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


 
                   CHALLENGES FACING AMERICAN WORKERS 

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

                                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

                               __________

                           SEPTEMBER 11, 2008

                               __________

                           Serial No. 110-103

                               __________

         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 
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                            C O N T E N T S

                                                                   Page

Advisory of September 4, 2008, announcing the hearing............     2

                               WITNESSES

Jared Bernstein, Ph. D., Senior Economist, Economic Policy 
  Institute......................................................     6
Michael Ettlinger, Vice President for Economic Policy, Center for 
  American Progress..............................................    23
Elizabeth Lower-Basch, Senior Policy Analyst, Center for Law and 
  Social Policy..................................................    28
Gregory Acs, Ph.D., Principal Research Associate, The Urban 
  Institute......................................................    36
William W. Beach, Director, Center for Data Analysis, The 
  Heritage Foundation............................................    48


                   CHALLENGES FACING AMERICAN WORKERS

                              ----------                              


                      THURSDAY, SEPTEMBER 11, 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 12:30 p.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
September 04, 2008
ISFS-19

                     McDermott Announces Hearing on

                   Challenges Facing American Workers

    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 challenges 
facing American workers. The hearing will take place on Thursday, 
September 11, 2008, at 12:00 p.m. in 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. However, 
any individual or organization not scheduled to appear may submit a 
written statement for consideration by the Subcommittee and for 
inclusion in the record of the hearing.
      

BACKGROUND:

      
    The current downturn in the economy presents new risks for workers, 
especially the continuing rise in unemployment. Concerns about this 
recent deterioration in the labor market are magnified by longer-term 
trends affecting workers. For example, the median duration of 
unemployment has increased over 85 percent since the 1960s, employer-
sponsored health insurance coverage has declined 4.9 percentage points 
since 2000, and real average wages have decreased compared to the early 
1970s. These negative trends have occurred even as worker productivity 
has risen significantly over the last three decades.
      
    In announcing the hearing, Chairman McDermott stated, ``Too many 
Americans are working more for less--less wages, less security, and 
less dignity. We need to understand the trends affecting workers, so we 
can determine how best to respond. American workers are not whiners. 
They are simply struggling to stay afloat and the lifeboat they need 
doesn't always reach them.''
      

FOCUS OF THE HEARING:

      
    The hearing will consider data and analyses describing challenges 
facing American workers.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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noted above.

                                 

    Chairman MCDERMOTT. The meeting will come to order. As 
everyone in this room knows, and across America knows, 3,000 of 
our fellow citizens lost their lives on this same day 7 years 
ago. Before we start today's hearing, I would ask everyone to 
join us in a moment of silence to remember and honor those who 
perished, as well as their families and loved ones.
    [A moment of silence is observed.]
    Chairman MCDERMOTT. Thank you.
    We are here today to look forward into the next congress 
and the next years that are before us, because, obviously, we 
don't have much time left to pass legislation. We are here to 
focus on the challenges that are confronting the American 
workers and their families.
    Mr. Weller was coming back from the event, so I thought I 
would go ahead and read my statement so then he could read his 
statement.
    Of course, the most important concern at the present time 
is the rapid rise in unemployment. The number of unemployed has 
grown by well over 2 million Americans over the last 12 months 
with nearly 900,000 joining the ranks of the unemployed just 
since June.
    Now, there are some short-term policies we can and should 
enact to help those dislocated workers, including extending 
unemployment compensation. Chairman Rangel and I have put in a 
bill to do another extension of unemployment benefits, which we 
hope will be considered before this session is over, but the 
anxieties that workers are feeling go well beyond the current 
rise in unemployment.
    The increase in joblessness comes on the top of long-term 
problems affecting economic security. Real income for America's 
working families has fallen since 2000. This drop comes despite 
the fact that the productivity of our workers continues to 
grow.
    Some downward trends, such as real wages for men, have been 
occurring over a much longer period of time. The share of 
workers with employer-based health coverage has also dropped 
considerably since 2000, driving up the number of uninsured 
Americans by over 7 million. Similarly, the percentage of 
workers with employer-sponsored retirement plans has declined, 
leaving more workers uncertain about their long-term economic 
security.
    America's workers are finding it increasingly hard to 
balance the competing demands of family and work. As the number 
of families with two working parents have grown, work schedules 
has become much less flexible.
    Finally, nearly a quarter of all workers find themselves 
stuck in low-wage jobs, and there is a growing gap between the 
wages paid in these jobs and the wages paid in average and 
high-end employment. In short, many Americans are working 
harder for less: less income, less job security, less health 
and pension benefits, less time at home, and less opportunity.
    Now, left unchecked, this trend will strike at the very 
core of the American dream. My Republican colleagues will not 
be shocked to learn that I believe that many of the policies 
pursued by the current Administration have greatly exacerbated 
the problems facing workers. I also believe that any 
comprehensive approach to these challenges must be dealt with 
on a much broader reality. It has to be bipartisan.
    The world we live in today is very different from the one 
in which our basic safety net for workers was created in 1935. 
We need to think how to build a new framework to ensure the 
economic security of America's workers.
    Now, in my view, that doesn't mean abandoning programs that 
still provide real help to those who need it, such as 
unemployment compensation, but it does require updating 
existing programs and creating new initiatives to reflect the 
realities of the current labor market and economy. I look 
forward to hearing from the witnesses today as we examine these 
vitally important issues, and begin talking about what the 
potential responses must be for the 21st century.
    I now yield to my Ranking Member, Mr. Weller.
    Mr. Weller?
    Mr. WELLER. Well, thank you, Mr. Chairman. I know back in 
July we thought at that time that was going to be the last 
hearing, and of course I sang your praises, and thanked you for 
the opportunity to work with you over the last two years as the 
Ranking Member of this Subcommittee. Once again, I want to 
express my gratitude for what I consider to be a good working 
relationship.
    I also want to tell you I am very pleased with the 
continued progress we are making with the bipartisan child 
welfare reform package that hopefully will be on the 
President's desk in a few weeks, thanks to your leadership, and 
what I see as a good bipartisan effort.
    Chairman MCDERMOTT. I spoke to Senator Grassley. They 
marked it up yesterday, and it's going to be over here.
    Mr. WELLER. Yes.
    Chairman MCDERMOTT. So, we're going to get it done before 
you leave.
    Mr. WELLER. That would be fun. Well, again, thank you, Mr. 
Chairman.
    As we will hear today, depending on which expert you ask, 
you can get different answers on what the key challenges facing 
American workers are. We'll hear concerns about wages, job 
losses, health coverage, and other issues, which are all 
important concerns.
    If you read most of the testimony today, you will see 
something is missing. Most of the testimony barely mentions the 
number one challenge facing American workers, and that's the 
high price of energy.
    Between January of 2007 and July of 2008 in my home State 
of Illinois, the average price of gasoline doubled. It rose 
from just over $2 per gallon to over $4 per gallon. That price 
has now fallen back to about $3.75 per gallon, still nearly 90 
percent above the level at the start of this current congress.
    Last month, a poll asked, ``Has the recent rise in gasoline 
and oil prices caused you or your family any financial hardship 
or not?'' 73 percent said yes, gas prices have caused them 
financial hardship. Not surprisingly, Americans want something 
done, and they want it done now.
    Another poll recently asked, ``What current economic issue 
is most important in determining your vote for President?'' The 
number one answer was, ``The rising cost of gasoline and 
fuel.'' Five times as many people said they were concerned 
about rising energy prices, compared with losing their job.
    The hardship doesn't stop with pain at the pump. It's also 
felt at the dinner table, where energy prices are driving up 
food prices, making families poorer. According to the non-
partisan Congressional Research Service, 1.2 million working 
American households have seen their standard of living fall 
below poverty due to excess food and fuel inflation between 
2005 and 2008. This is all before fall and winter set in, 
driving up home heating costs to previously unseen, and some 
might say ``obscene,'' levels.
    The pain doesn't end there, either. It is also felt in the 
workplace, as high energy prices lead directly to job loss. As 
one of our witnesses today describes, a $2 rise in gasoline 
prices like the one we have seen since January of 2007 is 
estimated to reduce employment by about half-of-a-million jobs, 
which just about matches the real decline in employment since 
January of 2007.
    Mr. Chairman, the people I am privileged to represent don't 
want hand-outs. Like all Americans, they want to afford the 
energy they need to get to work, put food on the table, and to 
heat their homes. That is not too much to ask, but that is 
something this Congress has totally failed at delivering.
    If we want to truly address the challenges facing American 
workers, the very first thing we need to do is to reverse the 
damage already done to American families, workers, and 
businesses by high energy prices. That means increasing energy 
supplies for all sorts of energy, including oil and gas. That, 
in turn, will reduce gasoline prices, cut energy-induced 
poverty, and reverse energy-caused job losses.
    A second challenge largely unmentioned in today's testimony 
involves creating more jobs as this country produces and trades 
with our overseas partners. The facts are clear. Trade works 
for my home State of Illinois, and for the United States of 
America.
    Good trade agreements are boosting exports, helping provide 
one of the few bright spots in today's economic news. Growing 
exports accounted for more than 90 percent of the 3.3 percent 
economic growth in the last quarter. In the first half of 2008, 
we were running a manufacturing trade surplus of $6.6 billion 
with our free trade agreement partners.
    In fact, our current trade surplus with the CAFTA nations 
has increased more than 150 percent. For Illinois, that means 
exports of machinery made in places like Joliet are up 28 
percent, and exports of corn grown in places like La Salle 
County are up 48 percent.
    We must continue our path toward opening markets by passing 
legislation to implement the Colombia, Panama, and South Korea 
fair trade agreements. Colombia alone is a market of 42 million 
people, larger than California. While Colombia enjoys an open 
market to the United States, our products sold in Colombia are 
taxed, hampering our ability to export to this $30 billion 
market.
    Panama, too, has duty-free access to our markets, but we 
pay tariffs on our goods and services sold to Panama.
    South Korea represents the largest market we have ever 
negotiated a free trade agreement with, a huge opening for the 
United States into Asia. These economic opportunities for our 
workers are too important to be left to partisan politics. They 
deserve a vote and swift passage this year.
    Mr. Chairman, I look forward to working to reduce 
challenges for American workers, and to hearing the witnesses' 
testimony today. Thank you.
    Chairman MCDERMOTT. Thank you very much, Mr. Weller. Any 
other Members who want to make statements, we will give five 
working days to put your remarks in the record.
    Today our panel begins with Jared Bernstein, who is a Ph.D. 
senior economist at the Economic Policy Institute. Dr. 
Bernstein?

STATEMENT OF JARED BERNSTEIN, PH.D., SENIOR ECONOMIST, ECONOMIC 
                        POLICY INSTITUTE

    Dr. BERNSTEIN. Chairman McDermott, Ranking Member Weller, I 
thank you for inviting me to testify, and I applaud the 
Subcommittee for taking up this issue.
    As the Subcommittee knows, many working families face 
uniquely tough times. Most recently, a recession has gripped 
the labor market, and payrolls are down by over 600,000 this 
year. Unemployment is up sharply, and compensation is 
consistently lagging inflation.
    Underemployment, a broader measure of labor market 
weakness, hit 10.7 percent last month, driven by a sharp 
increase in so-called involuntary part-time workers, persons 
working part-time who would prefer full-time jobs. In August 
there were 5.7 million of those persons.
    The fact that millions of workers cannot find the jobs or 
the hours they need right now, in tandem with the most recent 
commodity-driven acceleration in inflation, has led to 
persistent declines in inflation-adjusted earnings in 
compensation. If we hope to understand and address the economic 
insecurities facing American workers, we must recognize that 
the challenges they face pre-date the recession, and certainly 
pre-date the recent increase in gas prices.
    There may be no more telling statistic of this point than 
the fact that the real wage for the median male was lower in 
2007 than in 1973. In that same spirit, it's been widely 
recognized that the current business cycle of the 2000s is the 
first on record where the income of the median family gained no 
ground in real terms, despite strong productivity growth over 
these years. Even the annual median earnings of college 
educated workers fell 3 percent from 2000 to 2007, in real 
terms.
    It was not always so. Between the mid-1940s and the mid-
1970s, the real compensation of most workers--blue collar 
workers in manufacturing, non-managers in services--and the 
productivity of the American workforce grew in locked step, 
both doubling. Since the late 1970s, however, these trends have 
diverged, and real compensation grew only 7 percent for these 
workers, 1979 to 2007, a 7-percent increase in real terms over 
28 years, while productivity grew 70 percent--70, 7-0.
    What explains these trends? One factor in play over the 
2000s was uniquely weak job growth. Annual growth in jobs in 
the 2000 cycle versus past cycles was less than one-third of 
the average rate. Again, of course this pre-dates any recent 
spike in energy prices.
    A symptom of weak growth is that once these workers lose 
their jobs, their unemployment spells can be quite long, 
another factor contributing to the weak income growth and 
increased worker insecurity. Despite the fact that unemployment 
was relatively low in the 2000s, weak job creation meant that 
long-term unemployment stayed elevated. Close to 20 percent of 
the unemployed were jobless for at least 6 months, on average, 
over these years.
    The insecurity bred by this longer term unemployment was 
not confined to marginal, less educated, or younger workers. In 
2000, 13 percent of unemployed college-educated workers 
experienced long-term unemployment. In 2007, that share jumped 
to 20 percent.
    Other insecurity-generating factors include the long-term 
shift from pensions that guarantee a fixed payout to variable 
pensions, defined benefit to defined contribution: a clear 
shift in the locus of risk from the firm to the worker.
    Also, the secular erosion of employer-provided health 
coverage. Again, even college-educated workers have been 
affected by this trend, as the share of these workers with 
employer-provided coverage fell from 80 percent in 1979 to 68 
percent in 2006.
    The long-term decline in men's job tenure down about 2 
years for men aged 35 to 54 is another factor contributing to 
the insecurity we're talking about today.
    Now, the factors economists believe are responsible for the 
difficulties facing workers today include: the increased wage 
premium for more highly educated workers; diminished bargaining 
power of the majority of the workforce; increased trade 
imbalances, most notably with developing economies like China, 
that have very large, low-wage workforces, relative to the 
United States; and macro-economic weakness, including weak job 
growth in the absence of periods of full employment in labor 
markets.
    The policy actions to enhance worker security include, 
first, do no harm. It's important not to exacerbate the 
problems I have documented with policies such as regressive tax 
cuts that promote greater inequality. To the contrary, 
returning some progressivity to the Tax Code would help offset 
some of these problems. Expanding the earned income credit, or 
making the child tax credit fully refundable are two areas this 
Subcommittee might consider.
    Second, the diminished bargaining power of many workers 
should be ameliorated by passing the Employee Free Choice Act, 
legislation that should help offset the disproportionate sway 
of anti-Union forces, and level the playingfield for those 
hoping to organize collective bargaining units in their 
workplace.
    Third, full employment, a tight match between labor supply 
and labor demand is another important criterion for reducing 
the gap between overall growth and the standards of working 
families. The policy levers here rest mainly with the Federal 
Reserve, but Congress can also play a role that I can discuss 
during our discussion, as I see I am running out of time.
    Changes in the structure of work, the demography of the 
workforce, along with the trend toward longer unemployment 
spells, underscore the need for updating our nation's 
unemployment insurance system. The Unemployment Insurance 
Modernization Act already passed by this chamber would make 
such changes, including providing benefits to both part-time 
workers and for those with shorter job tenures. Thank you.
    [The statement of Mr. Bernstein follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Chairman MCDERMOTT. Thank you very much. I neglected to 
point the clock out to those people who are going to testify 
here. We would like you to hold your comments to 5 minutes, so 
that we can have time for discussion.
    Michael Ettlinger is the vice president for economic policy 
from the Center for American Progress.
    Mr. Ettlinger.

