always in very different circumstances.
    There is no question that when a worker loses their job 
through no fault of their own, it can create a significant 
amount of hardship, particularly if they have no savings, and 
when jobs are lost because a factory is shut down and it 
affects an entire community, it can be even more devastating.
    I guess I would simply say that those are more fundamental 
issues and things that should be addressed inside of 
unemployment insurance reform. Proposals that consider ways to 
increase savings for workers----
    Mr. STARK. I agree. We were the worse offenders. I do not 
know if you were here. What we used to do with workers in the 
Members' restaurant is every time the House would go in recess 
and there was no business in the restaurant, we put them on 
leave, and they were supposed to go out and collect 
unemployment, which is how we compensated the servers and the 
cooks. We finally came into the 20th century before it was over 
and changed that.
    Those are reforms that I think you and I would agree ought 
to be dealt with. The geography of it seems to me, and I am 
sure the rest of the panel would agree, we ought to start 
dealing with the individual because you could have pockets of 
dislocation in employment that I think we would all agree we 
want to deal with.
    Mr. BRILL. I think so. I think one way to deal with the 
individual would be to look at strategies that are individual 
based, that are in fact portable in some sense.
    Joe Stiglitz and Marty Feldstein separately have introduced 
concepts or proposals to encourage personal savings for times 
when workers might be displaced through unemployment.
    Mr. STARK. I do not think you can hook me up with Mr. 
Feldstein but maybe you and I can talk a little bit. Thank you, 
Mr. Chairman.
    Chairman MCDERMOTT. Mr. Porter will inquire.
    Mr. PORTER. Thank you. Thank you, Mr. Chairman. I 
appreciate the panel for being here today.
    The issue that I would like to have a better understanding 
of is having to do with undocumented individuals in the 
country, and not the debate of whether that is right or wrong, 
because I come from one of the fastest growing Hispanic 
populations in the country in Nevada. Again, not to debate how 
we have gotten to this point but there are estimates of 12 to 
20 million undocumented individuals in the country for 
different reasons and that is a debate for another time.
    I have tried to listen to your economics this morning and 
read and have another meeting at the same time, so bear with 
me.
    I know you mentioned this is an unusual time for 
unemployment and the rates do not necessarily mean what they 
have historically. Five percent in maybe 1996 is different than 
5 percent today, if I understood part of your testimony.
    Assuming for a moment that we are growing in the 
undocumented population a million people a year, give or take, 
I see in your back up material that we talk about prisoners as 
a part of the equation and maybe those coming back from the 
military. What impact has the growth of undocumented 
individuals in the labor force had on our bottom line of 
unemployment?
    I do not see that those statistics are here. I hear in my 
district every day concern, and this is not about a prejudice, 
it is about a job. We have individuals here who are not 
following necessarily all the rules on being employed. What 
impact does the 12 to 20 million undocumented individuals have 
on your statistics today? The fact that we now have ten million 
more compared to 1996 with your stats, I think, Ms. Blank, 1996 
to 2008, what impact does a million more undocumented have on 
your stats today for the unemployed and for those who may be 
looking for work that those jobs have been filled by someone 
that is not here under the proper circumstances?
    Dr. BLANK. I wish I knew the answer to that, sir, better 
than I do. The problem is of course that we do not really know 
how many of those individuals are in our statistics and how 
many of them are not.
    By and large in the unemployment statistics, which are 
personally reported to surveyors, we tend to think that there 
are fewer undocumented workers in those statistics because that 
is a population that tends not to be very willing to 
participate when surveyors call them up and start asking them 
questions about work.
    When you get the employer reported numbers, there are 
probably a few more in that because obviously there are a 
number of these people working for employers who are in those 
surveys.
    My guess is that those numbers are probably affecting our 
unemployment statistics, although my understanding of most 
undocumented is they tend not to spend long periods of time 
unemployed. They are often here because they are working 
sometimes in more than one job.
    Mr. PORTER. Let's say 12 million, whatever, what percent of 
that is of working age? Probably three or four million, I would 
guess, maybe three million. Purely hypothetical.
    Dr. BLANK. My guess is it is higher.
    Mr. PORTER. By the way, please understand, I am being very 
sensitive that there are reasons that folks are here, and it is 
not for the debate today.
    I want to make sure that when we look at stats, especially 
with some of your institutions where you spend a lot of time, 
is there a way that we can track this better so we have a 
better idea? When we come here before Congress, by the way, I 
am not opposed to what is being proposed today necessarily 
either, but want us to get a real number of how many folks are 
being displaced because of a population that is not following 
the rules.
    Mr. EMSELLEM. Just for clarification, I am not sure if this 
is part of your question, but for unemployment benefits' 
purposes, you have to be here legally to collect benefits.
    Mr. PORTER. I understand.
    Mr. EMSELLEM. So, it does not affect those statistics.
    Mr. PORTER. That is another----
    Mr. EMSELLEM. That is another set of statistics.
    Mr. PORTER. As far as those, what I hear in Nevada is I am 
looking for work but I cannot get work. How many of those folks 
are working that really should not be here and have taken a job 
that maybe I would like to have.
    Dr. BLANK. I will say that the economic evidence on the 
extent to which migration, illegal migration as well as legal 
