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



                                                        S. Hrg. 110-595
 
                THE EMPLOYMENT SITUATION: FEBRUARY 2008

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 7, 2008

                               __________

          Printed for the use of the Joint Economic Committee



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                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

SENATE                               HOUSE OF REPRESENTATIVES
Charles E. Schumer, New York,        Carolyn B. Maloney, New York, Vice 
    Chairman                             Chair
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

                  Michael Laskawy, Executive Director
             Christopher J. Frenze, Minority Staff Director


                            C O N T E N T S

                              ----------                              

                                Members

Hon Elijah E. Cummings, a U.S. Representative from Maryland......     1

                               Witnesses

Statement of Dr. Keith Hall, Commissioner, Bureau of Labor 
  Statistics, U.S. Department of Labor, Washington, DC...........     3
Statement of Dr. Rebecca Blank, professor, University of 
  Michigan, Ann Arbor, Michigan; a Robert V. Kerr visiting fellow 
  at the Brookings Institution, Washington, DC...................    20
Statement of Dr. Christine Owens, executive director, National 
  Employment Law Project, Washington, DC.........................    23
Statement of Dr. Lowell E. Gallaway, distinguished professor of 
  economics, Ohio University, Athens, Ohio.......................    25

                       Submissions for the Record

Prepared statement of Representative Elijah E. Cummings, Chairman 
  (presiding)....................................................    35
Prepared statement of Senator Charles E. Schumer, Chairman.......    36
Prepared statement of Representative Carolyn B. Maloney, Vice 
  Chair..........................................................    37
Prepared statement of Dr. Keith Hall, Commissioner, Bureau of 
  Labor Statistics, U.S. Department of Labor, Washington, DC.....    37
     Press Release No. 08-0294, ``The Employment Situation: 
      February 2008,'' Bureau of Labor Statistics, Department of 
      Labor......................................................    39
Prepared statement of Dr. Rebecca Blank, professor, University of 
  Michigan, Ann Arbor, Michigan; a Robert V. Kerr visiting fellow 
  at the Brookings Institution, Washington, DC...................    67
Prepared statement of Dr. Christine Owens, executive director, 
  National Employment Law Project, Washington, DC................    72
Statement of Dr. Lowell E. Gallaway, distinguished professor of 
  economics, Ohio University, and Richard K. Vedder, 
  distinguished professor of economics, Ohio University..........    82
Chart entitled, ``Real Weekly Earnings Growth, by Percentile: 
  Fourth quarter 2000 quarter 2000 through fourth quarter 2007''.    91
Chart entitled, ``Monthly Change in Nonfarm Payrolls: Seasonally 
  Adjusted, January 2005-January 2008''..........................    92
Chart entitled, ``Annual Change in Real Earnings: January 2007-
  January 2008''.................................................    93
Chart entitled, ``Employment in the Construction Sector: Year-on-
  Year Percent Change in Seasonally Adjusted Payrolls''..........    94
Chart entitled, ``Share of the Unemployed Who Have Been Out of 
  Work for Six Months or More''..................................    95
    A Brief History of Unemployment in Post-World War II America.    85


                THE EMPLOYMENT SITUATION: FEBRUARY 2008

                              ----------                              


                         FRIDAY, MARCH 7, 2008

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The Committee met at 9:30 a.m. in room SD-628 of the 
Dirksen Senate Office Building, the Honorable Elijah E. 
Cummings, presiding.
    Representatives present: Cummings.
    Staff present: Christina Baumgardner, Heather Boushey, 
Stephanie Dreyer, Chris Frenze, Nan Gibson, Colleen Healy, Tim 
Kane, and Jeff Wrase.

     OPENING STATEMENT OF HON. ELIJAH E. CUMMINGS, A U.S. 
                  REPRESENTATIVE FROM MARYLAND

    Representative Cummings [presiding]. Chairman Schumer and 
Vice Chair Maloney were unable to be with us for today's 
hearing, and so I thank them for asking me to chair this 
hearing on the February Employment Situation.
    I want to thank all of our witnesses for testifying here 
today. I'm pleased that we have a second panel to examine the 
outlook for the labor market and to discuss the plight of the 
long-term unemployed.
    The report we received this morning, is, frankly, shocking. 
It is shocking to the conscience, and, I'm sure, very shocking 
to the people who are suffering in our Nation.
    The report shows that our economy lost 63,000 jobs, 
overall. Let me repeat that: The report shows that our economy 
lost 63,000 jobs, overall, in February, but I note that 
private-sector employment fell by 101,000.
    At the same time, the unemployment rate fell by 0.1 
percent, to 4.8 percent. This fall in the unemployment rate, 
which is occurring at the same time as jobs are being lost, 
seems to be happening because people believe that there are no 
job opportunities for them, and they are simply dropping out of 
the labor market.
    In the last month, Dr. Hall told us that the labor force 
numbers almost define the existence of a recession. I am 
anxiously--anxiously eager to hear what Dr. Hall has to say 
about our economy, given the terrible numbers we received this 
morning.
    Frankly, I believe that our economy stands poised on an 
uncertain cliff, threatening to throw our Nation into a crisis. 
Sadly, however, many very hardworking Americans across this 
great Nation, have already entered their own personal crises.
    The traditional definition of a recession is two quarters 
of negative growth. Unfortunately, the difficulty in diagnosing 
a recession is that its existence can only be confirmed in 
hindsight when the data are seen to show that a slowdown has 
been definite and prolonged.
    As a result, once we know we are in a recession, it's too 
late to prevent one. However, we do not need to recite the 
litany of familiar data to confirm that our economy is 
struggling.
    One need only look to the millions of families who are 
struggling on a day-by-day basis, obviously struggling to find 
jobs, struggling to keep their homes, struggling to pay for gas 
and for home heating costs, and, yes, struggling to even pay 
for the food they eat.
    Foreclosure filings have increased by 75 percent between 
2006 and 2007. According to the Mortgage Bankers Association, a 
higher percentage of mortgages are past due or in foreclosure 
than at any other time since the Association started tracking 
such data in 1979.
    Many experts fear that the peak in foreclosures has not yet 
been reached. At the same time, nearly 8.8 million homeowners 
now owe more on their homes than the homes are worth; another 
41 million homes are not facing foreclosure, but are estimated 
to be likely to experience declines in value.
    Obviously, employment is falling, but for a prolonged 
period, wages have failed to keep pace with inflation. Wage 
growth also continues to slow, breaking the historic 
relationship between increased production and real wage growth.
    According to a report by the Joint Economic Committee, 
since late 2001, productivity has shown an average annual 
increase of 2.5 percent, but wages have experienced an average 
annual increase of just 1.2 percent, after inflation. You do 
the math.
    This is particularly disturbing in light of the 
skyrocketing prices for everything from food to gasoline and 
heating oil. In January, we saw the Consumer Price Index rise 
by 0.4 percent; oil prices climbed to nearly $106 per barrel 
yesterday, and there is talk of gas prices already reaching $4 
a gallon.
    I must note that it was a little bit shocking that the 
other day, the President of United States was not aware of 
that.
    Families are also facing heating costs of more than $2,000 
per household this winter, over three times the costs in 2001. 
Unfortunately, while we debate the specific standards of our 
economy, the data I just recited, don't paint the real picture 
of people whose dreams, too long deferred, are now in danger of 
being completely destroyed.
    Every day in my district in Baltimore, only an hour's drive 
from here, I see the desperate look of those who are watching 
the homes and the lives in which they invested their money and 
every ounce of their energy in danger of slipping from their 
grasp.
    As a matter of fact, today, on the front page of the 
Baltimore Sun, there is a very interesting article about the 
many people in my district who are struggling to hold onto 
their homes.
    Our Nation needs to do whatever is necessary to create an 
economy that works for our citizens. Congress recently passed a 
stimulus package to try help stave off the recession that may 
be coming or the one that's already here.
    Although the package will offer some relief to millions of 
hardworking families, the stimulus package was missing critical 
provisions addressing unemployment benefits and food stamps.
    Further, the package included nothing to support expanded 
investments in our Nation, particularly in areas like 
infrastructure development, where investments create roads and 
public transit systems, at the same time they create jobs and 
create a better environment for Americans to travel.
    Our Nation's top priority must be meeting the needs of our 
citizens and investing in our success. The recent stimulus 
package, much like the recent rate cuts by the Fed, is only a 
temporary patch.
    We cannot continue to keep patching a lagging economy 
without also addressing the root causes of our problems, 
particularly the mortgage crisis.
    The American people deserve better; we can do better, and 
we must do better.
    [The prepared statement of Representative Cummings appears 
in the Submissions for the Record on page 35.]
    Representative Cummings. With that, I now will call and 
introduce Dr. Keith Hall, the Commissioner of the Bureau of 
Labor Statistics at the U.S. Department of Labor.
    Before coming to the Bureau of Labor Statistics, 
Commissioner Hall served as Chief Economist for the White House 
Council of Economic Advisors under the current Administration, 
and prior to that, he was Chief Economist for the United States 
Department of Commerce.
    Dr. Hall received his B.A. Degree from the University of 
Virginia, and his M.S. and Ph.D. Degrees in economics from 
Perdue University. Dr. Hall, thank you once again for being 
with us. You may proceed.

  STATEMENT OF DR. KEITH HALL, COMMISSIONER, BUREAU OF LABOR 
      STATISTICS, U.S. DEPARTMENT OF LABOR, WASHINGTON, DC

    Commissioner Hall. Thank you, Mr. Chairman and Members of 
the Committee. I want to thank you for this opportunity to 
discuss the February labor market data that we released this 
morning.
    Non-farm payroll employment edged down in February, and the 
unemployment rate was essentially unchanged at 4.8 percent. 
Private-sector employment declined by 101,000 jobs, with losses 
in manufacturing, construction, and retail trade.
    Employment growth continued in healthcare and food 
services. Although housing-related sectors accounted for much 
of the job decline, job growth appears to have weakened across 
nearly every industry, with the exception of health care and 
Government.
    Manufacturing employment fell by 52,000 in February, and 
has now fallen nearly 300,000 over the past 12 months. 
Construction employment fell by 39,000 in February, and has now 
fallen by 222,000 over the past 12 months.
    The February decline in retail employment was 34,000 and 
included losses in department stores, building materials and 
garden supply stores and auto dealers.
    Average hourly earnings for production and non-supervisory 
workers in the private sector rose five cents in February, and 
have increased 3.7 percent over the past 12 months.
    Over the 12 months ending in January, inflation has 
outpaced the growth of average hourly earnings, 4.6 percent, 
compared to 3.7 percent for wages.
    The unemployment rate, at 4.8 percent, was essentially 
unchanged in February.
    The unemployment rate is the same as its average during the 
fourth quarter of last year, 4.8 percent, but is above the 4.5 
percent average during the first half of 2007.
    Although unchanged in February, the number of unemployed 
persons is 544,000 higher than a year ago. This increase has 
been concentrated among persons losing jobs with no expectation 
of being recalled.
    The number of persons unemployed for other reasons, such as 
voluntarily leaving a job or newly entering the labor market, 
has been little changed over this period.
    In terms of duration of unemployment in February, 36 
percent of unemployed have been searching for less than 5 
weeks. About 19 percent have been searching for 27 weeks or 
longer. These proportions are essentially the same as a year 
earlier.
    The labor force participation rate in February declined to 
65.9 percent, but has been at or near 66 percent since the 
second quarter of last year.
    Among the employed, the number of persons working part-
time, who would prefer to be working full-time, has been 
growing. In February, there were 4.9 million such workers, up 
about 600,000 from a year ago.
    Among those not in the labor force in February, about 1.6 
million were marginally attached to the labor force, up 
slightly over the past 12 months, and there were about 400,000 
discouraged workers, about the same as a year ago.
    So, to summarize, payroll employment edged down in February 
by about 63,000, and the unemployment rate was essentially 
unchanged.
    I'd be happy to answer questions.
    [The prepared statement of Dr. Keith Hall appears in the 
Submissions for the Record on page 37.]
    Representative Cummings. Thank you very much, Dr. Hall. I 
just want to just go through some of the things that you've 
said, and see if we can't shine some light on some of this.
    I'd like to start by drawing your attention to the chart, 
which shows that the pace of payroll job growth has come to a 
halt in recent months. Does the picture represent the BLS data 
accurately?
    Commissioner Hall. Yes, it appears to.
    [The chart referred to, ``Monthly Change in Nonfarm 
Payrolls,'' appears in the Submissions for the Record on page 
92.]
    Representative Cummings. First, what kind--tell me, what 
kind of job creation, do we need each month, just to keep pace 
with population growth?
    Commissioner Hall. Given current population growth, we need 
about 150,000 jobs a month.
      