  STATEMENT OF MICHAEL ETTLINGER, VICE PRESIDENT FOR ECONOMIC 
              POLICY, CENTER FOR AMERICAN PROGRESS

    Mr. ETTLINGER. Chairman McDermott, Mr. Weller, Members of 
the Subcommittee, thank you very much for the opportunity to 
appear today to discuss the challenges facing American workers.
    We are in a period that is distinguishable from any in the 
post-war era. It's distinguishable statistically, but it's also 
distinguishable in that we are now headed in the wrong 
direction in so many areas that are critical to working 
Americans. Wages are stagnant or declining, costs are rising, 
access to health care is declining, retirement security is in 
decline. Most recently, the value of the family nest egg, in 
the form of homes, has fallen dramatically.
    This period is also different than others in that the 
public, while holding on to optimism for themselves, doesn't 
see these problems being addressed at the societal level, or 
for their children.
    I won't delve into the areas that Dr. Bernstein has covered 
so well, but I will focus on some of the other challenges 
facing working Americans.
    One of these challenges is absolutely the rising costs in 
transportation, utilities, and food that are hitting working 
families especially hard. Health care, of course, is also a 
major concern. Costs are rising, and the share of people with 
employer-provided health insurance dropped from 64.2 percent in 
2000 to 59.3 percent in 2007. Last year, 45.7 million people 
were uninsured.
    There is the saying that if you have your health, you have 
everything. I think a corollary may be that if you don't have 
health insurance, you don't have much. This is a huge source of 
stress for working Americans, a huge factor in people's choice 
in jobs, a substantial constraint on people changing jobs to 
seek new opportunities, or to set off on their own to start new 
businesses, all to the detriment, not just of the individuals 
themselves, but also to the economy, as a whole.
    Preparation for retirement is also a problem. Only 43 
percent of private sector workers have an employer-sponsored 
retirement plan, either a traditional pension or a retirement 
savings plan, which is down from 50 percent in 2000. Many 
American workers also lack retirement sufficiency. The median 
401(k) balance for workers nearing retirement is only $60,000.
    All of these things manifest for working Americans and 
reduce quality of life and security. A Center for American 
Progress study on middle class security found, among other 
similar findings, that the percentage of families having 3 
months' worth of income in financial wealth, which is a good 
measure of their cushion against unexpected expenses or income 
loss, that percentage declined from 39 percent in 2000 to 29 
percent in 2007.
    The public, not surprisingly, is aware that there is a 
problem. A Pew Research Center poll found that 69 percent of 
people said that, compared to 10 years ago, it's easier to fall 
behind today. Just 11 percent thinks it's harder to fall 
behind. A Lake Research poll found that when asked about the 
next generation, only 9 percent of voters say it will be easier 
for them to achieve the American dream.
    So, what to do? One thing that is clear is that whatever we 
do, it should be something different than what we have been 
doing, as the situation has worsened in recent years. In 
particular, tax cuts for corporations and the well-off, 
scrimping on public investment and slipshod regulatory 
enforcement are problems, not solutions.
    At the Center for American Progress, we have a plan called 
``Progressive Growth.'' It has many components. Among them are 
transforming to a low carbon economy, which is critical to 
bringing energy spending under control; health care reform, to 
make health care more affordable and more broadly available; 
labor law and education reform. We are also developing a 
universal 401(k) plan to address retirement security.
    My final point is this. The conditions workers face are 
everyone's problems, from investors to shop keepers to 
retirees. Attempts to solve our economic challenges without 
directly addressing the conditions of working Americans will 
fail.
    The fact is that investments in people are investments that 
pay off for the economy, as a whole. When we have millions who 
are marginalized from the economy, millions who can't afford to 
take risks with new jobs and new businesses, millions who can 
only afford to spend enough to just get by, we lose innovative 
energy, we lose the participation of millions of people who 
could contribute. We lose customers for our business, we lose a 
thriving middle class that is a must for driving growth and 
national prosperity. Thank you.
    [The statement of Mr. Ettlinger follows:]
  Statement of Michael Ettlinger, Vice President for Economic Policy, 
                      Center for American Progress
    Chairman McDermitt, Mr. Weller, Members of the Committee, thank you 
for the opportunity to appear before this committee on the subject of 
the challenges facing working Americans. That American workers are 
indeed facing challenges is difficult to deny. This isn't the great 
depression but it is a period distinguishable from any in the post-war 
era. It's statistically distinguishable by a number of measures, but 
it's also distinguishable beyond each of these measures in two 
important ways. The first is simply that the challenges are coming on 
so many fronts. Things have gotten worse before, but we are now headed 
in the wrong direction, or at risk of heading in the wrong direction, 
in several areas that are critical to working Americans. Wages are 
stagnant or declining, costs are rising, access to health care is 
declining, retirement security is in decline--and most recently, the 
value of the family nest-egg in the form of their homes has fallen 
dramatically. The second way today is different is that the public, 
while holding to optimism for themselves, doesn't see these problems 
being addressed at the societal level or for their children.
    How bad are things? Before I get into the statistics, there's an 
important, admittedly fairly obvious, point I'd like to make about 
interpreting them. In general, what one hears in this sort of 
presentation are a lot of averages and medians--single numbers to 
represent a very wide set of experiences by real people. Of course, 
however, if I tell you that as of 2007 real median household income was 
0.8 percent lower than in 1999--that doesn't sound like a good thing--
after all, there's an expectation that incomes rise in this country, 
not fall. But that number also has the feel of things not changing, 
that the situation might not be ideal, but, really, what's going on 
isn't imposing any significant hardships--0.8 percent doesn't seem like 
that much. In fact, however, what I want to point out is that if an 
average or median is stagnant or falling, that means that while some 
are getting ahead, many, many are falling behind--that if a median 
income is falling 0.8 percent then millions of Americans are losing 5 
percent, 10 percent, or more. So, if we're defining our economic 
aspirations statistically, they should be ambitious enough that they 
bring most people along, not just the fanciful median or average 
working person. And stagnant median or average incomes don't do that.
Falling incomes
    To continue on the subject of income, as of 2007, real median 
household income was, indeed, 0.8 percent lower than its 1999 peak. 
Real hourly earnings are now down 2.5 percent from a year ago, and the 
prospects for turning this trend around in 2008 are slim to none. 
Weekly wages have declined by 0.3 percent since the start of the 
current business cycle in March 2001. One can pick different periods 
and come to the conclusion that incomes are up a little or down a 
little--but the bottom line is that they haven't risen in any 
meaningful sense since the 1990s. That is bad enough on its face, but 
it's worse when put into context. First, as I said, when the average or 
median is stagnant, it means that, while some are getting ahead, many, 
many Americans who are working hard and playing by the rules are 
falling behind. Second, it's clear that falling or stagnant incomes and 
wages are far from the only challenges facing working people.
Rising costs
    Among those challenges, costs have gone up in ways that make even 
inflation-adjusted income comparisons understate the problem. The costs 
of necessities have been particularly hard hit. It's a sign of the 
times that a national average price for regular unleaded gasoline of 
3.779 in August is seen as progress.\1\ It is hard to overstate the 
burden higher fuel prices are putting on working Americans--gasoline 
prices rose by 44.6 percent between July 2007 and July 2008, in 
inflation-adjusted terms, and the increase since March 2001 is 258.8 
percent.\2\ Fuels and utilities cost 16.1 percent more in July 2008 
than a year before and are up 52.9 percent since March 2001.
---------------------------------------------------------------------------
    \1\ Energy Information Agency, ``Monthly Retail and Gasoline and 
Diesel Prices,'' last updated September 8, 2008, available at http://
tonto.eia.doe.gov/dnav/pet/pet_pri_gnd_dcus_nus_m.htm.
    \2\ Authors' calculations based on Energy Information Agency, 
``Monthly Retail and Gasoline and Diesel Prices,'' last updated 
September 8, 2008, available at http://tonto.eia.doe.gov/dnav/pet/
pet_pri_gnd_dcus_nus_m.htm. and U.S. Department of Labor, Bureau of 
Labor Statistics, ``Consumer Price Index,'' last updated August 14, 
2008. Note: All price data in this section are the author's 
calculations based on U.S. Department of Labor, Bureau of Labor 
Statistics, ``Consumer Price Index,'' last updated August 14, 2008.
---------------------------------------------------------------------------
    Transportation costs in general have been hit hard. In July they 
were 13.0 percent higher than they were in July 2007 and 35.8 percent 
greater than they were in March 2001. The grocers bill is also not a 
pretty story. Food prices have increased 7.1 percent from July 2007 to 
July 2008 and by 25.6 percent since March 2001.
    Alarmingly for the long-term financial health of the middle class 
and our national economic prospects, college tuition increased by 6.3 
percent from July 2007 to July 2008. This puts college tuition at 67.9 
percent more than in March 2001.
Health care
    Health care is, of course, a story all its own. Of all the 
necessities, health care has, for the longest time, been rising in cost 
and, for many, it has become unavailable. Recently, costs associated 
with medical care increased by 3.5 percent from July 2007 to July 2008 
and by 35.1 percent since March 2001. But whatever the cost, access has 
become a huge challenge.
    The share of people with employer-provided health insurance dropped 
from 64.2 percent in 2000 to 59.3 percent in 2007.\3\ In 2007, 45.7 
million were uninsured, 7.2 million more than in 2000.\4\ In 2003, 
almost one-fifth of American families were spending more than 10 
percent of their disposable income on health care.\5\ And more than 
one-quarter of adults reported not obtaining treatment or prescription 
drugs because of cost.
---------------------------------------------------------------------------
    \3\ Christian Weller ``Economic Snapshot for September 2008,'' 
Center for American Progress, available at http://
www.americanprogress.org/issues/2008/09/pdf/sep08_econ_snapshot.pdf.
    \4\ http://www.epi.org/content.cfm/
webfeatures_econindicators_income_20080826_health.
    \5\ http://jama.ama-assn.org/cgi/content/abstract/296/22/2712
---------------------------------------------------------------------------
    I probably don't have to elaborate at length as to how this is 
playing out in real people's actual lives. There's the saying that ``if 
you have your health you have everything.'' A corollary may be that if 
you don't have health insurance you don't have anything. If you've ever 
cared for someone who couldn't get adequate treatment because they 
couldn't obtain health coverage for an illness you know what I mean--
and at this point more and more of us are seeing that or experiencing 
it. This is a huge source of stress for working Americans, a huge 
factor in people's choice in jobs, a substantial constraint on people 
changing jobs to seek new opportunities or to set off on their own--all 
to the detriment of not just the individuals involved but the economy 
as a whole.
Pensions
    Another important way in which the conditions of working people are 
declining is in their preparation for retirement. Only 43.2 percent of 
private-sector workers had an employer-sponsored retirement plan, 
either a traditional pension or a retirement savings plan, in 2006, the 
last year for which data are available.\6\ This is the lowest share in 
more than a decade and a substantial drop from 50.0 percent in 2000, 
the last peak. According to Center for American Progress research, 8 
million people, or one in four workers with defined-benefit pensions, 
have seen their benefits significantly cut since 2000.\7\
---------------------------------------------------------------------------
    \6\ Patrick Purcell, ``Pension Sponsorship and Participation: 
Summary of Recent Trends,'' CRS Report RL30122, (Washington, DC: 
Library of Congress, Congressional Research Service, 2007).
    \7\ David Madland, ``A Fragile Equilibrium: The Past, Present, and 
Future of Private Pensions, Contingencies Magazine,'' forthcoming, 
November 2008.
---------------------------------------------------------------------------
    In addition, a growing number of workers are saving with defined-
contribution retirement savings plans instead of defined benefit plans. 
This can leave workers exposed to a number of new risks--as declines in 
the stock market are now so amply demonstrating. These adverse trends 
have meant that a growing number of families will have to rely solely 
on Social Security as source of retirement income.\8\
---------------------------------------------------------------------------
    \8\ Dean Baker and David Rosnick, ``The Housing Crash and the 
Retirement Prospects of Late Baby Boomers,'' (Washington, DC: Center 
for Economic and Policy Research, 2008).
---------------------------------------------------------------------------
    Even those workers who are in retirement plans often lack 
retirement sufficiency. As defined-benefit plans have become less and 
less prevalent, workers are increasingly finding themselves doing more 
of the heavy lifting in planning for their retirement as well as 
bearing the bulk of the risk involved in having a defined-contribution 
plan.\9\ Companies typically contribute about 7 percent of payroll to 
support DB plans, but only about 3 percent for 401(k) plans.\10\
---------------------------------------------------------------------------
    \9\ Christian E. Weller, ``Model Retirement Savings: How Public 
Sector Retirement Plans Provide Adequate Retirement Savings in an 
Efficient and Sustainable Way,'' Hearing before the Joint Economic 
Committee, 110 Cong, 1 sess., (July 10, 2008).
    \10\ Alicia Munnell and Annika Sunden, ``401(k) Plans Are Still 
Coming Up Short'' (Center for Retirement Research at Boston College 
Issue Brief, No. 43: Boston, MA, March 2006).
---------------------------------------------------------------------------
    While the right-kind of 401(k) plan can help Americans retire with 
dignity, too many plans have proven inadequate to the job. The median 
401(k) balance for workers nearing retirement--those ages 55 to 64--is 
only around $60,000.\11\ While $60,000 is a significant sum, it is not 
sufficient for retirement security, and can only purchase an annuity 
that pays approximately $400 per month.
---------------------------------------------------------------------------
    \11\ Vanguard Institutional Investor Group, ``How America Saves 
2007: A Report on Vanguard 2006 Defined Contribution Plan Data'' (The 
Vanguard Group, Inc, Valley Forge, PA: 2007).
---------------------------------------------------------------------------
Home values
    The problems facing working Americans are, of course, compounded by 
the housing crisis. The most valuable asset that most middle-class 
asset-holding families have has just seen its value fall precipitously. 
Data from the Federal Reserve, for example, show that home equity 
relative to income dropped by 5.0 percentage points by March 2008, 
compared to a quarter earlier, the largest such drop on record.
Standard of living and security
    All of this manifests in working Americans' lives in a multiple 
ways. Obviously with stagnant incomes and rising prices, people's 
quality of life declines. If more of one's income is going into a gas 
tank less of it's going to dinner out and a movie. It is also reflected 
in security. A recent study by the Center for American Progress 
measured families' ability to weather different types of financial 
emergencies. The most general measure used was simply the percentage of 
families having three months worth of income in financial wealth. That 
declined from a peak in 2000 of 39.4 percent to 29.4 percent in 2007. 
Other indicators were whether a family can cope with the cost of a 
medical emergency--33.9 percent could in 2007, down from a high of 44.4 
percent in 1999. The share of families able to keep pace during a 
typical period of unemployment spell fell from 51 percent in 2000 to 
44.1 percent in 2007.
It's not a secret
    The public, not surprisingly, is aware of the problem. A Pew 
Research Center poll conducted from Jan. 24 through Feb. 19, 2008 found 
the following:

