[Joint House and Senate Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 110-168
IMPORTING SUCCESS: WHY WORK-FAMILY
POLICIES FROM ABROAD MAKE ECONOMIC
SENSE FOR THE UNITED STATES
=======================================================================
HEARING
before the
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JUNE 14, 2007
__________
Printed for the use of the Joint Economic Committee
U.S. GOVERNMENT PRINTING OFFICE
37-694 WASHINGTON : 2007
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
SENATE HOUSE OF REPRESENTATIVES
Charles E. Schumer, Chairman Carolyn B. Maloney, New York
Edward M. Kennedy, Massachusetts Maurice D. Hinchey, New York
Jeff Bingaman, New Mexico Baron P. Hill, Indiana
Amy Klobuchar, Minnesota Loretta Sanchez, California
Robert P. Casey, Jr., Pennsylvania Elijah Cummings, Maryland
Jim Webb, Virginia Lloyd Doggett, Texas
Sam Brownback, Kansas Jim Saxton, New Jersey, Ranking
John Sununu, New Hampshire Minority
Jim DeMint, South Carolina Kevin Brady, Texas
Robert F. Bennett, Utah Phil English, Pennsylvania
Ron Paul, Texas
(Vacant) Executive Director
Katherine Beirne, Deputy Staff Director for Policy
Christopher J. Frenze, Minority Staff Director
C O N T E N T S
----------
Opening Statement of Members
Hon. Carolyn B. Maloney, Vice Chair, a U.S. Representative from
New York....................................................... 1
Hon. Jim Saxton, Ranking Minority, a U.S. Representative from New
Jersey......................................................... 3
Witnesses
Statement of Kay E. Brown, Acting Director, Education, Workforce
and Income Security, Government Accountability Office,
Washington, DC................................................. 4
Statement of Dr. Janet Gornick, Professor, Baruch College, City
University of New York; Director of the Luxembourg Income
Study, and co-author of Families That Work, New York, NY....... 6
Statement of Ellen Bravo, Coordinator, Multi-State Working
Families Consortium, Former Director of 9to5, and author of
``Taking on the Big Boys,'' Milwaukee, WI...................... 9
Statement of Laura Kellison Wallace, Manager, SAS Work/Life and
EAP Programs, Cary, NC......................................... 12
Statement of Dr. Tim Kane, Director, Center for International
Trade and Economics, The Heritage Foundation, Washington, DC... 14
Submissions for the Record
Prepared statement of Representative Carolyn B. Maloney, Vice
Chair.......................................................... 37
Prepared statement of Representative Jim Saxton, Ranking Minority 39
Prepared statement of Kay E. Brown, Acting Director, Education,
Workforce and Income Security, Government Accountability
Office, Washington, DC......................................... 40
Prepared statement of Dr. Janet Gornick, Professor, Baruch
College, City University of New York; Director of the
Luxembourg Income Study, and co-author of Families That Work,
New York, NY................................................... 63
Prepared statement of Ellen Bravo, Coordinator, Multi-State
Working Families Consortium, Former Director of 9to5, and
author of ``Taking on the Big Boys,'' Milwaukee, WI............ 66
Prepared statement of Laura Kellison Wallace, Manager, SAS Work/
Life and EAP Programs, Cary, NC................................ 69
Prepared statement of Dr. Tim Kane, Director, Center for
International Trade and Economics, The Heritage Foundation,
Washington, DC................................................. 73
IMPORTING SUCCESS: WHY WORK-FAMILY POLICIES FROM ABROAD MAKE ECONOMIC
SENSE FOR THE UNITED STATES
----------
THURSDAY, JUNE 14, 2007
Congress of the United States,
Joint Economic Committee,
Washington, DC.
The Committee met at 10 a.m., in room SH-216 of the Senate
Hart Building, the Honorable Carolyn B. Maloney (Vice Chair of
the Committee) presiding.
Representatives present: Maloney and Saxton.
Staff present: Christina Baumgardner, Christina
FitzPatrick, Christopher J. Frenze, Nan Gibson, Colleen Healy,
Almas Sayeed, and Adam Wilson.
OPENING STATEMENT OF HON. CAROLYN B. MALONEY, VICE CHAIR, A
U.S. REPRESENTATIVE FROM NEW YORK
Vice Chair Maloney. Good morning. I would like to thank
Chairman Schumer, who could not be here today, for allowing us
to hold this hearing on why work family policies from abroad
make good economic sense for the United States.
This is the first of many hearings that the Joint Economic
Committee will hold as Democrats in Congress work to develop
workplace standards for the 21st Century that help families
balance the competing demands of work and family
responsibilities.
Today, we are releasing the findings of a Government
Accountability Office report entitled ``Women and Low-Skilled
Workers: Other Countries' Policies and Practices That May Help
Them Enter and Remain in the Labor Force.''
This report is the third in a series of reports that I and
several of my colleagues, especially Representative John
Dingell, have requested to examine women's contributions to the
economy and the obstacles that they face in the workforce.
This new report examines the policies that a number of
other industrialized countries use to support working families
and to foster greater labor force attachment for low-skilled
workers, particularly women.
The GAO report shows that the United States lags far behind
other industrialized countries in providing paid leave for
caregiving responsibilities, support for obtaining quality
child care, or allowing flexible work schedules.
The most astonishing, and perhaps the most shameful fact,
is that the United States is the only industrialized country
that does not offer paid leave for new parents.
It's been more than a decade since the Family and Medical
Leave Act was signed into law, granting most workers job
protection for unpaid leave to care for a newborn child or a
seriously ill family member, but the reality is that most U.S.
workers cannot afford to forego pay for any length of time when
caregiving needs arise.
For most American families, it takes two incomes just to
make ends meet in the face of stagnant wages and high costs for
energy, child care, and health care.
That's why I have reintroduced legislation in this
Congress, that expands the Family and Medical Leave Act to
smaller firms, provides paid leave, and permits leave to be
used for parental involvement in their children's school life
and for doctors' visits.
I hope we can all agree that many of the work-family models
that we see from abroad, would benefit U.S. workers, and that
they are more important than ever.
What we will explore today is how stronger work-family
policies in the United States would benefit businesses and the
economy.
More and more businesses are finding that doing right by
workers is good for the bottom line. SAS, a cutting-edge North
Carolina-based software company, reports that their work-family
policies result in low turnover in a volatile industry, high
worker productivity, and an estimated $75 million in annual
savings, as a result of making these investments in their
employees.
As Dr. Gornick's research shows, many of the countries with
strong work-family policies, also have the highest GDP per hour
worked and unemployment rates that are the same or lower than
the United States.
Some will argue that we can't afford these policies, but
workplace changes that help families don't have to be costly.
Perhaps the best example of this is the United Kingdom's policy
granting workers the right to request a flexible schedule.
Under this system, employers may refuse flexible schedule
requests, but only a small percentage has been denied.
I am working with Senator Kennedy on legislation that we
hope to introduce this Summer that would allow this sort of
flexibility in the United States.
As Ms. Bravo will point out, we can hardly afford not to
update our policies, in order to build a 21st Century
workforce.
Research also show that other industrialized countries are
doing a far better job caring for young children. As a followup
to Speaker Pelosi's National Summit on America's Children, last
month, the Committee will be addressing the issue of early
childhood care and education in the United States in greater
depth at a Joint Economic Committee hearing on June 27th.
If we as a country truly value families, then we need new
policies, and we need to make the kind of investments that
other countries have already recognized are necessary to
support working families.
I want to thank all of our witnesses for being here today,
and I look forward to their testimony. I also would like to
thank the staff of the Joint Economic Committee for their work
in preparing for this hearing.
[The prepared statement of Representative Carolyn Maloney
appears in the Submissions for the Record on page 37.]
Vice Chair Maloney. I would now like to recognize
Representative Saxton, our Ranking Member, for an opening
statement.
OPENING STATEMENT OF HON. JIM SAXTON, RANKING MINORITY, A U.S.
REPRESENTATIVE FROM NEW JERSEY
Representative Saxton. Thank you very much, Madam
Chairlady, and thank you for holding this hearing today.
The topic of labor market policies in other countries is
extremely useful to examine. I believe very strongly that
policies which benefit workers, either male or female, must
also, by definition, benefit the country's economy that holds
the policies.
As we know, leave and training policies are usually part of
a large set of labor market policies. In Europe, these
policies, viewed as a whole, have significantly increased the
cost of employment, with the result that unemployment is quite
high in countries such as France and Germany.
While officially lower in other countries such as Sweden,
the largest Swedish trade union has said that it is true that
the unemployment rate is significantly higher than the official
rate.
The unemployment disproportionately affects younger
workers, as well as immigrants. The bottom line is that we have
to look at the big picture in reviewing labor market policies
in specific countries, including their programmatic costs,
their economic effects, and the preferences of affected
workers.
That's because, as I said a few minutes ago, policies which
benefit workers, male or female, must also, by definition,
benefit that country's economy.
The GAO review released today, contrary to what might be
suggested, does not show that the United States lags behind.
The GAO report states clearly that, quote, ``We did not conduct
a comprehensive review of similar workplace flexibility and
training strategies in the U.S., nor did we seek to determine
whether other countries' strategies could be implemented in the
U.S.,'' end quote.
In staff-level discussions, the GAO has made clear that
there are too many other factors involved to permit the GAO to
make a judgment about whether these policies would work in the
economy in the United States.
Furthermore, in conducting its review, the GAO did not
actually talk directly to affected workers. As the GAO also
notes, quote, ``Our review of the laws and regulations, was
limited by the extent that specific information was accessible
and written in English.''
In addition, the GAO did not examine or analyze the costs
of the policies it mentions in its review, thereby making it
difficult, if not impossible to conduct a comprehensive study.
Obviously, without an accounting and examination of
programmatic costs, it would be impossible to make an informed,
impartial, balanced evaluation of any government program
overseas or here at home. As GAO Comptroller General David
Walker has emphasized many times in GAO's ``Fiscal Wake-Up
Tour,'' one of the biggest economic threats facing the United
States in coming years is an avalanche of additional
entitlement spending, much of which is not adequately reflected
in current budget accounting.
The GAO review released today does not purport to examine a
number of important budget costs or other budget issues. It
does not reach any judgments about whether any of the policies
reviewed would work in the United States, and it contains no
policy endorsements or recommendations.
In sum, the GAO does not attempt to add up the hundreds of
billions of dollars such policies could cost, if implemented in
the United States, even though they might have to be included
in Comptroller Walker's future Fiscal Wake-Up Call
presentations.
So, thank you, Madam Chairlady. I look forward to hearing
what the witnesses have to say this morning.
[The prepared statement of Representative Saxton appears in
the Submissions for the Record on page 39.]
Vice Chair Maloney. Great. We have a very fine panel today,
and I'd like to introduce our witnesses, but I would like to
note with irony, that the Committee invited the principal
leaders of Moms Rising, a group that supports working mothers,
to be here today, but they could not attend due to the strains
of trying to balance work and family.
I would now like to introduce Kay Brown. Kay Brown is an
Acting Director with GAO's Education Workforce and Income
Security Team with more than 20 years of experience.
She has also served on GAO's International Affairs Team,
where she led assignments evaluating a variety of international
programs.
Ms. Brown has an MPA from the University of Pittsburgh
Graduate School of Public and International Affairs.
Ms. Brown.
STATEMENT OF KAY E. BROWN, ACTING DIRECTOR, EDUCATION,
WORKFORCE, AND INCOME SECURITY ISSUES, U.S. GOVERNMENT
ACCOUNTABILITY OFFICE, WASHINGTON, DC
Ms. Brown. Vice Chairwoman Maloney and Members of the
Committee, I am pleased to be here today to discuss policies in
other countries that may help workers, and women in particular,
enter and remain in the labor force.
This information is based on a study we are releasing today
of policies in eight developed countries, six that are members
of the European Union, as well as Canada and New Zealand.
This morning, I will focus on two types of benefits
intended to help workers balance the competing demands of
employment and caregiving responsibilities. These are family
leave policies and child care for working parents.
First, family leave: Each of the countries we studied has
adopted some form of paid leave to help mothers, and sometimes
fathers, care for their newborns or newly adopted child. The
benefits vary from country to country in the amount of time
allowed off work, the amount of the payment, and the conditions
for eligibility.
For example, in Denmark women are allowed 18 weeks of paid
maternity leave, and they receive about 60 to 70 percent of
their previous earnings. But to be eligible for these benefits,
they must have a demonstrated work history.
In addition, many countries recognize that leave may be
needed to care for children other than newborns. For example,
some allow parents the use of parental leave until a child
turns 8 or 9 years old. Some countries also allow workers to
take paid leave to care for others, such as a seriously ill
family member.
It's important to consider what is known about the effects
of these policies. A study that examined paid maternity leave
of varying lengths in several western European countries found
that this leave may increase women's employment rates by about
3 to 4 percent.
In addition, women who have a set leave period and a
guaranteed job upon return, tend to return to work more quickly
than women who had to quit their job and enter the labor market
later.
Turning now to child care, all of our study countries
provide support for child care for some working parents. In
some cases, the support is in the form of direct financial
benefits, as in Canada, where the government provides eligible
parents with $100 for each child under age 6, to support the
family's child care choices.
In other cases, the support is in the form of a tax credit,
as in New Zealand. In some of these countries, early childhood
care and education is viewed as a social right.
In France, about 90 percent of children ages 3 to 6 attend
public preschools provided free of charge. Other countries such
as the Netherlands, view the support for child care as a shared
responsibility.
There, employers, employees, and the government, are each
expected to pay about one-third of the child care costs.
Regarding the effects of these child care policies, the
availability of child care helps women return to work, but cost
and quality also matter.
Research from several cross-national studies has shown that
readily available child care appears to increase women's
participation in the labor force.
This is especially true when the care is subsidized and
regulated with quality standards such as high staff-to-child
ratio. When child care is not subsidized and its costs are
high, women tend to delay their return to work.
Of course, these benefits come with a cost. The family
leave policies in the countries we studied are generally funded
through tax and general revenues.
For example, several countries fund leave policies through
national insurance programs, drawing on payroll taxes paid by
employers and employees. One country finances its paid leave
through income tax revenues.
In conclusion, the countries we studied have in place a
number of benefits and flexibilities that may help workers
enter and remain in the workforce.
They have been adopted through legislation negotiated by
employee groups, and at times, independently initiated by
private industry groups or individual employers.
We did not assess whether the positive outcomes identified
from the policies in our study would be realized in the United
States, if similar policies were implemented here.
However, aspects of these policies may provide useful
information, as so many countries face similar issues today.
This concludes my prepared statement. I would be happy to
answer your questions or those of any other Member of the
Committee at this time.
[The prepared statement of Ms. Brown appears in the
Submissions for the Record on page 40.]
Vice Chair Maloney. Thank you. Please note that Senators
Kennedy and Schumer have submitted statements and they will be
part of the record.*
---------------------------------------------------------------------------
* The information referred to was unavailable at press time.
---------------------------------------------------------------------------
Vice Chair Maloney. I would now like to recognize Dr. Janet
Gornick. She is a professor of political science and sociology
at the City University of New York Graduate Center, and a
professor of political science at Baruch College.
She is also director of the Luxembourg Income Study, a
cross-national research institute and data archive based in
Luxembourg.
Professor Gornick's core research is in public programs
that affect parents' capacity to combine employment with
caregiving. She is the co-author of `'Families that Work:
Policies for Reconciling Work and Family.'' Thank you for being
here.
STATEMENT OF DR. JANET GORNICK, PROFESSOR OF POLITICAL SCIENCE
AND SOCIOLOGY, CITY UNIVERSITY OF NEW YORK GRADUATE CENTER, NEW
YORK, NY
Dr. Gornick. Thank you very much. Good morning, Vice Chair
Maloney and Members of the Committee. I really appreciate the
opportunity to testify at this timely and important hearing.
I've spent nearly 20 years studying work-family policy in
the United States, relative to those in place in other rich
countries. When I say ``work-family policy,'' I'm referring to
public policies that help parents, both mothers and fathers, to
balance the competing demands of paid work and family care.
In my brief comments today, I'll draw on findings from
several collaborative projects. Most of the work that I will
present comes from my 2003 book, ``Families That Work.''
My co-author, Marcia Meyers, and I began the research for
that book with a question: How well are American working
parents and their children faring in comparison to other high-
income countries?
We compared the United States to Canada and 10 countries in
western and northern Europe. Our conclusion was not all that
well.
First, American working parents work exceptionally long
hours; second, American parents report higher levels of work-
family conflict than do parents in many other countries; third,
gender equality in employment is only fair to middling; and,
fourth, our children are not doing especially well.
An exceptionally large share of American children live in
poverty. Our children also fare poorly in a number of other
indicators, ranging from infant and child mortality, to school
achievement, to adolescent pregnancy.
Parents in all countries face competing demands on their
time, but American families struggle more than families
elsewhere, in part, because American public policy offers less
help to them than what's available to parents in other
countries.
In my few minutes today, I'm going to give you some
highlights from our research about three particularly
consequential areas of public policy: work time regulations,
paid family leave, and child care. Then I'll close with some
brief comments that underscore the public provision of these
programs is consistent with healthy macroeconomic outcomes.
Let me preface my comments on policy by offering a brief
snapshot of actual work hours across countries. This first
figure reports average annual hours spent in paid work in the
United States, Canada, Japan, and nine European countries.
As shown here, American workers spend, on average, over
1830 hours a year at work. That's about 200 hours more than the
Swedes, 300 more than the Belgians, and nearly 500 more than
our Dutch counterparts. We even outwork the famously long hour-
working Japanese.
The second figure provides two clues to Americans' long
work hours. This figure reports two policy indicators: Standard
weekly work hours (the shorter bars)--that generally refers to
the overtime threshold, as well as the minimum number of paid
days off, as required by law (the taller bars).