    Representative Cummings. Does that number change, Dr. Hall, 
when we--at all, when we come to May, when thousands of young 
people will be coming out of college, looking for jobs? Does 
that figure change?
    Commissioner Hall. Yes. This figure is sort of a seasonally 
adjusted number, so, we take that into account.
    Representative Cummings. So this is more of an average; is 
that correct?
    Commissioner Hall. Yes.
    Representative Cummings. And over the past year, we've seen 
sharp declines in employment in housing-related sectors of the 
economy; is that right?
    Commissioner Hall. Yes.
    Representative Cummings. But now it seems that employment 
losses and slow payroll job growth are now spread across a wide 
array of industries.
    Can you tell us where job losses began and what industries 
are now seeing employment losses?
    Commissioner Hall. In the past 3 months, employment trends 
in both retail trade and wholesale trade have shifted from job 
gains to job losses.
    Construction and manufacturing have been experiencing a 
sustained period of job decline, and those losses have now 
deepened since November.
    Professional and technical services and leisure and 
hospitality have continued to add jobs over the past 3 months, 
but at a much slower pace, and, as I mentioned before, only the 
Government sector and education and health services have seen 
sustained job growth since the beginning of 2006.
    Representative Cummings. And so, what does that tell us? I 
mean, you look at these figures, and I know--I'm sure you sleep 
with them and wake up to them; what does this tell you when you 
see this kind of trend?
    Commissioner Hall. Sure. We've clearly had a broad 
weakening in the labor market, and we seem to be at a point 
where the labor market job growth is fairly flat right now. 
We're at a pause or a stall, at least, at the moment.
    Representative Cummings. You're saying it's stalled; is 
that what you said?
    Commissioner Hall. Yes.
    Representative Cummings. And does ``flat'' and ``stalled'' 
mean the same thing?
    Commissioner Hall. Yes.
    Representative Cummings. You just used both of them, and I 
want to make sure we're talking about the same thing.
    Commissioner Hall. Yes.
    Representative Cummings. What would be the next level down, 
based upon your vocabulary, from flat and stalled, since they 
mean the same thing? What's the next level down?
    Commissioner Hall. Where we start--the next level down, I 
suppose, it's sort of a qualitative thing.
    We would start to see sustained job losses broadly through 
the economy, and we've already seen sustained job losses in 
manufacturing and construction, so, first of all, not the 
entire economy is stalled; some parts of the economy are 
experiencing job losses right now.
    Representative Cummings. But I assumed that when you said 
``flat'' and ``stalled,'' you were more or less talking about 
sort of an average kind of thing.
    Commissioner Hall. Yes, that's right.
    Representative Cummings. I just want one word. Just give me 
a word, because I want to use that word. What is the word that 
you would use if you were going from ``stalled'' and ``flat,'' 
what's the next level down in the vocabulary that you would use 
with your colleagues here?;
    Commissioner Hall. I guess I would go--the next level might 
be broadly declining.
    Representative Cummings. Broadly declining?
    Commissioner Hall. Yes.
    Representative Cummings. OK, I'll write that down. Now, 
while up till now, job losses have been concentrated in 
construction and manufacturing, this month we see job losses in 
the private service-producing industries, which comprise most 
of the economy; is that right?
    Commissioner Hall. That's correct.
    Representative Cummings. Can you tell us what service 
industries have seen a slowdown in job creation and how 
widespread this trend is?
    Commissioner Hall. In services, it's very widespread; it's 
pretty much all the service sectors, with the exception of 
education and health services and Government, have pretty much 
had a real slowing in job growth.
    Representative Cummings. So, when you have--when we get to 
service industries and we see what's happening there, what you 
just described, what does that tell us? Is there any analogy 
here to the canary in the cave situation?
    Commissioner Hall. Yeah, it's hard to say that. I think the 
labor market, the jobs numbers, are what you might call 
coincident indicators; they give you a real good feel about 
what's actually going on right now in the economy.
    The basic numbers, I'm not sure how much they tell you 
about going forward, whether we know whether this pause will 
continue or actually move to a decline, or whether we'll get a 
recovery of some sort.
    Representative Cummings. So we don't know whether we are 
broadly declining; is that correct?
    Commissioner Hall. That's correct.
    Representative Cummings. And so how long would it take? I 
mean, if we had, say, 2 or 3 months of this, do you think you'd 
be inching toward the broadly declining statement, or would you 
still be with this flat situation that you talked about a 
moment ago?
    Commissioner Hall. Well, certainly in the next month or 
two, we'll be able to tell better, whether this is showing 
signs of getting to be a bigger problem with the labor market.
    Representative Cummings. Tell me--just give me the 
significance of service. Is that usually like the last category 
that you--I mean, you see things declining in the construction 
industry, and you named a few others, and when you get to 
service, is there something particularly significant about 
that?
    Commissioner Hall. I think it's fair to----
    Representative Cummings. That is, the decline in jobs in 
that area?
    Commissioner Hall. I think it's fair to say, services are 
maybe a little less volatile than goods, in terms of the 
employment. Services were certainly quicker to turn around 
during the last expansion, than, say, manufacturing and 
construction.
    One of the ways I would cut it, perhaps, besides services 
versus goods, would be maybe durable versus nondurable goods. 
One of the things you certainly see in economic slowdowns, you 
see durable goods, in particular, take a hit, and durable goods 
employment, in particular, takes a hit.
    Representative Cummings. In fact, last month, you said, and 
I quote you here, you said, quote, ``To some degree, I think 
recessions are often are almost defined by the labor market.''
    Commissioner Hall. Yes.
    Representative Cummings. And I'm continuing the quote, 
because I want to make sure you said this.
    Commissioner Hall. Yes.
    Representative Cummings. ``At least in my mind, a recession 
is where economic growth slows enough where that it is no 
longer creating jobs for a sustained period of time.'' End of 
quote.
    Do you remember saying that?
    Commissioner Hall. I do.
    Representative Cummings. You did say that?
    Commissioner Hall. I did.
    Representative Cummings. Now, given this month's job 
losses, would you say that we're in a recession or at least 
very near one?
    Commissioner Hall. I don't want to speculate about where we 
go from here.
    Representative Cummings. I didn't ask you to speculate 
where we go from here. I asked you whether we're in a 
recession.
    Commissioner Hall. I don't want to make that judgment, and 
I'll tell you, in part, because I handle the data, I don't want 
to sort of characterize it more than just sort of what the 
facts are with the data.
    Representative Cummings. I understand.
    Commissioner Hall. It is fair to say that the labor market 
has stalled at the moment, and during past economic downturns, 
there has been--it's almost, by definition, a sustained period 
of where there are sustained job losses for several months.
    Representative Cummings. I understand.
    Commissioner Hall. And almost the rule of thumb about two 
quarters of decline in GDP, that almost always coincides with 
several months of real job decline.
    Representative Cummings. Now, I'm not trying to get you to 
predict anything.
    Commissioner Hall. OK.
    Representative Cummings. I'm just going to go back to what 
you just said. I will ask you then, so, in other words, if we 
saw this trend that we see today--and I would ask you--I'm not 
trying to get you to predict anything.
    Commissioner Hall. Right.
    Representative Cummings. If we had the same trend that we 
have today, 3 months from now, 2 months from now, you would 
have to almost conclude, without telling the world, keeping it 
our secret, that we're in a recession. I didn't say ``predict 
it,'' I said, if it were. I know this is hypothetical.
    Commissioner Hall. Right, right. To be honest, I really 
wouldn't want to make that judgment. I can tell you that in 
past periods that have been declared a recession, there were 
broad job declines across the economy.
    At the moment, we don't have that yet. We have declines in 
a couple of sectors, and most of the other sectors have 
essentially stalled. But we don't have large declines in 
employment across the economy yet.
    Representative Cummings. And you're taking into 
consideration, people who have just given up on looking for 
jobs, too; is that right?
    Commissioner Hall. Yes. And that's why you need to look at 
more than just the job growth; that's absolutely right. If you 
look at the number of discouraged workers and people moving to 
part-time, you get a more complete picture of the state of the 
job market.
    Representative Cummings. And when you say that, do you also 
take into consideration, people who are now--they had to settle 
for a job that--where they're earning a lot less money and have 
either no benefits or less benefits than they had before, 
because, in a sense, they are no longer in that economic 
situation that they were before; they don't have the ability to 
purchase, and yet still prices are going up.
    I mean, do you take that into consideration, also?
    Commissioner Hall. I would. It's very hard to measure that, 
though.
    Representative Cummings. Sure.
    Commissioner Hall. The sort of thing I think you need to 
look at, is things like people who are working part-time for 
economic reasons, which, essentially, those are folks who are 
working part-time, but who would like to be working full-time.
    That's the sort of data that I think of as more directly 
answering that question. Actually, it's hard to tell whether 
people are in jobs they don't like.
    Representative Cummings. I understand; I understand. Let's 
discuss the unemployment rate. Some people have said that 
because unemployment is relatively low, in historical terms, we 
don't yet have an unemployment problem.
    However, others point to the employment rate, the share of 
the United States population who have jobs, as a better 
indicator of how well the labor market is performing.
    Now, according to today's report, the unemployment rate was 
statistically unchanged last month, at 4.8 percent, yet the 
employment rate dropped--the employment rate dropped--to 62.7 
percent. What are the differences between the unemployment and 
the employment rates, and how have they each fared over the 
past few years?
    Commissioner Hall. The real difference is labor force 
participation, between those two. If labor force participation 
is constant, then those two things are going to tell you the 
same story, because one is looking at the unemployed versus the 
labor force; the other is looking at the employed versus the 
population.
    So, the difference is labor force participation. If you 
look at labor force participation and the unemployment rate, 
you should get the same picture as you do with the employment 
rate.
    How they have fared lately, I think the labor force 
participation rate hasn't had any major movement; it's been 
hovering around 66 percent, and the unemployment rate has also 
been hovering around its current level, at least since the 
fourth quarter of last year till now, but it has risen from the 
first part of 2007.
    If nothing else that's a reminder that this weakening in 
the labor market is not a sudden thing; this has been happening 
now for over a year, that we've had this steady weakening.
    Representative Cummings. Is that of concern to you, I mean, 
that this has been happening over a year, and it does not seem 
to be going in the opposite direction?
    Commissioner Hall. Yes.
    Representative Cummings. And can you tell us why that 
concerns you?
    Commissioner Hall. Well, obviously, one of the things 
that's important with any of the economic data, is the trend. 
You know, if you look at the level of things from month-to-
month, things go up and down, because the measurement is 
imperfect.
    But if you look at the trend, that's where you get a real 
picture of where your labor market is, and obviously, it raises 
concerns about where it's going.
    Representative Cummings. So there are a lot of people, 
apparently, who don't have jobs.
    Commissioner Hall. Yes.
    Representative Cummings. And when we look just at the 
unemployment rate, we don't necessarily--if we're just looking 
at the unemployment rate, we don't get a true picture, do we?
    Commissioner Hall. No, you don't; you need to look at other 
things besides the unemployment rate; that's correct.
    Representative Cummings. And that's because so many people 
have probably given up?
    Commissioner Hall. That happens, yes.
    Representative Cummings. And perhaps the jobs are not 
there?
    Commissioner Hall. Yes.
    Representative Cummings. Are there any other reasons?
    Commissioner Hall. Oh, no, that's a good reason why you 
need to look beyond the unemployment rate, absolutely.
    Representative Cummings. OK. Typically, African Americans 
see an unemployment rate that is twice the level of whites. Is 
this the case this month?
    Commissioner Hall. Yes, it is. I think the unemployment 
rate this month, fell to about 8.3 percent, and that's about in 
line with the way it's been for all of 2007, and that is, 
obviously, quite a bit higher than the overall average.
    Representative Cummings. Is it also true that African 
Americans also have a lower employment rate, and if so, how 
much lower?
    Commissioner Hall. They do have a lower employment rate, 
and I want to dig the number up here for you.
    Representative Cummings. Mr. Rones, how are you doing?
    Mr. Rones. I'm good. How are you?
    Representative Cummings. Good seeing you again. I forgot 
about you all. Mr. Horrigan, good seeing you also.
    [Pause.]
    Mr. Rones. So, the employment/population ratio for whites 
was 63.3 percent in February; for blacks or African Americans, 
it was 58.4 percent.
    Representative Cummings. What's that, about 5----
    Mr. Rones. Five points lower.
    Representative Cummings. Five points lower. Is the 
discrepancy between the unemployment and the employment rates, 
because people are leaving the labor force, do you think, 
overall?
    I've moved now from the African American situation.
    Commissioner Hall. The actual number of unemployed hasn't 
changed that much over the past 12 months. The number of 
unemployed is still about 7.4 million.
    [Labor Department witnesses confer.]
    Commissioner Hall. I'm sorry.
    Representative Cummings. That's OK.
    Commissioner Hall. Yes, actually, it's up. The number of 
unemployed has grown from about 6.8 million to 7.4 million.
    Representative Cummings. Of unemployed?
    Commissioner Hall. Of unemployed, that's correct. And for 
those not in the labor force, I think I had this in my earlier 
statement, the level that are marginally attached to the labor 
force, that's up slightly over the past 12 months, but it's 
about 1.6 million.
    Representative Cummings. And when you say ``marginally 
attached,'' what does that mean?
    Commissioner Hall. That means that people who want to work 
and are available to work, but they're not currently looking 
for work. So they are people who have looked for work in the 
past 12 months, they're not looking right now, but they want to 
work and they are available for work.
    Representative Cummings. But there is one factor that you 
left out. Are there jobs for them?
    Commissioner Hall. Well, yeah, obviously, that can be a 
reason for why this number changes over time.
    Representative Cummings. All right, I just wanted to make 
sure we had the whole picture there.
    Commissioner Hall. Absolutely.
    Representative Cummings. How high would the unemployment 
rate be, if it included those who worked part-time for economic 
reasons, as well as those who were marginally attached to the 
labor force, and has this been changing over the past year?
    Commissioner Hall. That number is actually our broadest 
measure of unemployment. We have some alternate measures, 
rather than just the unemployment rate.
    That's at about 8.9 percent, and that's up from about 8.1 
percent a year earlier.
    Representative Cummings. The key theme of today's hearing, 
as shown in the chart, is that the share of the unemployed who 
have been out of work for at least 6 months is relatively high. 
We have a chart here that shows the trends.
    [The chart referred to, ``Share of the Unemployed Who Have 
Been Out of Work for Six Months or More,'' appears in the 
Submissions for the Record on page 95.]
    Can you tell us about these trends in the long-term 
unemployed? Did this indicator ever recover from the 2001 
recession, and how does it look in historical terms?
    Commissioner Hall. Well, this indicates that the number of 
long-term unemployed, as you might expect, typically peaks 
somewhat after a recession, after an economic downturn, because 
people have to be unemployed for 6 months.
    And the typical pattern has been that this number has 
gotten as high as 2.5 percent of the labor force. This past 
recession, it got to be almost 1.5 percent of the labor force, 
and it's been in steady decline down to about 0.75 percent of 
the labor force.
    In past business cycles, this decline has continued on down 
to less than half a percent, so I guess to summarize, the trend 
in long-term unemployed, typically goes all the way down to 
about half a percent of the labor force, and we haven't gotten 
there yet. Over the past year or so, this decline has stalled.
    Representative Cummings. And you have clear data on that; 
is that right?
    Commissioner Hall. Yes, we do.
    Representative Cummings. And I guess that's easy to track, 
because you look at who the unemployed were, and you then see 
that they've run out of benefits; is that how you do it?
    Commissioner Hall. No. We do it as part of our survey.
    Representative Cummings. I got you, OK. Have high levels of 
long-term unemployment been concentrated in particular regions 
of the country, or, in particular, demographic groups defined 
by education, race, or gender?
    Commissioner Hall. Yes. In 2007, about 20 percent of the 
jobless were in the Midwest and Northwest regions. I'm sorry, 
about 20 percent of the jobless in the Midwest and Northeast 
regions, were long-term unemployed.
    That's compared to about 17.6 percent for the country, as a 
whole.
    The South and Western regions had long-term jobless rates 
of about 16.6 percent and 15 percent, respectively, and that's 
below the average.
    Representative Cummings. And where was that?
    Commissioner Hall. South and Western regions, where about 
15 to 16.6 percent of the unemployed were long-term unemployed.
    Representative Cummings. And has this changed over the past 
year?
    Commissioner Hall. Yes, I'd say the Midwest and Northeast 
regions have had more than their share of long-term 
unemployed.*
---------------------------------------------------------------------------
    * BLS notes: Long-term jobless rates for all regions were little 
changed from 2006.
---------------------------------------------------------------------------
    Representative Cummings. And why is that; do you know?
    Commissioner Hall. That, I don't know. I haven't looked at 
it carefully. The most obvious thing has been that job growth 
simply hasn't been as strong during this economic expansion in 
those regions.
    I haven't looked at that, but that would be my 
anticipation, but I don't know.
    Representative Cummings. I mean, do you normally look at 
things like that? In other words, if you see that people seem 
to be employed in one area and not employed in another, and 
it's a relatively significant difference, is that something 
that would concern your organization?
    Commissioner Hall. Yes, absolutely. We do collect data on 
States and regions, and if you look sometimes at regions and 
States, you can see a rather different economic situation.
    You can literally have States that are in an economic 
downturn, while the rest of the economy is in an expansion.
    Representative Cummings. And are the long-term unemployed 
concentrated among older manufacturing workers who may have 
been displaced due to plant closures in places like upstate New 
York, Ohio, Michigan?
    Commissioner Hall. For the Nation as a whole, the long-term 
unemployed, that's about 17.6 percent. That's the average.
    In Michigan, it's 24 percent; in New York, it's 22 percent; 
and in Ohio, it's about 18 percent; so those are three examples 
that are above average.
    Representative Cummings. And some industries, especially in 
manufacturing, had a tradition of temporary layoffs followed by 
recall, as the economy improved.
    To what degree is the relative growth in long-term 
unemployment, due to changes in the industrial structure of the 
economy?
    Commissioner Hall. That, to me, is unclear. I haven't done 
a detailed study of that. Certainly, one obvious reason for 
this, the recent rise in long-term unemployment, is the 
relatively slow growth of job growth, broadly, in the economy.
    That's clearly a contributing factor. I don't know how much 
it's been from changing industrial structure.
    Representative Cummings. Now, it's common to see high 
levels of long-term unemployment at the end of a recession. Is 
there a recent precedent for a situation like we are seeing 
today, where we're seeing such high levels at the start of an 
economic slowdown?
    Commissioner Hall. That's a good question. I think--I'm 
sort of looking at some of the data right now.
    [Pause.]
    The most notable thing is, in fact, that we are starting 
from a fairly high level, and we're starting to see the a long-
term unemployed rise.
    Representative Cummings. That's a major problem, isn't it?
    Commissioner Hall. Yes.
    Representative Cummings. So, do you have anything good to 
say----
    [Laughter.]
    Representative Cummings [continuing]. To the people that 
might be watching this on CSPAN? It's getting a little 
depressing up here.
    I'm not trying to be funny. I'm just--I guess I'm looking 
for something to--I mean, is there something good? I don't want 
you to go back to your neighborhood and everybody say, ``We saw 
you on CSPAN, but you didn't have anything good to say.''
    Commissioner Hall. Well, I don't want to appear to be 
trying too hard here, but I----
    Representative Cummings. Very seriously, I mean, I'm just 
trying to get to--we seem like we're marching down a road, 
Commissioner, where it's just dark.
    And it seems like almost every answer I get--and you're 
doing a great job answering my questions--but I guess I'm 
trying to paint this picture of, is there--I'm looking for this 
light down the end of this tunnel, and I don't see it.
    And I don't even see a match being struck at the end of the 
tunnel, let alone a light. So I'm trying to figure out, you 
know, what you see.
    And I understand you don't want to predict. I'm just trying 
to figure out what you see.
    Commissioner Hall. I'd say that the good news in here, I 
suppose, is not what I see, but what I don't see.
    Representative Cummings. OK.
    Commissioner Hall. We don't have broad losses in jobs. We 
don't have job loss, broadly. Right now, obviously, it's in 
manufacturing and construction, but most of the rest of the 
sectors are, at the moment, stalled.
    Representative Cummings. And we're stalling in service?
    Commissioner Hall. Yes.
    Representative Cummings. And that concerns you?
    Commissioner Hall. Yes, absolutely. But, as I say, the 
encouraging part is what we don't see at this point. We don't 
see large job losses, broadly, in the economy.
    In past economic downturns, we've seen rather large 
increases in job loss, people who had jobs and lose jobs. We 
haven't seen that yet.
    And again, we also haven't seen a large increase in the 
unemployment rate. But of course, if we don't get stronger job 
growth, we might then see a larger increase in the unemployment 
rate going forward.
    Representative Cummings. Let me make sure I understand what 
you just said. Are you telling me that the people who--the vast 
majority, I guess--and again, correct me, I'm not trying to put 
words in your mouth.
    Commissioner Hall. Right.
    Representative Cummings. The vast majority of people who 
don't have jobs right now, are people that did not lose their 
jobs, but they're more or less people who, for whatever reason, 
came out of the job market and can't get back in. Is that what 
you're saying?
    And I'd really like to know what you base that on, and I'd 
also like to know what percentages you're talking about. I 
spent the weekend up in Ohio, last weekend, talking to a lot of 
people, and a lot of the people that I talked to have lost 
jobs.
    Commissioner Hall. Let me clarify a little bit. The people 
who lost jobs, they're still the majority of the unemployed; 
they've lost their jobs.
    Representative Cummings. OK.
    Commissioner Hall. But what we're not seeing--and, again, I 
say that the good news is what we're not seeing.
    In the past downturns, this number has increased 
dramatically.
    Representative Cummings. Let me just stop you right there, 
because I want to make sure. We have a group of people over 
here who actually did lose their jobs.
    Commissioner Hall. Yes.
    Representative Cummings. And so they're out there with no 
work.
    Commissioner Hall. Yes.
    Representative Cummings. OK. Then there is another group of 
people who are no longer--who, for whatever reasons, came out 
of the job market, but can't get back in. Maybe somebody left 
to perhaps have a baby, or, you tell me.
    I mean, the kinds of things. Maybe they just decided to 
take a break; is that OK?
    Commissioner Hall. Yes.
    Representative Cummings. Now, is there another group that 
would have no job? I guess there's the other group that perhaps 
is coming out of school, new to the employment picture, that 
don't have a job, right?
    Commissioner Hall. Correct.
    Representative Cummings. Is there another broad group that 
you can think of?
    Commissioner Hall. No, I think that's basically it.
    Representative Cummings. Can you break those down into 
percentages, just off the--I mean, just generally. I'm not 
trying to hold you to that. Just give me an idea, so that we'll 
have a clear picture.
    Commissioner Hall. I do think I have got that somewhere. 
Let me take a quick look here.
    Representative Cummings. So those are the kind of stats you 
also keep?
    Commissioner Hall. Yes.
    Representative Cummings. Oh, wonderful.
    [Pause.]
    Mr. Rones. Mr. Chairman, you have maybe 7 million 
unemployed people. So that is one group of people who do not 
have jobs. There are toward 70 million adults who are out of 
the labor force for a whole range of reasons, many of those--
the vast majority have no interest in work at this particular 
time. But they are----
    Representative Cummings. Seventy million?
    Mr. Rones. Roughly speaking.
    Representative Cummings. Seventy million Americans have no 
interest in working? Is that what you just said?
    Mr. Rones. Sure. And a lot of those are people who are 
students, full-time students, retirees, homemakers who choose 
to do that. So it is very large group. Actually I see it is up 
toward 80 million. But within that group are a lot of people 
who you have alluded to: Students who will graduate at the end 
of the semester in May or June who will be coming into the 
labor force; people whose personal situation changes. For 
instance, they had had family responsibilities but they do not 
have them anymore. Or their kids are 6 now instead of 5 and 
they are in school and they can work.
    And so you actually get in any month and in any year a lot 
of people coming into the labor force who perhaps the last year 
had been out of the labor force. And those are people who are 
looking for work.
    The main thing that we are seeing now, as the Commissioner 
referred to, is not that you have a lot more people losing 
jobs--in fact, we really do not have more people going from 
employed to unemployed--it is that once they are unemployed, 
they are having a harder time finding new jobs.
    And that is what typically happens when the job market 
slows down. It is not that there are mass layoffs; it is that 
when you are unemployed, all of a sudden people are not hiring 
as much as they were hiring before. And that is what we are 
starting to see now.
    Representative Cummings. And one reason for that, I guess, 
would be attrition. In other words, people see that they can do 
without, or because the economy does not allow them to hire 
more people--I mean, this is just a guess--and so the employer 
says: I am not going to replace folks in those positions.
    Is that one of the reasons, do you think?
    Commissioner Hall. Yes.
    Representative Cummings. And let me tell you where I am 
going with this, because I am almost finished. I guess when I 
listen to all of this, it seems like we seem to be extending 
some unemployment benefits, wouldn't you say, Mr. Hall--
Commissioner Hall?
    Commissioner Hall. I don't know that much about the 
unemployment benefits.
    Representative Cummings. You know that there are people who 
do not have--they have run out of benefits, and they--I am just 
going to give you a little lesson here--and then they do not 
have money to do the things that they need to do, like buy 
groceries and take care of their kids, and buy clothing, and 
buy gas, and they run out.
    And you have the figures of the people who have run out, 
and you have the figures of the people who cannot find jobs. I 
mean, at some point it seems like somebody has to say: You know 
what, we have got a lot of people who are in trouble and we 
need to do something to help them.
    And I know, I know, I know, that is out of your--you know, 
you do not like to give opinions, but you keep these stats, and 
this is what you do. And I am just kind of figuring out, you 
must think about this, don't you?
    Commissioner Hall. Sure. Sure.
    Representative Cummings. And what do you think?
    Commissioner Hall. Well I certainly think the unemployment 
insurance programs are important.
    Representative Cummings. And do they need to be extended?
    Commissioner Hall. I do not want to offer a judgment on 
that.
    Representative Cummings. I understand. OK, let me just ask 
you something else. In the recessions of the early 1900s and 
the early 2000s, the unemployment rate was at 5.7 and 7 percent 
respectively when Congress extended the unemployment insurance 
benefits. While that is higher than what we see today, is it 
not also the case that the share of the unemployed who are 
long-term unemployed is higher today than it was in the early 
1900s and the early 2000s when Congress extended Unemployment 
Insurance benefits?
    Commissioner Hall. I am not sure when the unemployment 
benefits were extended, but the percent of the labor force that 
is long-term unemployed is about the same as it was in roughly 
1996-1997; so 1996, to say 2001, the share of the labor force 
that was long-term unemployed was lower than it is now.
    Representative Cummings. OK. Let's talk about wage growth 
for just a moment. How well the labor market is performing is 
not just about employment, but also about wages. Is that right?
    Commissioner Hall. Yes.
    Representative Cummings. These trends also look very 
disappointing. Would you agree?
    Commissioner Hall. In terms of real wage growth, yes.
    Representative Cummings. Yes. This chart here shows that 
inflation adjusted wage growth has turned negative in recent 
months. Did wages fall again compared to inflation in February?
    [The chart referred to, ``Annual Change in Real Earnings,'' 
appears in the Submissions for the Record on page 93.]
    Commissioner Hall. We do not have inflation data for 
February, so I do not know.
    Representative Cummings. My understanding is that wage 
growth should be tied to the productivity of workers. That is, 
how much stuff workers produce per hour. But has that been the 
case, or has it been that productivity growth has far outpaced 
wage gains over this entire business cycle?
    Commissioner Hall. Productivity has outgrown real wage 
growth. From 2000 to 2007, productivity grew about 2.5 percent 
a year, and real hourly compensation--which has been deflated 
with consumer prices--has grown about 1.3 percent a year.
    Representative Cummings. So in other words we have been 
producing more and making less? Is that right? Is that what you 
are saying?
    Commissioner Hall. Well, not----
    Representative Cummings. I just want you to tell me, 
interpret what you just said.
    Commissioner Hall. OK. Not making less, but so far in this 
decade the growth of compensation has not matched the growth in 
productivity.
    Representative Cummings. That is what I said. Maybe we are 
just saying it a different way.
    Commissioner Hall. Yes.
    Representative Cummings. In other words, Americans are 
working hard, and their efforts are producing things, but while 
they are producing all this and working hard their wages are 
not staying level with that level of production? Is that right? 
Is that a fair statement?
    Commissioner Hall. Yes. Over this time period, yes.
    Representative Cummings. Is that unusual?
    Commissioner Hall. It is not unusual for compensation to 
lag productivity in the early parts of an expansion, but if we 
deflate hourly compensation with the implicit price deflator 
for the goods and services that workers and producing, it 
typically catches up by now.
    Representative Cummings. And should it have caught up by 
now?
    Commissioner Hall. In the past it has. So typically it has, 
but it has not yet in this expansion.
    Representative Cummings. OK, let's zero in on right where 
you are. So in the past, by now it would have caught up?
    Commissioner Hall. I think that is a fair statement, yes.
    Representative Cummings. And so it is not happening the way 
it has happened in the past. And what does that say? What does 
that tell you?
    Commissioner Hall. Um----
    Representative Cummings. And a little earlier you talked 
about trends. You said trends are very significant because they 
show you where we are going. And although you do not do any 
predicting--I understand that--but what does that say?
    Commissioner Hall. I think this is consistent with the 
generally weaker job growth that we have had during this 
expansion. It is part of the overall picture that the labor 
market hasn't been as strong during this expansion so far.
    Representative Cummings. And I guess when you throw into 
the formula the fact that health care is going up, and people 
do not have in many instances the benefits that they once had, 
that just--I guess that is not part of your measuring there, is 
it? Or is it?
    Commissioner Hall. Well the compensation includes employer-
provided health care, but it does not measure privately paid 
health care.
    Representative Cummings. I see. So a person, even if they 
got a job and if they were making more money, were making a 
decent wage, now if they had benefits now--they do not have 
benefits--and they have that one incident that happens where 
they go and are treated for a day or two in a hospital and come 
out with a $15,000 to $20,000 bill, they have got problems?
    Commissioner Hall. Certainly.
    Representative Cummings. Over the past year, have changes 
in wages been the same across the wage distribution, or have 
they been concentrated among higher or lower paid workers?
    Commissioner Hall. It seems to be actually fairly even if 
you look at broadly--I am going to switch to median usual 
weekly earnings because we have that broken down by deciles--
from the fourth quarter of 2006 to the fourth quarter of 2007, 
real median weekly earnings have been little changed for the 
overall, the median.
    That is also true of the 9th decile, which is the fairly 
high paid folks, and it is also true of the 1st decile, the 
low-income folks. So it actually has been fairly consistently--
we have seen very little real wage growth for either of the 
groups.
    Representative Cummings. So we have got a lot of people who 
are unemployed. We have got a lot of people who cannot--we have 
got a lot of people who have lost jobs. We have got a lot of 
people who went out of the job market and cannot get back in. 
And then we have got all these students who are going to be 
graduates in May who are probably not going to be able to find 
jobs.
    But I want to concentrate on them for just a moment. What 
do you see for them? You know, we have all these parents who 
have paid all this tuition, and young people who have worked 
hard, done everything they know how to get the good grades, and 
now they are about to enter this job market. When we compare 
the market that they would have entered, say last year to this 
year, is it about the same?
    Commissioner Hall. Certainly economic growth is not as 
strong now as it was a year ago.
    Representative Cummings. So they are going to have a 
tougher time getting a job?
    Commissioner Hall. I do not know about going forward. It 
would be nice if economic growth would pick up, but if things 
stay like they are now they would have a tougher job.
    Representative Cummings. I am talking about 2 months from 
now. Maybe 3 months. And people are beginning to hire now. 
Young people are actually getting commitments now for jobs. So 
we have got young people--so that is going to add. If things 
continue to go at the rate they are going, we are going to have 
a group of young people who I guess are going to either--I 
guess they are going to have to go back to mom and dad.
    Commissioner Hall. Yes, that is certainly--when you have a 
slow or stalled job market, that is certainly--you have people 
who go back to school, stay a little longer at school, and 
people do have trouble entering the job market.
    Representative Cummings. Let me ask you this: I said in my 
opening statement--and I am finished now--I said that we can do 
better as a Nation, and I truly believe that. I believe we can 
do better.
    I am just wondering. I mean, I am always reluctant to ask 
you questions, Commissioner, because I know you have this 
little box you operate in, and I want to try to take you out of 
it just a little bit, but what do you say to the powers that be 
when they say: Well, what can we do? You have got the 
information. What is it that we need to do to try to straighten 
some of this out to try to do better?
    Commissioner Hall. Well, without getting into policy 
issues----
    Representative Cummings. Without getting into policy.
    Commissioner Hall. Without getting into policy issues, 
strong economic growth is just extremely important. When you 
have enough growth, it supports job growth. It makes a huge 
difference.
    This is one of the reasons why it is very important to 
avoid business downturns, the business cycle, because it is 
very costly. People lose jobs. Unemployment goes up. And it 
picks on certain groups: the people who are less educated, less 
trained; it picks on some minorities; those unemployment rates 
go up quite a lot during economic downturns.
    It is important, extremely important, to do what you can to 
avoid these.
    Representative Cummings. And now for ``the'' question. How 
do you do what you just said?
    You said it is important that you avoid it. How do you do 
that? I mean, because there are a lot of people who are looking 
at you right now saying: What do we have to do? Certainly this 
Congress, we are trying to help our constituents, and we are 
trying to figure out what we can do to avoid--I mean, I am just 
keeping you in your own little, your box there.
    Commissioner Hall. Well staying in my box----
    Representative Cummings. OK, it's a big box, OK, a big box.
    [Laughter.]
    Commissioner Hall.--I would have to say that is one of the 
reasons why we take a lot of time to collect economic data. 
That is why we spend a fair amount of money collecting data and 
providing it, so people can make decisions.
    Economic downturns happen I think in large part when people 
have uncertainty. They do not know what is going on. And it is 
extremely important that people understand the economy. They 
have knowledge about the economy. They make informed decisions 
about the economy. I think that is extremely important. Not 
only do I mean individuals, I mean firms, and I mean 
policymakers as well.
    Representative Cummings. So Commissioner, you just said the 
magic words. I think what you are saying is that your job is to 
provide the data, and that data shows us where we are going. It 
shows us whether we are going down the cave where we cannot see 
even the slightest match being lit. Definitely no light.
    Or it may show us a new day, and sunshine. And we need to 
act on those things before--but I guess we needed to act before 
we just saw darkness. Is that a fair statement?
    Commissioner Hall. Yes. Obviously the quicker you respond, 
the better the policy.
    Representative Cummings. Is it too late?
    Commissioner Hall. I do not know. I do not know. I will 
step a little out of my box. I think we have already been very 
aggressive in terms of our economic policy. The question will 
become: Were we aggressive enough, and were we early enough?
    Representative Cummings. And when you say we have been 
already aggressive, I just want to know--I just want to 
understand when you said we were aggressive, what did we do?
    Commissioner Hall. I think both with the Fed and the 
stimulus package. Those were not trivial things.
    Representative Cummings. Yes. I understand. The Fed, I 
think we are beginning to see a little bit, maybe, but the 
stimulus package is still--you know, I was listening to Ms. 
Orman, I think that is her name--the other day, and she was 
saying to the people, when they get their money back from the 
stimulus package, not to spend it. She said, hold onto it 
because you are going to need it for gas. And, she said, you 
have got to get to work. And there are necessities that you 
have got to have.
    She did not even say: pay your credit cards off, which 
surprised me. She said we are in a position where you do not 
want to get to a point where you cannot do the things that you 
need to do to survive, basically. And I thought that was a 
very, very, very, very, very sad commentary. Because it seems 
to work against the very reason why the stimulus package--I am 
not saying that she was wrong. She is probably right. But it 
just shows you--basically what she is saying is that folks are 
up against the wall, so do not think you are going to go out 
there and buy that new purse with that money. That would be a 
major mistake.
    Do you have any closing statements? I do not want to leave 
you hanging out here.
    Commissioner Hall. No. Just that I appreciate the 
opportunity to talk about the data this morning. Thank you for 
having me.
    Representative Cummings. Well I just want you to know we 
appreciate you, Mr. Rones, Mr. Horrigan, and thank you.
    We will call our next witnesses: Professor Rebecca Blank, 
and Ms. Christine Owens, and Dr. Lowell Gallaway.
    Good morning everyone.
    Dr. Blank. Good morning.
    Representative Cummings. Let me introduce our witnesses, 
and I want to thank you all for being with us. You all were 
here to hear all the testimony?
    Dr. Blank. Yes.
    Dr. Gallaway. Yes.
    Dr. Owens. Yes.
    Representative Cummings. That is helpful. Professor Rebecca 
Blank is the Henry Carter Adams Collegiate Professor of Public 
Policy at the University of Michigan. She is also professor of 
economics, and the co-director of the National Poverty Center 
at the Ford School.
    She is currently on leave as the Robert V. Kerr Visiting 
Fellow at the Brookings Institution. She is the author of 
``Working and Poor: How Economic and Policy changes Are 
Affecting Low-Wage Workers,'' and ``Measuring Racial 
Discrimination.'' Professor Blank graduated Summa Cum Laude 
with a B.S. Degree in economics from the University of 
Minnesota, and received her Ph.D. in Economics from the 
Massachusetts Institute of Technology.
    Dr. Christine Owens is the executive director of the 
National Employment Law Project, an organization engaged in 
research, education, and advocacy on behalf of low-wage, 
unemployed, immigrant and other disadvantaged workers. Dr. 
Owens previously served as director of public policy at the 
AFL-CIO. Dr. Owens graduated Phi Beta Kappa with a B.A. from 
the College of William & Mary, and received her Juris Doctorate 
from the University of Virginia School of Law.
    Dr. Lowell Gallaway is distinguished professor of economics 
at Ohio University. Dr. Gallaway's most recent book is ``Out of 
Work: Unemployment and Government in 20th Century America.'' 
Dr. Gallaway received a B.S. in economics from Northwestern 
University, his M.A. from Ohio State University, and his Ph.D. 
from the Ohio State University.
    Professor Blank, you may proceed.