      Nearly eight in ten (79 percent) respondents said that it 
is more difficult now than five years ago for people in the middle 
class to maintain their standard of living. Only 12 percent said that 
it had become less difficult.
      Sixty-nine percent said that, compared to 10 years ago, 
it's easier to fall behind today. Just 11 percent think it is harder to 
fall behind.
      A majority of Americans say that in the past five years, 
they either haven't moved forward in life (25 percent) or have fallen 
backward (31 percent). This is the most downbeat short-term assessment 
of personal progress in nearly half a century of polling by the Pew 
Research Center and the Gallup organization.

    Furthermore, a September 2007 Lake Research Partners/Change to Win 
poll found these results: \12\
---------------------------------------------------------------------------
    \12\ ``The American Dream and the 2008 Election: Voters looking for 
leadership to restore the Dream,'' (PowerPoint presented by Celinda 
Lake, Lake Research Partners,) (Washington, DC: Change to Win, 
September 25, 2007).

      Seventy percent of voters say it is getting harder to 
achieve the American Dream, and only 8 percent say it is getting 
easier, with 21 percent saying it is the same.
      When asked about the next generation, only 9 percent of 
voters say it will be easier for them to achieve the American Dream.

    The reason for the public's gloomy view of the present is, of 
course, the reality they see. Their concern for the next generation 
speaks, however, to a disillusionment with the policies being pursued 
to deal with these challenges
Progressive growth
    With the laundry list of problems we face, I'm reminded of the 
Bette Davis quote that ``old age isn't for sissies.'' These days, 
``governing isn't for sissies'' either. But that begs the question--
what needs to be done. It's said that the definition of insanity is 
doing the same thing over and over again and expecting a different 
result. That suggests that whatever we do, it should be something 
different than what we've been doing as the situation has worsened for 
working Americans over the last few years.
    At the Center for American Progress we have a plan called 
Progressive Growth--it has many components, including transforming our 
economy to a low-carbon economy, which is critical to bringing under 
control how much working Americans spend on energy, and health care 
reform to make health care more affordable and more broadly available. 
One more narrowly targeted element is a plan we are developing to 
address retirement security through a universal 401(k) plan which has 
as key components:

      portability from job-to-job
      incentives for employers to contribute
      subsidies targeted at low- and middle-income workers

The challenges of the American worker are America's challenges
    The conditions workers face are not, of course, their problem 
alone. Policies that attempt to solve our economic challenges without 
addressing the conditions of the middle-class are doomed to failure. In 
the long run the hedge fund manager and the corporate CEO do not 
succeed unless there are businesses profiting from working Americans. 
The direction this country has been heading is a direction away from a 
hard-working, skilled, innovative workforce to a workforce so 
constrained by the challenges of just getting by that they, in fact, 
just get by. That is not the kind of workforce that moves business and 
a nation ahead economically. While one can overstate the extent that 
all our fates are tied together, in recent years such overstatement has 
been the least of our worries. The failure has been in understating it. 
The fact is that investments in people are investments that pay off for 
the economy as a whole. When we have millions who are marginalized from 
the economy, millions who can't afford to take risks because they can't 
change jobs because they'll lose health coverage, millions who must 
limit their lives to spending on what's needed to just get by--we lose 
innovative energy, we lose the participation of many millions who could 
contribute greatly, we lose customers for our businesses, we lose a 
middle class that drives the growth in national prosperity.
    That's why it's so critical that moving forward we don't pretend 
that one class of people can go it on their own without everyone. 
Spreading the benefits of economic growth isn't just a nice idea--it 
is, in fact, a key to continued growth. There are many challenges to be 
faced and we all will fail if they are not faced. The health care 
challenge must be dealt with--the rising costs are hurting individuals 
and industry alike. Investing in a low-carbon economy is an absolutely 
necessity--and the United States wants to be at its forefront, not 
lagging behind the rest of the world when we could be gaining a 
competitive advantage. Education and innovation are key linchpins to 
success in a modern economy. These are a few of the paths forward we 
need to take to move ahead our economy for the benefit of America's 
workers and all Americans.
    Thank you again for the opportunity to present this testimony.

                                 

    Chairman MCDERMOTT. Thank you very much. Elizabeth Lower-
Basch is the senior policy analyst for the Center for Law and 
Social Policy.
    Ms. Lower-Basch?

  STATEMENT OF ELIZABETH LOWER-BASCH, SENIOR POLICY ANALYST, 
                CENTER FOR LAW AND SOCIAL POLICY

    Ms. LOWER-BASCH. I am honored by the opportunity to testify 
here today. I want to thank this Subcommittee for your 
recognition that American workers and their families are 
experiencing a time squeeze, as well as a financial squeeze.
    I will talk first about: how the demographics of the 
American workforce have changed; second, the ways the demands 
of the workplace have increased; and third, the failure of our 
employment standards to keep up with these changes.
    Over the last half-century, the American labor force has 
grown dramatically. Women now constitute 47 percent of all 
workers. The workforce has gotten older and more diverse. More 
mothers are employed, and more fathers are sharing in parental 
responsibilities. Over one-third of all workers have children 
under the age of 18, and 85 percent of these working parents do 
not have an at-home spouse.
    In addition, surveys suggest that between one in six and 
one in three workers are caring for adult relatives.
    There is no typical worker any more. We need policies that 
work for those who need to go back to school to develop new 
skills and move into better jobs, and for those who are phasing 
into retirement, as well as for those with care-giving 
responsibilities.
    The nature of the workplace is also changing. Just-in-time 
scheduling means that firms adjust staffing levels hour by 
hour. Some workers are forced to work mandatory overtime, while 
others must remain on call to keep their jobs, but are paid 
only for the hours when they are needed. As Dr. Bernstein 
mentioned, in the current recession workers' inability to get 
enough hours of work to pay their bills is an increasing 
problem.
    Our employment standards have failed to keep up with these 
changes. The United States is one of the only countries in the 
world that does not guarantee any form of paid leave for 
childbirth. While some employers voluntarily step up, about 
one-third of workers taking family and medical leave receive no 
pay. More than half of leave takers worry about not having 
enough money to cover their bills. Only about half of workers 
are even covered.
    Similarly, while many take the ability to stay home with 
the flu without penalty for granted, in fact, barely half of 
all workers have any paid sick days. Only one in three can use 
these days to care for a family member. Without paid time off, 
workers are more likely to come to work sick, send their 
children to school or child care sick, and postpone needed 
medical treatment.
    Low wage workers are the most vulnerable, with only about 
one in three receiving paid sick days, or any pay during family 
and medical leave. They have the least flexibility and security 
at work, the least ability to pay for help, and the least 
ability to afford missing some of their pay.
    Even though a working life can now last 45 years or more, 
prime age workers who left the labor market for just a single 
year during a 15-year period made about 20 percent less than 
those who worked every single year, even after adjusting for 
differences in education and hours.
    Similarly, part-time workers often pay dearly for that 
flexibility in lower wages, lesser access to health insurance 
and pensions, and limited advancement opportunities.
    Too often, public policy also fails part-time workers. In 
half of the states, workers who are available only for part-
time work are ineligible to receive unemployment insurance. 
Overall, only about one in eight part-time workers who becomes 
unemployed receives unemployment benefits.
    In conclusion, work-life issues and economic challenges 
facing American workers are inextricably linked. It is only by 
increasing their hours of work that American families have 
gained economic ground over the past 30 years. Without access 
to paid leave, or the opportunity to adjust one's hours of 
work, hard won economic progress can be set back by a joyous 
event, the birth of a child, as well as by a sad one, the major 
illness of a spouse.
    Policies such as establishing minimum floors for paid 
family leave and paid sick days, ensuring equity for part-time 
workers, modernizing unemployment insurance, and expanding 
child care funding is, thus, a matter of basic fairness. Such 
policies would also be an important step toward breaking a 
cycle of disinvestment in low-wage workers and supporting 
economic growth. Thank you for your attention.
    [The statement of Ms. Lower-Basch follows:]
 Statement of Elizabeth Lower-Basch, Senior Policy Analyst, Center for 
                         Law and Social Policy
    I am honored by the opportunity to testify here today. I am a 
senior policy analyst at the Center for Law and Social Policy (CLASP). 
CLASP is a national nonprofit organization engaged in research, 
analysis, technical assistance, and advocacy for policies that improve 
the lives of low-income people. Our work is nonpartisan and based on 
research and evidence. One of our areas of focus is the quality of jobs 
available to workers, including work-life issues, and strategies to 
improve jobs and help workers succeed in all their roles.
    I have been asked to complement the data that has been presented on 
the economic challenges facing American workers with information about 
how workers are being caught between the demands of their jobs and 
their responsibilities as family members. I want to thank this 
Committee for your recognition that workers are experiencing a time 
squeeze, as well as a financial squeeze, and that both are fundamental 
to the well-being of American workers and their families.
    I will show how the demographics of the American workforce have 
changed, such that many workers also have caregiving responsibilities. 
I will also address the ways that the demands of the workplace have 
increased in our highly competitive 24/7 economy. And I will discuss 
the failure of our institutions and employment standards to keep up 
with these changes.
Changing demographics of the American workforce
    Over the last half century, the American labor force has grown 
dramatically, from 62 million workers in 1950 to 152.3 million workers 
in 2007. As shown in Figure 1, this growth was driven largely by two 
factors--growth in the working age population due to the baby boom 
generation, and increases in women's labor force participation rate, 
which grew from 34 percent in 1950, to 43 percent in 1970, to nearly 60 
percent today. Women now constitute 47 percent of all workers. The 
workforce has also gotten older, on average, and more racially and 
ethnically diverse.\1\
---------------------------------------------------------------------------
    \1\ Mitra Toosa, ``A Century of Change: the U.S. Labor Force, 1950-
2050,'' Monthly Labor Review, May 2002. Marlene A. Lee and Mark Mather, 
U.S. Labor Force Trends. Population Bulletin Vol 63, No 2, 2008.
---------------------------------------------------------------------------
    Figure 2 shows that there is no ``typical'' worker in terms of 
marital status and parenting role. But workers at all stages of life 
need work-life flexibility. We often talk about it in terms of parents 
with young children, but it is also an issue for those caring for 
elderly parents or spouses, as well as for those who need to go back to 
school to develop new skills and move into better jobs, but can't 
afford to stop working, and for those who are nearing retirement but 
wish to keep working.
    With more mothers employed--and more fathers sharing in parental 
responsibilities--more workers are balancing--or juggling--these two 
roles. As shown in Figure 2, more than one-third of all workers 
currently have children under the age of 18. Eighty-five percent of 
these working parents do not have an at-home spouse to take care of all 
parenting responsibilities, either because both parents are working or 
because they are single parents.\2\ It's worth noting that while fewer 
than half of workers have minor children at a given time, 80 percent of 
American women will have children at some point in their life.\3\ Most 
workers will move between different categories at different stages in 
their lives; they will need work-life policies that allow them to 
respond appropriately to their changing circumstances.
---------------------------------------------------------------------------
    \2\ Author's calculation from unpublished Census tabulation of 
Current Population Survey data, DSG3-07.
    \3\ Jane Lawler Dye, Fertility of American Women: 2006, P20-558, 
U.S. Census Bureau, August 2008.
---------------------------------------------------------------------------
    As the population ages, an increasing share of workers are also 
responsible for providing care to elderly parents, spouses, or other 
adult family members. There's a broad range of estimates as to how 
many, because there is no clear definition of what constitutes 
caregiving for adults, but surveys suggest that 17 to 35 percent of 
workers are either currently providing or have recently provided care 
for an adult family member.\4\ While most of these workers are not 
providing ongoing daily care, the need to respond to a sudden crisis 
situation can be even more disruptive at work.
---------------------------------------------------------------------------
    \4\ Family Caregiver Alliance, Selected Caregiver Statistics, 
http://www.caregiver.org/caregiver/jsp/content_node.jsp?nodeid=439. 
National Alliance for Caregiving, The MetLife Caregiving Cost Study: 
Productivity Losses to U.S. Businesses, July 2006. http://
www.caregiving.org/data/Caregiver%20Cost%20Study.pdf

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Mitra Toosa, ``A century of change: the U.S. labor force, 1950-
---------------------------------------------------------------------------
2050,'' Monthly Labor Review, May 2002.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Author's analysis of unpublished data from the Current Population 
Survey, tabulated by the Bureau of Labor Statistics, DSG-03-2007.