As the figure shows, the standard work week in these
European countries, is now set in the range of 35 to 39 hours;
the United States sets a 40-hour work week, as it has for over
six decades.
In addition, the European Union requires that member
countries guarantee all workers at least 4 paid weeks off per
year, and several require more.
U.S. national law is entirely silent on paid days off.
There are other types of public policies that matter as
well. For example, a number of European countries provide
workers with the right to request changes to their work
schedules in order to reduce their hours or to alter the timing
of their hours.
So other countries provide shorter full-time hours, a
shorter work year, and institutions that raise the quality and
availability of both part-time work and work with flexible
schedules.
Together, these measures allow many European parents to
choose various types of reduced-hour work, an option that's
limited and economically infeasible for many American parents.
In addition, as noted, all of our comparison countries
offer mothers and fathers some period of paid leave in the wake
of birth and adoption.
U.S. national law is silent on paid leave, and access to
private provisions is limited and uneven.
My third figure reports the total number of weeks of leave
available to new mothers, multiplied by the percentage of wages
replaced. In the Nordic countries and in Canada--the 5
countries shown on the left in the figure--new mothers are
awarded in the range of 28 to 42 weeks of fully paid leave,
whereas mothers in continental Europe are typically entitled to
about 12 to 16 weeks.
The lack of paid leave in the United States forces many
parents to choose from among a restricted set of options. Many
new parents have to choose between taking leave and losing
their pay or remaining at work and placing their children in
child care, essentially from birth.
Finally, the great American time squeeze is worsened by our
meager investments in early childhood education and care. This
figure, the final figure, reports the percentage of young
children aged 1 and 2--that's the shorter bars--and ages 3, 4,
and 5--the taller bars--in publicly supported care.
As the figure indicates, levels of publicly provided or
subsidized care for 1- and 2-year-olds, vary widely across
Europe, but in all of these countries, the majority of 3 to 5-
year-olds, are in public programs.
In comparison, in the United States, 6 percent of under 3's
are in public care and just over half of the 3 to 5's--and most
of those are 5-year-olds in kindergarten, many of whom are in
part-day programs.
Most American working parents, instead, buy private care.
They pay most of the cost out of pocket, and many children get
care that's judged by experts to be mediocre in quality.
To conclude, generous work-family policies are good for
parents and children, and they especially benefit low-income
workers who tend to have less bargaining power and can't afford
to pay for help privately.
Public systems equalize access and affordability across
family types and throughout the income spectrum, leading to
outcomes that are more equitable than the results we get when
we leave the provision of these crucial programs to the
marketplace.
In addition, generous work-family policies are compatible
with good economic outcomes. Consider GDP per hour worked, a
powerful indicator of productivity, the six top-ranked
countries in the world, are European countries with
comprehensive work-family policies. The United States is ranked
eighth. These figures come from the Organization for Economic
Cooperation and Development of 2007.
Furthermore, the World Economic Forum's Competitiveness
Index includes among the top five countries in the world,
Denmark, Sweden, and Finland--three countries with extensive
work-family policies. The United States is ranked sixth.
Finally, despite popular claims to the contrary, a large
body of research demonstrates that generous work-family
policies do not cause an increase in unemployment. Several
countries with generous social benefits for families, have
unemployment rates that are actually lower than in the United
States.
Today, for example, unemployment is below the United States
rate in Norway, Denmark, the Netherlands, Switzerland, and
Austria. These are, again, figures on unemployment rates from
the Organization for Economic Cooperation and Development, as
of 2007.
In my view, American public policy is failing our working
parents and their children. We have much to learn about
institutional reform, and we would do well to draw some lessons
from the collective experience of many of your neighbors across
the Atlantic.
[The prepared statement of Dr. Gornick appears in the
Submissions for the Record on page 63.]
Vice Chair Maloney. Thank you very much.
Ellen Bravo, I want to thank her for coming. She's
recovering from an automobile accident and so is in a cast.
I really appreciate your being here, on many levels, but,
physically getting here, was a challenge for you, so we thank
you.
Ellen Bravo teaches women's studies at the University of
Wisconsin at Milwaukee, including Master's-level classes on
family-friendly workplaces. She's a former director of 9to5,
National Association of Working Women.
As a consultant to 9to5, she coordinates the Multistate
Working Families Consortium, a network of State coalitions
working for paid leave. Her most recent book is ``Taking On the
Big Boys: Or Why Feminism is Good for Families, Business, and
the Nation.''
Thank you for being here.
STATEMENT OF ELLEN BRAVO, PROFESSOR, UNIVERSITY OF WISCONSIN AT
MILWAUKEE; COORDINATOR, MULT-STATE WORKING FAMILIES CONSORTIUM,
AND FORMER DIRECTOR OF 9TO5
Ms. Bravo. Thank you so much, Vice Chair Maloney and
Members of the Committee. It's a pleasure to be here.
So, I have just been on tour for this book, ``Taking On the
Big Boys,'' and I want to share with you, some of the workers
that I've met, and what their lives are like.
These include a woman who is a manager at a bank that
always winds up on the best places to work list, who was
demoted for taking 5-minute breaks to express her breast milk.
This is the same company that gives time for cigarette breaks.
I met a supermarket worker who was fired for taking a phone
call from her son who was home alone. I met nursing assistants
who lost their job because they could not stay for an
unscheduled mandatory second shift, because they didn't have
child care that would continue; a TV anchor who gets very
little sleep at night because she's trying to keep her job and
have some time to spend with her baby; a factory worker who
couldn't get family leave when his father had a heart attack
because he hadn't been on the job for a full year; and a
clerical worker who did qualify for family leave when her
mother was dying, but couldn't afford to take unpaid time.
We hear a lot of talk about family values and personal
responsibility, but the truth is, in the United States, being a
good family member can put your job or your health at risk; and
being a responsible worker, can put your family or loved ones
at risk. We can do a lot better than that.
I'd say my most striking encounter was with a group of low-
wage workers, 9to5 members, at a Congressional briefing just a
couple of months ago.
I'm not surprised, I told them, when I hear teachers say
that more kids are coming to school sick because they don't
have a parent who can stay home. I'm not surprised when I hear
women tell stories of how guilt-ridden they are because they
sent a kid to school or daycare sick because they couldn't get
flexibility at work. But I was stunned to find out how many
kids send themselves to school sick because they don't want
their parent to lose their job.
And I had told this story, and on the panel with me that
day, was an 18-year-old whose mom had lost her job because of
lack of paid sick days. This young woman has a disability that
affects her balance and her speech, Jeanetta Allen, and she
said--as soon as I finished, she said--``I'm that kid. After my
mom lost her job, I always sent myself to school, if I possibly
could, because I didn't want that to happen again.''
And then there was like a chain reaction in the audience,
where, one after another, these women shared the moment when
they learned that one of their kids was doing this, going to
school with bruised ribs or flu or strep throat, because they
didn't want their mom to lose her job.
We know that the workforce has changed enormously in the
last 30 years. The problem is that the workplace has just not
kept pace.
The good news is that some people do a terrific job. We're
going to hear from SAS. They'll tell you that story. All my
graduate H.R. students want to work there.
And what it means, is that everything we want, already
exists, sometimes in individual companies within the United
States; sometimes in whole other countries in the world, but it
works, and it works for businesses as well as for workers and
their families.
But the problem is that most workplace policies here are
deficient, and they reflect outmoded public policies that set
minimum standards for how workers are treated in the United
States.
I have a lot more on this in my written testimony. For
example, the Family Medical Leave Act, we all worked very hard
to pass it. It was an important first step, but it has a lot of
limitations, including that it does not cover routine illness.
I'm glad that most kids don't get leukemia, but they all
get stomach flu and colds and all kinds of other things, and
their parents don't have job protection if they need to take
time off.
Lobbyists against these bills will tell you, well, people
can use their paid sick days, except that half the workforce
and three-quarters of low-wage workers, just don't have paid
sick days, which means that they risk not only losing pay, but
also losing their job.
And when they do have it, they often can't use it for a
sick family member.
We know that women bear the brunt of this, but there are a
lot more men who would be better fathers--we should remember
this Father's Day--if they did not get punished for it at work.
The truth is, everybody needs time to care. Even people who
aren't parents, have parents, or partners that they need to
care for, and believe me, trust me, anybody can be hit by a
drunk driver. We all need flexibility at work.
The good news is, employers can do a lot without it costing
a penny. I have a lot of examples in my written testimony.
Research reminds us, though, that whatever cost there is is
more than made up for by the savings, particularly because when
you get treated as a whole person at work, workers repay that
with loyalty and retention. And the biggest expense employers
face is turnover.
Deloitte & Touche figured it out. They figured that they
saved $41.5 million a year by lower turnover because of their
Family and Flexible Policies. Even where the workers are much
lower paid, there is a cost per worker, particularly when you
add up how many because the turnover is so high.
Retention is not the only benefit. There was a study of 28
leading corporations that have implemented flexible schedules.
They find positive effects on employee commitment, employee
satisfaction, productivity, cycle time, customer commitment,
response time.
Here is what we do not talk about: What it costs not to do
these things, having these outdated workplace rules, and what
it means that we need to change.
The new rules we need include a guaranteed minimum number
of paid sick days. Access and affordable family leave for
everyone paid for by some kind of a shared pool, shared risk.
Quality, affordable dependent care. It means a reasonable work
week without mandatory overtime, and it means a meaningful wage
floor. Because let's not forget that money is a work-life
issue.
So as you mentioned, I coordinate this network of State
Coalitions. The good news is: There are great things happening
in the States. We won paid leave in California. We won paid
parental leave in Washington. New York and New Jersey are set
to follow California's lead.
San Francisco was the first municipality that passed paid
sick days ordinance, and a number of others are considering
them this year.
All of these we hope will build action on the Federal level
because what we need is a level playing field throughout the
country.
I want to just end by telling you that in Wisconsin when we
won the State Family Leave Bill, we took a bunch of children
with us to Madison. They represented the broad range of reasons
that people need a loved one to take care of them.
The Secretary of Employment Relations who met with them
said, we're so used to hearing from lobbyists we forget about
the people who are affected by these bills.
You will hear from lobbyists that the sky will fall,
business will flee, the world will end if we do this. I had
this quote:
``This bill would create chaos in business never yet known to us.
Let me make it very clear, I am not opposed to the social theory. What
I do take exception to is any solution which is utterly impractical and
would be much more destructive,'' et cetera.
That was 70 years ago, and it was talking about abolishing
child labor and establishing the minimum wage. Those minimum
standards did not make the sky fall; neither will these. It is
time we start listening to the children and stop listening to
the lobbyists.
Thank you very much.
[The prepared statement of Ms. Bravo appears in the
Submissions for the Record on page 66.]
Vice Chair Maloney. Thank you, very much.
Laura Kellison Wallace is the manager of Work Life and EAP
Programs at SAS Institute. Before SAS, she was the Work Family
Program manager at the University of North Carolina, Chapel
Hill. She has over 15 years of experience working with families
and children in many capacities, including working with the
Head Start Programs both as a teacher and researcher, and
directing an Early Childhood Education Americorps Program. She
is a graduate of Smith College and received her Masters Degree
in social work from UNC, Chapel Hill.
I should disclose here that the Joint Economic Committee
uses SAS software products for some of our economic analysis,
but this is not the reason they were invited. In fact, the SAS
representatives we contacted were not even aware that the
Committee used their products when they were invited to
testify.
So thank you for being here, Ms. Wallace.
STATEMENT OF LAURA KELLISON WALLACE, MANAGER, SAS WORK/LIFE AND
EAP PROGRAMS, CARY, NC
Ms. Wallace. Thank you so much.
Good morning, Vice Chair Maloney, Ranking Member Saxton,
and Members of the Committee:
My name is Laura Kellison Wallace, and I am the manager of
Work/Life and Employee Assistance Programs for SAS, as
mentioned.
SAS is the leader in business intelligence and analytical
software and services, and we are headquartered in Cary, North
Carolina. I would also like to quickly introduce my colleague
that is here with me today, Mark Hough. He provides senior
corporate legal counsel for SAS, and he works with us on Work/
Life and H.R. issues.
I understand my full statement will be part of the record,
so I am just going to highlight a few points, if I can, this
morning.
I thought I might provide a little context with my
background, although Vice Chair Maloney went over it pretty
thoroughly. I do want to say, my values that I grew up with
sharply shaped all of my choices for education and for my
career.
My parents instilled a strong sense of responsibility and
community and regard for others as I was growing up, and I
chose accordingly, as I went through my career.
As I went into my thirties and started a family of my own,
I had to choose something different, I thought, and start
taking care of my family, my security, and my future. So I am
pleased and proud to tell you that for the last 8 years I have
been working for a major global multi-billion-dollar software
corporation where the top-down leadership expectation is that
we all live and work with the very values my parents instilled
in me.
Coming to SAS, I found, to my surprise, a decent,
responsible community-minded profitable corporation is not an
oxymoron, nor is it a utopian fantasy. It exists, and I work
there.
My hope this morning is that by discussing SAS and its
philosophy, practices, and high trust culture it will become
evident quickly that family friendly policies and programs are
not just fluffy perks.
Instead, they are the right choice for big and small
companies, not only because they feel like the right thing to
do, but they also make really good business sense.
SAS was founded in 1976 by two North Carolina State
University professors, Jim Goodnight and John Sall. That first
year the company generated $138,000 in revenue with 5
employees. Today, after 31 years in business, SAS is the
largest privately held software company in the world with
roughly $2 billion in revenue.
We currently have approximately 40,000 customers and an
annual software renewal rate of about 98 percent. We now have
10,000 employees worldwide with offices in 112 countries.
Our CEO, Jim Goodnight--Dr. Goodnight's philosophy at SAS
has always been: If you treat employees as if they'll make a
difference to the company, they will make a difference to the
company.
SAS has grown in size and profit, and Dr. Goodnight has
never veered away from this creed. He has created a workplace
where employees' innovative skills and ability to contribute
could, and do, flourish.
Dr. Goodnight's theory is clearly a winning practice. SAS
has been profitable every single year since its founding.
The employee turnover rate--which we were talking about
earlier--for the last 3 years averaged 4.02 percent. That is
compared to an industry average of over 20 percent.
We received over 35,300 applications last year for 880
jobs. It is not difficult to see that SAS employees are loyal,
or that the word is out that it is a wonderful place to work.
But make no mistake, these statistics are particularly telling
about the direct relationship of employee satisfaction to
profitability.
Dr. Jeffrey Pfeffer, a business professor at Stanford
University who studied SAS, estimated that the cost savings at
SAS in reduced employee turnover, recruitment, and retention is
on the magnitude of $60-$80 million annually. That is not too
fluffy.
Although I've described SAS's benefits in greater detail in
my written statement, I would like to briefly mention a couple
of the highlights about what is available to every employee
regardless of job title or salary:
Unlimited paid sick time to take care of yourself and your
family and, if you need it, paid FMLA. That is leave available
to mothers and fathers, birth and adopted. I can tell you a
little bit more about that if you would like.
Generous vacation time with an extra week given to all
employees between Christmas and New Years. The ability to have
a flexible work arrangement. A standard 35-hour work week.
Heavily subsidized onsite health care and child care. Free
onsite fitness and--my department, the Work/Life Center.
But these benefits are only part of the equation that has
allowed SAS to create a genuine employee loyalty. Equally
important to SAS's success is a corporate culture rooted in
mutual trust, mutual respect, and mutual regard. The idea of
``regard'' is really paramount to my point today.
The dictionary defines ``regard'' as a steady gaze and
attention or care. Indeed, people do stay at SAS because of the
benefits and the environment, but to dig a little bit deeper I
would argue people stay at SAS because they feel the trust, the
regard; they feel seen; they feel attended to and cared for.
Let me give you a really quick example of how employee
regard works in practice. A couple of years ago we explored the
idea of providing a discount for an in-home sick care service
for our employees. We understood that this was a big ``best
practice'' trend and, of course, we always want to be able to
demonstrate our commitment to best practice.
But in the end, we wanted to avoid any perception that it
was not OK for employees to stay home with their sick kids, so
we chose not to go with that service. We do not want SAS
employees to be put in the untenable position of having to
choose between their sick child, their sick spouse, an ailing
parent, and their work.
We would not want to make that choice ourselves. We choose
the best outcomes for our employees every time over best
practice.
I hope that SAS's 30 years of experience of successfully
manifesting its regard for its employees drives home the point
that family-friendly policies and programs make good business
sense for companies of all sizes. Not only do they create
employee loyalty, but they directly contribute to the bottom
line.
Thank you for this opportunity to appear today and to
discuss SAS's philosophies and strategies. Please remember SAS
is proof that regard is much less expensive than disregard. I
am happy to answer any questions that anyone has.
[The prepared statement of Ms. Wallace appears in the
Submissions for the Record on page 69.]
Vice Chair Maloney. Thank you.
Dr. Tim Kane is the director of the Center for
International Trade and Economics at the Heritage Foundation.
He oversees the Annual Index of Economic Freedom, a series of
economic indicators jointly published by the Heritage
Foundation and The Wall Street Journal.
Prior to his work with the Heritage Foundation, Dr. Kane
served as senior Economist for the Joint Economic Committee. He
has a Bachelor's Degree from the U.S. Air Force Academy, and a
Ph.D. in economics from the University of California at San
Diego, and we are thrilled to welcome him back.
STATEMENT OF Dr. TIM KANE, DIRECTOR, CENTER FOR INTERNATIONAL
TRADE AND ECONOMICS, THE HERITAGE FOUNDATION, WASHINGTON, DC
Dr. Kane. Thank you so much, Chairlady Maloney, Congressman
Saxton, and other Members of the Committee:
It is a real honor to be back here. It is also a bit of a
homecoming, and I see many friends among the staff. I really
appreciate this chance.
I feel a little bit, looking at the panel, with very
distinguished panelists, that one thing here is not like the
other with the gender balance.
[Laughter.]