         STATEMENT OF DR. REBECCA M. BLANK, PROFESSOR, 
        UNIVERSITY OF MICHIGAN, ANN ARBOR, MICHIGAN; A 
  ROBERT V. KERR VISITING FELLOW, THE BROOKINGS INSTITUTION, 
                         WASHINGTON, DC

    Dr. Blank. Thank you, Congressman Cummings. It is an honor 
to be here, and I appreciate the chance to talk about the labor 
market. There is much current discussion of recession and a 
wide variety of economic indicators are turning downward, yet 
the unemployment rate remains relatively low.
    I want to argue this low unemployment rate is somewhat 
misleading and that we actually should be thinking in a 
different way as we compare it to earlier unemployment rates.
    Let me quickly review some of the indicators of problems in 
the current labor market. We have been discussing them in the 
last panel.
    First of all, there has been a marked slowdown in economic 
growth.
    Secondly, wage growth has slowed over the last 6 months.
    Thirdly, unemployment is quite high among a number of high 
risk groups. Whether you look at young workers, workers of 
color, or less skilled workers, their unemployment rates are 
higher now than they were at the beginning of the recession of 
2000-2001.
    Fourthly, indicators of labor market slackness are at high 
levels. We have already discussed the very high level of long-
term unemployment. Indicators of marginal attachment of 
involuntary part-time work are also very high. So the share of 
the work force that is involuntarily employed part-time, that 
is marginally attached, or that is generally unemployed, is at 
9 percent, which is very high.
    Fifth and finally, coming from Michigan I have to note that 
some areas of the economy are very clearly in recession. 
Michigan's unemployment rate at the end of 2007 was 7.6 
percent. So that leads us back to our starting question: If all 
of these problems are so bad, why is the unemployment rate so 
low?
    Most important in answering that question is to look at the 
shifting age distribution of the civilian labor force. As the 
Baby Boom Generation has aged, the share in workers in older 
age groups has steadily grown while the share of younger age 
groups has fallen.
    This has the effect of lowering the overall unemployment 
rate because older workers tend to have lower unemployment 
rates. In fact, unemployment is higher among every age group of 
worker in January 2008 compared to the beginning of the 2001 
recession, and higher among most groups compared to the 
beginning of the July 1990-91 recession, even though overall 
unemployment is lower.
    If you do a simple calculation where you take unemployment 
rates by age group and weight them by the earlier labor force 
composition, you find the unemployment rate actually goes up by 
half a point if we compare it to July 1990, the beginning of 
that recession.
    In short, the shifting age distribution in the population 
should change our expectations about what constitutes high 
versus low unemployment. The same unemployment rate in January 
2008 signals a greater problem than it did in earlier years.
    There is another effect depressing unemployment rate, and 
that is the rising share of young men in jail or prison. I 
suspect you saw the report last week that 1 out of every 100 
adult Americans are now in prison.
    Our labor force statistics are based on civilian 
noninstitutionalized persons. They exclude the Armed Forces. 
They exclude people in jails and prisons.
    I have done a very simple simulation in which I have added 
back in the Armed Forces. They are all employed. And made some 
reasonable assumptions about what the jail population would 
look like if it were out in the work force. That is a 
population obviously that has been growing and coming out of 
the civilian labor force into jail, and that has been 
depressing our unemployment numbers.
    It turns out that if you take account of the Armed Forces 
and of people in prison, unemployment rates would be higher. 
They would be substantially higher among young men, and very 
much higher among young Black men and young Hispanic men who 
are disproportionately affected by this.
    In short, by expanding the prison population we have 
removed more and more young men from our labor market count. 
This reduces aggregate unemployment rates and makes the 
unemployment rate look better than it might otherwise.
    Finally, if we want to understand why unemployment rates 
are low right now, there is one other very important comment to 
make. Unemployment rates and employment changes are lagging 
indicators of an economic slowdown. Unemployment rates are 
typically low when a recession begins. They rise during a 
recession, and they often peak after the recession has ended.
    Hence, unemployment rates are not a good indicator of 
whether an economy has entered recession. In fact, if you look 
at the periods of recession versus unemployment, you can see 
unemployment peaking after the recession. We have actually put 
extended benefits on in both of the last two recessions after 
the recession ended. We waited so long that we were past the 
end of the official recession.
    Because unemployment rises slowly, the political impetus to 
enact extended benefit legislation occurs later once 
unemployment rates are higher, and indeed that is why we have 
delayed putting on extended benefits in the past.
    If you believe the U.S. economy is entering a serious 
economic slowdown, unemployment rates are likely to increase 
steadily over the months ahead. Should we enact extended 
benefits now? Or, as in past recessions, wait for the 
unemployment rate to rise further?
    Even adjusting for population shifts, the unemployment rate 
is still lower than it was when extended benefits were put in 
place in past years. That might argue for waiting. There are a 
variety of people, however, who would argue--myself among 
them--that we waited too long in the past periods.
    The unusually high rates of long-term unemployment in the 
current economy suggests a growing share of the unemployed who 
receive unemployment benefits will exhaust them without finding 
a job. That argues for moving faster, and I would personally 
recommend enacting extended benefits now, given the very high 
rate of long-term unemployment.
    Only time will tell if our current economic slowdown leads 
to very rapid rises in unemployment rates over the next several 
months. It is certainly true the labor market looks like it did 
at the beginning of recessions in past history.
    As with the rest of the economy, however, there are a good 
number of warning signals out there. I am very struck by the 
high share of the long-term unemployed and the very high number 
of people who are discouraged or involuntarily employed only 
part-time.
    For those who are actively seeking work, the search is 
likely to be long in the current economy. Thank you.
    [The prepared statement of Dr. Blank appears in the 
Submissions for the Record on page 67.]
    Representative Cummings. Thank you very much.
    Dr. Owens.