    And, of course, any worker can get sick, or suffer an injury, 
causing him or her to miss work. In fact, the majority of workers 
taking family or medical leave do so as a result of their own health 
issues, rather than as caregivers.\5\
---------------------------------------------------------------------------
    \5\ Jane Waldfogel, ``Family and Medical Leave: Evidence from the 
2000 Surveys.'' Monthly Labor Review, September 2001. See also Society 
for Human Resource Management, An Overview of the 2007 FMLA Survey, May 
2007.
---------------------------------------------------------------------------
Changing demands of the workplace
    It is not just American families that have changed--the nature of 
the workplace is also evolving. There is a reason it has become a 
cliche to say that we live in a 24/7 economy. Consumers expect stores 
and service providers to be open evenings and weekends, which requires 
more and more workers to cover those hours. Companies that have 
invested in expensive capital equipment want it to be in use around the 
clock.
    Thus a recent nationally representative survey of employers found 
that employees' willingness to work odd or flexible hours mattered ``a 
lot'' for 49 percent of employers in their choice of who to hire for 
non-college jobs. It mattered ``not at all'' for only 19 percent of 
employers. Thirty percent of recently hired less-skilled workers 
frequently work weekend hours, with another 24 percent working them 
occasionally or sometimes. Fifteen percent work evening shifts, 4 
percent night shifts, and 11 percent rotating shifts.\6\ Most workers 
report that they work these shifts for their employers' convenience, 
not their own. While in some cases workers welcome non-traditional 
shifts because they allow them to forgo the use of paid child care, 
such split-shift schedules can put significant strain on workers' 
marriages and families, as well as on their health.\7\
---------------------------------------------------------------------------
    \6\ Gregory Acs and Pamela Loprest, Understanding the Demand Side 
of the Low-Wage Labor Market, The Urban Institute, April 2008.
    \7\ Kelleen Kaye and David Grey, The Stress of Balancing Work and 
Family, New America Foundation, October 2007.
---------------------------------------------------------------------------
    Even for people who work during traditional work hours, the hours 
of work have become less predictable. With ``just-in-time scheduling,'' 
sophisticated computer systems allow firms to fine-tune staffing levels 
hour by hour, in order to provide peak coverage as needed while 
minimizing the total payroll. This shifts the cost of inconsistent 
demands for labor onto the workers, requiring some workers to work 
mandatory overtime, while keeping others on call but paying them only 
for the hours in which their labor is needed. Many workers face 
unpredictable schedules, often provided no more than a few days in 
advance.
    Obviously, this is a challenge for workers with caregiving 
responsibilities. One study found that retail workers used as many as 
four different child care providers in the course of a single week in 
order to cover their varying hours of work. This reduced the stability 
of the relationships between children and caregivers, and parents were 
sometimes forced to accept less than ideal care situations in order to 
cover all the hours needed.\8\
---------------------------------------------------------------------------
    \8\ Julia Henly and Susan Lambert, ``Nonstandard Work and Child 
Care Needs of Low-income Parents.'' In S.M. Bianchi, L.M., Casper, K.E. 
Christensen, & R.B King (Eds.), Workforce/Workplace Mismatch? Work, 
Family, Health, & Well-being. Lawrence Erlbaum Associates, Inc. 2005.
---------------------------------------------------------------------------
    In the current recession, workers' inability to get enough hours of 
work to pay their bills is an increasing problem. As of August, 5.7 
million workers reported working part-time hours involuntarily, up 1.2 
million from a year before.\9\ This figure does not include workers who 
usually work part-time, and are also experiencing reduced hours.
---------------------------------------------------------------------------
    \9\ Bureau of Labor Statistics, Employment Situation Summary, 
September 5, 2008.
---------------------------------------------------------------------------
    At the other end of the labor market, professionals often find 
themselves working more and more hours. One in 12 working-age married 
couples now works a total of more than 100 hours per week--more than 
twice the percentage that did so in 1970.\10\ Electronic devices such 
as BlackBerries allow greater flexibility for working from remote 
locations, but also make it harder to avoid workplace demands while 
trying to meet family responsibilities. Sixty-seven percent of employed 
parents say they do not have enough time with their children, according 
to the Families and Work Institute.\11\
---------------------------------------------------------------------------
    \10\ Jerry A. Jacobs and Kathleen Gerson, ``Overworked Individuals 
or Overworked Families? Explaining Trends in Work, Leisure, and Family 
Time,'' Work and Occupations, Vol. 28 No. 1, February 2001.
    \11\ James T Bond, Ellen Galinsky and Jeffrey E. Hill. When Work 
Works: a Status Report on Workplace Flexibility. IBM and the Families 
and Work Institute, 2004.
---------------------------------------------------------------------------
U.S. lags behind in recognizing that workers are also caregivers
    In spite of these changes, the United States has made only limited 
progress towards recognizing that many workers are also caregivers.
    One of the biggest steps was the enactment of the Family and 
Medical Leave Act (FMLA) in 1993. This law allows workers to take up to 
12 weeks of job-protected unpaid leave in the case of a major medical 
need, or to provide care to a family member. This law substantially 
increased workers' access to unpaid leave. However, because this law 
only applies to companies with 50 or more employees, and because 
workers must have worked at least 1,250 hours for their employer in the 
past year, fewer than half of private-sector workers are covered and 
eligible.\12\
---------------------------------------------------------------------------
    \12\ Wen-Jui Han and Jane Waldfogel. ``Parental Leave: The Impact 
of Recent Legislation on Parents' Leave Taking.'' Demography, Vol 40, 
No. 1, February 2003.
---------------------------------------------------------------------------
    The fact that FMLA does not provide for pay during leave also 
creates a major hardship for many of the workers who are covered by it. 
The last time use of FMLA was studied in detail, about one-third of 
those taking leave received no pay, and more than half of leave-takers 
worried about not having enough money to pay bills. Lack of pay is a 
particular issue for low-income workers (those with annual family 
incomes of less than $20,000), of whom more than two-thirds received no 
pay during their leave.\13\ The United States is one of the only 
countries in the world that does not provide any form of paid leave for 
childbirth.\14\
---------------------------------------------------------------------------
    \13\ Waldfogel. ``Family and Medical Leave.''
    \14\ Jody Heymann, Forgotten Families, Oxford University Press, 
2006.
---------------------------------------------------------------------------
    Historically, one program that provided a minimal level of income 
support for poor single mothers during periods of unemployment or 
caregiving was Aid to Families with Dependent Children, AFDC. In the 
wake of welfare reform, it is clear that Temporary Assistance for Needy 
Families (TANF), which replaced AFDC, fills this role to a greatly 
diminished degree. In 2004, just 3.3 percent of women who had babies 
during that year received TANF cash assistance, compared to 11.6 
percent in 1996.\15\ More broadly, HHS calculates that only 42 percent 
of eligible families received TANF benefits in 2004, down from 84 
percent in 1996.\16\
---------------------------------------------------------------------------
    \15\ Jane Lawler Dye, Fertility and Program Participation in the 
United States: 1996. Current Population Reports, P70-82. U.S.Census 
Bureau, 2001 and Jane Lawler Dye, 2008. Participation of Mothers in 
Government Assistance Programs: 2004. Current Population Reports, P70-
116. U.S. Census Bureau, 2008.
    \16\ U.S. Department of Health and Human Services, Indicators of 
Welfare Dependence, Annual Report to Congress, 2007.
---------------------------------------------------------------------------
    A few states--California, Washington, and New Jersey--have taken an 
important next step by developing family-leave insurance programs which 
provide income replacement for workers who take family leave. These are 
important models to consider both for other states and for federal 
policy. Importantly, because the cost of providing this wage 
replacement is spread among employees, these policies do not place 
disproportionate costs on those employers who hire workers who are most 
likely to need to take family leave.
    Another area in which the public policy response has been limited 
is that of sick days. While millions of workers take it for granted 
that they can stay home with full pay when the flu strikes, the only 
places in the U.S. where such protection is guaranteed by law are San 
Francisco and Washington, D.C. Barely half of all workers (51 percent) 
have paid sick days, and only one in three can use these days to care 
for a sick family member.\17\ And access to this benefit varies greatly 
by income, as only 39 percent of low-wage, low-income workers receive 
any paid time off that they can use for a personal illness, compared to 
90 percent of high-wage and high-income workers.\18\ Such workers can 
also least afford to forgo a day's wages. Staying home sick may mean 
falling behind on the rent, or risking having the electricity or heat 
shut off.
---------------------------------------------------------------------------
    \17\ Vicky Lovell, No Time to be Sick: Why Everyone Suffers When 
Workers Don't Have Paid Sick Leave, Institute for Women's Policy 
Research, Washington, DC, 2004.
    \18\ James T. Bond and Ellen Galinsky. What Workplace Flexibility 
is Available to Entry-level, Hourly Employees. 2006.
---------------------------------------------------------------------------
    Lack of paid sick days causes negative health effects for workers, 
and their families, increased spread of disease among coworkers, 
customers and school children, and higher turnover.\19\ Without paid 
leave, workers are more likely to come to work sick, send children to 
child care or school when sick, and postpone needed medical treatment. 
Lack of a right to paid sick days can also threaten job security. A 
recent survey conducted for the Public Welfare Foundation found that 
one of six respondents reported that the worker or a family member had 
been fired, suspended, punished or threatened with being fired for 
taking time off due to personal illness or to care for a sick child or 
other relative.\20\
---------------------------------------------------------------------------
    \19\ Vicky Lovell, No Time to Be Sick: Why Everyone Suffers When 
Workers Don't have Paid Sick Leave. Institute for Women's Policy 
Research.
    \20\ Public Welfare Foundation, American Workers Overwhelmingly 
Support Paid Sick Days, Labor Day Survey Finds, August 29, 2008. http:/
/publicwelfare.org/AboutUs/documents/PollNRFINALa.pdf
---------------------------------------------------------------------------
Large penalties for those who do not fit the old ``ideal worker'' model
    In spite of the many changes in the workforce, there remains a 
common assumption that workers should be available to work full-time, 
year-round, without interruption. Joan Williams refers to this as the 
``ideal worker'' model, and argues that workers who deviate from it pay 
large penalties.\21\
---------------------------------------------------------------------------
    \21\ Joan Williams, Unbending Gender: Why Family and Work Conflict 
and What to Do About It, Oxford University Press, 1999.
---------------------------------------------------------------------------
    Workers who take even relatively short breaks from employment pay 
for it in the form of lasting impacts on earnings. One study found that 
prime-age women who left the labor market for a single year during a 
15-year period made 20 percent less than women who worked every single 
year, even after adjusting for differences in their education levels 
and the number of hours worked. Fewer men had such interruptions in 
their work histories, but those who did paid a similar penalty in lower 
earnings.\22\ Given that workers may well have more than 45 years to 
spend in the workforce, it does not make sense that taking a year or 
two off due to childrearing or other responsibilities should lower a 
worker's earnings for the rest of her or his worklife. But it often 
does.
---------------------------------------------------------------------------
    \22\ Stephen J. Rose and Heidi I. Hartmann, Still a Man's Labor 
Market: The Long-Term Earnings Gap, Institute for Women's Poicy 
Research,
---------------------------------------------------------------------------
    One strategy that many families have used to meet their dual 
responsibilities as workers and caregivers is to limit one member's 
paid employment to part-time. But workers who are unavailable for full-
time work often pay dearly for that flexibility in lower wages, lesser 
benefits, and limited advancement opportunities. Part-time workers 
earn, on average, 20 percent less per hour than other workers with the 
same levels of education and experience, and are much less likely to 
receive either health insurance or pension benefits from their 
employers. This is in part due to the concentration of part-time jobs 
in a limited number of low-paying industries.\23\ In many occupations, 
the only part-time opportunities are those negotiated on an individual 
basis, often as a way to retain stellar performers, but not available 
to the workforce as a whole.
---------------------------------------------------------------------------
    \23\ Jeffrey Wegner, The Continuing Problems with Part-Time Jobs, 
Issue Brief #155, Economic Policy Institute, April 2001.
---------------------------------------------------------------------------
    It is not just private employers who economically penalize part-
time workers; public policy does so as well. In half of the states, 
workers who are available only for part-time work are categorically 
ineligible to receive unemployment insurance, even though their wages 
are subject to the unemployment insurance tax. Even when not 
categorically excluded, part-time workers often fail to meet the 
minimum hours or earnings requirements to qualify for benefits. The 
result is that only about one in eight part-time workers who becomes 
unemployed receives unemployment benefits.\24\ Similarly, the FMLA does 
not cover workers who have worked less than about 60 percent time for a 
single employer over the previous year. These policies are based on 
outdated notions that part-time workers' earnings are not essential to 
their families' well-being.
---------------------------------------------------------------------------
    \24\ National Employment Law Project, Part-time Workers and 
Unemployment Insurance, March 2004. http://www.nelp.org/ui/initiatives/
part_time/parttimeui0304.cfm
---------------------------------------------------------------------------
Other systems have failed to keep up with the changing workforce and 
        work environment
    The burden placed on people who are balancing work and family 
responsibilities is increased by the many aspects of our economy that 
have failed to keep up with these changes. I draw attention to three in 
particular: health care, schools, and child care.
    Health care: Today's health care system does more medical 
procedures on an out-patient basis, and releases patients from the 
hospital sooner and sicker. From 1970 to 2004, the average length of a 
hospital stay declined from 7.8 days to 4.8 days overall, and from 12.6 
to 5.6 days for patients over 65.\25\ While this trend saves the health 
care system millions of dollars, it is based on an implicit assumption 
that patients have family or friends who are able to provide care that 
would once have been provided by professionals. Informal caregivers are 
frequently expected to change wound dressings and monitor healing, 
administer medication, assist with activities of daily living such as 
feeding and toileting, and transport patients to follow-up 
appointments.
---------------------------------------------------------------------------
    \25\ National Center for Health Statistics, National Hospital 
Discharge Survey: 2004 Annual Summary With Detailed Diagnosis and 
Procedure Data, Vital and Health Statistics, Series 13, Number 162, 
October 2006.
---------------------------------------------------------------------------
    Schools: Our schools, with few exceptions, are open 30 hours a week 
and continue to run on an agricultural calendar that assumes that 
children are needed to work in the fields during the summer months. 
This places a burden on parents who must patch together child care for 
after school and school breaks. At the same time, the expectations for 
parents to be active participants in their children's education have 
increased. Parents believe that we are failing our children if we don't 
read with them, monitor their homework, help them sell popcorn or 
wrapping paper to raise funds for their schools, watch them play sports 
and perform in school plays, and attend parent-teacher meetings. If a 
child is struggling in school or has a disability that qualifies for an 
Individualized Education Program, parents will need to attend multiple 
additional meetings. Parents are responding to these demands: for 
example, education department statistics show that the number of 
students whose parents attended a general school meeting increased by 
10 percentage points just from 1996 to 2003.\26\
---------------------------------------------------------------------------
    \26\ http://www.childtrendsdatabank.org/indicators/
39ParentalInvolvementinSchools.cfm
---------------------------------------------------------------------------
    Child care: Reliable, high quality early childhood opportunities 
and care for school-age children give working parents the support and 
peace of mind they need to be productive at work. Unfortunately, the 
cost of child care has increased faster than inflation, and for too 
many low-income parents affordable child care is out of reach. Even 
after expansions during the late 1990s, the Child Care and Development 
Block Grant, which helps low-income working families pay for child 
care, only reaches about one in seven eligible families.\27\ In recent 
years, deficits have forced states to make substantial cuts to their 
child care assistance programs. Further, the tax credit for dependent 
care expenses is non-refundable, so it is useless for families earning 
less than about $22,000, and the expense limit is not adjusted for 
inflation.\28\
---------------------------------------------------------------------------
    \27\ Jennifer Meazey, Mark Greenberg, and Rachel Schumacher, The 
Vast Majority of Federally Eligible Children Did Not Receive Child Care 
Assistance in FY 2000--Increased Child Care Funding Needed to Help More 
Families, Center for Law and Social Policy, 2002.
    \28\ Leonard E. Burman, Elaine Maag, and Jeffrey Rohaly, Tax 
Subsidies to Help Low-Income Families Pay for Child Care, Tax Policy 
Center Discussion Paper #23, June 2005.
---------------------------------------------------------------------------
Conclusion
    Work-life issues are sometimes thought of as less serious than the 
economic challenges that workers face. But the two are inextricably 
linked. It is only by increasing their hours of work that American 
families have gained economic ground over the past thirty years.\29\ 
Without access to paid leave or the opportunity to adjust one's hours 
of work, hard-won economic progress can be set back by a joyous event--
the birth of a child--as well as by a sad one--the major illness of a 
spouse.
---------------------------------------------------------------------------
    \29\ Jared Bernstein and Karen Kornbluh, Running Faster to Stay in 
Place: The Growth of Family Work Hours and Incomes. New America 
Foundation, June 2005.
---------------------------------------------------------------------------
    While a great deal of attention has been paid to companies' 
increasing efforts to accommodate the work-life needs of their workers, 
the vast majority of these efforts have been limited to highly paid 
employees, with ``competing for top talent'' and ``retaining 
professionals'' among the commonly cited benefits.\30\ Few of these 
initiatives reach down to lower-paid hourly workers. Such workers are 
particularly vulnerable: They have the least flexibility and security 
at work, the least ability to pay for help, and the least ability to 
afford missing some of their pay.
---------------------------------------------------------------------------
    \30\ Corporate Voices for Working Families, Business Impacts of 
Flexibility.
---------------------------------------------------------------------------
    Policies such as establishing minimum floors for paid family leave 
and paid sick days, ensuring equity for part-time workers, supporting 
those who need to temporarily interrupt their employment, and expanding 
child care funding are thus a matter of justice. Public policy can not 
add more than 24 hours to the day, but it can help ensure that workers 
are not forced to make unbearable choices between caring for their 
loved ones, and keeping the jobs that they need to pay the bills.
    Such policies would also be an important step towards breaking a 
cycle of disinvestment in low-wage workers. Too many companies assume 
that high turnover of hourly workers is inevitable, and thus fail to 
invest in the training, technology or management practices that would 
make them more productive. Both workers and our economy are worse off 
as a result. By using labor standards to set expectations for the 
workplace, government can take the ``low road'' option off the table, 
and give companies trying to do the right thing a little bit of 
breathing room, so that they are not immediately undercut by 
competitors taking the most brutal cost-cutting approach. In the long 
run, companies that take the ``high road'' by treating their hourly 
workers well can thrive in the marketplace by reducing turnover, 
increasing productivity, and improving customer service. \31\
---------------------------------------------------------------------------
    \31\ Elizabeth Lower-Basch, Opportunity at Work: Improving Job 
Quality, Center for Law and Social Policy, September 2007.
---------------------------------------------------------------------------
    Thank you for providing me the opportunity to testify.