I know my three daughters at home are rooting for me to
work with the Committee to think about how to make the
workplace in America better for them in the future.
In my testimony, I'd like to, one, describe the nature of
the challenge facing Congress in the context of the booming
U.S. economy in recent years; two, offer a set of principles
for both enhancing our economy, generally, and labor economy,
specifically, under the framework of economic freedom; and,
three, suggest that Congress should not use the conventional
European approach to labor markets, unless it also wishes to
import European-level unemployment, which occurs at roughly
twice the rate as in the United States.
I think it's really important for us to set up the nature
of prosperity in this decade. It's been a very contentious
issue on the Hill, in the political sphere. I speak today as an
economist, not as a partisan.
As obvious as this may seem, every analysis of economic
policy at the Federal level, whether it's immigration or
whether it's trade, must begin with the recognition of the
comprehensive record-setting strength of our national economy.
By almost every indicator, the U.S. economy is prosperous,
but especially so in comparison to other advanced economies.
First point: There are more working Americans than ever
before. In the latest BLS employment situation report, it's
reported that there are 152.8 million people, Americans,
specifically, in the labor force; 145.9 million employed.
These are just shy of the all-time records in recent
months. Eight million payroll jobs have been created in the
last 4 years.
I try to remind myself, given all the gloom in the media,
that during this 4-year span, job growth has averaged 167,000
jobs a month. That's 5,559 jobs added to payrolls every day;
232 per hour; or a new job every 16 seconds, so quite a few
jobs created just during my testimony, at least.
There's extraordinarily low unemployment. A 4.5 percent
unemployment rate out of the textbooks, is actually on the
dangererous side of overheating the economy, so whatever has
been done in economic policy for the last few years, has really
delivered powerful results.
And, last, growth in output and productivity: The postive
growth rates in GDP, almost--every quarter since the attacks of
9/11, is almost a miracle. Even in light of the Hurricane
Katrina, the U.S. economy kept growing.
The most recent quarter, Q-1's preliminary estimate looks
low, but most economists tell you that a lot of that is due to
inventories, inventories getting tighter, and that we expect
GDP growth to continue.
But a more important measure, as you know, is GDP per
capita, and this, when you compare it to other economies--
Britain, France, Italy, Germany--they're about 20 percent
behind in the income per person that they have.
Measures that are often thrown out that are income per
working hours, are not really the best measures. The best
measure you want to look at, is income per person.
That includes people like my wife, who doesn't work in the
formal economy, so she's not even included in the GDP measures.
But because of the institutional arrangements that we have and
the family arrangements that we have, we do have the most
productive workforce in the world.
Now, I find that the most useful framework for approaching
fiscal economic policy, is not really macroeconomics, but
growth economics.
The idea is captured well by Steven Parenti and Ed Prescott
in their book, ``Barriers to Riches.'' It's also the approach
we use in the Heritage Foundation-Wall Street Journal Index of
Economic Freedom, and I point out that this is all free online
at heritage.org/index.
Now, specifically this last year, we incorporated labor
freedom. We look at countries' labor freedoms, and how many
regulations and protections a country puts on its workforce,
turn out to backfire.
Those countries with higher labor protections, all well
intentioned, end up creating higher unemployment rates. And so
it's with some irony that here we are in the United States
talking about adopting European policies when France just had
an election, in light of labor riots, because their workforce
isn't working.
Their youth can't get jobs because they protected the older
workers to such an extent that the younger workers are
frustrated.
And you've seen the election of Mr. Sacrosi, particularly
in light of promises to reform that and be more like America.
In the 2007 edition of the index, one chapter is dedicated
to this labor freedom idea, and it's written by a scholar from
Sweden who particularly points out that in Sweden, much of the
unemployment rate that's reported isn't actually accurate and
that they, indeed, suffer from too much protection and higher
unemployment rates there.
I'd quote from him length, but I realize that's in the
written commentary, so I probably should continue in respect of
the time that you've given us for questions.
Let me run then to my two concluding points: Academics have
been studying labor protectionism and unemployment. One
particular note is the 1997 summer issue of the ``Journal of
Economic Perspectives'' where two distinguished economists were
asked to comment on this situation.
Horst Siebert emphasized that labor rigidities in Europe
were clearly driving higher unemployment rates. On the other
hand, Stephen Nichol took an econmetric view of comparing
economies, and reported there's no evidence in our data that
higher labor standards have any impact on unemployment
whatsoever, I think, in support of the other four witnesses, or
some of the witnesses here today.
It's important, though, that Mr. Nichol changed his mind.
He wrote in 2005--I believe it was in the QJE, the Quarterly
Journal of Economics--that the data have caught up now and
economists now are changing their minds.
There's a consensus view that these rigidities are a
problem, so, talking about instituting new rigidities and new
requirements, not just on SAS--I mean, SAS is doing the right
thing, I think, but to force every company to be like SAS takes
away that sense of competition.
The last point I want to make is, what would these new
labor regulations do to the U.S. economy?
The premise that the workforce is vulnerable is the first
problem. Suggestions of anxiety are simply overblown, which is
the point of the beginning of my testimony.
A second and related problem, is that many policy solutions
are defined by government intrusion into an otherwise optimally
functioning private sector.
I try to emphasize two rules: One, do no harm. If the
economy is strong and the labor market is strong, don't intrude
to try to fix something that isn't broken.
Second, consider the incentives. Now, we can use a
sledgehammer on the economy to try to do what we think is
right, or we can use smart incentives.
My concern is that we want to reward the good companies out
there that are doing the right things by women and families,
but if you institute mandates for paid leave, you might find a
quiet discrimination against women, especially young women, by
the bad companies who would then become more competitive and
more profitable, and you'd force good companies to pay benefits
and to become less competitive and maybe even drive them out of
the workforce.
This can have a negative consequence on the work
opportunities facing women.
I'm absolutely with you in spirit. Let's do the right
thing, but let's think very carefully about the incentives that
we use and the mandates that Congress places on businesses and
on the private sector. Thank you very much.
[The prepared statement of Dr. Kane appears in the
Submissions for the Record on page 73.]
Vice Chair Maloney. Thank you for your testimony. We've now
heard all the opening statements, and we will now proceed with
questions. We will have a 5-minute time limit, and I hope that
my colleague, Mr. Saxton, can stay for a second line of
questioning.
Let's follow up on Dr. Kane's testimony. I'd like to ask
Ellen Bravo and Laura Wallace, could you both please comment on
why work-family policies are good for business?
In your testimony, Ms. Wallace, I was really surprised by
your testimony, that SAS saves--saves, not a hinderance, but
saves $75 million annually, as a result of its Human Resources
policies. And I would say that this figure is so striking, and
it's something that other employers need to hear about.
I'd like to hear your comments on it, and in what ways do
busineses save money by implementing policies that are friendly
to employees with children and other family care
responsibilities. Let's be positive, not as a burden, but how
does it help grow our economy, grow our jobs, grow our Nation?
I was struck, Ms. Bravo, by your comment that there was a
great deal that businesses could do that does not cost money.
I'm sure that they would like to hear about it, and I would,
too. So, your answers. Let's start with you, Ms. Wallace, and
we'll give Ms. Bravo the last word.
Ms. Wallace. Well, I can speak, even personally, for
myself. About 5 years ago, my dear darling father had a heart
attack, and it was unexpected. I live in North Carolina, in
Chapel Hill, North Carolina; and he lives in Santa Fe, New
Mexico.
And there was no question that I was going to choose my
father at that moment. I don't think anyone in this room would
make a different choice if they had the opportunity to.
SAS rallied around me in every possible way. They helped me
figure out my workload, they helped even with plane
arrangements, and I was on my way to Santa Fe that afternoon,
and I was back again in 2 weeks.
And I'll tell you, my work--I was more dedicated than ever,
and I'm the Work/Life Manager. I can tell you, other than my
experieince, that I have seen this happen over and over and
over again.
The adoptive family who, after you know, years of
infertility treatments who adopts a child and gets to stay home
with that child, when they first bring it home--not just
mothers, but fathers too--they come back and they're dedicated,
and guess what? That child is usually on our onsite child care.
And we have a health care center onsite, where they can
bring that child. We have an infrastrucure that supports these
policies, but what we see is bright-faced employees coming back
ready to work.
The savings in turnover rate, we aleady went through. The
recruitment, we just don't have a problem. In fact, we have to
post our jobs for a shorter time because we get so inundated
with applications.
I really encourage people to think about this, and I also
can talk about low-cost and no-cost work life initiatives all
day long, because we actually don't spend a whole lot of money
in our programmatic piece.
People in the community are always happy to come and do
presentations and meet with our employees. Our employees are
completely dedicated to SAS because SAS seems so dedicated to
them.
I really encourage you to look at that, whether you're
working at a 7-11 or you're working at a small law firm. What
you want is employees who are excited to be there. Those are
the people who are innovative and creative. They're the ones
who are going to make----
Vice Chair Maloney. But your statement that you save $75
million annually, maybe you could submit it in writing, of how
in the world did you save $75 million annually by giving leave,
generous leave practices to people.
Ms. Bravo.
Ms. Bravo. Well, I wanted to add that I think we have lots
of information about turnover costs. Here's another cost that
we should talk about, and it's what has been called
``presenteeism'' losses, when people come to work sick and they
make other people sick and they stay sick longer.
A Cornell study found that ``presenteeism'' costs
businesses $180 billion a year in lost productivity. It's more
expensive than absenteeism.
There's also, you know, a lot of issues about customer
satisfaction and customer retention. So I study a lot of these
in this graduate class I teach.
For example, FTN, a bank in Tennessee, they found that
there was a direct correlation between customers returning to
them and staff remaining on the job, and they could measure
that the longer staff were there, the higher the retention of
the customers, because they established relationships.
This is one of the keys to SAS's retention, is the longer
that people get to know each other, they trust that staff, and
it makes them trust the business and want to come back.
I have to say, though--we know smart employers know this.
The problem is, we don't write public policy for smart
employers. They don't need it.
We write it to guarantee that those who aren't going to do
it, will do it anyway. That's a proper role of government, to
say, what are the standards, what's the floor?
As values change in our country--we have allowed child
labor for a long time and then at some point we said, we can't
do this anymore. Race discrimination, gender discrimination,
there were times when there was a conflict between those values
and the public rules, the public policies, and we needed to
change them.
We're at that point again, where there's a conflict between
what the workforce looks like and a workplace that was designed
for men with wives at home full-time, when most workers don't
have them, much as we may wish we did. Thank you.
Vice Chair Maloney. Mr. Saxton.
Representative Saxton. Thank you very much.
Ms. Brown, I pointed out in my opening statement that your
study was not intended to be a comparison of the these
policies' economic effects in various countries.
Your study, as is pointed out on the first page of your
study, actually had three goals: One, to describe the policies
and practices implemented in developed countries that may help
women, low-wage, low-skilled workers, enter and remain in the
workforce. That was number one.
Two, to examine change in the targeted groups' employment
following the implementation of policies and practices; and
three, to identify the factors that affect employees' use of
the workplace.
So, those were the goals that you set out at the outset,
and it was not your intent, quite clearly, to compare the
effect of these policies on the overall economy. Is that a fair
statement?
Ms. Brown. That's correct. Our report provides what could
be considered an inventory of the different types of practices
and policies that these eight countries that we selected
implemented in their efforts to try to help families balance
their work and family commitments.
It demonstrates the range between the many different
choices they have, whether it be the percent of pay that
countries provide for lost wages, or the amount of time that
people would be able to take off from work, or the way that
child care policies are implemented.
But you are correct; it's not a macroeconomic study, and it
is not an analysis of how these policies would play out, if
they were implemented in this country.
Representative Saxton. Thank you for that. I just wanted to
make sure that we clarified that at the outset.
I have to tell you about an experience just yesterday. I
called somone, a male friend, to ask him a question. He happens
to work in a financial institution, and I had a question about
something that was going on in finance.
I called his number and somebody else answered the phone,
and I asked, where's Joe? He said, he's on maternity leave. I
thought, how wonderful it is that families can take advantage
of those kinds of policies that companies have, and in this
case, it was very good for the family.
As good as these things are, we still have to look at the
effects on the economy, and perhaps we'll think about making a
request that the GAO continue the study to see what the effects
are.
Dr. Kane, I have here a list of unemployment rates in
various countries. In Canada, the data shows that the current
unemployment rate is about 6.3 percent; in Demark, the study
shows the unemployement rate is about 3.9 percent; in France,
the data shows that the unemployment rate is about 9.8 percent;
in Ireland, 4.3 percent; in the Netherlands, 4.3 percent; in
New Zealand, 3.8 percent; in Sweden, 7 percent; in the United
Kingdom, 5.3 percent; and in the United States, about 4.5
percent.
You said something in your testimony that I found quite
interesting in that, at least I got the impression, that you
were saying that these numbers don't always accurately reflect
the rate of unemployment in various countries. Can you expand
on that?
Dr. Kane. Yes, sir, there are a couple of reasons that
unemployment rates don't reflect the situation. One is that we
try to make them comparable across countries, but also being
unemployed, as everybody understands, can be a sense of shame;
so a lot of folks will say, well, I'm not in the labor force
right now, or they will actually get out of the labor force
because the environment is not good. They'll go to school or
they'll go abroad for awhile.
So, it's important to look at countries on a case-by-case
basis, which I emphasized when we had Johnny Munchammer write
this chapter in the ``Index of Economic Freedom.'' He's from
Sweden, and he'll give you that sense that Sweden does many
things right, but their labor markets, they understand, are too
rigid.
The second perspective that I want to emphasize is, there
is a correlation between unemployment and labor freedom. More
labor freedom means more employment, lower unemployment rates,
period, across a wide set of countries.
But the bigger issue is income per person. When the average
income per person in the United States is around, say, $35,000,
and in a comparable European country it would be closer to
$30,000, you're talking about a working family here; it's
$70,000 per household and that would be $60,000, if European-
style rigidities were in place.
And I don't think anybody in the Congress wants to ask
Americans to take a $10,000-a-year pay cut. And that's part of
the problem.
Benefits come, especially mandatory benefits, come at the
expense of take-home pay. So we can force companies to give
benefits, but that will just continue to decrease wage growth
in the United States, and that's not a smart direction for us
to go in.
Vice Chair Maloney. Thank you. I want to thank my colleague
for his comments when he mentioned that this is very much a
family issue, a male/female issue, and that he would support a
GAO report that looks at American policies, and I think that
would be a good followup. I'd love to join him in such a
request, if you would like to, and move forward with that.
I agree that they did not look at American policies. I
wanted them to, but they felt that looking at the foreign ones
was what should be in this report, so I would like to support
the gentleman's suggestion and ask the GAO to go forward with
American policies. I think that could be helpful.
I'd really like to hear Dr. Gornick's response on the
growth in the unemployment rate argument and the
competitiveness, but I would really like to begin with Dr.
Kane, further, and have Dr. Gornick comment on her third chart
that she presented which places the United States at the bottom
of countries offering paid leave, with zero days off of work
for new mothers.
I find that embarrassing, that the most properous country
in the world doesn't do more to support our American families,
although we make public statements all the time that we support
them. But if you look at the policies, they're practically
nonexistent.
I don't think I've had the opportunity to vote for another
pro-family bill since the Family and Medical Leave Act, which
was one of the first bills that I voted for when I came to
Congress. It was very important to me, as I was terrified of
losing my job when my children were born and had difficulty
balancing work and family my whole career.
But as Dr. Kane has pointed out, there are other critics
that have said that we can't afford to implement these
policies, because they're expensive and would hamper U.S.
growth and lead to unemployement; yet in Ms. Brown's report,
other countries have managed to implement a variety work-family
policies, including paid sick days, paid family leave, flexible
work schedules, while remaining competitive.
So my question, first to you, Dr. Kane--I'd like Dr.
Gornick to have the last word--but why can't we do the same and
remain competitive? Remaining competitive is very important to
this country.
We lead the world in so many areas, and we want to continue
leading the world, but other countries are competitive too and
provide more flexible family schedules. Quite frankly, now
they're saying London is extremely competitive to our financial
markets in certain areas, yet they have a flexible family leave
schedule and they have many other work-family policies that are
flexible, yet I would say they're a competitive country.
Dr. Kane. Yes, ma'am.
Vice Chair Maloney. In fact, they're beating us in a lot of
areas. So, you know, your comments on that and then yours, Dr.
Gornick.
Dr. Kane. Yes, ma'am, I think that's a wonderful question
in light of where other countries are competitive. It tends to
be where they're freer. I mean, in our Index, the U.S. economy
is 82 percent free, and even though it's a high score, we have
weaknesses, and I think many people point to the new
requirements on our financial markets under Sarbanes-Oxley, as
being so onerous that a lot of the IPO market is, in fact,
looking for other venues where there's not as much red tape and
government mandates.
I think the question of FMLA versus a new proposal is that
FMLA didn't require the leave to be paid. If you require the
leave to be paid, well, that's an unfunded mandate on a
company, and if it were the Congress that were going to say,
well, we'll pay for the leave, then you're talking about higher
taxes.
I think the relationship between----
Vice Chair Maloney. I believe California paid for it with a
social insurance program that was the responsibility of the
employees.
Dr. Kane. Yes, ma'am. So, I think you could do it with
higher taxes. The main problem that I have with that would be
that higher taxes are also correlated with lower
competitiveness, and you end up driving capital and jobs
overseas.
And, instead, if you try to force companies to foot the
bill, they'll pass that on either to consumers, or they'll pass
it on to their workers, which is most likely.
When we've seen benefits rise, total compensation is
keeping pace with productivity, but take-home pay isn't because
the benefits are just taking off, and we're talking about a new
benefit of forcing a company to give a benefit, which, we all
might agree, is a good one.
I think the easiest way to think about this is, we could
reqiure every company to give fresh-squeezed orange juice and
vitamins to their workers, and they will; but that will cost
them something, and it will come out of the workers' paycheck.