STATEMENT OF DR. CHRISTINE OWENS, EXECUTIVE DIRECTOR, NATIONAL 
             EMPLOYMENT LAW PROJECT, WASHINGTON, DC

    Dr. Owens. Thank you, Congressman Cummings, and thank you 
for inviting us to testify today.
    The issue of today's hearings are of special concern to the 
National Employment Law Project, which for decades has helped 
unemployed workers get the unemployment benefits they need and 
that they have earned, and has worked with Members of Congress 
and allies in the labor movement and elsewhere to preserve the 
Unemployment Insurance Program.
    My remarks today focus on two areas: The record rates of 
long-term unemployment; and an answer to your question to the 
Commissioner about what we need to do, the need to extend 
unemployment benefits to stimulate the economy and provide 
income support to the nearly 3 million workers who will run out 
of regular state benefits this year.
    Long-term unemployment has remained high throughout this 
recovery. For 31 consecutive months beginning in November 2002, 
more than 20 percent of jobless workers had been unemployed for 
at least 6 months.
    Similar long-term unemployment rates prevailed for only 23 
months during the 1990s recovery, and only 18 months in the 
1980s.
    The share in number of long-term unemployed workers are 
greater now than when the last two recessions began. The long-
term unemployed are 17.5 percent of jobless workers today, 
compared with 11.1 percent in March 2001, and 9.8 percent in 
July 1990.
    Last month nearly 1.3 million workers had been unemployed 
for at least 6 months, roughly double the 696,000 in 2001, and 
688,000 in 1990.
    Unemployment spells are longer now. The average length of 
unemployment was 16.8 weeks last month, but only 12.6 weeks in 
March 2001, and 11.9 weeks in July 1990.
    Long-term unemployment has not fallen to pre-2001 recession 
rates as it has in previous recoveries, nor will it do so soon. 
Continuing benefit claims now exceed 2.8 million, the highest 
level since Hurricane Katrina. This means far more workers will 
be exhausting their benefits in coming months.
    Persistently high long-term unemployment underscores the 
urgent need to extend jobless benefits to provide a quick jolt 
to the economy, and critical support for working families and 
communities suffering in the downturn.
    Three million long-term unemployed workers will exhaust 
their regular State benefits this year, and these benefits 
average only $285 a week. Thirty-seven percent of these long-
term unemployed workers are older than 45, though workers in 
this age group are only 27 percent of the unemployed generally.
    Similarly, African Americans are 21 percent of the 
unemployed generally, but 28 percent of the long-term 
unemployed. And while long-term unemployment spreads across 
industries, manufacturing workers are a slightly larger group 
of the long-term unemployed than of jobless workers generally.
    Unemployment benefits are also recognized widely as one of 
the most effective means to stimulate the economy quickly and 
help avoid or ease recessions. Benefits flow immediately to 
workers who need them and who will spend them.
    A major study of five previous recessions found that at 
their peak jobless benefits saved an average of 130,000 jobs on 
an annual basis, and every dollar spent boosts GDP by $2.15. 
This is because dollars are quickly pumped back into the 
economy and because maintaining jobless benefits boosts 
consumer confidence, which encourages consumption, the backbone 
of our economy.
    Extending benefits now may also help mitigate the 
foreclosure crisis, a problem this Committee addressed only 
yesterday. Unemployment magnifies the risks that workers will 
lose or leave their homes while unemployment benefits provide a 
cushion to help workers and their families stay put and 
preserve communities.
    A 2003 Peter Hart survey of unemployed workers found 1 in 4 
had to move to other housing, or move in with family or friends 
in response to unemployment. However, a national study found 
that unemployment benefits actually reduced the likelihood 
workers will be forced to sell their homes by almost half. 
Thus, an extension may help mitigate the housing crisis.
    Finally, Congress must enact a temporary extended benefits 
program because the current Federal program is so outdated in 
how it measures unemployment, not a single State qualifies for 
extended benefits now. Not even Michigan, which as Dr. Blank 
has noted, has had unemployment above 7 percent since August 
2006.
    Over the last 2 months the economy has lost 85,000 jobs. 
Nearly half a million people have dropped out of the labor 
force. And involuntary part-time employment has grown by over 
200,000 workers.
    The economy is failing long-term unemployed workers. As Dr. 
Blank has testified, Congress should enact an extension now and 
not wait until well into or after a recession when the 
unemployment rate increases substantially.
    The long-term unemployed want to work, but the economy is 
not working for them. By extending benefits now, Congress can 
and should help these workers and the economy overall.
    Mr. Chairman, I ask that our written testimony be entered 
into the record.
    Representative Cummings. So ordered.
    [The prepared statement of Dr. Owens appears in the 
Submissions for the Record on page 72.]
    Representative Cummings. Thank you, very much.
    Dr. Gallaway.

STATEMENT OF DR. LOWELL E. GALLAWAY, DISTINGUISHED PROFESSOR OF 
            ECONOMICS, OHIO UNIVERSITY, ATHENS, OHIO

    Dr. Gallaway. Thank you.
    Representative Cummings. Would you get closer to the mike, 
Dr. Gallaway, so we can hear you?
    Dr. Gallaway. Thank you.
    Representative Cummings. I don't know whether someone can--
--
    Dr. Gallaway. Is that better?
    Representative Cummings. That is much better. Thank you.
    Dr. Gallaway. I am a mumbler anyway, so thank you for 
reminding me.
    I must say, it is a pleasure to be back at the Committee. I 
sat in employment hearings in the fall of 1982 as a staff 
member--in July 1992 as a staff member--and I am back as a 
witness. I am struck by one thing: The rhetoric of the 
Committee hearings is almost identical. In the immortal words 
of that great American philosopher, Lawrence P. Berra, 
sometimes called Yogi, ``It's deja vu all over again.''
    Now to proceed with the testimony. As you can see from the 
cover sheet, Congressman, this testimony is the product of a 
joint effort between my colleague, Richard Vedder and myself.
    I begin as follows:
    Our message today is quite straightforward. Namely, that it 
would be very unwise to return to an activist short-run 
contracyclical macroeconomic policy. A more detailed argument 
for this position is provided in a set of extended remarks that 
we ask to have incorporated in the hearing record.
    [See, ``A Brief History of Unemployment in Post-World War 
II America,'' in the Submissions for the Record on page 85.]
    For now we will provide a summary description of the 
behavior of the American unemployment rate beginning with 1948. 
For this purpose we call your attention to the graphic appended 
to this statement. It describes the 10-year average 
unemployment rate for six decades beginning with 1948-1957, and 
concluding with 1998-2007.
    [See chart entitled, ``National Unemployment Rate: Ten Year 
Average (1957-2007),'' in the Submissions for the Record on 
page 84.]
    In the initial decade, unemployment averaged 4.3 percent, 
while the most recent period shows an average unemployment rate 
of 4.9 percent. Thus, there is only a modest difference between 
the early and late years.
    Far more interesting, though, is what happened in the 
intervening decades. Over the period 1958-1967, the average 
unemployment rate increased to 5.3 percent. In the years 
starting with 1968 and concluding with 1977, it increased to an 
average of 5.7 percent.
    Next in the interval 1978 to 1987, it further increased to 
an average of 7.4 percent. These three decades span a period in 
which the basic philosophy of policymakers was an activist one. 
Perhaps the quintessential statement of the attitudes of the 
time was provided by John Kenneth Galbraith in 1982 testimony 
before this very Committee when he remarked as follows:

    Persistent in the belief of the present administration is the 
notion that economic recovery and improving unemployment are an 
autonomous tendency of the system. There is no such autonomous 
tendency. Recovery is not the work of kindly gods with a special 
commitment to the free enterprise system. It is alas the affirmative 
accomplishment of man and woman.