                                 

    Chairman MCDERMOTT. Thank you very much for your testimony.
    Gregory Acs is a Ph.D. who is a principal research 
associate at the Urban Institute.
    Dr. Acs.

STATEMENT OF GREGORY ACS, PH.D., PRINCIPAL RESEARCH ASSOCIATE, 
                      THE URBAN INSTITUTE

    Dr. ACS. Mr. Chairman, Mr. Weller, and distinguished 
Members of the Subcommittee, thank you for inviting me here to 
discuss the status and prospects of low-wage workers in the 
United States. The views I express are mine alone, and should 
not be attributed to the Urban Institute, its trustees, or its 
funders.
    There is no official definition of the term ``low wage 
worker,'' but research generally suggests that, in today's 
dollars, the low wage line is about $10 an hour, and about a 
quarter of workers are low wage workers.
    To discuss the characteristics of low wage workers and 
their jobs, I draw on recent work with Austin Nichols. Note 
that not all low wage workers are poor, or even low income. 
About half of low wage workers are secondary or tertiary 
workers in families with incomes above twice the poverty line--
that is about $42,000 a year--but that means about half of low 
wage workers are, in fact, in low income families.
    Low wage workers have less education than the average 
worker. Less than one-half of low wage workers have some 
education beyond high school, as compared with 60 percent of 
all workers. This suggests that some type of post-secondary 
education or training may help raise their wages.
    Low wage workers are more likely to be under age 30 than 
the average worker--39 percent versus 27 percent--and, as such, 
they may expect to have wage growth as they gain experience on 
the job.
    Low wage workers, particularly those in low income 
families, are more likely to reside in central cities and in 
rural areas than the average worker. This suggests that low 
income workers may have limited access to better-paying jobs in 
growing suburban areas.
    The employment and job characteristics of low wage workers 
also differ from those of the average worker. Seventy percent 
of all workers work full-time, full year, compared to about 
half of low wage workers. The fact that about half of low wage 
workers do not work full-time year round contributes to their 
low income status. However, whether they could sustain full-
time, year round work is uncertain.
    Low wage workers are also disproportionately likely to work 
in smaller firms. Due to their small size, these firms may lack 
the resources to pay higher wages, or offer comprehensive 
benefits, and they may have trouble offering much flexibility 
to their workers.
    Can low wage workers move up the economic ladder? Well, 
studies show that the wages of low wage workers grow by four to 
8 percent with each year of additional experience. What does 
this mean for our low wage worker?
    Well, consider a worker who takes a job at today's Federal 
minimum wage, $6.55 an hour. Even with 8 percent annual wage 
growth--and this is the high end of the estimate--it would take 
6 years for this worker to start earning more than $10 an hour. 
The path up the pay scale is even harder when you consider how 
challenging it is for low wage workers to sustain full-time 
employment year in and year out.
    What work supports are available to low wage workers? Well, 
we consider work supports to include both public sector 
programs and private sector employer practices that promote job 
security, employment, and the advancement of workers. Private 
sector, or employer work supports, include non-wage benefits, 
like health insurance, training, educational benefits, paid 
time off, and even some form of retirement benefits. As we have 
heard, low wage workers have much less access to these 
employer-sponsored supports than higher wage workers.
    Now, on the public side, any program that supports the 
material well-being of low income working families can be 
thought of as a work support, although programs like food 
stamps are not themselves conditioned on work, while others, 
like the earned income tax credit, require it.
    These public programs interact in complex ways. By 
supplementing the resources of the very lowest earners, these 
programs make work substantially more attractive financially, 
than relying solely on public assistance.
    However, because these public supports are aimed at low 
income working families, they phase out as a worker begins to 
move up the economic ladder. Depending on the types of public 
assistance a low wage worker's family receives, moving from 
$15,000 a year to $20,000 a year, the equivalent of a raise 
from $7.50 to $10 an hour, may mean only a meager increase in 
disposable income, as higher earnings displace public 
assistance. The family's EITC is reduced, and they start 
incurring positive tax liabilities.
    In short, low wage workers are less likely than other 
workers to receive private sector employer-sponsored benefits 
that support their work efforts. Public sector work supports 
provide substantial incentives to start working, but limit the 
financial incentives for low wage workers and low income 
families to take the next step up the economic ladder.
    Finally, other governing policies and laws ranging from 
minimum wage statutes to worker protection laws all, to some 
extent, affect low wage workers, but they may be poorly 
targeted, and they have unintended consequences. There are no 
easy answers to the challenges facing low wage workers and low 
income families. The challenges are complex, and solutions that 
address worker skills, employer practices, and the specific 
needs of low income working families all need to be considered. 
Thank you for your time.
    [The statement of Mr. Acs follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman MCDERMOTT. Thank you very much for your testimony.
    Now, Mr. Beach, William Beach, is the director for the 
Center for Data Analysis at the Heritage Institute.
    Mr. Beach.

   STATEMENT OF WILLIAM W. BEACH, DIRECTOR, CENTER FOR DATA 
               ANALYSIS, THE HERITAGE FOUNDATION

    Mr. BEACH. Yes, thank you, Mr. Chairman, Mr. Weller, 
Members of the Subcommittee.
    I testified last January before the Joint Economic 
Committee on the state of the economy, just as Congress began 
its debate over legislation to stimulate the economy. While my 
fellow panelists and I recognize the rough economic waters that 
the U.S. economy had entered, I did not join them in urging 
passage of a stimulus package.
    Past efforts by Congress to jumpstart a declining economy 
have done little economic good, and what temporary boosts to 
consumption or output occurred were borrowed from future 
production and purchases. Just as soon as the stimulus wore 
off, the economy fell back to a sluggish pace, and we are 
seeing evidence of that repeating itself once again.
    There are, of course, a host of policy moves that Congress 
can make that are much more likely to help the economy than 
those that have been recently made, or that Congress is now 
planning to legislate. Temporary investment tax credits, bonus 
depreciation, or permanent reduction in the corporate profits 
tax all help build economic strength and create jobs.
    Also, clearly signaling your intentions about the 
expiration of the Bush tax relief measures will take enormous 
uncertainty out of the investment future and help businesses 
build their expansion and location decisions, as well as create 
jobs.
    Let me add another point that economists should have 
emphasized more back in the winter of this year. Rapidly 
increasing prices for gasoline and petroleum-based energy 
generally have slowed the economy and continued to impede job 
and income growth. If Congress acts to expand energy supplies, 
forward looking prices will fall, and economic activity will 
shed off the drag that stems from this sector.
    Let me illustrate. Economists working with me at the Center 
for Data Analysis at Heritage estimated the economic effects of 
a $2 increase in retail unleaded gasoline. We have just 
experienced such an increase over the past 14 months. We found 
that total employment falls by 586,000 jobs. Aftertax personal 
income falls by 532 billion. Personal consumption expenditures 
fall by 400 billion and significant personal savings would be 
spent to pay for the increased cost of gasoline.
    These national-level results reflect the economic effects 
of price changes. We looked at the economic effects on three 
types of households. Let me describe the effects on one of 
these, a married household with 2 children under the age of 17. 
For this household, disposable income falls by $1,085, as a 
result of this increase in price of gas. Purchases of goods and 
services fall by $719, and $792 is taken out of personal 
savings, just to pay the gasoline bill.
    Now, I am a free trader, just like Mr. Weller, who believes 
imports are central to our economic vitality and future 
economic strength. However, our heavy reliance on foreign oil 
producers--imported oil now constitutes over 60 percent of our 
daily petroleum demand--has made us subject to price variations 
due to supply disruptions, supply extortion, and booming world 
demand.
    In another study prepared by economists in my center, we 
asked, ``What would be the economic effects of increasing 
domestic production of petroleum by 10 percent?'' The U.S. 
currently consumes 20 million barrels of petroleum per day, of 
which 65 percent comes from foreign sources. If domestically 
sourced petroleum increased by two million barrels per day, 
what would be the economic effects?
    Our analysis indicates that such an increase would, first, 
expand the nation's output, as measured by the gross domestic 
product, by $164 billion, and increase employment by 270,000 
jobs.
    Congress exercises enormous authority over petroleum 
mining, largely through its regulation of offshore and Federal 
land oil reserves. Authorizing more oil mining in these 
reserves today would begin to wean the United States from 
economically harmful reliance on such foreign petroleum.
    Enacting economic policies that are ineffective or counter-
productive is really worse than doing nothing. If Congress 
fails to act now, then markets will develop work-arounds for 
these problems that can be fixed, or liquidate those that 
cannot be addressed.
    However, if the House and the Senate enact policies in 
those limited areas where its actions do make a difference, 
then the near-term economic picture, both of the general 
economy and of the 150 million workers who make it tick, should 
be much better. Thank you very much.
    [The statement of Mr. Beach follows:]
Statement of William W. Beach, Director, Center for Data Analysis, The 
                          Heritage Foundation
    My name is William W. Beach. I am the Director of the Center for 
Data Analysis at The Heritage Foundation, a Washington based public 
policy institute. The views expressed in this testimony are mine alone 
and do not represent the views of The Heritage Foundation.
     I testified last January before the Joint Economic Committee on 
the state of the economy just as Congress began its debate over 
legislation to stimulate the economy. While my fellow panelists and I 
recognized the rough economic waters that the U.S. economy had entered, 
I did not join them in urging passage of a stimulus package. Past 
efforts by Congress to jump start a declining economy had done little 
economic good, and what temporary boosts to consumption or output 
occurred were borrowed from future production and purchases: just as 
soon as the stimulus wore off the economy fell back to its sluggish 
pace.
     How well has Congress's first stimulus bill performed?