I think that if Americans had the choice to have higher pay
or higher benefits, they would take higher pay and make their
own choices, and that's what we have traditionally done as a
free society.
Vice Chair Maloney. Dr. Gornick.
Dr. Gornick. Thank you very much, Representative Maloney.
There's a great deal to say, and Dr. Kane, with due respect, I
really do disagree with quite a bit of what you've said, and I
would look forward to an opportunity to sit down for a couple
of hours with some other economists who would also disagree
with you.
This is, of course, a very complicated discussion, but let
me say a few things: As Dr. Kane has pointed out, the United
States does have high GDP per capita, and it has high GDP per
worker.
I would remind you of the first chart that I put up. I'll
just hold it up. We're also working--on average, our employees
are working 20 to 35 percent more hours per year than many of
these workers in other countries, so I would hope that we would
have more output per worker.
He says this is not a good measure, that the output per
worker hour is not a good measure, but I would argue that it
is. When we shift to output per worker hour, the United States
falls to eighth place.
Why is that an important measure? Because that bears on the
topic that we're discussing today, which is worker productivity
and the efficiency of the workplace. I think we're on the
diminishing returns portion of the hours distribution.
I also think it's the case--you know, we could push these
hours up. I can imagine a policy configuration that would push
American hours up to 2,000 or 2,300 or 2,500. We would, indeed,
get richer and richer. GDP per capita would rise, rise, rise;
but God save America's families and our children.
I don't think output per worker is the right measure. It
takes no account of the value of time.
I also disagree on a number of issues about unemployment.
I'm holding the statistics in front of me, as well.
There are very few countries in Europe that have
unemployment rates that are twice the United States--at this
moment, only the Slovak Repubic and Poland. There are several
countries in Europe with unemployemnt rates that are lower.
They vary enormously. Much more importantly, there is
absolutely no evidence in the economic literature that ties any
of the policies that we're discussing today to rates of
unemployment, or to rising rates.
There is, indeed, a policy story connected to unemployment,
and it's not these policies. There are issue about wage floors,
issues about the length of unemployment insurance, about
disability and so forth. It is not these policies.
Between 1985 and 2002, while the European economies
recovered--they have had unemployment problems, there's no
question, but while these economies recovered and the
unemployment rates came down, these programs throughout Europe
grew steadily during those years.
During those years, new programs were put in place for
maternity leave, for paternity leave, and child care, and
expenditures rose in almost every European country.
The flexible work laws are new. They were put in place in a
wave in the early 1990s and late 1990s, and again in the early
2000s, so there is absolutely no economic evidence that
suggests that these programs that support working families,
that allow people to combine work and care, there is no
evidence that these programs are at all the culprit in any of
the unemployment problems that we've seen in Europe.
Ms. Bravo. Plus, let's be real about unemployment. My
husband teaches in the center city of Milwaukee. Go tell his
kids that the unemployment rate is 4.5 percent. It's 59 percent
for African American males in the city of Milwaukee.
You know, there are lots of people who are discouraged
workers who have not been able to find work, who are not
counted. It's way under-representative, and particularly for
certain communities.
It's a national crime that needs to be addressed.
Vice Chair Maloney. Thank you. My time has expired.
Representative Saxton.
Representative Saxton. I think you're all correct. This is
a fairly complicated subject when you try to determine what the
potential impact on the economy, generally might be.
I was reminded when our former colleague, Connie Morella,
brought in the folks from the Organization of Economic
Cooperation and Development. We were talking about
international economic policies and how it's very difficult to
get an accurate comparison of what goes in one economy by
looking at certain segments of the economy, because there are
so many different measurements that we use to try to get a
handle on the impact of social programs or family programs.
Just one example: I pointed out earlier that the
unemployment rate, as reported in Denmark, is just under 4
percent. But it's also interesting to point out that 4.5
percent of the workforce in Denmark is engaged in what are
sometimes referred to as goverment make-work jobs, subsidized
jobs, or other government training.
And so we've got a category of people, 4.5 percent of the
people in Denmark, where we don't have those programs in the
United States, or we don't have anywhere near the significant
number for those programs that Denmark has in the United
States.
And so, I think it would be extremely important for any
study to take all of those kinds of things into consideration.
Dr. Kane, would you compare labor freedom, as calculated in
the most recent Index of Economic Freedom, and actual labor
market performance in terms of employment and real income
growth in the United States and each of the countries the GAO
studied over the recent years?
Dr. Kane. Yes sir, thank you. I wish I had brought a copy
of the Index with me so I could refer to it, because we go
through all of this.
Let me say specifically, to answer your question, the data
that we've used on labor freedom, in defining this variable,
comes from the World Bank; so it's not my opinion, it's not my
staff's opinion at the Heritage Foundation, or the Wall Street
Journal.
This is the World Bank's Doing Business Report. It's been a
runaway success. A lot of economists think it's a real
breakthrough.
What they've done is looked at a number of categories and
labor markets. The easiest way to compare it, though, or to
think about it, is what they've done also with business
freedom.
They ask, how many days does it take to start a new company
in every country? And this is a real problem.
For example, in India it's very difficult to start
companies and to shut down companies. You have to wait months
to get a license.
Those same sorts of requirements they look at in labor
markets, the minimum wage, and another is how difficult is it
to lay people off.
In the United States, a dominant feature of the labor
market is at-will employment, so it's easy to break a contract
if a company becomes unprofitable, to save the jobs, at least a
few of the jobs.
In Europe, it tends to be much more difficult. There are
mandatory severance pay packages.
So the principles are consistent across different types of
labor freedom with what we would call mandated paid family
leave versus unpaid family leave.
And the relationship is clear. We found a 20-percent
correlation between higher labor freedom and lower levels of
unemployment, so it's not a perfect correlation. It's one of
many variables, but you can't dismiss it. It's part of the
literature.
I think I pointed out that 2005 study by Stephen Nichol.
Economists are changing their minds because the data is coming
in and supporting this new view.
And then again, to the central question, I think that what
we've come up here to disagree about is the per-hour
productivity and that the United States is not the leader in
that. As I pointed out, the U.S. market is freer and it's open
to new workers; whereas in a lot of European countries, they're
not open to their new workers.
Their new workers are going to be less productive, so, of
course, we'll have a lower productive rate. We're also
traditionally open in this country to immigrants.
We all know right now--at least I think I've heard in the
news, that there's an illegal immigration problem, that there
are 12 million people here who are undocumented.
Now, I would argue that those are good for the U.S.
economy, that they help us specialize, in fact, which could
increase productivity. But those 12 million immigration workers
tend to be low-skilled and they tend to be less productive and
they're going to productivity statistics.
So if we want to ramp up our productivity, we could just
keep all the low-skilled workers out of the country and we
could keep all of the low-skilled workers unemployed and in
government training programs, to your point.
But I think, overall, we'd ask for higher wages, higher
productivity for the people who are working, and higher take-
home pay.
Representative Saxton. Thank you. Madam Chairlady, I'm
afraid I'm going to have to leave here to go to another
commitment. I want to thank each of the witnesses for being
here with us today.
I'm doing a personal study that has to do with birth rates
in various countries. Low birth rates, particularly in Europe
and Japan, are huge problems, and to the extent we can do
things to encourage families to have children, a great thing.
At the same time, as Dr. Kane points out and as I believe
also, we have to do it within the context of what's good for
the economy. Thank you.
Vice Chair Maloney. I thank the gentleman, and I will
continue questioning. I hope you won't object to my continuing
to ask questions.
Representative Saxton. You're the Chairlady.
Vice Chair Maloney. OK. And I look forward to joining you
on your idea of the future GAO report, so thank you.
I'd like to ask Dr. Gornick, the first chart in your
presentation points out that Americans work longer hours than
their counterparts in other countries, yet by other indicators,
we know that Americans are less productive than workers in many
other industrialized countries.
And my question is, would enhanced work-family policies
enable U.S. workers to work less and become more productive,
and if so, in your opinion, which policies would most directly
contribute to worker productivity?
And I'd like everyone to jump in on this second question:
In your opinion, which are the most common work-family policies
that exist in other countries, and which of these policies are
more easily--which of them would be easily adapted to the
United States, and which policies are the most cost-effective
as we confront an $9 trillion debt, a record in our country?
Vice Chair Maloney. So beginning with Dr. Gornick, and
thank you for preparing these very, very helpful displays.
Dr. Gornick. I think, to get back to the issue of
productivity, that it is very complicated. I sort of apologize
for continually saying that. I think we really need to all take
a good look at this literature, and I would definitely welcome
GAO to take this on as their next question--to look at the
micro- and macroeconomic effects.
As to productivity across countries, there is a lot of
contention about the numbers and how this is best measured.
The argument that Dr. Kane made that the United States is
less productive than other countries per worker hour because of
the composition of the labor force has actually been countered
by a fair amount of empirical evidence that controls for worker
characteristics.
So I think I would just return to the point to say that we
are not at our productivity peak. There are other countries
that are certainly as productive, or seem to be more productive
with this whole package of policies in place. These programs
operate as a whole allowing people to choose between time at
home and time at work, and so forth.
Let me just say a few words about the second question that
you asked. I think that clearly the political economies in
these European countries are very different than in the United
States.
We would never make the case for importing the entire
social welfare system in any European country to the United
States. That would be nonsensical politically. But we can look
at specific programs very fruitfully, and I think the ones we
are discussing today are exactly the ones that we should be
looking at because they are exactly relevant to what is on the
horizon and what is underway at the State level in the United
States today.
Consider paid family leave. We have an infrastructure in
place in five States, now six, for unpaid family leave. We have
an excellent infrastructure in place already at the national
level: the FMLA.
We have a social insurance infrastructure which is FICA. We
could easily add a social insurance financed wage replacement
for paid family leave.
We have the apparatus in place. It is just missing pieces
like the wage piece which is huge. This is what I spend a lot
of time doing, holding, you know, really nuts-and-bolts
discussions to legislators and policy designers about, for
example, how do you design the benefit level? How to design the
eligibility? That is where the lessons are.
I would say the same for child care and pre-K. We have
rudimentary forms of all of these programs in place. What we
can learn from Europe are very detailed lessons about
financing, about quality control, about staffing.
Likewise, we have the Fair Labor Standard Act. We do
protect workers' hours. We could add part-time parity, or
flexible rights to many, many State and national laws.
So I do not think these comparisons are at all out in outer
space, as it is often suggested. There are very concrete nuts
and bolts lessons that we can take tomorrow from many of these
examples that would apply specifically to the policy areas that
we are talking about today.
Vice Chair Maloney. Ms. Bravo. Others who would like to
comment.
Ms. Bravo. Sure. I mean, I agree with what Janet said, and
I want to just add a couple of things. We should remember that
low-wage workers are not all low-skilled. They are just all low
paid.
Take child care workers, for example. Many of these are
very highly skilled, and yet they earn poverty wages. We can't
talk about their pay or their productivity as if it is related
to their skill. It is related to a market that undervalues
women's work and caregiving.
So that is one of the things we have to take into account.
Likewise, the word ``average.'' Whenever I hear ``average''
I think: if Bill Gates came into the room, we would all be
billionaires, if we talked average. But it would not really
change any of our pocketbooks.
So the income gap in this country between the very rich and
everybody else skews that figure, and I think it is important
to remember that when we are talking about ``per capita
income.''
Vice Chair Maloney. Why is the issue of work/family balance
not a ``woman's issue,'' but a ``parents' issue''? And how can
we better incorporate men into taking part in the care of
children? And why is it important to think about this as a
``parents' issue''?
Any comment? Maybe Dr. Kane as the male on the panel should
begin first, with Father's Day approaching. Fathers are very,
very important. Your comments.
Dr. Kane. I think there is definitely a distribution of
parenting in the United States, and I definitely try to be one
that is there as a soccer coach for my kids, I'm hoping one of
the good soccer coaches, but I try to think of the government
policy that made me this way, or that created the many flaws
that I'm sure my wife would point out.
I think it comes down to more family than government. But I
will take you up on your challenge, ma'am if I may, with your
previous question of what policies to adopt from other
countries.
We have not had nearly the conversation here about child
care that we might have. I find myself in agreement that there
does seem to be a public good aspect to child care. How we go
about instituting that in the United States would seem to
indicate it should definitely be a State prerogative, so maybe
we should not even discuss it here.
But I think it gives us an opportunity to listen to the
children as one of the panelists said. I absolutely agree. What
I find frustrating though is sometimes children in the United
States--and I include mine here--get a teacher that maybe is
not as good, and yet they have no choice to change their
teacher. They have very little choice to change their school.
If we do have a child care program--and recognizing the
public good aspect--I hope it is one where it will emphasize
vouchers where the children, and the mothers, and the fathers
are empowered to pick whichever child care program they want,
not have a one-size-fits-all government: We'll assign you your
school; we'll assign you your teacher. Americans would reject
that if it were cars, or T-shirts. It seems bizarre to me how
we allow the government to give us our education without having
childhood choice. So that is one.
I would look for child care around the world of how other
countries are doing it in a market-oriented way.
And the second is, I have to say this, Hong Kong does not
have a minimum wage, and yet they have seen their wages grow
much faster than Mainland China's over the last 30, 40 years.
So there is something to be learned from countries that
have no minimum wage requirements and yet see wage growth that
accelerates. It is a lesson I think that we still have not
learned in this country, although I think we are about to have
a negative experiment with raising it at the Federal level and
we will see some States have to end up experiencing higher
unemployment rates, whereas other States will not. So we will
see a natural experiment play out over the next few years.
Vice Chair Maloney. Other comments on encouraging fathers
to be more of the work/family balance? Any comments by anyone?
Ms. Wallace. I would like to just add, at SAS, maybe
because we have been doing this for such a long time; our
culture is such that it tacitly supports fathers as well as
mothers to do what is needed for their families.
We see--for example we had 188 Lunch 'N Learn seminars last
year, a lot of which were parenting seminars. We also do a lot
around elder care, an issue that certainly is coming up an
awful lot in work/life balance these days.
But we find that parents, when we talk about parenting
programs, we're talking to fathers and mothers. And fathers
come to our seminars because the culture supports it.
I think that there is an antiquated idea of still it being
disproportionately a mother's responsibility, and working
mothers having the bigger struggle.
When a child is sick at school--and I used to be a public
school teacher--we called the mother first. And I really
encourage everybody to just look, if you are not conscious of
it, that you may also be contributing to that conversation by
focusing too much on working mothers.
If you want to support working mothers, support working
fathers. Have parenting programs for fathers. Reach out to
fathers specifically and give them the permission to come to
these things.
The very nature of--we have a bricks and mortar commitment
to working families because we have child care centers onsite.
We have fathers' activities. We have fathers come pick up their
children and bring them to lunch. We have seminars that
specifically focus on fathers and male caregivers, by the way.
We just try and get that into the vocabulary actively all
the time to give that overt and tacit permission that fathers
are part of the equation instead of just focusing so much on
mothers.
Vice Chair Maloney. I would like to ask Kay Brown: the U.K.
Department of Trade said that the right to request law was a
cost-effective means to help women return to work, and that
some employers have chosen to extend the right to all
employees.
In your report, do you know what percentage of employees is
granted the request for a flexible schedule and how this
impacts employers' operations? Is there any record of
complaints of discrimination from employees regarding having
made this request?
Ms. Brown. Can I say one thing about fathers first?
Vice Chair Maloney. Sure. Absolutely.
Ms. Brown. I just wanted to mention that in the countries
that we studied, in addition to providing maternity leave
benefits, that is, paid maternity leave, ranges from 12 to 52
weeks in the different countries that we looked at, there was
also an element in a number of the countries where they had
leave explicitly reserved for fathers, albeit a lower number, 2
days in the Netherlands to 2 weeks in Denmark.
To the extent that those countries have leave targeted to
fathers, what they found was that in those cases fathers were
more likely to take that leave.
In other cases, there is parental leave where the mother or
the father can make decisions together about what makes sense
for the family as far as who would take the leave.
Often in those cases, unless the wage replacement is very
high, the mother ends up taking more of the leave. But these
are some interesting little twists of the policies that they
have implemented that do both allow and encourage the father to
take a stronger role.
Vice Chair Maloney. And as you know, the Family and Medical
Leave Act applies to both men and women.
Ms. Bravo. Could I just add something to that before you
come back on the right to request flexibility? In 1995 I was
able to go to the Fourth World Conference on Women in Beijing--
33,000 people from around the country--and I happened once to
sit on a bus with a guy from Norway and a guy from Sweden who
were about to go lead a workshop because that was the year that
the law switched to what we call ``Use It Or Lose It,'' saying
to men: Of the 11 or 12 months leave in this country, men must
take at least 1 month or the family will lose the month.
And they contended, and they have studied this, that when
the leave was unpaid, very few men took it and there were not
many role models. Then the leave was paid. More men took it,
but still not enough. And now that it was going to be required
to take at least that leave, they believed the majority, vast
majority of men would take it, and that it would change their
relationship to their children, not just in infancy, but
throughout their lives. And this is what they have continued to
study and absolutely support.
Dr. Gornick. I would just like to add to that as well, just
to clarify Ellen's comment. Of course the leave is not required
of the fathers, it's just as you mentioned, if it is not taken
it is lost to the family. That is exactly the way the Family
and Medical Leave Act is structured, you know, his 12 weeks are
his.
Policy supports do matter. They are not the strongest
determinant. Of course, culture and employer practices are very
important. But there is a lot of research on this in Europe,
and we do find that the more paid leave that is available, the
more that it is targeted specifically to fathers and cannot be
transferred to their partners, and the higher the pay, the much
higher the usage.
Mr. Saxton told the nice story about the father who was on
``maternity leave;'' I would think he might have called it
``paternity'' or ``parental,'' I don't know. But only 7 percent
of fathers have paid leave in this country provided voluntarily
by their employers.