    In the years that followed, though, disenchantment with the 
activist approach became widespread, and in the years 1988 to 
1997 the average unemployment rate fell to 6.0 percent, 
presaging a further decline to the most recent decade's 4.9 
percent.
    Obviously I think we are implying that the recent declines 
in the 10-year average of unemployment rates are a product of a 
turning away from an activist policy approach. Is this perhaps 
too simplistic? We think not. Our view is based on the extended 
remarks that we have asked to be included in the hearing 
record.
    Specifically, we refer you to a technical appendix to those 
remarks which consists of extracts from an article published in 
a refereed academic journal.* This article concludes, among 
other things, that:
---------------------------------------------------------------------------
    *See Appendix A in the Submissions for the Record on page 90.
---------------------------------------------------------------------------
    One, cycles in the unemployment rate are the result of 
shocks in the labor market that produce discoordination;
    Two, these shocks are random in a statistical sense and 
therefore cannot be successfully forecast;
    Three, about 40 percent of the effects of the random shocks 
are eliminated by an endogenous correction mechanism;
    Four, assuming that economic policymakers recognize the 
shocks immediately and were able to exactly compensate for 
them, the result would be a less stable labor market and higher 
average unemployment rates; and
    Five, therefore short-term macroeconomic contracyclical 
policy is counterproductive.
    Now based on these premises, we find it disturbing that 
there is much talk of a return to a philosophy that 
deliberately accepts higher inflation in an attempt to 
stimulate the economy.
    This is the language of the late 1950s and the 1960s, which 
ultimately led to 11 consecutive years of increase in the 10-
year moving average of the unemployment rate. In the last 100 
years, this is surpassed only by the 13-year runup of the 
average unemployment rate that embraces the Great Depression of 
the 1930s.
    [See Chart A entitled, ``National Unemployment Rate: Ten 
Year Moving Average (1957-2007) in the Submissions for the 
Record on page 88.]
    Contrast that with what happened when we turned away from 
emphasizing short-run contracyclical policy in the early 1980s, 
in an act of hubris economists like to refer to fine-tuning the 
economy.
    We have just now in 2007 concluded the 23rd consecutive 
year of decline in the 10-year moving average of the 
unemployment rate. That is almost twice the length of the 
second longest period of decline, 12 years, which accompanied 
the recovery from the Great Depression and World War II.
    Representative Cummings. Mr. Gallaway, I am going to have 
to ask you to sum up. I have let you--I have let all the 
witnesses actually go about 2 minutes over----
    Dr. Gallaway. I have five lines left, sir.
    Representative Cummings. Oh, wonderful.
    Dr. Gallaway. I am just about there. I am almost home. To 
conclude our testimony, we offer two bits of advice to the 
formulators of national policy.
    First, do not repeat the errors of the past.
    Second, do not destroy the good that has emerged in the 
last quarter century in a futile pursuit of an unattainable 
perfection.
    We thank you.
    [The prepared statement of Dr. Gallaway and Dr. Richard K. 
Vedder appears in the Submissions for the Record on page 82.]
    Representative Cummings. Thank you. And I want to thank all 
of you. I just have a few questions.
    Commissioner Hall has testified that, while sustained job 
losses indicate a recession, the reality is that unemployment 
as a lagging economic indicator just means that if history is 
any guide, we should not see large increases in job losses or 
spiking unemployment until we are deeply into a recession.
    I would like you to walk me through, then, how the evidence 
you have presented on the state of the labor market and the 
unemployment insurance system indicates that the American labor 
market is faring poorly, and what we can do about it.
    Professor Blank, and Dr. Owens, you both testified that we 
should not be looking to just the unemployment rate to 
illuminate how difficult it is for people to find work. You 
both pointed to the share of the unemployed who are long-term 
unemployed as a different indicator to examine.
    Based on the chart in Professor Blank's testimony, it 
appears that it is common for the economy to experience a high 
level of long-term unemployment at the end of the recession, 
but is there a recent precedent for a situation like we are 
seeing today with high levels of unemployment at the start of 
an economic slowdown?
    [For chart referred to, see ``Figure 3.--Long-term 
Unemployment as a Percentage of Total Unemployment, January 
1979-January 2008'' in the Submissions for the Record on page 
69.]
    Dr. Blank, and then Dr. Owens.
    Dr. Blank. The current period is historically 
unprecedented. To have had as high a rate of long-term 
unemployment over this past year when the economy was slowing 
but clearly not in recession is simply not something that we 
have seen before. It is one of the reasons why I think I would 
be less cautious in my decisionmaking about things like 
extended benefit programs.
    A substantial share, 1 in 5 of the current unemployed have 
already been unemployed more than 26 weeks, and many people who 
are collecting unemployment insurance therefore have already 
run out of their unemployment insurance.
    That is just very, very high and it suggests that there are 
other things going on here. People are leaving the labor market 
at a slightly higher rate perhaps. You have more labor market 
problems than the unemployment rate alone would lead you to 
believe.
    Representative Cummings. Dr. Owens.
    Dr. Owens. Well, Mr. Cummings, the Commissioner himself 
said that this was an unusual situation to be entering a 
downturn with long-term unemployment being at such a high rate 
relative to overall unemployment.
    And in fact by the time we entered the past two recessions, 
long-term unemployment had dipped to a share of about 10 
percent of overall unemployment. Now it is up closer to 20 
percent. I think it is about 18 percent. And that really has 
not changed.
    One of the things I did not talk about, but I think today's 
job numbers force us to talk about, the fact is this economic 
recovery has been lousy. It took over 3 years for the economy 
to regain the number of jobs that we had had when we entered 
recession in March 2001, over 3 years. That was unprecedented.
    Then we had a couple of years of relatively good job 
growth, but in 2006 we had fewer jobs on average each month 
than we had had in 2005; in 2007 we had fewer jobs on average 
than in 2006; and so far in 2008 we are losing jobs. So there 
is a reason that people are staying unemployed longer. There 
are no jobs for these workers. This is an unprecedented 
situation, and Congress simply cannot afford to wait this time 
until after the levies have broken to take care of the flood.
    Representative Cummings. You know it was very interesting 
listening to the Commissioner when he talked about the fact 
that we have got these 70 million people who are--I don't know 
what words you want to use to describe them--but they are 
people he said that were out of the job market, they're 
students, you heard his testimony, and I am just trying to 
figure--I mean, did you agree with that? He acted like there 
were a lot of people who just are not really that interested in 
working.
    Dr. Blank. He was talking about the people in the 
population who announce themselves as not looking for work. And 
a good number of them really aren't looking for work. As he 
said, they are students, they are retired, they are staying 
home with the kids, and that is where they want to be right 
now.
    But what I find disturbing is the number of people who are 
what the Bureau of Labor Statistics called ``marginally 
attached.'' They are not currently looking for work, but they 
have been recently looking for work and if you ask them do you 
want a job, they say, ``Yes, I want a job, but there are so few 
jobs out there I have stopped looking.'' And that number is 
really quite high right now, as is the long-term unemployment 
number, and it does suggest that you cannot assume all 70 
million are happy being out of the labor market. Clearly the 
lack of jobs is increasing the number of discouraged workers.
    Representative Cummings. I think he also talked about--and 
this is something that I found very interesting. The 
Commissioner mentioned it, but I saw it in the--well, I see it 
in my own District where you have got people who, if they had 
some benefits they could hold onto their houses. But because 
they do not have the benefits and they cannot find a job, I 
mean they get hit probably two or three times.
    The price of food, and gas, and whatever. They are losing 
their house. And they do not have benefits. That is a 
combination for homelessness. And I am just trying to figure. I 
mean does that present a special kind of situation? Do you 
follow me? I mean, you make the argument for the extension of 
unemployment benefits. You say let's do it now. Let's not wait 
till later. I guess the pattern has been to wait till later. 
And when later comes, a lot of damage has been already done and 
I guess it becomes very difficult for that person who at first 
may have been able to, with a reasonable amount of money, get 
back to level footing, or sure footing, now it is almost like 
they are in quicksand. Is that a pretty good description?
    Dr. Blank. I very much agree with you, Mr. Cummings. I 
think you are right about that. There was a study by Professor 
Jonathan Gruber at MIT, one of the very well known 
microeconomists working on these issues, done several years 
ago, so it is based on historical data, showing that persons 
who are not able to receive unemployment insurance when they 
became unemployed had their consumption fall by one-quarter.
    Those who received unemployment insurance found their 
consumption fell by less than a third of that, by only 7 or 8 
percent. Unemployment clearly causes pain to these households, 
but the absence of any safety net at all makes it much, much 
worse. And the foreclosure problems and the housing issues 
could cause, as you say, damages from which a family really 
cannot recovery from easily at all, even when they find the 
next job.
    Representative Cummings. Do any of you think we are in a 
recession now?
    Dr. Blank. I am not the official person who lists numbers, 
but I would be very surprised if in another several months we 
have not two quarters of negative economic growth, right?
    Representative Cummings. Right.
    Dr. Blank. I would be very surprised if we do not have 
negative economic growth the first quarter of this year. You 
know, my guess is it is highly likely that this will turn out 
to be a recession. I am an economist. I have to give you a 
probability.
    Representative Cummings. I understand. I understand. You 
are not in the position that the Commissioner was in. He said 
he can't----
    Dr. Owens. I'm a lawyer.
    Representative Cummings. I'm sorry?
    Dr. Owens. I said, I'm a lawyer. I will answer.
    Representative Cummings. OK.
    Dr. Owens. I think from the standpoint of workers, we are 
in a recession. Wages are down relative to inflation. More than 
7 million people are officially unemployed, but that vastly 
undercounts the number of people who want to work, or who are 
underemployed.
    And as we have talked about most of the morning, the 
incidence of long-term unemployment is unusually high and there 
is just no hope on the horizon for many of these workers 
because of the job market.
    So from a worker's standpoint, the economy is in recession.
    Representative Cummings. Dr. Gallaway, do you have a 
comment?
    Dr. Gallaway. Well, I would be reluctant to forecast. It 
has taken me 50 years----
    Representative Cummings. I can't hear you.
    Dr. Gallaway. It has taken me 50 years as an economist to 
learn this. We cannot forecast worth a damn. And I am not about 
to forecast whether we are going to have a recession. It could 
happen. It might not.
    The signals at this point I would say are mixed. But I am 
not foolish enough to try to offer a specific forecast. You 
cannot do short-term economic forecasting.
    Representative Cummings. I understand. You know, Professor 
Blank made a very interesting point that some parts of the 
country may already be in a recession. I understand that 
unemployment is quite high in Michigan and other States. Are we 
also seeing an increase in the long-term unemployed in these 
States?
    Dr. Blank. Yes, I think Michigan has had a high long-term 
unemployment rate for a number of years. Michigan essentially 
never came out of the recession of the early 2000s.
    Representative Cummings. And so I guess if you layer what 
is happening now on what you just said, you are going to have a 
lot of people in trouble.
    Dr. Blank. Yes, you have a lot of people in trouble in 
Michigan. And they have been in trouble for some time period.
    Representative Cummings. And it is going to get worse.
    Dr. Blank. That is certainly the way things look right now.
    Representative Cummings. So what, what--I mean, if you were 
brought into the White House and President Bush says, you know, 
Dr. Blank, I saw you the other day and I was very impressed 
with your testimony, tell me what we can do to turn this 
around, what would you say?
    Dr. Blank. So I do agree with Commissioner Hall that we 
have done a number of things that we need to do. The Federal 
Reserve is clearly taking steps to try to adjust monetary 
policy in a way that will stimulate the economy, and I think 
the first stimulus package that was passed by the Congress is 
certainly very helpful.
    I was surprised at the reluctance to not go a little bit 
further in some of that stimulus package. I would certainly 
have put unemployment benefits in it. I personally would 
probably have looked at trying to do something to increase food 
stamps, which gets assistance to some of the very poorest 
people in this economy and guarantees you it will all be spent, 
if you want to increase consumption.
    So I certainly would want to look at another package. I 
would tell you that if you are going to do this, you need to do 
it very, very quickly. The longer you delay, the more likely, 
that you pass this after the fact, and that you don't get the 
immediate effects that you really want to get.
    Representative Cummings. It seems that one of the arguments 
that was made against food stamps was that it was only, if I 
remember correctly, adding 10 cents a day. Did you hear that? I 
know that was one of the arguments that was made, that the 
proposal would have added 10 cents a day. So I think they were 
trying to figure out, OK, what do we do to have maximum impact. 
And that was the argument that I heard over and over. Had you 
heard that?
    Dr. Blank. Yes. I mean, one could of course always do more 
and propose a slightly bigger package. As I said, the advantage 
of doing something that focuses on people who are the most 
disadvantaged is obvious. They are the people who are hurting 
the most. They are the people in many places being affected the 
most by the rising prices. And they are people who you can 
promise will spend all of this money because they need it today 
to pay the rent and to pay for food.
    Representative Cummings. With regard to this whole 
situation with housing and this double whammy where people 
are--there was probably about a triple, quadruple whammy--you 
have got people who are in houses where they now are facing 
balloon payments. The house is worth less than what they bought 
it for. They probably in many instances may have one wage 
earner as opposed to the two they used to have.
    They have cut, and cut, and cut their budget as best they 
could. They have gotten rid of the SUV for a smaller used car, 
but still the gas prices are steadily going up and they have 
got to get to work.
    It just seems that at some point, they've got to hit a 
brick wall. And I listened to what you said you'd say to the 
President, but what about the people that I just described?
    Apparently, in places like Michigan and Ohio, there are 
quite a few of them.
    And there's a reluctance, with regard to the suspension of 
foreclosure efforts, on the part of the Congress and a lot of 
other people, so what about them?
    Dr. Blank. You know, particularly those who have been hit 
by the----
    Representative Cummings. Or do we say--and I've got to 
throw this in--or do we say that there are always going to be 
some people that are going to be left behind, and the sad 
problem is that not--it's not going to be a few, but there are 
going to be a whole lot.
    There are some people that make the argument, well, that's 
just the way the cookie crumbles, and sadly, there are going to 
be people that are going to do poorly.
    So?
    Dr. Blank. It is a choice as to how much you want to 
provide assistance to people in a very bad economic situation. 
And clearly, at times, we've chosen to provide more assistance, 
and at some times, we've chosen to provide less.
    And when you provide less, you know, more people face many 
more difficult choices. And even if you don't worry about the 
parents in those situations, I think you've got to worry about 
the kids and what implications it has for them.
    One of the worst things that can happen to children is 
multiple relocations during their childhood where they shift 
schools and go into different classrooms in the middle of the 
year. The sort of housing problems we're seeing are stimulating 
exactly that sort of churning of the residential labor market.
    I'm entirely in sympathy with your views, sir, that we're 
in a very difficult situation, and we should be trying to do 
more to answer the questions that people like this should be 
asking us.
    Representative Cummings. Now, Professor Owens, you noted 
that African American workers are much more likely to be long-
term unemployed, compared to white workers. Can you expand on 
why you think this is the case, and what would you conclude 
that extending unemployment benefits to the long-term 
unemployed, disproportionately helps African Americans?
    Dr. Owens. Well, Mr. Cummings, African American workers are 
21 percent of all unemployed workers, but they are 28 percent 
of the long-term unemployed workers, so they are over-
represented in the long-term category, compared to unemployed 
workers overall.
    I suspect that part of this, although we haven't done these 
cross tabs, but I suspect that part of this has to do with 
what's happened to manufacturing, because manufacturing was the 
source of good middle class jobs for many African American 
workers, and they have been very badly hurt by our loss of well 
over 3 million manufacturing jobs in the last 5 or 6 years.
    They probably are also concentrated in some jobs that are 
just more vulnerable in terms of ease to replace workers with 
technology or the like, or, in many cases, may have somewhat, 
for whatever reasons, some more tenuous connection to the work 
force, to a particular employer, than some of their colleagues, 
less seniority or what have you.
    But I would imagine that a big reason is what's happened to 
the manufacturing sector. Certainly, given their concentration 
within the ranks of the long-term unemployed, extending 
unemployment benefits is going to help African American 
families substantially.
    Representative Cummings. Let's talk about women. I know 
that we've seen phenomenal changes in our labor market over the 
past generation, most importantly, the rise in women's labor 
force participation.
    Do you think that this might be affecting the labor market 
indicators in some way? For example, to what extent do 
unemployed people who might have once dropped out of the labor 
force, say, because they had an unemployed spouse and their 
contribution was not as important to the family, now have to 
continue searching for work, for economic reasons.
    Dr. Blank, and then Dr. Owens.
    Dr. Blank. That isn't showing up very much in the numbers. 
As you say, the overall unemployment numbers actually are still 
relatively low.
    I'm particularly concerned about the very low-skilled women 
who, at another point in time, would have been on welfare 
programs, who basically don't have that option and are out 
there working.
    And if they lose their job, there isn't another. They're 
typically single mothers, and it's them and their children on 
their own.
    So, you know, the concern is about what type of jobs are 
available and are they able to find the next job. Another issue 
with that population that's of particular concern is that many 
of them don't seem to have access to unemployment insurance 
when they lose jobs. They haven't worked long enough; they 
haven't earned enough money, so that extending benefits doesn't 
help them at all.
    They are a group for whom a food stamp extension would help 
a great deal.
    Representative Cummings. OK.
    Ms. Owens.
    Dr. Owens. Congressman Cummings, I think that while many 
women and maybe most women work because they want to, the hard 
reality is that women are also working because they have to. 
For decades, the only way--since the late 1970s, I believe--
that family incomes sort of were retained at the level they had 
been in the late 1970s, is because women, more and more, were 
working and they were working more hours.
    In terms of the long-term unemployed, roughly 57 percent of 
them are men; the other 43 percent would be women, but as we 
are now beginning to see job loss more broadly, and 
particularly in the private services sector, I wouldn't be 
surprised to see the numbers of long-term unemployed women and 
the share, grow as well.
    Representative Cummings. Finally, let me ask you this: Are 
there other indicators we should be looking to, in order to 
understand the slackness in the labor market?
    In particular, I have noticed that during this economic 
recovery, the employment rate never returned to its pre-
recession peak. If the employment rate had recovered to its 
pre-recession peak of 64.7 percent, there would be an 
additional 4.2 million people at work today.
    But this is not the case. Can you tell me whether you 
follow the employment rate and what it means that it remains so 
low, relative to the business cycle of the 1990s?
    Dr. Blank. I have not looked at that very closely. It is 
true that it is down somewhat, and it depends on what your base 
population comparison is.
    A little of that is people staying in school longer; a 
little of that is people retiring earlier, and, you know, some 
of that's good; some of that's bad, right?
    I can't answer much beyond that. You asked about other 
labor market indicators, and I would say that the other thing 
that I would watch very closely--and you asked Commissioner 
Hall about this a little bit--is, it's one thing when a few 
sectors are showing employment losses; it becomes much more 
troublesome when you see employment losses across a whole 
spectrum of industries.
    Today's employment report is particular striking because 
there are virtually no sectors that are showing any sort of 
employment growth, and that's really suggesting, as you said, 
there is not any good news out there. It's affecting all 
workers across the entire spectrum, and that, again, is quite 
consistent with an idea that we really are in the very 
beginnings of a significant downturn.
    Representative Cummings. Are there--Professor, is there a 
situation where, say, you look at the different types of 
employment and then you say, well, with construction, I kind of 
understand that; then you go to another one and you say, well, 
that's not so bad, but, I mean, it's still a problem.
    But then you're getting to an area where it sort of creeps 
into, and then you start saying, wait a minute, this is--I 
think we're running into problems. And if that is the case, 
would the service sector be one of those where the yellow 
lights and red lights are going off?
    Dr. Blank. Yes, absolutely. It's not.
    Representative Cummings. And why is that, Professor?
    Dr. Blank. It's because the service sector is not very 
cyclical. Manufacturing and construction are very cyclical; 
they move up and down rapidly. You know, it's not surprising to 
see that they often turn earlier than other sectors when you go 
into a recession, and they turn earlier when you come out of 
it.
    But the services tend to be less cyclical--you know, people 
always need their hair cut; there are certain things like that, 
you know--say, education is a very noncyclical industry.
    If you start seeing job loss or jobs stalling, no 
employment growth in those areas, it's really a sign of, as you 
say, of just very broad-spread problems in the economy.
    Representative Cummings. And so it's just not the fact that 
people are making less money; they are--well, they're making 
less money because they don't have jobs. But they're making 
hard choices.
    Dr. Blank. Yes.
    Representative Cummings. So, when you see the barber 
complaining that he's not making very much money, or the--I 
guess, would restaurants fall into that area?
    Dr. Blank. Yes, retail trade.
    Representative Cummings. And if they have to lay people 
off, you know you're really running into some problems.
    Dr. Blank. Yes.
    Representative Cummings. And I would imagine that, as in my 
district, I hear people say that they don't go to do those 
things as much anymore; one of the things they are afraid to 
even get into their cars, because they can't afford the gas, so 
they don't go to the shopping centers as much, and the next 
thing you know, you've got, I guess, whole groups of people who 
are harmed; is that it? Is that how it works?
    Dr. Blank. I agree entirely.
    Representative Cummings. Anything else?
    [No response.]
    Representative Cummings. I want to thank you all very much 
for being with us today. Thank you for waiting around; we 
really appreciate it.
    This hearing is called to a close.
    [Whereupon, at 11:21 a.m., the hearing was adjourned.]
                       Submissions for the Record

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

        Prepared Statement of Representative Elijah E. Cummings

    Chairman Schumer and Vice Chairwoman Maloney are not able to attend 
today's hearing--but I am honored to lead the Committee's examination 
of our nation's employment situation.
    The report we received this morning is frankly shocking. The report 
shows that our economy lost 63,000 jobs overall in February--but I note 
that private sector employment fell by 101,000.
    At the same time, the unemployment rate fell by .1 percent to 4.8 
percent. This fall in the unemployment rate--which is occurring at the 
same time as jobs are being lost--seems to be occurring because people 
believe that there are no job opportunities for them and they are 
simply dropping out of the labor force.
    Last month, Dr. Hall told us that labor force numbers almost define 
the existence of a recession. I am eager to hear what Dr. Hall has to 
say about our economy given the terrible numbers we received this 
morning.
    Frankly, I believe our economy stands poised on an uncertain 
cliff--threatening to throw our nation into a crisis. Sadly, however, 
many hardworking Americans across the country have already entered 
their own personal crises.
    The traditional definition of a recession is two quarters of 
negative growth. Unfortunately, the difficulty in diagnosing a 
recession is that its existence can only be confirmed in hindsight when 
the data are seen to show that a slowdown has been definite and 
prolonged.
    As a result, once we know we are in a recession, it's too late to 
prevent one.
    However, we do not need to recite the litany of familiar data to 
confirm that our economy is struggling. One need only look to the 
millions of families who are struggling--obviously struggling to find 
jobs, struggling to keep their homes, and struggling to pay for gas and 
home heating costs.
    Foreclosure filings have increased by 75 percent between 2006 and 
2007.
    According to the Mortgage Banker's Association, a higher percentage 
of mortgages are past due or in foreclosure than at any other time 
since the Association started tracking such data in 1979. And many 
experts fear that the peak in foreclosures has not yet been reached.
    At the same time, nearly 8.8 million homeowners now owe more on 
their homes than the homes are worth. Another 41 million homes not 
facing foreclosure are estimated to be likely to experience declines in 
value.
    Obviously, employment is falling--but for a prolonged period, wages 
have failed to keep pace with inflation.
    Wage growth also continues to slow, breaking the historic 
relationship between increased production and real wage growth.
    According to a report by the Joint Economic Committee, since late 
2001, productivity has shown an average annual increase of 2.5 percent, 
but wages have experienced an average annual increase of just 1.2 
percent after inflation.
    This is particularly disturbing in light of skyrocketing prices for 
everything from food to gasoline and heating oil. In January, we saw 
the consumer price index rise by .4 percent. Oil prices climbed near 
$106 per barrel yesterday.
    Families are also facing heating costs of more than $2,000 per 
household this winter--over three times the cost in 2001.
    Unfortunately, while we debate the specific status of our economy, 
the data I just recited don't paint the real picture of people whose 
dreams too long deferred are now in danger of being completely 
destroyed.
    Every day in my district in Baltimore, I see the desperate look of 
those who are watching the homes and the lives in which they invested 
their money and every ounce of their energy in danger of slipping from 
their grasps.
    Our nation needs to do whatever is necessary to create an economy 
that works for our citizens.
    Congress recently passed a stimulus package to try to help stave 
off the recession that may be coming. Although the package will offer 
some relief to millions of hardworking families, the stimulus package 
was missing critical provisions addressing unemployment benefits and 
food stamps.
    Further, the package included nothing to support expanded 
investments in our nation--particularly in areas like infrastructure 
development, where investments create roads and public transit systems 
at the same time they create jobs.
    Our nation's top priority must be meeting the needs of our 
citizens--and investing in our success--and the recent stimulus 
package, much like the recent rate cuts by the Fed, is only a temporary 
patch.
    We cannot continue to keep patching a lagging economy without also 
addressing the root causes of our problems--particularly the mortgage 
crisis.
    The American people deserve better--and we can DO better.
                               __________
                               [GRAPHIC] [TIFF OMITTED] T2514.001
                               
       Prepared Statement of Senator Charles E. Schumer, Chairman
      schumer on jobs report: ``how many wake up calls does this 
                         administration need?''

    In response to the Labor Department's jobs report today, Sen. 
Charles E. Schumer, Chairman of the Joint Economic Committee, released 
the following statement:
    ``How many wake-up calls does this administration need--
foreclosures yesterday, jobs today? The president's `hear no evil, see 
no evil' policies on our economy simply do not work.''
    ``The bottom line is that this administration is the owner of the 
worst jobs record since Herbert Hoover, and the last 2 months of losing 
nearly 90,000 jobs secures that unfortunate place in history. The 
significant jobs losses in the manufacturing and construction sectors 
have continued since the housing market has been in trouble and doesn't 
seem to be getting better. But the job losses in the retail sector are 
particularly troubling because it indicates that consumer spending, 
which has driven this economy, has also declined measurably.''
    ``It is only a matter of time before consecutive months of job 
losses, falling home prices, rising energy prices, and cutbacks in 
consumer spending lead us to a full-blown recession. It is crystal 
clear to everyone but the Bush Administration that we are inevitably 
heading toward a recession and today's dismal jobs report is just 
another warning sign that Washington needs to do much more to help our 
economy than it's done so far.''