      In January, unemployment stood at 4.9 percent of the 
civilian labor force. Today it stands at 6.1 percent.
      In January, 7.6 million people were looking for work. In 
August 9.4 million were unemployed.
      The Dow Jones Industrial Average on January 31 closed at 
12,650. On August 29 it closed at 11,543.
      Some supporters of the first stimulus legislation point 
to the stronger growth in GDP during the second and third quarters as 
compared to the first. Clearly some additional consumption did take 
place, and it can be attributed to the rebate checks.
      However, the additional consumption fell far short of the 
amount of the rebate checks. Further, there is evidence that 
consumption has fallen back down and that a disproportionate amount of 
the summer's additional spending went to pay for high energy.

    Once again, Congress is considering economic stimulus legislation, 
but this time the proposals are even less economically viable. 
Extending the period during which workers can receive unemployment 
insurance certainly provides families with much needed income, but it 
does nothing to create jobs or put these folks back to work. Helping 
states with budget shortfalls builds no economic strength for the 
future. Spending the taxpayers valuable income on bridges and highways 
has proved time and again to be the worst move Congress can make to 
address today's economic problems: you can't get the money out of this 
town fast enough to provide economic relief, and the funds are rarely 
spent on what the economy really needs.
    There are, of course, a host of policy moves the Congress can make 
that are much more likely to help the economy than those you have 
recently made or are now planning to legislate. Temporary investment 
tax credits and bonus depreciation or a permanent reduction in the 
corporate profits tax all help build economic strength and create jobs. 
Clearly signaling your intentions about the expiration of the Bush tax 
relief measures will take enormous uncertainty out of the investment 
future and help businesses build their expansion and location decisions 
with better data.
    All of these ideas and more were fully covered in the reams of 
testimony last January. Let me add another that economists should have 
emphasized more back in the winter of this year. Rapidly increasing 
prices for gasoline and petroleum based energy generally have slowed 
the economy and continue to impede job and income growth. If Congress 
acts to expand energy supplies, forward looking prices will fall and 
economic activity will shed off the drag that stems from this sector.
    Let me illustrate. Economists working with me in the Center for 
Data Analysis at Heritage estimated the economic effects of a $2.00 
increase in retail unleaded gasoline.\1\ We have just experienced such 
an increase over the past 14 months. We found that
---------------------------------------------------------------------------
    \1\ See Karen A. Campbell, ``How Rising Gas Prices Hurt American 
Households,'' Heritage Foundation Backgrounder, No. 2162, July 14, 
2008. A copy of this report is attached to this testimony as Appendix 
1.

      Total employment falls by 586,000 jobs.
      After-tax personal income falls by $532 billion.
      Personal consumption expenditures fall by $400 billion, 
and
      Significant personal savings would be spent to pay for 
the increased cost of gasoline.

    These national level results reflect the economic effects of price 
changes. That is, disposable income falls because the economy slows 
below its potential. In addition, households have to spend more in 
gasoline.
    We looked at the economic effects on three types of households. Let 
me describe the effects on one of these: a married household with two 
children under the age of 17. For this household, disposable income 
falls by $1,085; purchases of goods and services falls by $719; and 
$792 is taken out of personal savings just to pay the gasoline bill.
    Some analysts argue that gasoline consumers can adapt to higher 
prices by changing their driving patterns and their automobiles. 
However, new research by Jonathan Hughes, Christopher Knittel, and 
Daniel Sperling (all from the University of California-Davis) shows 
that families today have little opportunity to quickly adapt to higher 
prices. Most working families have two income earners who commute by 
automobile to work. They live in suburbs away from mass transit 
opportunities. Their children have extensive after-school activities to 
which they are transported more often than not in an SUV. Today's 
short-term price and income elasticities are a full ten times smaller 
than those estimated using data from 20 years ago.\2\
---------------------------------------------------------------------------
    \2\ See Johanthan E. Hughes, Christopher r. Knittel, and Daniel 
Sperling, ``Evidence of a shift in the Short-Run elasticity of Gasoline 
Demand,'' National Bureau of Economic Research Working Paper, w12530 
(September, 2006).
---------------------------------------------------------------------------
    These lower elasticities mean that consumers have a much harder 
time adapting to gasoline price shocks today than two decades ago. 
Pretty much all they can do is reduce their consumption on other items 
and take funds out of savings to pay for the higher priced gas. Doing 
so, of course, slows the economy and makes everyone else worse off.
    There are many economic problems facing Congress, from slowing 
global economic activity to persistently bad news from our financial 
sector. Congress can act on some of the economic fronts before it, but 
its ability to affect the nation's economic future is limited. On 
energy, however, its actions to increase supplies in the short and long 
run could do some good, particularly for workers looking for jobs and 
families hoping to keep their children in violin lessons and little 
league baseball.
    I am a free trader who believes imports are central to our economic 
vitality and future economic strength. However, our heavy reliance on 
foreign oil producers (imported oil now constitutes over 60 percent of 
our daily petroleum demand) has made us subject to price variations due 
to supply disruptions, supply extortion, and booming world demand. I 
believe that increasing the domestic production of petroleum and 
refined oil products would have a positive effect on our domestic 
economy, largely through more jobs and income.
    In another study prepared by economists in my Center, we asked what 
would be the economic effects of increasing domestic production of 
petroleum by 10 percent. The U.S. currently consumes 20 million barrels 
per day, of which around 65 percent come from foreign sources. If 
domestically sourced petroleum increased by 2 million barrels per day, 
what would be the economic effects.
    Our analysis indicates that such an increase would

      Expand the nation's output as measured by the Gross 
Domestic Product by $164 billion.
      Increase employment by 270,000 jobs.

    Congress exercises enormous authority over petroleum mining, 
largely through its regulation of off-shore and federal land oil 
reserves. Authorizing more oil mining in these reserves today would 
begin to wean the U.S. from the economically harmful reliance on so 
much foreign petroleum.
    One of the more tragic features of recent energy policy actions by 
Congress is how often it has failed to increase access to energy 
resources on the grounds that doing so would not have any effect on 
supply or price for years. While possibly correct from an engineering 
standpoint, this excuse for inaction makes no sense economically. If 
Congress were to announce greater access to proved reserves, mining 
activity would immediately begin, capital and talent would leave other 
parts of the world and travel to the United States, forward pricing 
markets would feel the downward pressure on prices that impending 
supply increases make, and ordinary Americans would not discount their 
own economic futures as much as they do today.
    Like tax policy, changes in energy policy signal to investors and 
consumers what their economic future will look like. Inaction on either 
front today is not acceptable. If you think we have weathered the 
economic storms of faltering financial markets and draining energy 
prices, think again. Major economies around the world are slowing, 
which places greater pressure on our weakened financial system and 
faltering manufacturing sector. The value of the current stock of 
housing will continue to fall. Investment by businesses and households 
will slow as interest rates rise to fend off inflation and uncertainty 
permeates more planning about future economic activity.
    If Congress fails enact the types of legislative responses to a 
slowing economy that actually work (tax and energy policy changes fall 
into the ``what work's'' category), then we could be in for a very grim 
six months. I would not be surprised to see little if any growth in GDP 
over the next two quarters. Consumption in the third quarter of this 
year is very likely to be negative, and that's the quarter that was 
supposed to be most affected by the boost from the stimulus. 
Unemployment will rise, and job growth will not resume until the summer 
of 2009.
    Enacting economic policies that are ineffective and 
counterproductive is worse than doing nothing. If Congress fails to act 
now, then markets will develop ``work arounds'' for those problems that 
can be fixed and liquidate those that can't be addressed. However, if 
the House and Senate enact policies in those limited areas where its 
actions do make a difference, then the near-term economic picture, both 
for the general economy and the 150 million workers who make it tick, 
should be much better.
          * * * * * * *

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Heritage Foundation or its board of trustees.
    [Additional testimony follows:]

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    Chairman MCDERMOTT. Thank you very much. As I said earlier, 
your full testimony will be entered in the record, so that 
those things you didn't get to say will be recorded.
    As my question, I would like to say I want each of you to 
take a minute and do something for me. Imagine yourself being 
called by the next President of the United States down to the 
White House, and asked to write the new Social Security Act of 
2009. What would be the two things that you would want dealt 
with in that new economic security act for the new 21st 
century?
    You can start any place. If you want to start, Dr. 
Bernstein, it's fine with me, and give the others some time to 
think.
    Dr. BERNSTEIN. Lucky me. Interestingly, I think I would 
probably go back to some of the fundamentals that that act 
contained, updating them for today's very different job market, 
as you have heard from my co-panelists.
    The first thing I would focus on is health care. We have, I 
think, a deep market failure in our health care system. The 
non-partisan Congressional Budget Office has been doing 
extremely persuasive work on the unsustainability of our 
current plan.
    It's an area of great policy interest to me and my research 
in this shows that we have to seek the same solution that every 
other advanced economy has, which is to take health care out of 
the market to pursue a universal kind of health care coverage 
plan, and tap the same kinds of efficiencies they do to cover 
their full population, spending a half to two-thirds of their 
economy on health care, compared to us.
    Secondly, I would strengthen the pension and the 
unemployment insurance system, and I can say more about that, 
but I think my minute is up.
    My point is that both pensions and unemployment insurance 
system were precisely what they were thinking about back then, 
and it's actually interesting and maybe somewhat alarming to 
think about the similarities that we're facing now, relative to 
some of the imbalances in that economy and back then.
    Chairman MCDERMOTT. Mr. Ettlinger?
    Mr. ETTLINGER. So, I wrote, ``Health, unemployment, 
pension.'' So, the fact that we worked together for 6 years may 
be a----
    Chairman MCDERMOTT. Well, he talked about health at some 
length. Talk about pensions.
    Mr. ETTLINGER. Yes, I mean, I----
    Chairman MCDERMOTT. What would you do?
    Mr. ETTLINGER [continuing]. I think that, focusing in on 
pensions, there has been this shift from defined benefit in the 
private sector to defined contribution and I think that that is 
going to persist.
    I think that the businesses are going to move in that 
direction. I think that is going to continue. The downside to 
that is that, for workers, it's creating more risk for them. As 
Jared characterized it, it's a shift in risk.
    So, that means a couple of things. One is that it means 
that we definitely have to make sure that Social Security--
which is becoming increasingly the only defined benefit that 
people have--is strong and paying good benefits and is kept up.
    The other thing is we have to make sure that everyone has 
vehicles for defined contribution, if they're not getting 
employer-provided systems. That's why we're working on, and 
others have done, come up with other things, too, around the 
idea of a universal 401(k), which has a number of 
characteristics. One is that it's portable. It is easy to get. 
It is automatic, which I think is an important thing because 
there have been studies that have shown if people are 
automatically enrolled in things, they're much more likely to 
participate.
    Also, refundable credits for lower income people, so that 
their contributions into those plans are sufficient that they 
have an adequate retirement.
    Chairman MCDERMOTT. Ms. Basch?
    Ms. LOWER-BASCH. I think I would try to fill two sets of 
gaps. One is between the unemployment insurance system, and 
temporary assistance for needy families. We know now only about 
a third of workers who lose jobs receive unemployment 
insurance. Low wage workers, part-time workers just don't get 
covered by it and temporary assistance is not picking up the 
gaps.
    Then, on the other side of temporary assistance, the gap 
between it and SSI, which is for people who are permanently and 
completely disabled. There are a lot of people who have 
limitations on their work, or care giving responsibilities, 
such that they can't fully support their families, but they're 
able to do something, and we need to figure out a way to 
provide some income support that doesn't prevent people from 
working to the maximum extent that they're able to do so.
    Chairman MCDERMOTT. Dr. Acs?
    Dr. ACS. Well, health care is one and two on my list, but 
it's well covered, so let me move to education, where I think 
we have to improve the skills of our workforce, starting with 
reform at the high school level, and then also postsecondary 
education.
    Chairman MCDERMOTT. How do you fund it?
    Dr. ACS. Fortunately, I don't have to.
    Chairman MCDERMOTT. The President will ask you, ``How are 
we going to fund this?''
    Dr. ACS. I will ask Mr. Beach for help on that later, but 
also working with community colleges and local employers to 
identify the skills that they need from their workers, and to 
develop programs to help workers access this post-secondary 
training.
    The other area that I think probably needs attention is on 
taxes, and particularly the effective tax rates paid by working 
families as they try to move up the scale. So, I would expand 
the earned income tax credit, increase the levels available to 
those who don't have children, and also try to develop ways to 
let workers, as they move up, keep more of the money they earn.
    Chairman MCDERMOTT. Mr. Beach?
    Mr. BEACH. Since I am kind of the rough edge on this panel, 
I will change the----
    Chairman MCDERMOTT. I'm sure you could make some 
suggestions.
    Mr. BEACH. I think economic security is always enhanced if 
we know that our children are going to be better off than us, 
if we can look forward to the next generation and say that we 
have made the right moves today that make things better in the 
future. It's one of our metrics.
    Greg and I are working with the Pew Charitable Trust on a 
project just on that very subject. We know that 30 percent of 
inter-generational economic mobility is due to education, it's 
the number one factor. So, let's put our focus there, to make 
sure that education is the best we can make it, and that means 
a restructuring of the way education is provided in this 
country, so that we don't make the same mistakes we have made 
over the past 50 years.
    Then, on health care, that's 8 percent more. I join my 
colleagues in saying it's important, but it needs to be 
portable and owned, and the patient needs to be the customer, 
and they need to see the prices. So, there is a lot we can do 
there, too. Thank you for a great question, Mr. Chairman.
    Chairman MCDERMOTT. Thank you. Mr. Weller?
    Mr. WELLER. Thank you, Mr. Chairman. Let me just clarify. 
Dr. Bernstein, you have appeared repeatedly in the news media 
this year as an economic advisor to Senator Barack Obama, 
Presidential candidate. Are you speaking on behalf of his 
campaign today, or are you on your own?
    Dr. BERNSTEIN. Oh, I am on my own. I'm an informal economic 
advisor, I'm not on the campaign's payroll.
    Mr. WELLER. I just wanted to clarify that. Thank you. Mr. 
Chairman, I have a sampling of news clippings which talk about 
the impact on employment of soaring energy costs, and 
particularly gasoline costs.
    One, for example, notes 23 employees of a trucking company 
based in Knoxville, Tennessee, who were laid off in March. That 
included more than half of the company's total workforce. Now, 
these hardworking Americans were laid off, as the article 
states, due to soaring diesel and gasoline costs that are 
hitting the trucking industry especially hard. I would ask, Mr. 
Chairman, unanimous consent to insert these into the record at 
this point.
    Chairman MCDERMOTT. So ordered.
    [The information follows:]