The States that provide temporary disability insurance,
expect for California, including I am afraid, I am sad to say,
New York, exclude fathers from the benefits. So we have
policies that exclude fathers.
In Europe, we do see in some countries a much more even
division of labor in paid and unpaid work. It is partly because
of benefits for fathers, and it is also because supports for
maternal employment are strong. When moms go to work, dads
pitch in at home. The less moms go to work, the more dads go to
work.
So strengthening womens employment also strengthens men's
opportunity to care for their children.
Vice Chair Maloney. And now, Ms. Brown, on the right-to-
request law.
Ms. Brown. Yes. In the United Kingdom, employees were given
the ability to request changes in either the hour or the
location of their work. And the intent was to allow them to
care for children under the age of 6 or for certain adults in
certain cases. And the employers would have the right to refuse
this, if this caused great harm to their business, in their
views.
What we heard when we were there was that this was
initially something that concerned the employers, but over time
it was seen as a cost-effective way to support workers and give
them some flexibility.
And that in fact we did hear that in addition to allowing
employees to care for children under 6, they did expand it to,
in many cases, allow any of their workers to make these
requests. And that as far as we know, I have not seen data on
the actual numbers, but we understand that employers have been
able to accommodate most of the requests that have been made.
Vice Chair Maloney. Were there any reports of
discrimination against employees for making the request?
Ms. Brown. I am not aware of any.
Vice Chair Maloney. That is good to hear.
I would like to ask Ellen Bravo, Dr. Kane suggests that
mandating paid leave would result in employers discriminating
against young women.
First of all, do you think that is true? And could not that
problem be solved by funding the paid leave through a social
insurance mechanism such as the California model?
And also, you mentioned in your comments this morning that
employers have many options for implementing cost-effective
policies that give workers more flexibility. Can you give me
some of those examples of some of those policies?
Ms. Bravo. Sure. I will start with that, actually. One of
the most important and cost-free ways of providing flexibility
is flexible scheduling--letting people vary when they start and
end their day, what hours they work, letting them take off and
make up the time if they have an appointment at school, letting
them swap shifts. I mean, those nurses assistants, that problem
could have been solved by letting people swap shifts.
And of course even low-wage workers, as Barbara Ehrenreich
reminded us, no one is ``unskilled.'' Everybody needs time to
learn the specifics of the job and get up to speed. So keeping
people on really does save money.
On other things, the kind of programs that SAS offers of
information and referral are often very low-cost and really
helpful to people to find resources for, for example, elder
care. Just knowing what community resources exist that can
prevent a parent from having to go into a nursing home, and
give, you know, the kind of help and support that so many
families need when they are dealing with declining health in a
parent. So there are a lot of those kind of programs.
One of my favorite programs for dads is the L.A. Department
of Water and Power. You know, it is like 78 percent male. They
have a Daddy--they have various ways of supporting men. One of
them is mentoring; supporting men to be good fathers by having
other men mentor them.
Doing what Laura Wallace was talking about, providing a
culture where this is explicit, as well as tacit approval of
men doing this. They give beepers to men in the field when
their wives are expecting. These are often men out reading
meters, so that they can quickly come back.
And they give classes on breast feeding to men so that they
will be most supportive of their wives. Why? Because they found
that it cuts the health costs for babies when they are breast-
fed. They literally figured out for every dollar they spend
that they save 2\1/2\ dollars from the combination of things
that this provides. But they also think it is good to do it
because they want strong families, and that is a good value to
support.
Vice Chair Maloney. Thank you.
Ms. Bravo. Let me just say, on the discrimination against
women, first of all, as we all know, there are men who are
fathers, who are sons, who are husbands, who may very well use
this time, or who may get hit by a drunk driver and need to
take time off. So it would be foolhardy of employers to think
they are saving money by not hiring women because only women
would use these policies, because they wouldn't.
Secondly, there is discrimination against young mothers--
let's be honest--and what we need to do is to make it not
allowed. We need to enforce the laws that exist. And we also
need to--you know, only Alaska and the District of Columbia
prohibit discrimination on the basis of family responsibility.
That is something that should be a nationwide new workplace
standard.
Vice Chair Maloney. Dr. Kane, if we were to leave the
market and businesses to handle this issue, how would we
address the problem of low-wage workers rarely receiving the
same benefits received by highly paid workers, despite the fact
that both kinds of workers have family obligations?
I think this is a serious question. I have many
accomplished friends, and I was telling one about a problem
women confront, and she said,``Well, you know, I was offered
time off and any arrangement that I wanted and treated
nicely''--but she is a Pulitzer-winner author. So her company
is going to let her do anything.
So I mean the question of the imbalance between a highly
educated award winning employee and a low-wage worker, both of
whom have the same responsibilities, and the importance of
being good parents. Everyone agrees men and women are
incredibly important to the next generation and are really
helping to grow the economy and the health of our Nation
through their children.
So, Dr. Kane, the discrepancy, the unevenness there?
Dr. Kane. Yes, ma'am. I think about this all the time,
actually. Travelling abroad is really--I think everyone who has
travelled abroad knows when you see some of the poverty that
still exists in the world, the fact that slavery still exists,
and trafficking of humans, especially young women, is just
terrible.
How do we make a better world? You think, in this same
context I used to ask my students as a professor: If you went
back 300 years ago, you would see the difficulties in the
economic situation then. And how do you fix that?
After years of thinking about this, and scholars like Jared
Diamond who wrote Guns, Germs & Steel, when you think about how
societies change, it is by growing the economy.
So I have become a bit of a growth purist: What are the
policies we can get to ramp up productivity, and as you point
out, for everyone? And the key is: Human capital.
If there is a failing that we have as a society, it is that
we have left a lot of our inner city kids behind. They do not
have the human capital. They do not have the education. The
fact that they is still an illiteracy problem in the United
States.
We have to attack those policies, those education policies
I think, to really help even the playing field.
Vice Chair Maloney. But having a fair work/family balance
would help in all of these areas and help parents be there when
their children are sick and help parents be there for the
parent-teacher conferences to help pull up the grades of the
kids.
Yet, we have such inflexibility--if your child has a
doctor's appointment, you cannot go with them and keep your job
in America, in many cases. In many cases, until we passed laws,
if you had a child you were fired.
I remember when I had my child, I called up for what the
family leave policies were and they said there were no family
leave policies. People just leave.
[Laughter.]
Vice Chair Maloney. And then they said--I'm having a baby--
they told me that I should apply for disability. That is the
only program out there. And I do not consider a child a
disability. On principle, I would never apply for disability.
But I am saying the policies are really not there. You
speak eloquently about helping the disadvantaged, but we don't
have a framework in our culture to help the families who want
to help their children. You know, I was a middle class
housewife. I could not go to the doctor with my child. I was
told I would be fired when I had a baby originally.
So it is very rigid out there. And it is very, very hard
for most American families. And as a country that touts
families all the time, we have very little structure there.
So, you have been very strict about not having flexibility
in these family structures, but then on the other hand, you
talk about we've got to help all these people. Well how can you
help them if the working people cannot go to a doctor's
appointment? Can't go to a parent-teacher conference? Can't
stay home if their kid is sick with whooping cough?
Dr. Kane. I am very sympathetic to what you are saying,
ma'am, but I just think that mandating the fix and forcing
companies to adopt certain policies will backfire on us. That
is my concern.
I think the minimum wage is another way to think about
this. I wish everybody in America could make $10 an hour, but I
think if you force that minimum wage on people you will just
drive the folks that do not have that value in their per hour
capacity yet, you drive them out of the work force.
So I am afraid that is what we do, is we actually hurt the
people we are trying to help, and that is why I am advising
against pursuing this.
Dr. Gornick. Could I speak to this just for a moment?
Vice Chair Maloney. Could I just have Ms. Wallace answer
since you come from a company that is able to offer such
generous family, work/family policies while remaining
competitive in a truly difficult, tough industry.
What were the primary obstacles that you faced when
implementing these policies? And what advice would you give to
other companies interested in being highly competitive, and
growing the bottom line, but implementing these family
policies?
Ms. Wallace. Well, it is hard not to answer as a former
Head Start teacher first, but I will answer as a SAS H.R.
person.
First of all, we offer our benefits to every single
employee, including our grounds keepers, our cafeteria workers,
and our child care workers. They do have the same support
because we know that they have the same family issues, as you
mentioned.
In terms of obstacles, I know we are fortunate in that we
are privately held, and that we have a CEO that started from
the beginning walking the walk. I mean, he believed in it. He
pursued it. And it became not just a nice thing to do; he
believes that actually his employees are his best asset. And he
wants us to come back every day.
And so we didn't face a lot of obstacles, to be honest. I
think that there are people who have turned their nose up in
some ways, or said, oh, this utopian environment, you know,
it's because SAS has such deep pockets, or it's very
paternalistic.
And our answer to that is: We have such a low turnover
rate, no problem recruiting employees, and we have an
incredibly wonderful product that gets a 98 percent renewal
rate every year. So I can't----
Vice Chair Maloney. Well, Dr. Kane raised the point of
cost-effectiveness. That has got to go to the cost-
effectiveness of a company. We have to look at the bottom line
of it. And so let me ask the question in a different way.
If the government were to implement one of the policies
that you have at SAS, which one would you say is the most cost-
effective for the company and substantially benefits employees?
I mean, we have to take baby steps. We have not taken a
step since Family and Medical Leave policies, quite frankly,
that we passed in 1993. So if you were to recommend one cost
effective policy that possibly government could hold up as a
gold standard, as a goal or whatever, which one would you
recommend that is cost effective that helps the employees and
helps the company? Is there any one particular one?
Ms. Wallace. Well, let me see if I can untease----
Vice Chair Maloney. Then we will go to you, Dr. Gornick. I
know you want to get into this discussion, and I know you have
a lot to say.
Ms. Wallace. If I were to start some place, before even
policies go into place, I think I would start programmatically.
I would start to really leverage what is available in the
community and look at what your employees need and ask them
what they want.
In terms of our policies, I would have to say our health
care benefits are very generous. And our leave policies are
incredibly generous, as well. In fact, we do pay the FMLA. We
just do not see it abused. We do not cap our sick time. We
trust our employees. We look for patterns. If there is any
abuse, which there is very little, we might have a conversation
with them. But I would actually look at your sick care
policies, expanding it to family members.
Look at creating an infrastructure that really supports
people. One of our big cost savings is actually people who say:
If it weren't for our onsite elder care, they would have had to
take FMLA. So we are saving the company money by having a
social worker onsite who is a paid full-time employee to help
people with elder care issues, or our child care, or our
parenting program.
So it is hard to kind of tease apart which it is. I think
possibly our generous health care and our really generous sick
care would probably be the most cost effective, but it is hard
to pull it apart because it is so inculcated in our culture. I
am sorry not to be more specific.
Vice Chair Maloney. I know, Dr. Gornick, you had some
comments to make.
Dr. Gornick. I am glad that Dr. Kane raised the issue of
poverty because I think it is something in the backdrop that we
need to think about. So I do want to say a little bit about
low-wage workers and low-income families.
You know, when we travel abroad, of course in some
countries we see a lot of poverty and inequality which is
stunningly high. Of course, you know many Europeans say that
when they come to the United States.
One thing that really makes the United States stand out are
our exceptionally high rates of child poverty compared to all
of the countries in Europe. I am looking at a number of
statistics that I am holding in my hand here that come from the
Luxembourg Income Study.
We have very high child poverty. The rates are 5 and 10
times higher than in a number of countries in Europe. That is
true if we control for family structure and for employment. I
am looking at a graph here. If we just look at single-parent
families headed by employed adults, the poverty rate in the
United States is 45 percent. In other countries in Europe, it
is in the 20's. And in half the countries it is in the single
digits.
Why is there so much child poverty? A lot of it is because
we have a wage structure with a lot of low wages at the bottom,
and we transfer little cash income to families, especially to
those with children.
So this is an important issue, and it needs to stay on the
table. I do appreciate Dr. Kane's interest in other indicators
like business starts and employment to population ratios and so
forth, but we really do need to think about poverty and
inequality which is stunningly high in this country.
I say that just as a background to another comment----
Vice Chair Maloney. And growing, the gap.
Dr. Gornick. And growing, absolutely.
So, coming back to the question you asked about, the low-
wage workers, much research in this country has shown us a
stunning and I think embarrassing and really shameful fact,
which is that the distribution of voluntarily provided employer
benefits of all the things we are talking about is very, very
regressive.
High-skilled, highly educated women, as you have said, we
get--``we''--get almost everything we want. Low-skilled, or
less skilled, less-waged workers who tend to be in low-income
households get much, much less. That has been established,
whether we are talking about leave, child care benefits,
flexible work, and so forth.
I am not saying that is true within companies, but it is
true across the income distribution. So low-income families get
an absolute double whammy in this country, or actually a triple
whammy: low wages, few income transfers, and this voluntary
market-based system for work/family benefits which leaves them
out. And it leads us to an extraordinary level of inequity.
And think about America's children, because we are thinking
about child care. I know Dr. Kane has mentioned child care, and
I think I understand his perspective on that. I know Professor
Heckman and other economists have really come to think more
about the importance of public investments in children.
In the market-based system that we have, many, many low-
income children when they are 3 and 4 years old have no
schooling. Whereas, their high-income counterparts are in
excellent private preschools.
In a country like France, every single child is in school.
Primary school starts at the age of 3, and increasingly 2\1/2\
now. So we are really leaving children behind, and low-income
children are in a really tragic state in this country. And the
lack of work/family benefits for their parents is a big part of
the story.
Ms. Bravo. May I just add one thing about that? One of the
problems for low-wage families is how many women lose their
jobs because they have a sick kid.
So, in addition to the low wages, they have this lack of
being able to establish tenure on a job and accrue any assets.
And often those breaks in job retention may lead to eviction
and all kinds of other disruptions and make it much harder to
continue child care, et cetera. It really hurts the quality of
the health, education, and learning abilities of their kids.
The other thing is, what is really important, even high-
skilled and high-paid women often face the experience of having
a culture that discourages them from using the things they may
have.
The more we create a new rule, the more we say, if we value
families we cannot have family values end at the workplace
door; the more we make visible these problems and, for example,
create a new standard of paid sick days, the more we make it
possible for those women to say: Wait a minute. Why can't I use
this time? Why will that be used against me?
Vice Chair Maloney. Well thank you very much.
I would just like Ms. Brown to respond. Did you find that
comprehensive work/family policies enhanced labor force
participation of women, and in particular low-waged workers?
What did your report find?
Ms. Brown. Well, I can specifically address the issue of
paid leave. Yes, we did find that in general overall paid leave
does encourage and increase women's participation in the
workforce.
However, we did find some differences between low-wage
workers and higher paid, higher skilled women. When leave is
unpaid, often women are unable to take the leave, if they're
low paid.
If there is a combination of paid and unpaid leave, which
happens in a number of these countries, it is often that the
low-wage women would be returning to work at the end of the
paid leave, whereas more affluent, more highly paid women would
be able to stay out longer until both the paid and unpaid
portions of their leave would be expired.
Vice Chair Maloney. Well, I do want to respond to what Ms.
Bravo and Dr. Gornick were talking about, investing in early
childhood education. Just about 3 weeks ago, we had a forum led
by Nancy Pelosi on investing in early childhood education, and
it is an initiative that Representative Miller and others are
working on putting forward in this Congress as a policy. So we
are working in that area.
I really want to thank all of you for coming. I think this
is a tremendously important public policy issue to America.
Nothing is more important than our children and our
families, yet from your testimonies today, we hear we are not
really providing the support and flexibility that American
families need.
I want to thank all of you. I have learned a great deal
from you, and I look forward to working with you in the future
to advance policies that are cost effective and competitive,
but also invest in our families and help men and women handle
and balance family and work. Thank you so much for coming and
for your work in this area. Thank you very much.
The meeting is adjourned.
[Whereupon, at 11:46 a.m., Thursday, June 14, 2007, the
hearing was adjourned.]
Submissions for the Record
=======================================================================
[GRAPHIC] [TIFF OMITTED] T7694.001
Prepared Statement of Representative Carolyn B. Maloney, Vice Chair
Good morning. I would like to thank Chairman Schumer, who couldn't
be here today, for allowing us to hold this hearing on why work-family
policies from abroad make good economic sense for the United States.
This is the first of many hearings that the Joint Economic
Committee will hold as Democrats in Congress work to develop workplace
standards for the 21st Century that help families balance the competing
demands of work and family responsibilities.
Today, we are releasing the findings of a Government Accountability
Office (GAO) report, entitled ``Women and Low-Skilled Workers: Other
Countries' Policies and Practices that May Help Them Enter and Remain
in the Labor Force.'' This report is the third in a series of reports
that I and several of my colleagues, especially Rep. John Dingell, have
requested to examine women's contributions to the economy and the
obstacles that they face in the workplace.
This new report examines the policies that a number of other
industrialized countries use to support working families and to foster
greater labor force attachment for low-skilled workers, particularly
women.
The GAO report shows that the United States lags far behind other
industrialized countries in providing paid leave for care-giving
responsibilities, support for obtaining quality child care, or allowing
flexible work schedules.
The most astonishing and perhaps the most shameful fact is that the
U.S. is the only industrialized country that does not offer paid leave
for new parents.
It's been more than a decade since the Family Medical Leave Act was
signed into law, granting most workers job protection for unpaid leave
to care for a new child or seriously ill family member.
But the reality is that most U.S. workers cannot afford to forgo
pay for any length of time when care giving needs arise. For most
American families, it takes two incomes just to make ends meet in the
face of stagnant wages and high costs for energy, child care, and
health care.
That's why I have re-introduced legislation this Congress that
expands FMLA to smaller firms, provides paid leave, and permits leave
to be used for parental involvement in their children's school life.
I hope we can all agree that many of the work-family models we see
from abroad would benefit U.S. workers and that they are more important
than ever. What we will explore today is how stronger work-family
policies in the U.S. would benefit businesses and the economy.