    [The Joint Economic Committee, established under the Employment Act 
of 1946, was created by Congress to review economic conditions and to 
analyze the effectiveness of economic policy.]

www.jec.senate.gov

[GRAPHIC] [TIFF OMITTED] T2514.001

  Prepared Statement of Representative Carolyn B. Maloney, Vice Chair

    Good morning. I would like to thank Commissioner Hall for 
testifying today on the February employment situation. I am pleased 
that we have a second panel to examine the outlook for the labor market 
and discuss the plight of the long-term unemployed.
    We continue to seen mounting evidence that a significant downturn 
in the economy may be underway. A consensus is growing among economists 
that it may be too late to avoid the second economic downturn of 
President Bush's administration. The Federal Reserve's latest Summary 
of Economic Projections forecasts slower economic growth, higher 
unemployment, and rising inflation over the coming year.
    We've already seen signs of weak growth and higher inflation, and 
now job growth has stalled. The unemployment rate held steady at 4.8 
percent, but 63,000 jobs were lost last month.
    This downturn poses a significant threat to the economic stability 
of American families, many of whom never fully recovered from the 2001 
recession. Real family income is actually 2 percent lower now than it 
was in 2000 and in recent months, wages have begun to fall. High energy 
prices, falling home prices, and falling wages are squeezing American 
families. With job prospects dimming, many families will be forced to 
cut back on spending, further exacerbating the economic decline.
    A weakening labor market has made it more difficult for people to 
get back on their feet after losing a job. 1.3 million unemployed 
workers have been pounding the pavement, looking work for at least 6 
months with no success. This is a foreboding statistic. Less than half 
as many people were among the long-term unemployed at the onset of the 
last two recessions.
    Evidence of hidden unemployment is reflected in the continued 
depressed levels of the labor force participation rate and falling 
fraction of the population with a job. In short, jobs have become 
harder to find.
    A stimulus package is an important first step, but there is more to 
do to blunt the effects of this downturn and to get the economy back on 
track. Providing an extension of unemployment benefits is critically 
needed. At least 1.3 million workers will likely exhaust their 
unemployment benefits in the first half of this year. In the last five 
economic recessions, Congress extended Unemployment Insurance to the 
long-term unemployed but has yet to do so during the current economic 
contraction.
    I look forward to the continued focus on labor market conditions by 
this committee.
                               __________
  Prepared Statement of Dr. Keith Hall, Commissioner, Bureau of Labor 
          Statistics, U.S. Department of Labor, Washington, DC

    Mr. Chairman and Members of the Committee:
    Thank you for this opportunity to discuss the February labor market 
data that we released this morning.
    Nonfarm payroll employment edged down in February (-63,000), and 
the unemployment rate was essentially unchanged at 4.8 percent. 
Private-sector employment declined by 101,000. Job losses occurred in 
manufacturing, construction, and retail trade. Employment growth 
continued in health care and in food services.
    Manufacturing employment fell by 52,000 over the month. Over the 
past 12 months, this industry has shed 299,000 jobs. In February, 
employment declined in motor vehicles, printing, and semiconductors, as 
well as in wood products and furniture--two housing-sensitive 
industries. Factory hours and overtime were unchanged.
    Elsewhere in the goods-producing sector, construction lost 39,000 
jobs over the month. Construction employment has fallen by 331,000 
since peaking in September 2006. Over this period, job losses were 
concentrated in residential building and in residential specialty 
trades; employment in the nonresidential components of construction 
changed little on net.
    In the service-providing sector, retail employment was down by 
34,000 in February. Job losses occurred in department stores, auto 
dealers, and building and garden supply stores. Over the past 12 
months, retail employment has shown no net growth. Within professional 
and business services, employment in the temporary help industry fell 
by 28,000 over the month and by 117,000 since the most recent peak in 
December 2006.
    Health care employment continued to expand in February, rising by 
36,000. Employment in food services continued to trend up, although 
growth in this industry has slowed in the past 4 months. Most other 
private service-providing industries showed little employment change in 
February.
    Average hourly earnings for production and nonsupervisory workers 
in the private sector rose by 5 cents over the month and have increased 
by 3.7 percent over the past 12 months.
    Turning now to the labor market data from the survey of households, 
the unemployment rate was essentially unchanged over the month at 4.8 
percent. A year earlier, the jobless rate was 4.5 percent. Over the 
year, the number of unemployed persons rose by 544,000 to 7.4 million.
    The increase in unemployment over the past 12 months was 
concentrated among persons who lost jobs and had no expectation of 
being recalled. Since February 2007, the number of these job losers 
increased by 450,000 to 2.9 million; their share of total unemployment 
rose from 35.4 to 39.0 percent. The number of persons unemployed for 
other reasons, such as voluntarily leaving a job or entering the labor 
market, showed little change over this period.
    In terms of unemployment duration, 35.6 percent of the unemployed 
had been searching for work for less than 5 weeks in February, while 
17.5 percent were still searching after 27 or more weeks. These 
proportions were little changed from a year earlier.
    The number of individuals in the labor force fell by 450,000 in 
February to 153.4 million, and labor force participation declined to 
65.9 percent of the population. The labor force participation rate has 
been at or near 66.0 percent since last spring.
    The employment-to-population ratio was 62.7 percent in February. 
This measure remains well below its recent peak of 63.4 percent in 
December 2006. Among the employed, the number of persons working part 
time who would prefer to be working full time has been growing. In 
February, there were 4.9 million such workers, an increase of about 
637,000 from a year earlier.
    Among persons not in the labor force, about 1.6 million were 
marginally attached to the labor force. The marginally attached are 
individuals who are not currently looking for work, but want and are 
available for work and have searched for a job sometime in the prior 12 
months. The number of discouraged workers, a subset of the marginally 
attached who believe no jobs are available for them, was 396,000 in 
February, little changed from a year earlier.
    In summary, nonfarm payroll employment edged down in February, with 
job losses in manufacturing, construction, and retail trade. The 
unemployment rate was essentially unchanged at 4.8 percent.
    My colleagues and I now would be glad to answer your questions.
                                 ______
                                 
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                                 [GRAPHIC] [TIFF OMITTED] T2514.029
                                 
 Prepared Statement of Dr. Rebecca M. Blank, Professor, University of 
  Michigan, Ann Arbor Michigan; a Robert V. Kerr Visiting Fellow, the 
                 Brookings Institution, Washington, DC

    Chairman Schumer, Ranking Member Saxton, and distinguished members 
of the Committee, I appreciate the opportunity to appear before you 
today to discuss the labor market. The opinions I will express are my 
own and not those of the organizations with which I am affiliated.
    The unemployment rate has long been used as a common measure of 
`economic pain' in the economy. Today, I want to analyze the current 
labor market situation, with particularly attention to unemployment.
    There is much current talk about recession and a wide variety of 
economic indicators are signaling a major economic slowdown. GDP growth 
was below 1 percent last quarter; credit is tight, even with lower 
interest rates; and consumer confidence is falling. This has generated 
a conversation about whether the Federal Government should extend 
Unemployment Insurance benefits beyond their standard 26 weeks.
    Yet, the unemployment rate has remained relatively low in recent 
months, at or below 5 percent. At least compared with unemployment in 
the 1970's and 1980's, this does not seem high and is below the 
unemployment rate where extended benefits were implemented in the past. 
I want to argue that this low unemployment rate is somewhat misleading, 
because the composition of those in the labor market is different than 
in the past. In fact, there is substantial evidence that the problems 
of unemployment are at least as bad now as they were at the beginning 
of the economic slowdown of the early 1990s or the early 2000s, both 
recessions when extended benefits were enacted.

                    CURRENT LABOR MARKET INDICATORS

    There are at least five indicators of problems in the current labor 
market.
    First, recent months have shown a marked slowdown in employment 
growth. From January 2006 through January 2007, employment grew by 2 
percent. Over this past year, from January 2007 through January 2008, 
employment grew only 0.2 percent. The number of people employed has 
actually declined in a few recent months. Figure 1 shows the annual 
changes in unemployment from month to month; the recent slowdown in 
employment growth is clearly visible over the past year.

[GRAPHIC] [TIFF OMITTED] T2514.030

    Second, wage growth has slowed over the last 6 months. Figure 2, 
taken from a chart constructed by Jared Bernstein at the Economic 
Policy Institute (Bernstein, 2008), indicates that the annual change in 
real earnings has been negative since October. This is due to the 
combination of very slow growth in nominal wages and faster inflation, 
leading to a decline in real (inflation-adjusted) wages.

[GRAPHIC] [TIFF OMITTED] T2514.031

    Third, unemployment is at relatively high levels among high-risk 
groups. Table 1 compares unemployment rates in January 2008 with 
unemployment in July 1990 and March 2001. These were the months that 
marked the official beginning of the recessions of the early 1990s and 
the early 2000s. While I do not know if January 2008 was the first 
month of a recession, it is interesting to compare unemployment in 
January 2008 to unemployment at the beginning of historical economic 
slowdowns. The top part of Table 1 shows unemployment rates among 
groups that we tend to think are most at risk of job loss and long-term 
unemployment in times of recession.
    The evidence suggests that unemployment in January 2008 was higher 
among younger workers than at the beginning of the 1990 or the 2001 
recessions. It was higher among less skilled workers than in 2001 (we 
only have data on this from the mid-1990s onward), and higher among 
black and Hispanic workers than in 2001, but lower than in 1990.
    Fourth, indicators of labor market slackness are at high levels. 
The bottom part of Table 1 shows three alternative measures of labor 
market slackness. Overall unemployment rates are higher now than at the 
beginning of the 2001 recession, but slightly lower than at the 
beginning of the 1990 recession. Long-term unemployment measures the 
number of workers whose unemployment spell has lasted 27 weeks or 
longer. Long-term unemployment is currently quite high, with almost 1 
percent of the workforce in long-term unemployment in January 2008.
    Figure 3 shows long-term unemployment as a share of overall 
unemployment. As of January 2008, 18.3 percent of the unemployed had 
been unemployed for more than a half year. This is substantially higher 
than in 1990 (at 12.9 percent) or 2001 (at 11.1 percent). This suggests 
that a substantial fraction of those who lost jobs in 2007 are having 
serious difficulties binding reemployment.
    The standard unemployment rate measures those who actively looked 
for work. The Bureau of Labor Statistics also computes a measure of 
those they call ``marginally attached,'' which are those who want a job 
and have recently looked for a job, but are currently not looking 
because jobs are so scarce. They also measure those who are working 
only part-time because of economic reasons, the so-called `involuntary 
part-time workers.' If one expands the labor force to include 
marginally attached workers, and looks at the share who report 
themselves as either unemployed, marginally attached, or involuntarily 
working part-time, this is 9 percent of the labor force in January 2008 
(shown at the bottom of Table 1). In March 2001, the beginning of the 
last recession, this number was only 7.3 percent.
    Fifth and finally, coming from Michigan, I have to note that some 
parts of the country are clearly in recession, even if we are still 
arguing about whether there is a national recession. Michigan's 
unemployment rate was 7.6 percent at the end of 2007. Seven states had 
unemployment rates over 6 percent. In these parts of the country, jobs 
are scarce and unemployment is a clear economic and social problem.

             Table 1.--Unemployment Rates in Selected Months
------------------------------------------------------------------------
                                             Unemployment Rate
                                  --------------------------------------
                                      Jan-08       Mar-01      July-90
------------------------------------------------------------------------
Part l: Selected Labor Market
 Groups
    Young Men, ages 16-19........         21.8         14.0         15.9
    Young Women, ages 16-19......         14.2         13.5         14.0
    Blacks.......................          9.2          8.3         11.4
    Hispanics....................          6.3          6.2          8.0
    Workers w/ Less than High              7.7          6.8          N/A
     School Diploma\1\...........
Part 2: Alternative Measures of
 Labor Utilization
    Official Unemployment Rate...          4.9          4.3          5.5
    Long-Term Unemployment                 0.9          0.5          0.5
     Rate\2\.....................
    Total unemployed + marginally          9.0          7.3          N/A
     attached workers + employed
     part-time for economic
     reasons, as a percent of
     civilian labor force +
     marginally attached
     workers\3\..................
------------------------------------------------------------------------
Source: U.S. Department of Labor, Bureau of Labor Statistics, http://
  www.bls.gov/home.htm
Notes: July 1990 and March 2001 are the beginning months of the last two
  recessions, according to the the Business Cycle Dating Committee of
  the National Bureau of Economic Research; January 2008 is the most
  recent month for which data is available. All reported data are
  seasonally adjusted.
\1\Ages 25 and older.
\2\Share of labor force that has been unemployed for 27 weeks or more.
\3\Marginally attached workers are persons who currently are neither
  working nor looking for work but indicate that they want and are
  available for a job and have looked for work sometime in the recent
  past. (Discouraged workers, a subset of the marginally attached, have
  given a job-market related reason for not currently looking for a
  job.) Persons employed part time for economic reasons are those who
  want and are available for full-time work but have had to settle for a
  part-time schedule.

  [GRAPHIC] [TIFF OMITTED] T2514.032
  
             WHY IS THE AGGREGATE UNEMPLOYMENT RATE SO LOW?

    This leads back to our starting question: If the labor market 
problems are so bad, why is the overall unemployment rate so low?
    Most important is the shifting age distribution of the civilian 
labor force. As the baby boom generation has aged, the share of workers 
in older age groups has steadily grown, while the share in younger age 
groups has fallen. This has the effect of lowering the overall 
unemployment rate because older workers tend to have lower unemployment 
rates. Columns 1 through 3 of Table 2 show the unemployment rate by age 
group in July 1990, March 2001 and January 2008. Columns 4 through 6 
show how the share of workers within each age group has shifted over 
this time period. There is a steady growth in the share of older 
workers and a decline in the share of younger workers.
    It is apparent from Table 2 that unemployment is higher among every 
age group of worker in January 2008 compared to March 2001, and higher 
among most groups compared to July 1990, even though overall 
unemployment is lower. This is because the weights across the age 
groups have shifted.

                   Table 2.--Unemployment Rate by Age and Labor Force Share in Selected Months
----------------------------------------------------------------------------------------------------------------
                                                      Unemployment Rate  (percent)      Share of Labor Force
                                                     ------------------------------           (percent)
                                                                                   -----------------------------
                                                       Jan-08    Mar-01    July-90   Jan-08    Mar-01    July-90
----------------------------------------------------------------------------------------------------------------
Ages:
    16-19...........................................      18.0      13.4      15.0       4.5       5.6       6.2
    20-24...........................................       8.7       8.1       8.5       9.8      10.2      11.7
    25-34...........................................       4.9       4.3       5.6      21.6      22.6      28.5
    35-44...........................................       3.6       3.4       4.2      22.9      26.2      25.5
    45-54...........................................       3.4       2.8       3.3      23.4      22.2      16.1
    55+.............................................       3.2       2.6       3.1      17.8      13.3      11.9
Total Labor Force Share.............................  ........  ........  ........     100.0     100.0     100.0
Aggregate Unemployment Rate.........................       4.9       4.3       5.5  ........  ........  ........
Jan-08 Unemployment weighted by May-01 Labor Force    ........       5.1  ........  ........  ........  ........
 Share..............................................
Jan-08 Unemployment weighted by July-90 Labor Force   ........  ........       5.4  ........  ........  ........
 Share..............................................
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Labor, Bureau of Labor Statistics, http://www.bls.gov/home.htm. Labor force shares by
  age and weighted unemployment rates are author's tabulations from BLS data.
Notes: July 1990 and May 2001 are the beginning months of the last two recessions, according to the the Business
  Cycle Dating Committee of the National Bureau of Economic Research; January 2008 is the most recent month for
  which data is available. All reported data are seasonally adjusted.

    If you take the age-specific unemployment rates in January 2008 and 
weight them as if the labor force looked as it did in July 1990, the 
unemployment rate in 2008 would be 5.4 percent rather than 4.9 percent, 
very close to the actual unemployment rate of 5.5 percent in July 1990. 
Similarly, the January 2008 unemployment rate would be 5.1 percent if 
age groups are weighted by the March 2001 labor force weights, far 
above the actual March 2001 unemployment rate of 4.3 percent.
    In short, the shifting age distribution in the population should 
change our expectation about what constitutes low versus high 
unemployment. Because older workers have lower unemployment rates, base 
unemployment rates have fallen with an aging workforce. Hence, the same 
unemployment rate in January 2008 signals more problems than it would 
have in early 1990 or even in early 2001. From the point of view of any 
worker who compares herself to her age peers, unemployment is worse now 
than at those earlier moments in time.
    There is another effect depressing unemployment rates, and that is 
the rising share of younger men in jail or prison. I suspect most of 
you saw the report from the Pew Foundation last week noting that 1 out 
of every 100 adult Americans are now in prison (Pew Center on the 
States, 2008). Our labor force statistics are based on civilian non-
institutionalized persons. Those in prison are not counted. This 
particularly affects younger men. Of course, the civilian labor force 
data also excludes those in the Armed Forces, all of whom are employed. 
This also disproportionately affects younger men.
    Rather than working with the civilian noninstitutionalized 
population, I add Armed Forces personnel and those in jails and prisons 
to the population numbers and add Armed Forces personnel to the 
employment numbers. I do this calculation for 2006, the latest year for 
which all these data are available.
    It has hard to calculate an adjusted unemployment rate because we 
are not sure how many men currently in prison would be actively seeking 
work. For a back-of-theenvelope calculation, I assume that 80 percent 
of those in prison would be in the workforce if they were not in 
prison, and that the unemployment rate among these men would be 25 
percent. (This is only slightly higher than the current 21 percent 
unemployment rate among young men ages 16-19.) Under these 
circumstances, the 2006 male unemployment rate would rise from its 
reported level of 4.6 percent to 4.9 percent.
    Of course, most of the men in prison or in the Armed Forces are 
younger. If I assume that all of these men are between the ages of 16 
and 34, I can look at the effect on employment-to-population ratios and 
on the unemployment rate for that group in the population. Taking 
account of both the Armed Forces and the large number of men in prisons 
or jails, the 2006 employment-to-population ratio among men ages 16-34 
would fall from 72.3 percent to 69.5 percent. Their unemployment rate 
would rise from its reported 2006 level of 7.2 percent to an estimated 
7.8 percent.
    In short, by expanding the prison population, we have removed more 
and more young men from our labor market count. This reduces aggregate 
unemployment rates and raises employment shares, since these are often 
persons who would have difficulty finding jobs if they were not in 
prison.
    Finally, if we want to understand why unemployment rates look low 
right now, there is one more very important comment to make: 
Unemployment rates and employment changes are lagging indicators of an 
economic slowdown. Unemployment rates are typically low at the point a 
recession begins. They rise during a recession and often peak after a 
recession has ended. Hence, unemployment rates are NOT a good indicator 
of whether an economy has entered a recession. Figure 4 plots 
unemployment rates over the past 25 years. The shaded areas indicate 
periods of recession. In every recession, unemployment rates are low in 
the first month, and often peak after the end of a recession.
    Because unemployment rises slowly, the political impetus to enact 
extended benefit legislation often occurs later in a recession, once 
unemployment rates are higher. Figure 4 indicates that extended 
benefits have been enacted quite late in past recessions. In fact, in 
both the early 1990s and the early 2000s, extended benefits were 
enacted after the official end of the recession (but at a time when 
unemployment rates were still rising.)