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    Mr. WELLER. Thank you, Mr. Chairman. Mr. Beach, you talked 
in your testimony about the impact on Americans of higher 
gasoline prices. The four of us up here on the panel, both 
Democrats and Republicans, I think we're all in agreement that 
we need to do a lot more of everything, and we need to invest 
in nuclear, we need to invest in hydro-electric, we need to 
invest in wind, we need to invest in solar.
    For the average American, they still drive cars using 
gasoline and, for the foreseeable future they will, as well. 
Can you talk about a typical household? Gasoline prices since 
January of 2007 essentially doubled. What has that meant for a 
typical household in America? What does that come out to each 
year, this year, that they paid in higher gasoline prices----
    Mr. BEACH. Well, if you take the----
    Mr. WELLER [continuing]. Because of our limited supplies?
    Mr. BEACH. Right. If you take that typical household, and 
it consists of two children, two adults, all of that sort of 
typicality, you will find that they are paying about $800 more. 
One of the really----
    Mr. WELLER. $800 more since January of 2007?
    Mr. BEACH. Over the past year.
    Mr. WELLER. Just the past year, $800 more.
    Mr. BEACH. Just this past year, on an annual rate. The 
reason we have so much pain out there on gasoline prices this 
time around is we have more two-earner families who are 
dependent on cars for commuting, we have more suburban 
residents who must, in fact, travel to buy groceries and do all 
of their errands, and we have so many opportunities for 
children after 3:00 in the afternoon, as I'm sure the 
Subcommittee Members well know, that mothers and fathers are 
constantly going to violin lessons and little league, and 
football, and so forth. The car is now central.
    It is very difficult to change your suburban location to an 
urban location when the gasoline price goes up a dollar--
consumers can't adjust. So, it looks to them like a tax 
increase. It looks like something imposed without their 
consent, and they're angry about that.
    We find that, in fact, Congressman, not only do they have 
to spend more, but they're cutting back. Those violin lessons 
and the little leagues are falling victim to these higher 
prices. They're going into their savings to pay for gasoline.
    Mr. WELLER. So, it's affecting their quality of life.
    Mr. BEACH. The quality, yes, and the kinds of investments 
we make in our kids.
    Mr. WELLER. You mentioned the trips to the little league 
and violin lessons, or----
    Mr. BEACH. Right.
    Mr. WELLER [continuing]. Piano lessons, or school 
activities, the school play, or Boy Scouts, Girl Scouts. I 
think of when I was much younger and growing up on the farm, 
and my brother and his wife lived in the house next door, and 
how many trips a day she made to town to pick up the kids at 
school activities, and little league, and all the various 
activities kids are involved in, because they lived five miles 
outside of the community. So, obviously gasoline prices were 
much less then.
    Mr. BEACH. That's right.
    Mr. WELLER. I still remember when gasoline was $.28 a 
gallon when I was in college. So, it has gone quite a ways.
    One of my frustrations in all this is--what's that? I am 
old, and getting older. When I turned 50, my wife said, ``So, 
how do you feel about turning 50?'' I said, ``Honey, 50 is the 
new 40.'' I just turned 51, and she said, ``Honey, how do you 
feel about being 51?'' I said, ``Honey, I feel 51,'' as I'm 
lifting my 2-year-old daughter up, who is getting bigger and 
heavier.
    One of the frustrations I have had is that we're dependent 
on oil.
    Mr. BEACH. Yes.
    Mr. WELLER. About two-thirds of the oil that we consume 
comes from elsewhere.
    Mr. BEACH. Yes.
    Mr. WELLER. We have locked away so much of what we have 
and, really, since we all want to do more of everything, the 
debate really is, ``What do we do about domestic production?''
    Mr. BEACH. Right.
    Mr. WELLER. I want to ask each of the panelists, about what 
we have out there, really, the areas where opportunities for 
domestic production are environmentally safe drilling in 
Alaska, and deep water drilling off our coasts.
    In 1996 we sent to President Clinton a bill which would 
have authorized environmentally safe drilling in Alaska, it 
would have generated over a million barrels of oil a day. Had 
he signed it into law, rather than vetoing it, we would be 
receiving that oil today, which would be increasing our 
supplies.
    I would like to know from each of the panelists, if you 
could just very shortly tell me, do you support expanding 
domestic production of oil, so that we can bring down gasoline 
prices? Dr. Bernstein?
    Dr. BERNSTEIN. I thought that the--is it called the Gang of 
Ten, the group of bipartisan legislators who compromised on 
this--had it right.
    What concerns me is the non-sequitur between this idea of 
unleashing the outer-continental shelf and ANWR, the non 
sequitur of that idea and the issues we're speaking about 
today.
    Mr. WELLER. That's a big word, ``non-sequitur.''
    Dr. BERNSTEIN. Well, my point is that the argument that I 
think you and Mr. Beach are espousing is that if you allowed 
drilling, if you ended the moratorium that we're talking about, 
that the families we're discussing today would be helped both 
in terms of lower cost, and more jobs. I think that's wrong.
    If there were lower costs to energy, and I suspect there 
would be, according to the research I have seen it's a couple 
of pennies per gallon, and it's about a decade away.
    Secondly, if there were jobs to be had by drilling, well, 
we could have those jobs tomorrow, because there are far, far 
more square acres open to the oil companies to drill today 
having nothing to do with lifting the moratorium. So, I believe 
that this, as a policy situation to what we're talking about, 
is unrelated.
    Mr. WELLER. So, you oppose, then, expanded domestic 
production through----
    Dr. BERNSTEIN. No. I neither oppose expanded domestic 
production, nor do I disagree with any of the pain that we have 
described around----
    Mr. WELLER. Don't you have to drill where the oil is?
    Dr. BERNSTEIN. Well, my understanding--and I guess we could 
have dual geosurveys here--but my understanding is that there 
is far more oil available in the open lands for drilling today 
under the ground that is within the purview of these companies 
to go and drill in.
    So, I view this notion that you have to open up the OCS and 
the ANWR as more of a land grab than a real earnest----
    Mr. WELLER. All right. Mr. Ettlinger, do you support 
increasing domestic production?
    Mr. ETTLINGER. First of all, I would associate myself with 
what Dr. Bernstein said, in terms of what the economic impact 
of doing such would be, in that it would be very small.
    The other thing I would say is that it is a valuable 
resource. If, indeed, one could do it in an environmentally 
sound way, the reasons not to do it go away. I think there is a 
lot of dispute on whether it can be done in an environmentally 
sound way, and I don't claim to have expertise in that.
    Mr. WELLER. Okay. Ms. Basch.
    Ms. LOWER-BASCH. I am going to refrain from commenting 
about something that I do not have expertise on.
    I will, however, note that all this pain that we are 
discussing is a much greater burden on low income households. 
Food is a larger portion of low income families----
    Mr. WELLER. So, low income families suffer the most from 
high gasoline prices?
    Ms. LOWER-BASCH. Well, gas prices, high energy prices. This 
is going to be a scary winter for a lot of people.
    Mr. WELLER. Dr. Acs.
    Dr. ACS. I take no professional public opinion on the oil 
exploration or development of more oil.
    I would note that any rapid transitions to the economy are 
very hard on families, such as the rapid run-up in gasoline 
prices that we have seen. I also note that when the prices went 
up, all of a sudden you see transformations in the economy, 
there is more interest in alternative types of vehicles, 
alternative fuels, which may not be profitable if the price of 
oil is very low, but become profitable as the price rises.
    At some point, the oil is going to run out. At some point, 
we may be more--we may address----
    Mr. WELLER. Is that technology immediately available, or is 
that----
    Dr. ACS. That technology is----
    Mr. WELLER [continuing]. Going to take some time to 
introduce, as well?
    Dr. ACS. All transitions take time.
    Mr. WELLER. Okay.
    Dr. ACS. So, the possibility of new--I guess they're called 
green collar jobs--that might be the response, that might be 
the longer term upside of today's high energy prices that may 
offset the pain. That doesn't help a family today.
    Mr. WELLER. Dr. Beach, do you want to respond to your 
friends----
    Mr. BEACH. Well, I would just like to say one thing about 
the argument that it would not make more than a few cents 
difference to the average working individual. That has to fall 
on its face.
    We have just been through 12 months of looking at the 
effects of higher oil prices on working families, which could 
have been, in part, avoided, had we had larger domestic 
supplies, based on the estimates that I have provided with you 
today.
    If you want to see the harm that that does, to not have a 
proper energy policy on the kinds of low and moderate income 
families that are working hard to make a living, then just look 
at the record of the past 12 months.
    Mr. WELLER. If President Clinton had signed into law the 
legislation which would have authorized environmentally safe 
drilling in Alaska, what would have been the impact on the 
price of a gallon of gasoline if that extra million barrels of 
oil had come in each day?
    Mr. BEACH. Well, we have just provided that information. 
Looking at the impact of two million additional barrels--you 
just cut our estimates in half--and we would have lower prices, 
more jobs, and higher output.
    Mr. WELLER. Thank you.
    Chairman MCDERMOTT. Mr. Davis?
    Mr. DAVIS. Thank you, Mr. Chairman. Ms. Basch, when you 
said that you were not going to venture an opinion on something 
about which you knew very little, I was struck that you 
disqualified yourself from ever being a Member of Congress.
    [Laughter.]
    Mr. DAVIS. There are only four requirements for being a 
Member of Congress. You have to be 25, be a legal resident of 
your State, legal resident of the United States, and be willing 
to have firm and emphatic opinions about things about which you 
know nothing.
    [Laughter.]
    Mr. DAVIS. It's a bipartisan thing that applies to all of 
us.
    Let me get to the subject of the hearing today, which is 
not drilling. One of my favorite John F. Kennedy speeches, 
which most people do not remember, is one he gave at Yale 
University, a commencement in 1962. He talked about the danger 
and the power of the myth and myth-making in American economic 
policy. He talked about the dangers that happen when ideas 
accumulate a power and a weight out of all proportion to the 
empirical value around it.
    I thought about Jack Kennedy's speech as I have listened to 
some of the arguments from Mr. Beach and others about economic 
policy. I want to use my 5 minutes of questions to maybe 
address two myths that float around.
    The first myth is this idea that tax rates are the driving 
factor in a productive economy. Let's look at a little bit of 
evidence. The 1990s, we created, I think, a net of roughly 22 
to 24 million jobs. There is no dispute that, whatever you 
think of tax policies and of President Clinton, that the tax 
policies today have enacted dramatic reductions and are less 
Draconian than President Clinton's tax policies.
    Net job growth in the Bush Administration, which is due to 
end in the next several months--I forget the exact number, but 
I think we would all agree it is way, way short of 22 million. 
In fact, right off the top of your head, does anyone know the 
net----
    Dr. BERNSTEIN. 5.7 million.
    Mr. DAVIS. Which is, by any math, 17 million to 18 million 
behind President Clinton's numbers.
    Now, this is what tax policies look like under the Bush 
Administration: substantial reductions of taxation that is non-
wage-based; substantial reduction of corporate tax rates; 
substantial reduction of dividend taxation; substantial 
reduction of capital gains taxation; no question, a far more 
generous tax policy. That, itself, seems to undercut a lot of 
the ideas that we sometimes hear in this city about the 
necessity of extending every portion of the Bush tax cuts.
    There is another piece of data that comes to mind from the 
Government Accountability Office. From 1998 to 2005, 2 out of 
every 3 U.S. corporations had no Federal tax liability. Of the 
large corporations, which are defined as those with over $250 
million in assets, or annual sales of at least $50 million, 1 
out of 4 large U.S. corporations--who, by the way, generated 
revenues of $1.1 trillion in 2005--1 out of 4 of them had no 
tax liability whatsoever.
    So, I am a little bit struck by this idea that we somehow 
need to be more aggressive in reducing taxation, and that to do 
so is essential to the economy. That strikes me as a myth.
    Another myth that I want to address is the one about 
unionization. I come from a red State, Alabama. I come from a 
State where our business interests routinely pride themselves 
on our relatively low levels of unionization.
    1947 to 1973 is the period of time in the post-war era 
where we have had the highest union penetration in the economy 
in the workforce. Almost 1 out of 4--actually, between 1 in 4 
and 1 in 3 Americans who were working were unionized between 
1947 to 1973. 1947 to 1973 happens to also be the highest 
combination of wage and productivity growth in the post-war 
era.
    Contrast that to 1973 to 2008. The level of unionization 
has plummeted, and is now less than 15 percent of the 
workforce. Yet our wages have been stagnant for all but 3 years 
in the late 1990s, and, for the first time, we have seen 
productivity move forward while wages have declined.