More and more, businesses are finding that doing right by workers
is good for the bottom line. SAS, a cutting-edge North Carolina-based
software company, reports that their work-family policies result in low
turn-over in a volatile industry, high worker productivity, and an
estimated $75 million in annual savings as result of making these
investments in their employees.
As Dr. Gornick's research shows, many of the countries with strong
work-family policies also have the highest GDP per-hour-worked and
unemployment rates that are the same or lower than in the U.S.
Some will argue that we can't afford these policies. As Ms. Bravo
will point out, we can hardly afford not to update our policies in
order to build a 21st Century work force.
And workplace changes that help families don't have to be costly.
Perhaps the best example of this is the UK's policy granting
workers the right to request a flexible schedule. Under this system,
employers may refuse flexible schedule requests, but only a small
percentage has been denied. I'm working with Sen. Kennedy on
legislation that we hope to introduce this summer that would allow this
sort of flexibility in the U.S.
Research also shows that other industrialized countries are doing a
far better job caring for young children. As a follow-up to Speaker
Pelosi's National Summit on America's Children last month, the
committee will be addressing the issue of early childhood care and
education in the U.S. in greater depth at a Joint Economic Committee
hearing on June 27th.
If we as a country truly value families, then we need new policies
and we need to make the kind of investments that other countries have
already recognized are necessary to support working families.
I want to thank all of our witnesses for being here today and look
forward to their testimony.
[GRAPHIC] [TIFF OMITTED] T7694.002
[GRAPHIC] [TIFF OMITTED] T7694.003
[GRAPHIC] [TIFF OMITTED] T7694.004
[GRAPHIC] [TIFF OMITTED] T7694.005
[GRAPHIC] [TIFF OMITTED] T7694.006
[GRAPHIC] [TIFF OMITTED] T7694.007
[GRAPHIC] [TIFF OMITTED] T7694.008
[GRAPHIC] [TIFF OMITTED] T7694.009
[GRAPHIC] [TIFF OMITTED] T7694.010
[GRAPHIC] [TIFF OMITTED] T7694.011
[GRAPHIC] [TIFF OMITTED] T7694.012
[GRAPHIC] [TIFF OMITTED] T7694.013
[GRAPHIC] [TIFF OMITTED] T7694.014
[GRAPHIC] [TIFF OMITTED] T7694.015
[GRAPHIC] [TIFF OMITTED] T7694.016
[GRAPHIC] [TIFF OMITTED] T7694.017
[GRAPHIC] [TIFF OMITTED] T7694.018
[GRAPHIC] [TIFF OMITTED] T7694.019
[GRAPHIC] [TIFF OMITTED] T7694.020
[GRAPHIC] [TIFF OMITTED] T7694.021
[GRAPHIC] [TIFF OMITTED] T7694.022
[GRAPHIC] [TIFF OMITTED] T7694.023
[GRAPHIC] [TIFF OMITTED] T7694.024
[GRAPHIC] [TIFF OMITTED] T7694.025
Prepared Statement of Dr. Janet Gornick, Professor of Political Science
and Sociology, City University of New York Graduate Center, New York,
NY
INTRODUCTION
Good morning Chairman Schumer, Vice Chair Maloney and members of
the Committee. I appreciate this opportunity to testify at this timely
and important hearing to discuss work-family policies in the United
States.
I've spent several years studying work-family policies in the U.S.,
relative to those in place in other rich countries. When I say ``work-
family policy'', I'm referring to public policies that help parents--
both mothers and fathers--to balance the competing demands of paid work
and family care.
In my brief comments today, I'll draw on findings from several
collaborative projects. Most of the work that I'll present was reported
in my 2003 book, Families That Work: Policies for Reconciling
Parenthood and Employment.
My co-author--Marcia Meyers--and I began the research for our book
with a question: ``How well are American working parents and their
children faring, in comparison to those in other high-income
countries?'' We compared the U.S. to Canada and 10 countries in western
and northern Europe.
Our conclusion was: ``Not all that well''.
First, American working parents work exceptionally long hours.
Second, American parents report higher levels of work-family conflict
than do parents in many other countries. Third, gender equality in
employment is only fair-to-middling. And, fourth, our children are not
doing especially well. An exceptionally large share of American
children lives in poverty. Our children also fare poorly on a number of
other indicators--ranging from infant and child mortality, to school
achievement, and adolescent pregnancy.
Parents in all countries face competing demands on their time. But
American families struggle more than families elsewhere--in part
because American public policy offers less help to them than what's
available for working families in many other countries.
In my few minutes here today, I'm going to give you some highlights
from our research about three particularly consequential areas of
public policy: working time regulations, paid family leave, and child
care. And I will close with some brief comments that underscore that
public provision of these programs is consistent with healthy
macroeconomic outcomes.
WORK HOURS
Let me preface my comments about policy by offering brief a
snapshot of actual work hours across countries.
This figure reports average annual hours spent in paid work, in the
U.S., Japan, Canada, and nine European countries.
[GRAPHIC] [TIFF OMITTED] T7694.026
As shown here, American workers spend--on average--over 1830 hours
a year at work. That's about 200 hours more than the Swedes, 300 more
than the Belgians, and nearly 500 more than our Dutch counterparts. We
even outwork the famously long-hour-working Japanese.
And, parents are no exception in this story. While I won't take the
time to show the numbers now, my research has found that American
working parents work long hours as well, compared to their counterparts
in these other countries.
WORKING TIME POLICIES
This figure provides two clues to Americans' long work hours.
The figure reports standard weekly work hours (the shorter bars)--
that generally refers to the overtime threshold--as well as the minimum
number of paid days off per year, as required by law (the taller bars).
[GRAPHIC] [TIFF OMITTED] T7694.027
As the figure shows, the standard work week in these European
countries is now set in the range of 35 to 39 hours. The U.S. sets a
40-hour week, as it has for over six decades. In Canada and Japan, the
normal work-week is also typically 40 hours.
In addition, the European Union requires that member countries
guarantee all workers at least four paid weeks off per year--and
several require more. U.S. national law is entirely silent on paid days
off.
Of course, there are other types of public policies that ``matter''
as well. For example, a number of European countries provide workers
with the right to request changes to their work schedules--in order to
reduce their hours, to alter the timing of those hours, or both.
Thus, other countries provide shorter full-time hours, a shorter
work-year, and institutions that raise the quality and availability of
both part-time work and work with flexible schedules. Together, these
measures allow many European parents to choose various types of
reduced-hour work--an option that's limited and economically infeasible
for a large share of American parents.
PAID FAMILY LEAVE
In addition, all of our comparison countries offer mothers and
fathers some period of paid leave, in the wake of birth and adoption.
U.S. national law is silent on paid leave--and access to private
provisions is limited and uneven.
This figure reports the total number of weeks of leave available to
new mothers, multiplied by the percentage of wages replaced.
[GRAPHIC] [TIFF OMITTED] T7694.028
In the Nordic countries and in Canada--the five countries shown on
the left--new mothers are awarded in the range of 28 to 42 weeks of
fully paid leave, whereas mothers in continental Europe are typically
entitled to about 12 to 16 weeks.
The lack of paid leave in the U.S. forces many parents to choose
from among a restricted set of options. Many new parents have to choose
between taking unpaid leave and losing their pay, or remaining at work
and placing their newborns in child care, essentially from birth.
EARLY CHILDHOOD EDUCATION AND CARE
And, finally, ``the great American time squeeze'' is worsened by
our meager investments in early childhood education and care.
This figure reports the percentage of young children--age 1 and 2
(the shorter bars) and age 3, 4, and 5 (the taller bars)--in publicly
supported child care.
[GRAPHIC] [TIFF OMITTED] T7694.029
As the figure indicates, levels of publicly-provided or -subsidized
care for 1 and 2 year-olds vary widely across Europe. But, in all of
these countries, the majority of 3-to-5 year-olds are in public
programs.
In comparison, in the U.S., 6 percent of the ``under 3's'' are in
public care and just over half of the ``3-to-5s''--and most of those
are 5-year olds in kindergarten.
Most American working parents, instead, buy private care. They pay
most of the cost out-of-pocket and most children get care that's judged
by experts to be mediocre in quality.
CONCLUSION
To conclude, generous work-family policies are good for parents,
children, and worker productivity, and especially benefit lower-income
workers who tend to have less bargaining power and can't afford to pay
for help privately. Public systems equalize access and affordability,
across family types and throughout the income spectrum, leading to
outcomes that are more equitable than the results we get when we leave
the provision of these crucial supports to the marketplace.
In addition, generous work-family policies are compatible with good
economic outcomes. Consider GDP-per-hour-worked, a powerful indicator
of productivity. The six top-ranked countries in the world are European
countries with comprehensive work-family policies. The U.S. is ranked
eighth.
Furthermore, the World Economic Forum's Competitiveness Index
includes, among the top five countries in the world, Denmark, Sweden,
and Finland--three countries with extensive work-family policies. The
U.S. is ranked sixth.
In my view, American public policy is failing our working parents
and their children. We have much to learn about institutional reform,
and we'd do well to draw some lessons from the collective experience of
many of our neighbors across the Atlantic.
__________
Prepared Statement of Ellen Bravo, Professor, University of Wisconsin
at Wilwaukee; Coordinator, Multi-State Working Families Consortium and
Former Director of 9 to 5
Thank you, Chairman Schumer, Vice Chair Maloney and members of the
committee, for the opportunity to testify today.
These past few months I've been on tour for my new book, Taking on
the Big Boys, or Why Feminism is Good for Families, Business and the
Nation. Here are just a few of the people who spoke up at a book event
or called in to a radio show:
A bank manager at a prestigious bank--one that always
lands on best places to work lists--who was demoted for taking 5-minute
breaks to pump breast milk; company practice does allow cigarette
breaks.
A supermarket employee fired for taking a phone call from
her son who was home alone.
Certified Nursing Assistants who lost their jobs when
they could not stay for an unscheduled second shift because they had to
get home to their kids.
A TV anchor who sleeps just a few hours a night in order
to keep her job and spend time with her baby.
A factory worker who wasn't able to care for his father
after a heart attack because the worker hadn't been on his job a full
year and didn't qualify for FMLA.
A clerical worker who did qualify for FMLA but couldn't
afford unpaid time off when her mother was dying.
Engineers who scaled back their hours after a new baby at
great cost to their pay rate, benefits and career opportunities.
We hear a lot of talk about family values and personal
responsibility. And yet, in the United States today, being a good
family member can cost you your job or career opportunity or health or
security. Being a conscientious employee can jeopardize a loved one,
add to the health or learning problems of a dependent child, force an
aging parent into a nursing home, create a public health hazard.
My most striking encounter during the tour was with a group of 9 to
5 members at a briefing of Congressional staff on issues facing low-
wage women. I told them I'm not surprised when teachers say they've
never seen so many kids coming to school sick because a parent can't
stay home with them, or when mothers describe guilt for sending an ill
child to school or day care because of lack of flexibility at work. But
what had surprised me was learning of kids who drag themselves to
school sick to keep a parent from losing pay or getting fired.
With me on the panel that day was Jeannetta Allen, an energetic 18-
year-old with a disability that affects her balance and her speech.
She'd just testified how lack of paid sick days had cost her mother a
job.
``I'm that child,'' Jeannetta said when I'd finished. ``After my
mother was fired, I always tried to go to school no matter how I felt.
I didn't want her to be fired again.''
A chain reaction started in the audience. One after another, women
shared when they'd discovered a child going to school with bruised ribs
or the flu or strep throat because staying home meant Mom could lose
her job.
The workforce has changed enormously in the last thirty years, but
the workplace has not kept pace. Some employers do a terrific job--
you're going to hear from a representative of SAS in a moment, where
all my graduate H.R. students want to work. That's the good news.
Everything we need already exists somewhere and it works--for business
as well as for workers and their families.
Unfortunately, where workplace policies do exist, they're often at
the margins and unrelated to how work is organized. One memo announces
you can work part time, followed by another outlining the benefits
you'll lose if you reduce your hours. Managers describe the leave
policy, then scold you for not having more billable hours. Women can
climb the corporate ladder, provided they're available to meet, move or
travel at a moment's notice.
Social class and rank may affect benefits as well. In some
workplaces, managers have lactation rooms, while assembly line workers
don't even have breaks. Only 5 percent of employers have onsite child
care centers--and frontline workers can't always afford the fees. Or
the center may co-exist with mandatory overtime. Professional women
like Jane often lose benefits and opportunities when they reduce hours,
but workers at Wal-Mart and many other places see their hours cut or
capped without their consent and any health and pension benefits
disappear altogether. For low-wage workers, ``personal days'' mean the
ones you don't clock in.
Deficient employer policies reflect the sorely outmoded public
policies that set minimum standards for how workers are treated.
Whenever I speak to groups of women looking for work, they tell stories
of being asked by recruiters about their future family plans. ``Isn't
that illegal?'' someone will ask. It is illegal to ask women and not
men--but in most states, it's not illegal to ask both. Only Alaska and
the District of Columbia prohibit discrimination based on family care
responsibility.
It's easy to forget that until 1978, it was perfectly legal in this
country to fire someone for being pregnant. Temporary disability plans
usually excluded pregnancy, which was often lumped with injuries that
were ``willfully self-inflicted or incurred during the perpetration of
a high misdemeanor.'' In 1976, the Supreme Court ruled that it was not
discrimination to treat ``pregnant people'' differently because not all
women are pregnant. You may not think Congress knows much, but even
they understood that pregnancy does have something to do with sex.
After much organizing by grassroots groups, Congress passed the
Pregnancy Discrimination Act (PDA) that prohibited firing or refusing
to hire someone for being pregnant.
But the law has a big loophole: it doesn't require the employer to
hold the woman's job open when she leaves to give birth. I've never
understood how that's not tantamount to firing you, but lawyers say
otherwise. The PDA also requires that employers with temporary
disability programs include pregnancy along with other short-term
disabilities. Before then, many did not. However, the majority of women
didn't then and still don't work for firms which offer temporary
disability benefits. And pregnant women weren't the only ones needing
consideration at work.
Groups then organized to pass the Family and Medical Leave Act,
which did include a job guarantee and covered men as well as women and
a broader range of care needs. Employer lobbyists proclaimed that any
such bill was unnecessary because businesses were already providing
leave. Turns out most of those employers were simply complying with the
PDA. Two-thirds had to change their policy after passage of the law--
many to include men, or adoptive parents, or to allow for time to care
for a seriously ill family member.
Although it was a critical first step, the FMLA is fairly meager.
It applies only to firms of 50 or more employees and covers only those
who work at least 25 hours a week and have been on the job at least a
year. That leaves out more than two in five private sector workers. The
narrow definition of family means those who need time to care for
domestic partners or siblings or in-laws or other relatives may be out
of luck. And the fact that the FMLA is unpaid renders it moot for large
numbers of workers.
The FMLA has another enormous limitation: it applies only to
serious illness. Fortunately, most kids don't get leukemia but they do
all get stomach flus and colds and a host of other ailments not covered
by this law. Not to worry, proclaim the business lobbyists--workers can
use their sick days for that. But half the workforce--and three-fourths
of low-wage workers, five-sixths of part-time workers--don't have any
paid sick days to use. They face the loss not only of a day's pay, but
of their job. Many who do have paid sick days aren't allowed to use it
to care for a sick family member.
Thanks to the lopsided share of family caregiving that falls to
women, the biological demands of pregnancy, and the still-prevalent
gender stereotyping in the workplace, women are disproportionately
harmed by these outmoded systems. But males feel the fallout as well.
Many more men would be better fathers, sons and husbands if they
weren't punished for it at work. Low-wage men have little or no wiggle
room. Men in managerial or professional jobs are expected to be fathers
and patted on the back for leaving early occasionally to take in a
kid's soccer game--unless they begin to act too much like mothers, in
which case their pay and promotions begin to dip.
In reality, everyone needs time to care. Even those who aren't
parents have parents. Others have partners who may need care. And
everyone faces the prospect of needing time themselves to heal from an
illness or injury.
Employers can do a lot by implementing effective practices, many of
which cost little or nothing and all of which strengthen the bottom
line. These include flexible scheduling--allowing employees to take a
parent for a checkup or attend a child's school play and make up the
time, to stagger start and end times to accommodate child care hours or
commuter traffic, and to swap shifts with co-workers. Any overtime or
shift changes should be voluntary. Employees should have paid time off
for routine illness in addition to accommodation for more demanding
events like a new child or a seriously ill family member. The
guarantees and time period of the FMLA should be the minimum employers
adopt. Employers should also offer quality part-time options--reduced
hours with at least pro-rated benefits, equitable hourly rates, and
equal access to training and promotional opportunities. That could mean
employees working a shorter week, sharing a job with someone else,
gradually increasing hours after returning from leave, or gradually
cutting hours when phasing into retirement. Policies should be formal
and open to all employees.
What workers want is recognition that life doesn't begin and end at
the work site. Even employers who can't afford to set up an onsite
child care center can link employees with local referral agencies.
Those with more resources can provide subsidies for dependent care,
elders as well as young children, or help increase the supply of
quality care. Innovative employers have also come up with short-term,
no-interest loans to help employees stay employed when hit with
unexpected expenses.
How successful such policies are depends on corporate culture. As
Barbara Wankoff from KPMG noted, employers can offer all kinds of
programs and policies, ``but it's the message that leadership sends
with those policies that really dictates how they're used.'' Above all,
we need a sea change in how employers measure success, advancing people
based on work quality rather than face time.
As I said, successful policies exist in many places. Research
reminds us over and over that workers who feel respected as whole
people return the favor by improved loyalty and performance. Costs for
family friendly benefits pale besides the price tag for employee
turnover. Deloitte and Touche, for instance, claims to have saved $41.5
million in turnover costs as a result of family flexible policies.