[GRAPHIC] [TIFF OMITTED] T2514.033

    If you believe the U.S. economy is entering a serious economic 
slowdown, unemployment rates are likely to increase steadily in the 
months ahead. Should we enact extended benefits now or, as in past 
recessions, wait for the unemployment rate to rise further? Even 
adjusting for population shifts, the unemployment rate is still lower 
than it was when extended benefits were put in place in past years. 
This might argue for waiting. On the other hand, the unusually high 
rates of long-term unemployment in the current economy suggest that a 
growing share of the unemployed who receive unemployment benefits will 
exhaust them without finding a job. This argues for moving faster. 
Extended benefits can particularly assist long-term unemployed workers 
who are having difficulty finding jobs. Certainly waiting until after a 
recession has ended to enact extended benefits (as we've done in the 
recent past) makes little sense. Personally, I would recommend enacted 
extended benefits now, given the high rate of long-term unemployment 
among the jobless.
    That said, I cannot end this discussion without a very important 
caveat. Unemployment Insurance (UI) is received by a minority of the 
unemployed and the share receiving UI has been falling in recent years. 
Only 34 percent of the unemployed received UI at the end of 2007 (U.S. 
Department of Labor, 2007). For many of the unemployed, extended UI 
benefits will have little effect on their economic situation. While a 
recession in the next few months might increase the call for extended 
benefits, in the longer run, reform of the entire UI program is 
necessary if you want more unemployed workers to have access to an 
economic cushion when they lose their jobs.

                              CONCLUSIONS

    Simply comparing unemployment rates in early 2008 with those in 
past years can be misleading. Our expectations about labor market 
measures should change over time, as the overall population ages. An 
aging population typically means lower aggregate unemployment rates 
because older workers (that is, persons in their 40s and 50s, not 
persons in their 60s) tend to be more stably employed. (This is also 
one reason why current labor force participation rates are high.) 
Hence, while aggregate unemployment rates are low, unemployment among 
each age group is higher than it was at the beginning of the 2001 
recession.
    Lower unemployment rates among younger men are also explained by 
who we count in the labor force. A growing share of younger men who 
would have been in the labor force in earlier years is in prison in 
2008. This also reduces the overall unemployment rate since these men 
would have had higher unemployment rates if they were not incarcerated.
    Only time will tell if an economic slowdown leads unemployment 
rates to rise rapidly over the next several months. As with the rest of 
the economy, however, at this point in time there are a number of 
warning signals in the labor market. The pattern of slower employment 
growth and rising unemployment rates, seen in Figures 1 and 4, looks a 
great deal like the beginning-of-recession periods in the recent past. 
I am particularly struck by the very high share of long-term unemployed 
and the high number of people who are discouraged or involuntarily 
employed only part-time. For those who are actively seeking work, the 
search is likely to be long in the current economic environment.

                               REFERENCES

Bernstein. Jared. 2008. ``Real wage reversal persists.'' Economic 
    Snapshots. Washington, D.C.: Economic Policy Institute. February 
    20. Available at http://www.epi.org/content.cfm/webfeatures_ 
    snapshots_20080220se.
Pew Center on the States. 2008. One in 100: Behind Bars in America 
    2008. Washington, D.C.: Pew Charitable Trusts. February. Available 
    at http://www.pewcenteronthestates.org/uploadedFiles/
    One%20in%20100.pdf.
U.S. Department of Labor, Employment and Training Administration. 
    Unemployment Insurance Data Summary. 3rd Quarter 2007. Washington, 
    D.C.: U.S. Department of Labor. Available at http://
    workforcesecurity.doleta.gov/unemploy/content/data.asp.
                               __________
   Prepared Statement of Dr. Christine L. Owens, Executive Director, 
            National Employment Law Project, Washington, DC

    Senator Schumer, Congresswoman Maloney and members of the 
Committee: Thank you for this opportunity to testify today on the 
subject of unemployment in our struggling economy, and the need for an 
extension of jobless benefits to help stimulate the economy and serve 
the growing number of workers who are experiencing especially long 
durations of unemployment without finding new jobs.
    My name is Christine Owens, and I am the Executive Director of the 
National Employment Law Project (NELP), a non-profit research, public 
education and advocacy organization that specializes in economic 
security programs, including unemployment insurance, Trade Adjustment 
Assistance (TAA) and the workforce development system. Our organization 
has worked in the states and with Congress to protect the nation's 
economic security programs against serious attacks in recent years and 
to promote reforms that deliver on the nation's promise of economic 
opportunity.
    NELP worked with labor and community allies and supporters in 
Congress to secure an extension of Federal unemployment benefits during 
the last recession and to win major improvements in the Federal program 
of benefits provided to the families left jobless by Hurricanes Katrina 
and Rita. In states across the nation, NELP has been a key player in 
successful efforts to update states' unemployment insurance programs, 
to ensure that more workers are eligible to receive benefits during 
periods of joblessness. NELP also operates a special project in the 
Midwest, working with state officials and others to help laid-off 
manufacturing workers better access trade act benefits and related 
programs. Thus, we have a long-standing interest and expertise in and 
commitment to policies that serve the working families hardest hit by 
economic downturns in the U.S. and the fallout from globalization.
    Our testimony today summarizes recent evidence of the economy's 
ongoing decline, and discusses the importance of extending unemployment 
insurance benefits to boost the economy overall and to provide critical 
support to the working families most harshly affected by the downturn. 
In particular, we focus on long-term unemployment. As we point out in 
more detail below:
      The official unemployment rate and other measures of 
labor market underutilization are higher today than at the beginning of 
the 2001 recession.
      Unemployment claims are rising: As of the week ending 
February 23rd, the 4-week moving average of claims exceeded 360,000, 
the highest level since Hurricane Katrina came ashore in 2005.
      The duration of long-term unemployment--that is, 
unemployment exceeding 6 months--since the last recession is 
unprecedented. For a period of 32 consecutive weeks beginning in 
November 2002, more than 20 percent of the unemployed were jobless for 
at least 6 months.
      The average duration of unemployment--17.5 weeks in 
January 2008--is much longer now than at the outset of the recessions 
that began in 2001 (12.6 weeks) and 1990 (11.9 weeks), and the number 
of workers jobless for at least 6 months is more than twice as large 
now as in March 2001 and July 1990.
    A larger share of jobless workers are exhausting their state 
unemployment benefits without finding work today (36 percent) than in 
March 2001 (32 percent) or July 1990 (28 percent).
      Waiting to extend unemployment benefits until the 
unemployment rate rises more is ill-advised. As recent recessions 
demonstrate, the unemployment rate does not rise dramatically until a 
recession is well underway or, in fact, has ended. Since the purpose of 
extended benefits is to avert a recession or mitigate its consequences 
for the economy and workers, pegging the extension of benefits to a 
jump in the unemployment rate is counterproductive.
      Unless Congress and the President act to extend 
unemployment benefits, an estimated 3 million jobless workers will run 
out of their state benefits over the coming year, with neither jobs nor 
Federal benefits to rely on to support themselves and their families.

                     THE DRUMBEAT OF RECESSION NEWS

    The telltale signs of a national recession grow increasingly 
impossible to ignore with the issuance of nearly each new economic 
report. What distinguishes the current economic downturn from prior 
recessions is the combined and continued uncertainty of the fall-out 
from the sub-prime mortgage collapse, the resulting credit crunch, and 
the surge in energy prices, none of which show any significant signs of 
improvement.
      The Sub-Prime Mortgage Crisis Escalates: Initial 
foreclosure notices now surpass new home sales by three to one, with 
2.2 million foreclosures filed in 2007 and an estimated 3.5 million 
expected by 2010. While earlier estimates put the losses associated 
with the sub-prime crisis at $50 billion to $100 billion, a recent 
report estimates losses will now exceed $400 billion.\1\
---------------------------------------------------------------------------
    \1\ ``Study Finds Wider Impact of Mortgage Losses,'' Wall Street 
Journal (March 1, 2008), 
A-2.
---------------------------------------------------------------------------
      Financial Institutions Restrict Credit: As a result of 
the exposure due to the sub-prime mortgage crisis, banks and other 
lenders are now projected to limit their lending and other assets by $2 
trillion, thus reducing economic growth by one to 1.5 percentage 
points.\2\
---------------------------------------------------------------------------
    \2\ Id.
---------------------------------------------------------------------------
      Energy Costs Keep Surging, Raising Consumer Prices: This 
week, oil prices reached an all-time high of $104 a barrel, thus 
surpassing the prior record set during the oil crisis of the 1980's. A 
gallon of gas cost $3.10 at the end of February, up 32 percent--75 
cents--from the same time last year.\3\ As a result of the surge in 
energy prices, consumer prices increased by 4.1 percent in the past 
year, the largest increase in 17 years. Meanwhile, workers' earnings 
are down in the past year by 1.4 percent.\4\
---------------------------------------------------------------------------
    \3\ For gas prices, see http://money.cnn.com/2008/02/24/news/
economy/gasprices_0224.ap/index.htm.
    \4\ ``Toxic Economic Mix Feared,'' Associated Press (March 2, 2008)
---------------------------------------------------------------------------
      Service Industry Now Hard Hit, Not Just Manufacturing: 
The service sector became the latest casualty of the economic downturn 
when the index of non-manufacturing business activity fell in recent 
weeks to its lowest level since October 2001.\5\ At the same time, 
manufacturing continued its devastating slide, shrinking at the fastest 
pace in 5 years, according to the Institute for Supply Management's 
latest factory index.\6\
---------------------------------------------------------------------------
    \5\ ``Recession Fears Intensify: Service-Sector Index Hits Six-Year 
Low; Further Rate Cuts Seen as Dow Drops 2.9 percent,'' Wall Street 
Journal (February 6, 2008).
    \6\ ``U.S. Economy: Manufacturing, Construction Spending Decline,'' 
Bloomberg News (March 3, 2008).
---------------------------------------------------------------------------
      Consumer Confidence Falls to 16-Year Low: These sobering 
economic forces, combined with the declining job market described 
below, pushed consumer confidence down to a 16-year low in February 
2008.\7\ Consumer spending, which represents more than two-thirds of 
the Gross Domestic Product (GDP), has been flat as incomes grow more 
slowly because of the declining job market.\8\
---------------------------------------------------------------------------
    \7\ Reuters/University of Michigan Surveys of Consumers.
    \8\ ``U.S. Michigan Consumer Index Falls to 16 Year Low,'' 
Bloomberg News (February 29, 2008).
---------------------------------------------------------------------------
    While economists continue to debate the ultimate breadth and depth 
of the national economic downturn, large numbers of states are already 
in serious economic distress. According to economist Mark Zandi of 
Moody's Economy.com, five states with large economies, including 
California, are now in recession, and these states account for one-
fourth of the nation's Gross Domestic Project. Another 15 states are on 
the verge of recession, accounting for another quarter of the nation's 
GDP.\9\
---------------------------------------------------------------------------
    \9\ Zandi, ``Washington Throws the Economy a Rope'' (January 22, 
2008) (available on-line at http://www.economy.com/home/
article_ds.asp?cid=102598).
---------------------------------------------------------------------------
           RISING UNEMPLOYMENT COMPOUNDED BY SLOW JOB GROWTH

    Working families are bracing for more hard times amid troubling 
signs that layoffs will rise at the same time the nation's economy is 
failing to create an adequate supply of jobs for all those who want to 
work.
    Remarkably Slow Job Growth: For the first time in four and a half 
years, the economy lost jobs in January 2008. While this represented a 
significant benchmark of economic distress, the fact is that job growth 
has been remarkably anemic since the last recession ended in November 
2001. Indeed, after the 2001 recession, it took 46 months for 
employment to recover to pre-recession levels, compared with 31 months 
after the 1990s recession's end. Prior to the 1990s, on average, jobs 
returned to pre-recession levels after just 21 months.\10\ Thus, 
compared to prior recessions, it is much harder for unemployed workers 
to find work in today's ``lean'' economy, while they are competing for 
more limited job openings.\11\ According to the Department of Labor's 
most recent JOLTS report, job openings, new hires and separations from 
employment were all down at the end of 2007, compared to December 
2006.\12\
---------------------------------------------------------------------------
    \10\ Stettner, Allegretto, ``The Rising Stakes of Job Loss: 
Stubborn Long-Term Unemployment Amid Falling Unemployment Rates'' 
(National Employment Law Project/Economic Policy Institute, 2004).
    \11\ ``Is a Lean Economy Turning Mean: Why It's Now Harder to Find 
a Job,'' New York Times (March 2, 2008).
    \12\ U.S. Department of Labor Bureau of Labor Statistics, ``Job 
Openings and Labor Turnover: December 2007,'' available online at 
http://www.bls.gov/newsw.release/pdf/jolts.pdf.
---------------------------------------------------------------------------
    Higher Unemployment Rates Today Than At Outset of Last Recession: 
The official unemployment rate in January 2008 was higher (at 4.9 
percent) than in March 2001 (4.3 percent), when the last recession 
began. In January 2008, 7.6 million workers were officially unemployed, 
an increase of more than half a million in the past year. The number of 
``discouraged'' workers grew to 467,000 in January 2008, the highest 
number in two and half years. Meanwhile, the number of individuals 
working part-time for economic reasons--that is, they cannot get 
fulltime hours--reached its highest level in four and half years, with 
4.77 million such workers in January 2008. Taking into account all 
these workers, the true unemployment rate in January 2008 was 9.0 
percent, up significantly from 8.3 percent just 1 year earlier and up 
even more sharply from the 7.3 percent rate that prevailed at the 
beginning of the 2001 recession.
    Recent Surge in Unemployment Claims: Finally, unemployment claims 
have reached their highest levels since Hurricane Katrina, reinforcing 
the point that layoffs have already taken a major toll on the nation's 
workforce. For the week ending February 23rd, unemployment claims 
averaged over the prior 4 weeks rose to more than 360,000, the highest 
number since October 15, 2005. In addition, the total number of workers 
collecting unemployment benefits increased to 2.78 million (averaged 
over the prior 4 weeks), which exceeds the number who were collecting 
unemployment benefits when the last recession began 7 years ago this 
month.

              THE NEW REALITIES OF LONG-TERM UNEMPLOYMENT

    As the above data reflect, the overall picture of jobs and 
joblessness in today's economy is bleak for America's working families, 
and points to the need for extended unemployment benefits to boost 
economic growth. Further underscoring the need for a Federal extension 
of jobless benefits, a record percentage of unemployed workers today 
remain jobless after actively looking for work for more than 6 months. 
Hailing from all walks of life, these jobless workers are struggling on 
limited income in a punishing economy to maintain their housing in the 
midst of the worst foreclosure crisis since the Great Depression and to 
pay skyrocketing costs for basic necessities, like food and gas.
    Long-term Joblessness: No Comparison to Prior Recessions: High 
rates of long-term unemployment have persisted longer since the 
recession that ended in November 2001 than was the case with respect to 
the two preceding recessions, which ended in March 1991 and November 
1982, respectively. In November 2002, 1 year after the most recent 
recession's end, the share of jobless workers unemployed for 6 months 
or longer (the ``rate'' of long-term unemployment) surpassed 20 
percent, and it remained at or above that level for a record 32-month 
stretch. In contrast, the rate of long-term unemployment after the 
early 1990s recession exceeded 20 percent for a total of only 23 
months, with the longest continuous stretch at the 20 percent or higher 
rate lasting 11 months. And the long-term unemployment rate exceeded 20 
percent after the early 1980s recession for only 18 months. Moreover, 
while the rate of long-term joblessness returned to 10-to-11 percent of 
the unemployed after the past two recessions, it has remained above 16 
percent since the recession of 2001 and is now again on the rise.

[GRAPHIC] [TIFF OMITTED] T2514.034

    Simply put: The problem of long-term joblessness is far greater 
today than at the beginning of our most recent past recessions. 
Additional measures underscore the greater severity of the problem:
      In March 2001, when the last recession began, the average 
worker was unemployed for 12.6 weeks before finding new work. And at 
the beginning of the preceding recession in July 1990, the average 
duration of unemployment was 11.9 weeks. In sharp contrast, the average 
duration of unemployment in January 2008 was 17.5 weeks.
    I  n January 2008, almost 1.4 million workers remained 
unemployed after actively looking for work for more than 6 months, up 
from 1.1 million just 1 year earlier, in January 2007. The January 2008 
figure is more than twice the number who were long-term unemployed in 
both March 2001 (696,000) and in July 1990 (688,000).
      In January 2008, the long-term unemployed accounted for 
18.3 percent of all jobless workers, compared to 11.1 percent in March 
2001. In July 1990, 11.9 percent of the unemployed were long-term 
jobless, and the proportion did not reach today's rate until 21 months 
later (in March 1992).
    The Diverse Profile of the Long-Term Jobless: The ranks of 
unemployed workers who are looking for jobs for longer periods of time 
are not limited to any particular demographic group, although certain 
groups of workers are over-represented in this category relative to 
their representation among the unemployed generally. As set out in 
Table 1 below, men account for 57 percent of the long-term unemployed, 
compared to 54 percent of all unemployed. While workers 45 and older 
make up 27 percent of all the nation's unemployed, they represent 37 
percent of the long-term jobless. Nearly two-thirds of the long-term 
unemployed are white, but African-Americans are over-represented in the 
category (28 percent) compared to their share of the unemployed 
generally (21 percent).
    Perhaps not surprisingly given the continued loss of well-paying 
manufacturing jobs to trade and globalization, manufacturing workers 
are also somewhat over-represented among the long-term unemployed 
relative to their share of all unemployed workers (12 percent of the 
long-term unemployed compared with 10 percent of all the unemployed). 
However, workers employed in other sectors are significantly 
represented among the long-term unemployed as well, especially 
including those who worked in professional and business services (12 
percent), wholesale and retail trade (15 percent), and educational and 
health services (12 percent).