migration displaces U.S. workers is mixed, and the effects, I 
will not say they are zero, clearly there are effects. Some of 
the effects in terms of where native workers locate, what 
cities people live in is affected.
    There is evidence, depending on what you look at, to zero 
wage effects to some real dis-employment and wage displacement.
    A lot of the workers, the jobs that particularly 
undocumented workers take are often jobs that may not even be 
out there if you did not have that population and that is one 
reason----
    Mr. PORTER. I understand that category of employee may not 
be considered in your unemployment stats.
    Dr. BLANK. Many of those people just are not in our numbers 
at all in the unemployment. They have not responded to these 
surveys.
    Mr. PORTER. You look at all wage earners when you look at 
the unemployment rate, I assume, whether they are by the hour 
or salaried.
    Dr. BLANK. Unemployment rates come off a Government survey, 
not of employers but of workers. You have to be willing to 
respond to a national survey that works very hard to get as 
many people as they can, but I think we all believe that 
disproportionately undocumented workers do not answer the phone 
or hang up when they get calls.
    Mr. PORTER. It is very real as that large of an employment 
base if there is three or four million, that could skew your 
numbers.
    Mr. EMSELLEM. I do not know for a fact but I really doubt 
the survey is in any language other than English as well. I am 
sure that has some impact on the survey numbers. Maybe the 
surveyors speak other languages.
    Mr. PORTER. Again, I am picking your brain so we have a 
better understanding in the future when we look at these 
numbers.
    Dr. BLANK. It is a very, very serious set of questions 
which I suspect everyone, particularly the Bureau of Labor 
Statistics, would love to have better answers to.
    Mr. PORTER. Thank you. I appreciate you all being here 
today. Thank you.
    Chairman MCDERMOTT. Mr. Weller has a question.
    Mr. WELLER. Mr. Chairman, I recognize we have votes on the 
Floor and of course, there is Ways and Means' business on the 
Floor today, so I know for Members, they have been forced to 
come and go at this important hearing.
    Before I ask a quick question of Dr. Blank, I would just 
ask unanimous consent that the Members of the Subcommittee have 
five additional days to submit questions for the witnesses if 
they have those they would like to submit.
    Chairman MCDERMOTT. Without objection, so ordered.
    Mr. WELLER. Thank you, Mr. Chairman. Dr. Blank, I had asked 
Mr. Brill regarding wage insurance earlier and I think our 
other two panelists have expressed their opinions on wage 
insurance in the past when they have appeared before the 
Subcommittee. Both the Chairman and I have proposed various 
forms of wage insurance proposals as a potential solution to 
help those on unemployment or who are unemployed get back into 
the workforce.
    I have suggested giving states the ability to experiment, 
do pilot programs, and the Chairman has proposed a national 
wage insurance program.
    What is your perspective on wage insurance? Should we give 
states the ability to experiment with wage insurance to see if 
it is something that would be a solution?
    Dr. BLANK. I think wage insurance is a very interesting 
idea and I would like to see it tried. If you do allow states 
to experiment, the only caution I would give is you ought to 
make sure you seriously evaluate those experiments so we 
actually can learn something from them, which means you want to 
provide it to some people in a State and not to others, or at 
least find some comparable populations so you can make a pretty 
serious evaluation a year or 2 years down the line as to what 
effects it has had.
    Mr. WELLER. Should this Committee decide to move 
unemployment insurance legislation, you would support including 
a provision that would give states the authority to experiment?
    Dr. BLANK. I would love to see some states experimenting 
with this, with the provision that I would also like to put a 
provision in that says if you experiment with this, you have to 
have a plan which evaluates the experiment in a serious way.
    Mr. WELLER. Sure, which is why do the experiment, you want 
to see how it works.
    Dr. BLANK. Absolutely.
    Mr. WELLER. Thank you, Dr. Blank. Mr. Chairman, thank you 
and to all the panelists, thank you.
    Chairman MCDERMOTT. I would like to just say one thing. I 
am sorry Mr. Camp is not here. My understanding is the reason 
we have not done anything about extending benefits for people 
in Michigan is because the President and the Minority Leader of 
the House did not want it in the stimulus package.
    Is that your understanding?
    Mr. EMSELLEM. I cannot comment on the negotiations but that 
is what has been reported in the press, that it was definitely 
that the Republicans and the White House were not in favor of 
an extension of unemployment as part of their original stimulus 
package.
    Chairman MCDERMOTT. Thank you.
    Mr. WELLER. Mr. Chairman, I would say if I recall it 
correctly, the Speaker agreed to a bipartisan deal.
    Chairman MCDERMOTT. They said the bill would not pass if 
the extension of unemployment benefits was in it.
    The meeting is adjourned.
    [Whereupon, at 11:15 a.m., the Subcommittee was adjourned.]
    [Submissions for the Record follow:]

                                 

                     Statement of S. Eyre McKenrick
    I lost my job in the housing industry on November 19, 2007. I have 
diligently been searching for employment since that time, but to no 
avail. I have not seen conditions similar since 1990 following the 
Savings and Loan debacle.
    I am extremely concerned that I will not be able to continue to eek 
out an living for my family once my unemployment benefits run out (6 
weeks). Gasoline prices are so high that I'm forced to remain home 
instead of calling on companies seeking employment. If there is no 
relief in the form of unemployment benefits extension, then I shall be 
forced to place the house on the market and move into a rental.
    It is imperative for myself and countless others that legislation 
take place that will extend unemployment benefits.

                                  
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