Expenses per employee are less when low-wage workers leave the job, but
the overall costs remain significant because of the high rate of
turnover.
Retention isn't the only benefit. In a study of 28 leading
corporations that have implemented flexible schedules, employers find
positive effects of these work arrangements on employee commitment,
employee satisfaction, productivity, cycle time, customer commitment,
and response time.
What is seldom discussed are the costs of not acting to change our
outdated workplace rules. Success stories like SAS do move other
employers to action. But expecting all business owners to follow suit
is like thinking 2-year-olds can decide when they need a time out. We
need to guarantee a reasonable floor for all workers, and that means
public policy changes. These include guarantees of paid sick days,
accessible and affordable family leave paid for by the shared risk of a
social insurance fund, equity for part-time workers, and quality,
affordable dependent care. It also means a reasonable work week with no
mandatory overtime. Such policies will work only with a meaningful wage
floor: money is a work-life issue.
I coordinate a network of state coalitions working to expand paid
leave and other family flexible options. These groups are made up of
diverse allies from the AARP to the ACLU--grassroots groups fighting
for kids, economic justice, worker rights and aging populations,
alongside progressive employers, teachers and school principals,
interfaith councils and disability activists. The network, known as the
Multi-States Working Families Consortium, is a new model of
collaboration, where groups raise funds together and share them
equally. They also share strategies, materials, and organizing tips.
Each of these groups and many others are winning changes at the
state and local level, as well as working together for new Federal
policies. In 2004, a state coalition in California successfully won
expansion of its Temporary Disability Insurance program to cover leave
for other family care purposes. Groups in New York and New Jersey, two
other states with TDI funds, are working to do the same. Washington
just became the first state without TDI to grant wage replacement for
new parents. Massachusetts and Illinois are looking for ways to do the
same for all forms of family leave. A number of states have bills
pending to expand access to FMLA or to allow its use for routine school
and medical appointments. Last November San Francisco passed the first
citywide ordinance to guarantee a minimum number of paid sick days to
all employees. Groups from Maine to Montana are introducing similar
measures in city councils and state legislatures.
Together such coalitions are laying the basis for a family friendly
future and building the power to make it happen. Their successes should
spur action on the Federal level, badly needed to guarantee a level
playing field throughout the country. The changes we seek aren't a
favor for women, but a better way of doing business and valuing
families.
When we were trying to win a state FMLA bill in Wisconsin, we took
a group of children to meet with the Secretary of Employment Relations.
They represented the broad range of reasons why we need time to care--
childhood cancer, adoption, sick grandparent or sibling, disability,
car accident. The Secretary was clearly moved by their stories. ``We're
so used to hearing from lobbyists,'' he said, ``we forget about the
people who are affected by the bills we pass.'' I urge you to listen
instead to the children.
Thank you very much.
__________
Prepared Statement of Laura Kellison Wallace, Manager, SAS Work/Life
Programs, Cary, NC
Good morning Chairman Schumer, Vice Chair Maloney, and Members of
the Committee. My name is Laura Kellison Wallace, Manager of the SAS
Work/Life and EAP Programs. I send greetings and regrets on behalf of
Jeff Chambers, our Vice President of Human Resources that he was unable
to appear before you this morning.
Before I get into my statement, I thought I might give you some
context of my background. I am a New Yorker by birth and spent most of
my childhood between Manhattan and Brattleboro, Vermont. I graduated
from Smith College in 1987 with a major in children's Psychology. I
received my Master's degree in Social Work from UNC-Chapel Hill in
1995. I have almost 20 years of experience working with families and
children in several capacities including as both a Head Start teacher
and in-home research associate; as a Director of an Early Childhood
Education AmeriCorps Program for 3 years, and with many years of direct
practice experience with families with special needs; court mandates
and high-risk behaviors.
For the last 9 years, I have worked in the Work-Life/Work-Family
field in a university and then corporate setting. Before SAS, I was the
Work/Family Program Manager at UNC-Chapel Hill and, as I mentioned, I
am now the Manager of Work/Life & EAP Programs at SAS Institute.
I came to SAS almost 8 years ago and was immediately charged with
responsibility for work/life programs. I found myself working for a
company that provides its employees with a unique environment which
fosters creativity and ingenuity. It was because of this environment
that I was able to expand and enhance the scope of SAS Work/Life and,
ultimately, Employee Assistance Program (EAP) resources and programs
for employees and families. I am proud and pleased to work for a
company that walks the walk of ``family friendly,'' and it is my hope
that my remarks today will contribute to a much-needed paradigm shift
from family friendly policies and programs as ``perks'' to the very
concrete reality that said perks increase innovation and productivity,
lower turn-over rates, directly and positively impact recruitment and
retention. In other words, family friendly companies make good business
sense.
In order to understand how family friendly policies make good
business sense at SAS, I think it is important to understand a little
bit about its history. SAS was founded in 1976 by Dr. James Goodnight
and John Sall, two statistics professors from North Carolina State
University, from a grant from the US Department of Agriculture to
analyze agriculture data. That first year, the company generated
$138,000 in revenue, with 5 employees. The first office was a rented
space across street from NC State. By 1997, the company had moved from
downtown Raleigh, to Cary. It had 5,000 employees worldwide, and was
fast approaching the $1 billion sales mark.
Today, after 31 years in business, SAS is the largest, privately
held software company in the world, with roughly $2 billion in
revenues. We have approximately 40,000 customers and an annual software
renewal rate of about 98 percent. SAS employs 10,000 people worldwide,
with offices in 112 countries. Approximately 4,000 of our employees are
located at our Cary, North Carolina global headquarters. Another 1,200
are spread throughout the United States, with larger offices in
Massachusetts, Texas, and Maryland, including one on Seventh Avenue in
New York City. Each regional office provides employees with an
environment designed to foster creativity and ingenuity, and to
replicate as much as possible the environment and benefits provided in
Cary. Employees enjoy break rooms stocked with crackers, assorted nuts
and M&Ms, as well as coffee, tea, and soft drinks, at no charge. It is
not uncommon to see children who are visiting their parents enjoying
these goodies in the break room. In fact, SAS is the largest individual
purchaser of M&Ms today, purchasing in excess of 23 tons annually.
Before Dr. Goodnight founded SAS, he worked for a brief stint at
NASA. The story is that before starting SAS, he worked for a time at
NASA. He is fairly candid about not caring for the experience.
Executives were treated differently than other employees--having their
own break and dining areas and free coffee while ``rank and file''
employees had to pay a quarter for vending machine coffee. Executives
had designated parking spaces; ``regular'' employees did not. In terms
of workspace, NASA employees were lined up in impersonal cubicles with
an absence of personality and privacy. That experience left a last and
strong impression on Dr. Goodnight, who set about creating a very
different environment for SAS--one that is both friendly to all
employees regardless of position and that fosters innovation and
effectiveness.
Employee-friendly benefits are a hallmark of Dr. Goodnight's
philosophy at SAS: ``If you treat employees as if they make a
difference to the company, they will make a difference to the
company.'' SAS' founders set out to create the kind of workplace where
they and their employees would enjoy spending time. Even though the
workforce continues to grow each year, it is still the kind of place
where people enjoy working, whether at the Cary campus, or in the New
York Office. The underlying theory, happy employees drive happy
customers, seems to be a winning formula. SAS has been profitable every
year; the company continues to enjoy healthy revenues, and its employee
turnover rate hovers around 3-4 percent, compared to a national
turnover average of around 20 percent. This statistic is particularly
telling about how employee satisfaction at SAS drives profitability.
The savings in reduced employee turnover, recruitment, and retention
costs has been estimated to be on the magnitude of $60 to $80 million
annually, according to Jeffrey Pfeffer, a business professor at
Stanford University.
Besides smart business, the benefits that have been developed are
also the result of common sense. For example, SAS arranged for day care
services in the basement of its original building because one of the
employees needed day care for her young children. From the company's
perspective, it could not afford to lose this employee and to expend
time, energy and effort to replace her. The pragmatic solution was to
offer the day care service.
SAS' success as the industry leader in business intelligence
software is the result of the marriage of two complimentary strategies:
(1) hiring smart and creative people; coupled with (2) placing them in
an environment that fosters creativity and loyalty. At SAS employees
enjoy what could be considered ``soft'' and ``hard'' benefits.
One way that the company fosters creativity and loyalty is by
having a support team on place that can help SAS employees deal with
common, every day problems. For example, we have specialists on staff
that can do the leg work to research elder care or assisted living
programs on behalf of employees. By offering these services, which I
have described in more detail below, we help to eliminate some of the
real-life distractions that can preoccupy employees and prevent them
from being creative, innovative and productive.
``Soft'' benefits at SAS refers to those practices that we consider
a best ``outcome'' for our employees. A flexible work environment is
one such soft benefit. Employees are encouraged to balance their work
life with their personal lives. We actively promote the concept of a
35-hour work week for employees. And we actively promote the concept
that we want our employees to work hard at work, but to devote equal
amounts of energy to other parts of their lives. For example, it is not
uncommon for employees to be told to leave to be able to experience
important episodes with their children, such as school plays,
tournaments, and graduations. They are not required to take special
time off to do these things, if they happen to fall within the
traditional 8-hour work day. All we ask is that employees work out
their arrangements with their managers to ensure that we have the
coverage and assistance in place when SAS is open and it is needed. SAS
is open from 7 in the morning to 6 at night, but beyond that, we
generally do not worry whether an employee works 9-5, 7-3, 10-6 or some
other combination, as long as it has been worked out in advance with
management.
That philosophy, working it out with management, really underlies
much of what happens at SAS. We do not have a large portfolio of formal
written policies. We operate on the trust principle, and have tried
over our history to build and develop a culture that inculcates trust
in and for our workforce. To date, we have had very little reason to
think that our policies have been abused, requiring the ``letter and
the spirit'' of the law to be written out. Rather than a naive way of
operating, what SAS has are strategies that are part of a deliberate,
dynamic attraction and retention philosophy. Besides trust, SAS'
philosophy is founded on:
Informed and inclusive decisionmaking;
Targeted services and policies that recognize employees'
diverse needs and life stages; and
That the best outcomes for SAS do not translate to ``one
size fits all'' policies; popular and trendy are not drivers.
As a company, SAS has been internationally recognized for its
employment practices and beliefs. SAS has been in the Fortune top 50
places to work for 10 years, since the list first came into existence.
SAS was again awarded this distinction in 2006 and most important to
us, our work/life practices came in at number 9 on the survey. Our
European offices were ranked within the top 10 places to work.
SAS compliments the ``soft benefits'' it provides to employees with
other important ``brick and mortar'' innovations or ``hard benefits''
that are both intended to inspire employees, and to reduce distractions
that may hurt morale and productivity. The Human Resources Division
administers these hard benefits through three program areas: Employee
Family Solutions, On-Site Health Care Centers and Recreation and
Fitness.
The Employee and Family Solutions program employs 125 regular full-
time employees and offers benefits ranging from child care, day camps,
work life programs and employee assistance programs. Employee and
Family Solutions provides day care to over 1,000 children of employees
at a heavily subsidized cost. Additional benefits offered to SAS
employees include programs addressing onsite Elder-Care, Teen/College,
Special Needs, Adoption, Mature Workforce, Financial Planning, Divorce
& Separation, and Prenatal Care.
The Health Care Center employs 55 regular full time employees
including 4 doctors and 10 nurse practitioners and provides medical
care, prevention and screening, education and wellness and specialized
care (e.g., physical therapy, nutrition and counseling). Employee
health care benefits are provided at no cost and family coverage, no
matter how large the family, are capped at $150.00 per month. Employees
are not limited to the Health Care Center. SAS offers an additional
coverage option that allows employees to use outside health care
providers. Employees in regional offices can use the physician of their
choice or participate in a health care network. Although it is not an
option in the regional offices, when those employees do visit the SAS
campus, they can use the Health Care Center. SAS estimates that a
``typical'' visit to an outside physician or service would average
about 2 hours. For employees visiting the SAS Health Care Center, the
fact that this visit takes only 20 minutes represents significant
savings to them in terms of reduced stress and hassle, and loss
productivity. It also represents significant savings to SAS in terms of
enhanced employee productivity, a savings that we estimate is in the
millions of dollars annually, far outweighing the costs to offer and
maintain the center and the employees.
The Recreation and Fitness Center (``RFC''), the third program
offered by SAS, encourages a healthy lifestyle by incenting employees
to participate in physical activities. The Cary campus boasts a 77,000
square-foot, onsite recreation and fitness facility, which includes a
9,000 square foot natatorium. Twenty full-time staff are employed at
the RFC. The RFC sponsors a variety of leagues and coordinated
activities (including ultimate Frisbee!), classes (such as aerobics),
running and biking groups, and wellness services (such as personal
training, massage, and yoga), and certain onsite services (notably, the
hair salon and UPS shipping). The RFC is available to all SAS employees
and adult family members at no cost to the employee. For all SAS
employees not in Cary, SAS will cover the reasonable costs of a health
club membership, including the initiation fee.
Other benefits offered to help employees with work/life balance
that also contribute to SAS' formula for success include onsite
subsidized cafeterias, car detailing, and a vendor discount center.
SAS policies also play a key role in creating the work life
environment for which it is know. SAS policies include:
Paid sick leave, which we do not cap;
Short term disability leave for up to 6 months;
Long term disability coverage;
Access to long-term care at discounted rates;
Three weeks paid vacation for all employees, with an
additional week for employees who have been with SAS for at least 10
years;
Paid holidays, with an additional week off between
Christmas and New Year's day;
Paid Family Medical Leave Act time--which includes
absences for childbirth, absences for adoption, and paternity leave for
fathers and domestic partners;
Fully paid employee health insurance, also available for
dependents and domestic partners with a cap of $150/month;
A 401(k) program, with an employer match;
Retiree health care; and
Annual merit salary increases; and
A profit-sharing retirement plan.
The profit sharing plan is an interesting program in that it
provides a bonus to employees' retirement plans. The plan itself is
offered at the discretion of the company and is entirely dependent on
the profitability of the company. However, the company has always
declared a profit-sharing contribution, and it has typically been equal
to 10 percent of the company's profits for that year. In practice, this
works out to a contribution to each employee's retirement account equal
to 10 percent of that employee's salary. The magic is that by investing
it in the retirement account, the employee is not taxed on that money
immediately, there is a corpus of funds that are allowed to grow tax
free over time, and the employee is helped, encouraged, and enabled to
think about and plan for retirement.
For SAS, the reason to be proactive and concerned about benefits is
because it is simply good business. Our bottom line savings from
investing in our people has been estimated to be $75 million annually.
In turn, those savings help improve our profitability as a company.
Just as important, people represent the company's principal and
certainly most important ``asset''. We simply cannot function in any
respect without human resources. As Dr. Goodnight is fond of saying,
``95 percent of the company's assets leave the campus at 5 and it's my
job to make sure they come back in the morning.'' Benefits, practices,
and policies play a critical role in not only the ability to make sure
our people come back every day, but to enable us to compete in what
regrettably has become a shrinking talent pool. Our policies are
critical to our ability to retain our talent, and given that our
schools are falling behind in their ability to graduate scientists,
engineers, technologists, and mathematicians, it becomes increasingly
important for us to hold on to our precious talent. For us, it is far
costlier to replace our personnel than it is to simply provide good and
relevant benefits in the first place.
At the end of the day, treating employees well is not just about
good business. It is about good common sense.
We thank you for this opportunity to appear today and to discuss
SAS' philosophies and strategies. I am happy to answer any questions
you may have.
__________
Prepared Statement of Dr. Tim Kane, Director, Center for International
Trade and Economics, The Heritage Foundation, Washington, DC
Chairman Schumer, Representative Maloney, Senator Bennett, and
other distinguished members of the Committee, I appreciate the
opportunity to testify before the Joint Economic Committee today on the
subject of Importing Success: Why Work-Family Policies from Abroad Make
Economic Sense for the U.S. As a former staff economist for the JEC,
this homecoming is a special honor.
In my testimony, I would like to: (1) describe the nature of the
challenge facing Congress in the context of the booming U.S. economy in
recent years; (2) offer a set of principles for both enhancing our
economy generally and labor economy specifically under the framework of
economic freedom and (3) suggest that Congress should not use the
conventional European approach to labor markets unless it also wishes
to invite European levels of unemployment which occur at roughly twice
the rate as in the United States.
the nature of american prosperity in this decade
As obvious is this may seem, every analysis of economic policy at
the Federal level in the United States must begin with recognition of
the comprehensive, record-setting strength of the national economy. By
almost every indicator, the American economy is prosperous, but
especially so in comparison to other advanced economies.
There are More Working Americans than Ever Before. In the
latest Employment Situation report from the Labor Department, it is
reported that there are 152.8 million Americans in the labor force, and
145.9 million employed. These are just shy off all-time records set in
the last few months.
8 million payroll jobs in 4 years. I try to remind myself
given all the gloom in the media that during a 4-year span, job growth
in America has averaged 167,000 every month. That's 5559 jobs added to
U.S. payrolls every day, or 232 jobs per hour, or a new job every 16
seconds for 4 straight years.
Extraordinarily Low Unemployment. The rate of
unemployment is just 4.5 percent nationally. In most introductory
economics courses, this is considered a rate that is below the natural
rate of unemployment, and a sign of possible overheating. By any
measure, it is a low rate, far below the average of the 1990s, which
itself was a healthy decade economically.
Growth in Output and Productivity. The positive growth
rates in GDP every quarter since the attacks of 9/11 are a very
powerful symbol of the resilience of the American economy. Despite the
recent slowdown in Q1's preliminary growth estimate, the critical fact
is that the economy is still expanding in a positive direction with
many signals that this growth will continue and even accelerate. But a
more important measure, as you know, is the high GDP per capita
Americans enjoy. By comparison, U.S. GDP per capita is 20 percent
higher than income levels in nearly every other country in the world,
particularly the advanced industrial economies of Europe, as well as
Japan.