    That data seems to undermine the idea that unionization is 
a destructive element in our economy, or that it's a growth 
deterrent in our economy.
    I wanted to give you all some time to respond to some of 
what I said. Dr. Bernstein?
    Dr. BERNSTEIN. I would like to defer most of my time to my 
colleague, Mike Ettlinger, because he just wrote a paper about 
precisely this point.
    I will say one other fact, just to amplify what you have 
said, Mr. Davis, which is that over the course of the 1990s, 
when we had a very different tax regime in place, one that you 
wouldn't associate with supply side or trickle-down economics, 
the median income of working age households went up 10 percent, 
$5,000 in today's dollars, a 10-percent increase over the 
course of the 1990s.
    The median income of working age households fell $2,000, or 
4 percent. That's $2,000. That's real money in today's dollars, 
$2,000 between 2000 and 2007, a period when productivity 
expanded by 18 percent. So, it's precisely in the spirit of 
your comments.
    Mr. ETTLINGER. Yes, the paper is--I wish I'd brought a 
copy. It's coming out tomorrow, but it compares three eras: the 
era beginning with the enormous tax cuts 1981; the era 
beginning in 1993, with the Clinton tax increases; and the era 
beginning in 2001, with the tax cuts you're all very familiar 
with.
    One of the most interesting things is sort of the premise 
of supply side economic theory, the theory that these tax cuts 
are going to generate economic growth, is largely that they're 
going to spur a lot of investment.
    Just one of the things that was most telling to me was how 
much better investment growth was during the post-1993 era, 
than either the 1981 or 2001 eras. Obviously, things were 
better post-1981 than they have been post-2001, but even, 
looking back at that and comparing that era to what happened 
after 1993, by a number of measures--income, employment growth, 
wage growth, a number of different measures we looked at--the 
economy did better for most people in the non-supply side era, 
if you will.
    Touching on corporate taxes for a moment, I think that we 
probably could all agree, I hope, that the corporate tax system 
needs some work, that right now we have this--it's been in the 
paper a lot--we have this high tax rate on corporations, and 
yet the other side says, ``Oh, but compared to other OECD 
countries, we end up collecting very little in taxes,'' and 
that should clue us all in that there is something amiss.
    We have enormous problems in how we tax the income of 
multi-national corporations. There are lots of loopholes in the 
Tax Code. Coming together around trying to get serious about 
straightening out the corporate income tax--which might allow 
you to lower the rate some, if you were to do that--would be a 
really worthwhile endeavor.
    Mr. DAVIS. I would be happy to lower the rate if people 
actually paid them. If I paid no Federal taxes, I could be 
astonishingly productive. I could certainly spend an enormous 
amount of money.
    I think most people who we represent would say that. Those 
are staggering numbers to people, that two out of every three 
companies had no tax liability. Irrespective of what their rate 
is, through a combination of depreciations, writeoffs, 
shelters, they're not paying any Federal taxes at all.
    Mr. ETTLINGER. 35 percent of 0 taxable income isn't any 
worse than 25 percent of 0 taxable income.
    Chairman MCDERMOTT. Mr. Herger will inquire.
    Mr. HERGER. Thank you, Mr. Chairman. My friend and 
colleague, Mr. Davis, brought up President Kennedy, who is also 
one of my favorite Democrat Presidents. He campaigned on lower 
taxes, lowered taxes during his term, and we saw great results, 
as did President Reagan. I think much of the prosperity of the 
1990s was because of the lowering of an incredibly high tax 
rate during the 1980s.
    I am also pleased to read that Democrat Presidential 
candidate Barack Obama said this week that he has changed his 
mind, and decided he will not raise income taxes while the 
economy is struggling. Mr. Chairman, I want to thank you, and 
appreciate the opportunity to discuss policies that will help 
American workers.
    The current economic slow-down is affecting millions of 
American families. We are going through the worst housing 
crisis in a generation, and a credit crisis that has swept 
through our financial system. Unemployment is on the rise, and 
American families are struggling to make ends meet with high 
gas prices making it even more difficult, as we have been 
discussing.
    I do not believe, however, that increasing and expanding 
government programs that make Americans more dependent on the 
government is the right path for our workers. Instead, Congress 
must focus on growing our economy and creating jobs in the 
short and long term by opening more markets to U.S. producers, 
reforming health care to free up small business to hire more 
and increase wages, and blocking massive tax increases that 
would hamstring entrepreneurs from taking risks and expanding 
their businesses.
    I believe one of the most important issues we can talk 
about concerning worker security, and one that is extremely 
timely, is trade. The U.S. economy grew by a robust 3.3 percent 
in the second quarter. That growth was overwhelmingly the 
result of growing net exports. Congress has the ability to 
expand that growth by opening new markets to goods and services 
U.S. workers produce.
    Today, 57 million American jobs--about 40 percent of the 
U.S. workforce--depend on trade, both exports and imports. Our 
free trade agreements are a key tool in supporting and growing 
these jobs.
    As of June of 2008, the United States had a trade surplus 
in manufactured product with our FTA partner countries of $6.6 
billion, which includes NAFTA. The independent U.S. 
International Trade Commission has estimated that three pending 
FTAs--Colombia, Panama, and Korea--would increase U.S. exports 
by at least $10.8 billion, supporting thousands more of 
American jobs.
    Congress needs to act now to pass the pending FTAs with 
Colombia, Panama, and Korea, which will be a real economic 
stimulus to American families.
    Mr. Chairman, at this time--and since this may be our last 
hearing for the Subcommittee this year--I would like to take 
this opportunity to thank you, Mr. Chairman, and our colleague, 
Jerry Weller, for his many years of service to the Ways and 
Means Committee, to the Congress, and to his constituents. He 
has been a champion for children, a strong supporter of 
expanding trade opportunities, and he will be sorely missed, 
our good friend. Jerry, I wish you and your family all the 
best.
    With that, I yield back the remainder of my time.
    Mr. WELLER. Would the gentleman from California yield 
before he yields back?
    Mr. HERGER. Certainly.
    Mr. WELLER. Well, first, you are very kind, and I want to 
thank you. You have been a terrific mentor in the process, as 
my predecessor on this Subcommittee. You have been a tremendous 
mentor, and I want to thank you for the support you've given 
me, but also the friendship and the partnership we have had on 
many issues.
    One point regarding the statement you made, as we talk 
about the need for a stimulus, obviously part of the stimulus 
must be energy-related, particularly when it comes to 
increasing domestic oil production, what we depend on each and 
every day.
    When you think about it, this past quarter we had 3.3 
percent economic growth. If you remove from that the portion of 
the economic growth that occurred from non-export-related 
activities, we had 3.1 percent economic growth this past 
quarter, solely because of expanded exports.
    So, clearly, as we look at how we can stimulate the 
economy, expanding trade grows the economy and creates jobs. I 
recall during the debate on the Dominican Republic, Central 
American Free Trade Agreement, the Chicken Littles were saying 
the sky will fall, and auto plants and steel mills will all 
move to Central America, and we're going to lose lots of jobs. 
The facts show otherwise.
    In fact, when DR-CAFTA was being debated, we had a trade 
deficit with the DR-CAFTA nations. We have seen, since DR-CAFTA 
has gone into effect and been implemented, a 150-percent 
increase in exports to those nations. They have won, as well. 
They have seen expanded exports, as well, but we have gone from 
trade deficit to trade surplus, and that's been a key part of 
the economic growth.
    So, I agree with you. When it comes to growing our economy, 
before us we have two Latin American trade agreements with 
Colombia and Panama. They represent 45 million people, not only 
friends with democratically elected governments, but people who 
have done everything we have asked, and they deserve a vote in 
this Congress. Before I leave, Mr. Chairman, those two 
countries deserve a vote. I believe they will have bipartisan 
support for those trade agreements, which will grow our 
economy, and should be part of our economic stimulus package.
    So, thank you, and I yield back the time that you yielded 
to me.
    Mr. HERGER. Thank you.
    Mr. DAVIS. Mr. Chairman, would you indulge me 60 seconds? 
You can count them down, if you wish.
    Chairman MCDERMOTT. Yes, you may. I yield----
    Mr. DAVIS. Three observations. First of all, I like Mr. 
Weller a great deal, too. I look forward to him proving that 
there is robust life after Congress, and I wish him and his 
family well.
    Two other quick substantive observations. First one, 
President Kennedy is often cited as an authority on tax cuts. 
It should be noted that the top marginal rate was 70 percent, 
the top corporate rate was 78 percent when he took office. 
Absolutely, both were in need of reduction, a far different cry 
from today.
    Third and final point, President Kennedy lowered rates 
across the board. President Reagan lowered marginal rates 
across the board. What has been unique about the Bush taxation 
is that not only a marginal rate has been lowered, but whole 
classes of taxation have seen their rates reduced, which, of 
course, is a transfer of the tax burden.
    We have had a transfer of the tax burden because of the 
lowering of capital gains rates, the lowering of dividend 
rates, and, in relative terms, the amount of income that people 
making under $100,000 a year pay in taxation has not 
substantially changed from what it was, pre-Bush tax cuts. So, 
you have had a transfer of the burden. That's what makes the 
Bush tax policies unique.
    Mr. HERGER. Would the gentleman yield for just 30 seconds?
    [Laughter.]
    Chairman MCDERMOTT. I think I am going to exercise----
    Mr. HERGER. I want to agree with him. I want to agree with 
the gentleman.
    Chairman MCDERMOTT. Oh, okay.
    [Laughter.]
    Mr. HERGER. I want to agree with the gentleman, in that he 
is correct. The taxes have been shifted, but they have been 
shifted to the wealthy. In 1989, the bottom 50 percent were 
paying only 5.7 percent. Today they only pay 3.1 percent. The 
top 1 percent went from paying 27 percent to 39 percent. So, 
the wealthy are paying far more today than they were before. 
So, it was transferred, but not the way most people think.
    Chairman MCDERMOTT. As the Chairman of the Subcommittee on 
Income Security and Family Support, I feel I have expanded my 
jurisdiction about as widely as I possibly can today.
    I would just say on this energy question there is a little 
bill out there that you can sign on to putting gas stamps into 
the community development block grant, which would take off 
$500 of that $800 we hear they're spending extra for 6 months. 
So, we have put some proposals on the table to deal with the 
short-term problems of the lower wage workers.
    I want to say Jerry has been a good guy to work with. I 
will miss him. I don't know what the machinations in the 
Republican side will be, but maybe Mr. Herger will no longer be 
a Member of this Subcommittee because he is the Ranking Member 
on a Committee, and he won't want to come and be on this 
Subcommittee. We will miss him, as well. I have served with you 
both when you were chairmen and when you've been here on the 
Subcommittee, and it's been good to work with you.
    Finally, I would say about this Subcommittee--although this 
hearing wandered a little bit, I want people to think about 
what's going to happen in 2009. If we're going to have those 
trade pacts that people want, one of the problems we got into 
was that we passed Peru and said, ``Here comes TAA,'' and TAA 
died in the Senate, because we didn't take care of workers.
    If we don't deal with the concern of the American workers, 
those trade bills are going to have a real tough time, because 
the people who are getting elected to Congress are coming from 
districts where people are saying, ``I'm not sure this trade 
stuff is so good.''
    Some of us who are basically free fair traders recognize 
the uphill climb we make if we do not deal with the workers' 
anxieties in this country. It is very clear that the things 
that you're talking about here today will have to be addressed 
as we go down the road, if our economy is going to continue to 
be a part of the global economy. We cannot allow our workers to 
be uneducated, and continue to skim, through using immigration, 
as a way of filling our educational needs. We cannot do it by 
saying we're going to take away pensions from everybody.
    I fly home on United Airlines. I have 2.8 million miles, so 
I know all the flight attendants. I said to one of them, ``What 
do you have for a pension?'' He said to me, ``I have worked 
22.5 years for United Airlines, and I have $271 a month for the 
rest of my life, because when they went into bankruptcy, I lost 
my entire pension and I am in the pension guarantee fund.'' So, 
he has Social Security and $271 a month. When that's what is 
going on in the economy, it seems to me that we, in this 
Subcommittee, have to think about it.
    So, we will be back on another day. Meeting is adjourned.
    [Whereupon, at 1:50 p.m., the Subcommittee was adjourned.]

                                 
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