ECONOMIC FREEDOM AND THE INSTITUTIONS OF GROWTH
I find that the most useful framework for approaching fiscal
economic policy is not is traditionally known as macroeconomics, but
instead growth economics, particularly the renewed consensus among
economists that institutions are the key to overall performance. This
idea is captured well by Stephen Parente and Ed Prescott's line of
research ``Barriers to Riches'' which is also the title of their book.
It is also the approach we use in the Heritage Foundation/Wall Street
Journal Index of Economic Freedom--a systematic, empirical measurement
of economic freedom in countries throughout the world. As the director
of the team that assembles the Index, I should mention that we make all
the material, country scores, and even raw data available for free on
the Internet at www.heritage.org/Index.
Economic theory dating back to the publication of Adam Smith's The
Wealth of Nations in 1776 emphasizes the lesson that basic institutions
that protect the liberty of individuals to pursue their own economic
interests result in greater prosperity for the larger society. Modern
scholars of political economy are rediscovering the centrality of
``free institutions'' as fundamental ingredients for rapid long-term
growth. The objective of the Index is to catalog those economic
institutions in a quantitative and rigorous manner.
The 2007 Index of Economic Freedom measures 157 countries across 10
specific factors of economic freedom, which include:
Business Freedom
Trade Freedom
Fiscal Freedom
Freedom from Government
Monetary Freedom
Investment Freedom
Financial Freedom
Property Rights
Freedom from Corruption
Labor Freedom
The methodology for measuring economic freedom is significantly
upgraded. The new methodology uses a scale of 0-100 rather than the 1-5
brackets of previous years when assessing the 10 component economic
freedoms, which means that the new overall scores are more refined and
therefore more accurate. Second, a new labor freedom factor has been
added, and entrepreneurship is being emphasized in the business freedom
factor. Both of these new categories are based on data that became
available from the World Bank only after 2004.
The methodology has been vetted and endorsed by a new academic
advisory board and should better reflect the details of each country's
economic policies. In order to compare country performances from past
years accurately, scores and rankings for all previous years dating
back to 1995 have been adjusted to reflect the new methodology.
Economic freedom is strongly related to good economic performance.
The world's freest countries have twice the average income of the
second quintile of countries and over five times the average income of
the fifth quintile of countries. The freest economies also have lower
rates of unemployment and lower inflation. These relationships hold
across each quintile, meaning that every quintile of less free
economies has worse average rates of inflation and unemployment than
the preceding quintile has.
Of the 157 countries graded numerically in the 2007 Index, only
seven have very high freedom scores of 80 percent or more, making them
what we categorize as ``free'' economies. Another 23 are in the 70
percent range, placing them in the ``mostly free'' category. This means
that less than one-fifth of all countries have economic freedom scores
higher than 70 percent. The bulk of countries--107 economies--have
freedom scores of 50 percent-70 percent. Half are ``somewhat free''
(scores of 60 percent-70 percent), and half are ``mostly unfree''
(scores of 50 percent-60 percent). Only 20 countries have ``repressed
economies'' with scores below 50 percent.
The typical country has an economy that is 60.6 percent free, down
slightly from 60.9 percent in 2006. These are the highest scores ever
recorded in the Index, so the overall trend continues to be positive.
Among specific economies during the past year, the scores of 65
countries are now higher, and the scores of 92 countries are worse.
The variation in freedom among all of these countries declined
again for the sixth year in a row, and the standard deviation among
scores now stands at 11.4, down one-tenth of a percentage point from
last year and down two full points since 1996.
There is a clear relationship between economic freedom and numerous
other cross-country variables, the most prominent being the strong
relationship between the level of freedom and the level of prosperity
in a given country. Previous editions of the Index have confirmed the
tangible benefits of living in freer societies. Not only is a higher
level of economic freedom clearly associated with a higher level of per
capita gross domestic product, but those higher GDP growth rates seem
to create a virtuous cycle, triggering further improvements in economic
freedom. This can most clearly be understood with the observation that
a ten point increase in economic freedom corresponds to a doubling of
income per capita.
The reason that I am devoting so much of my testimony to the topic
of economic freedom is because I hope to impress the centrality of
internally generated policy change as the key to development. To be
blunt, countries control their own fate, including the U.S.
In the 2007 edition of the Index, one chapter is dedicated to a
cross-country study of labor regulations, which is the issue of
interest in this hearing today. It was written by Johnny Munkhammer, an
economist from Sweden who has a unique and invaluable perspective. Here
is an extended quote from Munkhammer's chapter, ``The Urgent Need for
Labor Freedom in Europe and the World,''
For several weeks during the autumn of 2005, riots raged in
the streets of Paris. Every night, hundreds of cars were
burned, shops were vandalized, and violence ruled. French
President Jacques Chirac concluded that his nation was
suffering from a profound ``malaise,'' a word that indeed
captures the reality of economic and social problems in many
European countries. After centuries of economic leadership,
Europe must now face the truth that its governing
institutions--especially its labor markets--are deeply flawed.
Those who finally took to the streets, native and immigrant
citizens alike, were severely affected by unemployment.
France may be the most stubborn defender of the so-called
European social model, characterized by vast government
intervention in the economy, but many other governments in
Western Europe are committed to the same philosophy. Presidents
and prime ministers devote speeches to nostalgic messages and
promise to maintain and protect the existing social model.
Their rhetoric translates into policies that are a new kind of
protectionism for traditional jobs, a protectionism that is
reflected in the widespread official resistance to a single
European Union (EU) market in services, disapprovals of
business mergers, and an anxious debate about the ``Polish
plumber'' representing free flows of labor within the EU.
We Europeans are clearly at a crossroads. Either we look to
the future and learn from successful market-oriented reforms,
or we look back to the past and continue trying to shield old
occupations from international economics. It is a choice
between openness and protectionism, between modernization and
nostalgia--indeed, between government intervention and freedom
itself. The problems of Europe are not born overseas, but are
innate to the process of internal economic development and
change. That is why a tighter adherence to a failing model will
only exacerbate current problems and lead to more unrest in
European cities. Rioting and decline is a destiny that no
European wants to face.
Yet there is reason for optimism. Never before have so many
countries been so deeply involved in the global economy, and
the benefits of globalization--economic growth, employment, and
competition--are ever clearer. Never before have so many
countries made successful free-market reforms, which is an
inspiration for others. Almost all European countries can point
to at least one successful reform, and as we copy each other's
successes, the future should rapidly become much brighter.
In my view, of all the areas that are still in need of
substantial reform, the most important is the labor market.
People--especially the young--want jobs and freedom, not
dependence on government.
Consider that between 1970 and 2003, employment in the U.S.
increased by 75 percent. In France, Germany, and Italy, it
increased by 26 percent. In 2004, only 13 percent of unemployed
workers in the U.S. were unable to find a new job within 12
months; in the EU, the figure was 44 percent. In the EU,
average youth unemployment is 17 percent. In the U.S., it is 10
percent.
But the best comparisons can be made within Europe itself.
Denmark has an employment rate of 76 percent, but Poland is far
lower at 53 percent. Youth unemployment is above 20 percent in
Greece, Italy, Sweden, France, Belgium, and Finland and below 8
percent in Ireland, the Netherlands, and Denmark. In the EU's
15 member states, between 1995 and 2004, the development of
employment was also very different between the countries. In
Ireland, the Netherlands, and Spain, the increase in employment
was the highest; in Germany and Austria, it was almost zero.
What were the differences between the successful countries
and the others? First of all, the labor market was
substantially freer in the countries that succeeded in creating
new jobs. Second, payroll and income taxes were more than 10
percentage points lower in the five best economies (in terms of
job creation) compared to the five worst. Third, the levels of
contribution from the state for unemployment and sick leave
were lower in the best economies.\15\ What the successful
countries have in common are freer labor markets, lower taxes,
and lower contributions.
A look at the results for various countries in the labor
freedom category in the Index provides further proof of the
connection between labor freedom and employment. Table 1 (in
the Index, chapter 2) shows all of the nations of Europe,
including their EU affiliations, ranked according to their
labor freedom scores in the 2007 Index.
Countries like Georgia, the U.K., Switzerland, and Denmark
enjoy higher scores in labor freedom and have experienced
better employment outcomes generally. Countries with low scores
like Germany, Italy, Portugal, and Sweden have suffered weak
employment and outright stagnation.
Comparing the 15 countries that were members of the EU in
1995-2004 to EU-25 and non-EU countries is illustrative. In
Britain, the labor market is relatively free and earns a score
of 82.7 percent, whereas in Sweden, it is highly regulated and
earns a score of 52 percent, compared to the EU-15 average of
59.7 percent. The 10 countries that recently joined the EU have
raised their average labor freedom by nearly a full point, but
the scores of non-EU economies average nearly five full
percentage points higher. Yet the average income between 1995
and 2004 grew by 29 percent in Sweden, 37 percent in EU-15
countries, and 72 percent in Britain. The income of the poorest
10 percent of the population grew by only 10 percent in Sweden,
compared to 59 percent in Britain. The worst off were better
off where the labor market was freer.
The larger lesson is that Europe's more ``advanced''
economies have generally created more complex restrictions on
labor freedom in the name of protecting workers. This relative
wealth has been a convenient excuse for stagnant growth and
higher unemployment, but the apology is losing its validity as
many Eastern and Middle European countries experiment
successfully with freedom.
LABOR PROTECTIONISM AND UNEMPLOYMENT
The Summer 1997 issue of the Journal of Economic Perspectives
published two articles discussing labor rigidity in Europe. Horst
Siebert emphasized that the concert of rigid labor institutions in
Europe was clearly driving higher unemployment rates there, emphasizing
the tightening of policies during 1960s and 1970s. While he observed
differences among European states, he concluded by focusing on one
common feature: ``Job protection rules can be considered to be at the
core of continental Europe's policy toward the unemployment problem:
protecting those who have a job is reducing the incentives to create
new jobs.'' A contrasting opinion was provided in Stephen Nickell's
econometric overview, which reported, ``there is no evidence in our
data that high labor standards overall have any impact on unemployment
whatever.''
Table 1 presents unemployment rate averages by decade for 10
countries reported by BLS.
Table 1.--Unemployment Rates on the Rise
------------------------------------------------------------------------
1960-1979 1980-2004 Change
------------------------------------------------------------------------
USA.............................. 5.5 6.2 0.8
Japan............................ 1.5 3.3 1.7
Netherlands...................... 4.6 6.5 1.9
Canada........................... 5.7 8.5 2.8
Sweden........................... 1.9 5.1 3.2
UK............................... 3.6 8.3 4.7
Australia........................ 2.9 7.7 4.8
Italy............................ 3.5 8.3 4.8
Germany.......................... 1.4 7.2 5.9
France........................... 2.8 9.8 7.0
------------------------------------------------------------------------
Source: Author calculations using U.S. BLS data.
After 1980 it is clear that America has continued its productivity
leadership (with higher income distribution generally), while European
countries suffer high unemployment rates. The ``humane'' policies of
labor protectionism appear to have backfired, creating a less humane
social arrangement.
Nickell (1997) emphasized the diversity of European unemployment
rate experiences (``from 1.8 percent in Switzerland to 19.7 percent in
Spain'') and policies. Nickell's approach is a good one--he assembles
macroeconomic performance data for 20 OECD countries, measured over two
periods (1983-88 and 1989-94), and assembles an impressive array of
labor policy measures, which he uses as explanatory variables. Nickell
says at one point that ``roughly speaking, labor market institutions
were the same'' in the 1960s and 1990s. He concludes that unemployment
rates are dependent on some policies (e.g., generous unemployment
benefits, high taxes, high minimum wages, and weak universal
education), but not the conventional culprit: labor market rigidity.
However, Nickell in 1997 has been updated by Nickell in 2005. His
assessment has changed in less than 10 years because the empirical
evidence has changed, as he expressed in his recent paper with Luca
Nonziata and Wolfgang Ochel (2005). The authors find that ``changes in
labor market institutions'' and rigidities since 1960 have indeed
occurred, and these are the root causes, with employment protection
accounting for 19 percent of the rise of unemployment. I think it is
fair to say that the consensus view of economists today has evolved
along the same lines.
A deep new data set published by the World Bank in 2003 and
published in the Quarterly Journal of Economics (Djankov et al. 2004)
makes a definitive case that the ``Regulation of Labor'' (the title of
the paper) can be harmful to macroeconomic outcomes. The Djankov labor
data cover 85 countries over dozens of labor categories, including the
size of the minimum wage, strike laws, protections from dismissal,
generosity of social benefits, and so on. The data are coded so that a
maximum score of 1 represents the most rigid labor rule, while zero
represents perfect flexibility. Importantly, this very deep data set
represents laws during a single year, 1997, which precludes some uses
that would be available with a time series.
Nevertheless, Djankov et al. (2004) find that an increase in the
employment laws index is associated with an increase in black market
activity, a reduction in labor force participation, and an increase in
unemployment rates (averaged over the decade). The econometric tests
are not robust and report an R\2\ of 0.13, with the labor regulation
variable significant at the 5 percent level.
I am hopeful that the excellent new data sets in place will be
improved in years ahead and that, with greater knowledge of how
institutions and outcomes relate to one another, countries will be even
better armed to lower the barriers to riches.
WHAT WOULD A NEW LABOR REGULATION DO TO THE U.S. ECONOMY?
Many voices are calling for new policies to address a vulnerable
U.S. workforce, including ideas such as wage insurance, flex-time, and
mandatory paid leave. There may be merit to all of these ideas, and yet
they all remain problematic. The premise that the U.S. workforce is
vulnerable is the first problem--suggestions of anxiety are simply
overblown. Indeed, many of the statistics used to emphasize new
pressures on the workforce are actually evidence of new flexibility,
such as the rising number of temporary jobs. A second and related
problem is that many policy solutions are defined by government
intrusion into an otherwise optimally functioning private sector.
Rule 1 of economic policy should be: Do no harm. The
economy is strong, so an airtight case must be made for any new rules
aimed at fixing a labor market that is not broken.
Rule 2 of economic policy is: Consider the incentives.
The idea of mandatory paid leave is especially problematic. My
colleague, James Sherk, recently published a Heritage study (web memo
#1450, http://www.heritage.org/Research/Labor/wm1450.cfm), which I
quote:
Few oppose allowing workers to take time off work to recover
from illness or allowing parents to tend to sick children.
Today, the vast majority of businesses provide their workers
with some form of paid sick leave: 74 percent of companies
provide paid sick leave, while 82 percent provide other paid
vacation days that workers can use to care for a sick relative.
[The Healthy Families Act as considered in the Senate (HFA,
S. 910)] would make this widespread and voluntary practice
mandatory. The legislation would require businesses employing
15 or more workers to provide at least 7 days of paid sick
leave per year and would prevent companies from disciplining
employees who abuse this leave. This would radically change the
current system of voluntarily provided sick leave by
encouraging widespread misuse.
Like the FMLA, the HFA would make it difficult for employers
to verify that workers taking sick leave are actually sick. The
act would allow workers to take up to 3 days of leave without
any medical certification that the leave is necessary.
For absences exceeding three consecutive work days, workers
would need a doctor's certification. However, the HFA does not
allow employers to challenge a doctor's certification, even
when they strongly suspect that it is fraudulent. Under the
FMLA, employers have found that workers who are not injured can
usually find a doctor who will certify that they have a chronic
condition, such as back pain, that requires time off work.
Abuse is rampant in countries that require mandatory paid
sick leave. In Sweden, for example, the government pays sick
workers 80 percent their salary while on leave for an
indefinite period of time. At any given moment, 10 percent of
Sweden's workers are on sick leave, and over three-fifths tell
pollsters that they take the leave when they have no health
problems.
So one core incentive problem is that a new mandatory leave requirement
is subject to abuse by some workers, which is essentially a penalty on
the honest workers.
A larger concern is that any Congressional mandate on employers
amounts to a mandatory benefit, which will come at the expense of take-
home pay. It is widely known that earnings have not kept up with
productivity growth in the U.S. It is also widely known that the reason
is that the cost of employee benefits are rising and soaking up almost
all of the compensation growth. Bottom line: total compensation for
workers is growing at the same pace as productivity, but there is a
divergence between take-home pay versus benefits. By mandating more
benefits in new labor regulation, Congress will be basically giving
American workers a pay cut.
Third, there will be a new incentive for employers to discriminate.
The good employers will make blind hiring decisions, but unscrupulous
employers will have a powerful incentive to avoid employees that are
most likely to qualify for the newly mandated benefits. For example,
young women who are most likely to take paid maternity leave will face
quiet discrimination. Good employers will face higher costs, whereas
bad employers will get a competitive advantage. And it all makes
economic sense--perhaps why they call mine the dismal science.
Nonetheless, the reality of bad incentives means that mandated labor
regulations rewards bad behavior and so should be avoided.
Those are three strikes against new labor regulations, or at least
three cautions to consider in designing new rules carefully.
______
The Heritage Foundation is a public policy, research, and
educational organization operating under Section 501(C)(3). It is
privately supported, and receives no funds from any government at any
level, nor does it perform any government or other contract work.
The Heritage Foundation is the most broadly supported think tank in
the United States. During 2006, it had more than 283,000 individual,
foundation, and corporate supporters representing every state in the
U.S. Its 2006 income came from the following sources:
Individuals................................................ 64%
Foundations................................................ 19%
Corporations............................................... 3%
Investment Income.......................................... 14%
Publication Sales and Other................................ 0%
The top five corporate givers provided The Heritage Foundation with
1.3 percent of its 2006 income. The Heritage Foundation's books are
audited annually by the national accounting firm of Deloitte & Touche.
A list of major donors is available from The Heritage Foundation upon
request.
Members of The Heritage Foundation staff testify as individuals
discussing their own independent research. The views expressed are
their own, and do not reflect an institutional position for The
Heritage Foundation or its board of trustees.