[GRAPHIC] [TIFF OMITTED] T2514.035

            THE BENEFIT ECONOMIC IMPACT OF JOBLESS BENEFITS

    Unemployment benefits provide one of the most effective means 
available to Federal policymakers to immediately stimulate the economy 
and help prevent or forestall a more serious recession. In fact, a 
major study of past recessions found that each dollar of unemployment 
insurance benefits boosts the nation's GDP by $2.15, and that at their 
peak, UI benefits saved an average of 130,000 jobs on an annual 
basis.\13\ Unemployment benefits are targeted directly to those 
communities hardest hit by downturns; they flow with virtually no delay 
to affected workers; and because these workers, in turn, must spend 
their benefits to support themselves and their families, the money is 
quickly recycled through the economy.
---------------------------------------------------------------------------
    \13\ Chimerine, et al. ``Unemployment Insurance as an Economic 
Stabilizer: Evidence of Effectiveness Over Three Decades,'' U.S. 
Department of Labor, Unemployment Insurance Occasional Paper 99-8 
(1999).
---------------------------------------------------------------------------
    As economist Mark Zandi notes, unemployment benefits sustain 
consumer confidence and consumer spending, which is the backbone of 
today's economy. ``The benefit of extending unemployment insurance goes 
beyond simply providing financial aid for the jobless, to more broadly 
shoring up household confidence. Nothing is more psychologically 
debilitating, even to those still employed, than watching unemployed 
friends and relatives lose benefits.'' \14\ Mr. Zandi posits that part 
of the serious slump in consumer confidence following the 1991 
recession was due to the initial refusal of the first President Bush to 
immediately extend jobless benefits.\15\
---------------------------------------------------------------------------
    \14\ Zandi, ``Washington Throws the Economy a Rope'' (January 22, 
2008).
    \15\ According to Mr. Zandi, ``The slump in consumer confidence in 
late 1991, after the 1990-91 recession, may well have been due in part 
to the first Bush administration's initial opposition to extending UI 
benefits for hundreds of thousands of workers. The administration 
ultimately acceded and benefits were extended, but only after 
confidence had waned. The fledging recovery sputtered and the political 
damage extended through the 1992 Presidential election.'' Id.
---------------------------------------------------------------------------
    In addition to bolstering consumer confidence and sustaining 
consumer spending, extending unemployment benefits would have a 
potentially salutary impact on the home foreclosure crisis widely 
viewed as the trigger for today's economic downturn. Families of 
jobless workers spend more of their unemployment benefits to cover the 
costs of their mortgages and rent than for any other household item. 
According to a state survey, 41 percent of expenditures paid for with 
unemployment benefits were applied to housing costs. After housing, 
unemployment benefits were spent primarily on transportation (14 
percent), food (13 percent), loans (12 percent) and health care (6 
percent).\16\ Another national study found that unemployment benefits 
reduced the chances that a worker will be forced to sell the family 
home by almost one-half.\17\ In addition, unemployment benefits sustain 
families during hard times by substantially reducing the likelihood 
that they will fall into poverty and helping them make the challenging 
transition to quality jobs with health care and other benefits.\18\
---------------------------------------------------------------------------
    \16\ State of Washington, Employment Security Department, Claimant 
Expenditure Survey, 2005 (January 2006)
    \17\ Gruber, ``Unemployment Insurance, Consumption Smoothing, and 
Private Insurance: Evidence from the PSID and CEX,'' Advisory Council 
on Unemployment Compensation Background Papers, Vol. I (1995), at page 
20.
    \18\ Stettner, Emsellem, ``Unemployment Insurance is Vital to 
Workers, Employers and the Struggling Economy'' (National Employment 
Law Project: December 5, 2002). Boushey, Wenger, ``Finding the Better 
Fit: Receiving Unemployment Insurance Increases Likelihood of Re-
Employment with Health Insurance'' (Economic Policy Institute: April 
14, 2005).
---------------------------------------------------------------------------

     CURRENT FEDERAL EXTENDED BENEFITS POLICY FAILS THE UNEMPLOYED

    With an economy that has produced record rates of long-term 
unemployment, the need for an effective and reliable permanent program 
of extended unemployment benefits is more crucial than ever. What we 
have, instead, is a Federal system of extended unemployment benefits 
that is far from reliable or effective, thus creating the necessity for 
a temporary extension of benefits.
    The permanent Federal program of ``Extended Benefits'' (EB) is so 
outdated in how it measures unemployment that no state now qualifies 
for the program, not even Michigan, which has had an unemployment rate 
exceeding 7 percent since August 2006. During the last recession, only 
six states qualified for EB, and during the recessions of the 1990s, 
only 10 states qualified for the program. In addition to the flawed 
``trigger'' formula, the EB program requires the states to pay for 50 
percent of the benefits, thus putting serious pressure on state 
unemployment trust funds at the very moment the demand is greatest to 
pay state benefits.
    Because the EB program is so flawed, Congress has enacted a 
temporary extension of Federal jobless benefits during the past five 
recessions. In 2002, Congress extended jobless benefits by 13 weeks for 
all states, while providing an extra 13 weeks of Federal support to 
certain states with unemployment rates that exceeded 6.5 percent.\19\ 
The extension that recently failed by one vote in the Senate (Economic 
Stimulus Act of 2008) was nearly identical to the March 2002 TEUC 
program. In contrast, prior Federal extensions (including the 1991 and 
1975 extension programs) were more generous, providing 20 to 26 weeks 
of extended benefits for all states, with extra weeks of benefits often 
available to states with especially high levels of joblessness.
---------------------------------------------------------------------------
    \19\ The TEUC the program was limited to states with unemployment 
rates above 6.5 percent, plus the state had to have experienced a 
significant increase of unemployment in either of the past 2 years. As 
a result, while 14 states qualified for the full 26 weeks of TEUC 
benefits, they did so only for a few months before they ``triggered 
off' the program because their unemployment rate did not continue to 
rise as required by the 2002 Federal law. National Employment Law 
Project, ``Nation's Highest Unemployment States Face Major Cuts in 
Unemployment Benefits Due to Flawed Extension Program,'' (November 4, 
2003).
---------------------------------------------------------------------------
    Responding more effectively to the new realities of long-term 
unemployment, legislation is pending in both the Senate and the House 
to extend jobless benefits beyond the limited 13 weeks provided during 
the last recession. Senator Edward Kennedy recently introduced the 
Emergency Unemployment Compensation Extension Act of 2008 (S. 2544), 
which provides 20 weeks of extended benefits to workers in all states, 
plus an extra 13 weeks for states with unemployment levels exceeding 
6.0 percent (averaged over 3 months). In addition, because the 
unemployment benefits provided by most states are so limited (averaging 
only $285 per week), the bill provides an extra $50 a week in Federal 
extended benefits to help families cope with the rising costs of fuel, 
food and other basic necessities.
    In the House of Representatives, Congressman James McDermott has 
introduced a bill to extend Federal jobless benefits (H.R. 4934), 
providing 26 weeks of extended unemployment benefits for all states, as 
well as a $50 supplement in weekly unemployment benefits. In contrast 
to the Senate bill, the McDermott measure does not provide extra weeks 
of benefits for high unemployment states. Both the House and Senate 
bills significantly improve upon the TEUC program enacted in 2002 by 
accounting for the increase in long-term unemployment and the rising 
costs of fuel and other basic necessities.

   EXTENDING JOBLESS BENEFITS NOW WILL HELP MORE THAN THREE MILLION 
   WORKERS WHO WILL EXHAUST THEIR STATE BENEFITS THIS YEAR, WITHOUT 
                            FINDING NEW JOBS

    If Congress and the White House do not promptly extend jobless 
benefits, an estimated three million workers will run out of their 
state unemployment benefits this year and will have neither new jobs 
nor extended benefits to help support them and their families. (Table 
2). As it becomes more difficult to find work during the year, the 
numbers are expected to grow significantly. During the 6 months from 
January to June 2008, a projected 1.3 million workers will exhaust 
their state unemployment benefits, and that number will likely increase 
to as many as 1.7 million workers from July to December 2008.\20\
---------------------------------------------------------------------------
    \20\ The January to June 2008 estimate in Table 3 takes into 
account the number of people who were paid unemployment benefits from 
July to December 2007, multiplied by the latest reported state 
``exhaustion'' rate (3rd Quarter 2007). The estimates for July to 
December 2008 assume a 26 percent increase in unemployment insurance 
recipients--the same rate of increase experienced during the 2001 
recession--multiplied by the latest reported state ``exhaustion'' rate 
(3rd Quarter 2007).
---------------------------------------------------------------------------
    Corresponding to the rise in long-term unemployment, today's 
jobless workers are more likely to exhaust their state unemployment 
benefits than in immediate past recessions. Based on an analysis of the 
latest available data (3rd Quarter 2007), 36 percent of all jobless 
workers collecting state unemployment compensation exhaust their 26 
weeks of benefits without finding jobs. That compares with 32 percent 
in March 2001, when the last recession began, and 28 percent in July 
1990, when the preceding recession began. As indicated earlier, more 
people are now collecting unemployment benefits (2.8 million), the 
highest level since Hurricane Katrina, and they, too, will be 
exhausting their benefits in the coming months.
    The problem is especially severe in some of the nation's most 
populous states hit hard by the foreclosure crisis, which has had the 
cascading effect of generating layoffs in construction and financial 
services, and in public sector jobs affected by the fall-off in state 
revenues. In California, for example, the unemployment rate has 
increased nearly a full percentage point in the past year alone; it now 
stands at 5.9 percent, with more than a million unemployed workers. 
During this period, 433,000 workers exhausted their state unemployment 
benefits (up about 30,000 from the past year), and another 2.4 million 
workers applied for new benefits (up more than 200,000 in the past 
year). In Florida, also hit hard by the housing crisis, the 
unemployment rate has increased almost a percentage point in the past 
year (to 4.5 percent in December 2008), 136,000 workers have exhausted 
their state unemployment benefits (up 35,000), and more than 645,000 
workers applied for new benefits (up 150,000 in the past year).

 RESPONDING TO THE ARGUMENT THAT UNEMPLOYMENT BENEFITS DISCOURAGE THE 
                     JOBLESS FROM LOOKING FOR WORK

    It is important to respond to the questionable argument made by 
some that jobless benefits should not be extended because they 
discourage the unemployed from looking for work. The reality is that 
the effect of unemployment benefits on the time spent unemployed is 
generally overstated, especially during recessions when the competition 
for jobs is most intense; and critics also ignore how jobless benefits 
contribute to improving the quality of jobs the unemployed eventually 
secure.
    First, with regard to the research, the extent of the impact of 
unemployment benefits on the duration of unemployment is a subject of 
significant debate. While some researchers have found that a 13-week 
extension of benefits is associated with a 2-week increase in the 
duration of unemployment,\21\ others have recently concluded that the 
outcome varies significantly depending on the study design.\22\ Still 
other studies have concluded that increases in the length of time 
workers are unemployed while on benefits is more a function of factors 
like an increase in manufacturing layoffs, not more generous 
unemployment benefits.\23\
---------------------------------------------------------------------------
    \21\ Woodbury, Rubin, ``The Duration of Benefits'' (in Unemployment 
Insurance in the United States: Analysis of Policy Issues: Upjohn 
Institute for Employment Research, 1997).
    \22\ Card, Chetty, Weber, ``The Spike at Benefit Exhaustion: 
Leaving the Unemployment System or Starting a New Job?'' (National 
Bureau of Economic Research: February 2007), at page 5 (``With respect 
to behavior at point of exhaustion, some (but not all) of the studies 
using survey data to measure job starts find evidence of a spike in the 
re-employment hazard, while most (but not all) of the studies using 
administrative data on job starts finds a relatively smooth hazard. 
Overall, the literature suggests that spikes in the exit rate around 
benefit exhaustion are generally smaller when duration is measured as 
time to next job rather than time unemployed.'')
    \23\ Needles, Nicholson, ``Any Analysis of Unemployment Insurance 
Durations Since the 1990-1992 Recession (Mathematica Policy Research, 
Inc., March 1999), at pages 6-7 (``The aggregate analysis concludes 
that changes in weekly benefit amounts or in average potential duration 
at the state level cannot explain the increase in average UI duration 
relative to historical patterns.'')
---------------------------------------------------------------------------
    Second, and perhaps most important, the argument conspicuously 
fails to account for the favorable impact on the quality of jobs that 
unemployed workers are able to secure with the help of their 
unemployment benefits. As described by leading UI authorities assembled 
by the U.S. Department of Labor, a primary objective of the program is 
to allow workers ``the time needed to locate or regain employment that 
takes full advantage of [their] skills and experience.'' \24\ Research 
conclusively shows that those collecting unemployment benefits receive 
more in pay and better benefits in replacement jobs, including health 
care, which is of special significance in today's economy.\25\
---------------------------------------------------------------------------
    \24\ Unemployment Insurance in the United States: The First Half 
Century (1993), at page 47 (quoting the U.S. Department of Labor, 
Committee on Unemployment Insurance Objectives, 1969)
    \25\ See footnote 18.
---------------------------------------------------------------------------
    Finally, consider the fact that unemployment benefits only average 
$285 a week. Given these limited benefits, it is simply unfair and 
unreasonable to conclude that a typical unemployed worker, faced with 
seeking employment during a recession while also having to pay for the 
rising costs of housing, food, gas and home heating, would find the 
benefits themselves sufficient to reduce the aggressiveness of the job 
search. Indeed, a national poll of unemployed workers conducted during 
the last recession found that they applied for an average of 29 jobs a 
month, which is certainly an active and intensive effort to find 
work.\26\
---------------------------------------------------------------------------
    \26\ Peter D. Hart Research Associates, ``Unemployed in America'' 
(poll commissioned by the National Employment Law Project, April 2003).
---------------------------------------------------------------------------
    In fact, during periods of recession, it is especially unconvincing 
to argue that extra benefits will negatively influence the work search 
of large numbers of workers. As former Federal Reserve Chairman Alan 
Greenspan argued in testimony before this Committee in 2002, ``[W]hen 
you get into a period where jobs are failing, then the arguments that 
people make about creating incentives not to work are no longer valid 
and hence, I have always urged that in periods like this, the economic 
restraints on the unemployment insurance system almost surely ought to 
be eased to recognize the fact that people are unemployed because they 
couldn't be a job, not because they don't feel like working.''\27\
---------------------------------------------------------------------------
    \27\ Testimony of Chairman Greenspan, quoted in ``Senate Proposal 
to Add Unemployment Insurance Benefits Improves Effectiveness of 
Stimulus Bill (Center on Budget and Policy Priorities, January 231, 
2008).
---------------------------------------------------------------------------
 THE OFFICIAL UNEMPLOYMENT RATE SHOULD NOT BE DECISIVE WITH RESPECT TO 
     EXTENDING BENEFITS, AND WAITING FOR FURTHER INCREASES IN THE 
   UNEMPLOYMENT RATE WILL HELP NEITHER THE ECONOMY NOR THE LONG-TERM 
                               UNEMPLOYED

    Treasury Secretary Henry Paulson, the administration's chief 
economic spokesman, parted ways with leading national economists when 
he opposed an extension of jobless benefits to help stimulate the 
economy. According to Mr. Paulson, ``with unemployment at 4.9 percent, 
to extend unemployment benefits would be unprecedented.''\28\ 
Subsequent statements by the President and others in his administration 
echo Mr. Paulson's views.
---------------------------------------------------------------------------
    \28\ Official Urges Senate to Pass Stimulus Plan, Bloomberg News 
(February 6, 2008).
---------------------------------------------------------------------------
    The administration's reliance on the national unemployment rate to 
refuse to extend jobless benefits is misplaced. First, this rationale 
fails to take into account the stark new realities of slow job growth 
and greater long-term unemployment, neither of which is adequately 
captured by the overall unemployment rate--and both of which are 
powerful reasons to extend unemployment benefits.
    Second, the administration's argument ignores the new reality of 
the unemployment rate illustrated by the past two recessions, where the 
unemployment rate has lagged farther and farther behind in relation to 
the economic recovery. Thus, the unemployment rate does not increase 
substantially until the economy is already well into a recession. 
Excluding the last two cycles, since 1948 it took, on average, 1.6 
months into an economic recovery for unemployment rates to peak.\29\ In 
contrast, following the 1990-91 recession, it took 15 months for 
unemployment to peak. The lag was even longer for the 2001 recession, 
when it took the unemployment rate 19 months before it peaked. And the 
role of extended benefits is to stimulate the economy, thus 
forestalling or helping to minimize a recession. Waiting, as the 
administration proposes, to extend unemployment benefits until after 
unemployment has risen sharply--signally a recession is well underway 
or has ended--is akin to closing the door after the horse has left the 
proverbial barn.
---------------------------------------------------------------------------
    \29\ The Rising Stakes of Job Loss, at page 3.
---------------------------------------------------------------------------
    For example, consider the experience of the last several 
recessions, when Congress and the President did not extend benefits 
until 12 to 16 months after the recessions began, thus failing to take 
advantage at the front end of the opportunity to avert or minimize the 
downturn. Indeed, in the case of the last extension, Congress waited 
until March 2002, 4 months after the recession ended to enact extended 
benefits. By that time, the unemployment rate had reached 5.7 percent, 
the number of workers exhausting unemployment benefits had increased 
from 192,000 (at the beginning of the recession) to 372,000 a month, 
and a total of 3.5 million long-term jobless workers had been left 
without any additional jobless benefits to support their families. When 
the recession began, the unemployment rate was 4.3 percent. January's 
4.9 percent unemployment rate is thus well above the rate when the last 
recession began, and a larger number of workers (200,000 to 260,000 
workers) are already exhausting their benefits every month.
    The Administration's rationale also abandons the 20 states that 
economist Mark Zandi says are either already experiencing a recession 
or on the verge of doing so. These states' economies are the casualties 
of the sub-prime mortgage crisis, the continued loss of manufacturing 
jobs, and other forces beyond their control. Some of the states have 
especially high unemployment rates, but others do not, again reflecting 
the inadequacy of unemployment rates as measures of economic distress 
and the inappropriateness of relying upon them to determine when to 
implement a program of extended benefits after a downturn has begun.
    Most importantly, what is more critical than the level of 
unemployment today is that the unemployment level has increased. The 
unemployment rate is a function of many factors, including labor force 
participation and the structure of the economy. However, whenever the 
unemployment level increases substantially, it is clearly going to be 
far harder for workers to find work before their regular unemployment 
benefits run out because of increasing competition for jobs. And the 
increase in unemployment that has already occurred foreshadows worse 
times to come. The level of unemployment increased by 13 percent from 
December 2006 to December 2007, and there has never been an occasion in 
the last 50 years when such a large annual jump did not precede a 
longer recession.\30\ There is ample evidence that searching for work 
today is hard and will get worse--providing clear support for an 
extension of benefits.
---------------------------------------------------------------------------
    \30\ Jobs Data Pass Threshold Where Recessions Dwell, New York 
Times (January 19, 2008).
---------------------------------------------------------------------------
              MODERNIZE THE UNEMPLOYMENT INSURANCE PROGRAM

    In addition to extending jobless benefits, Congress should address 
the serious gaps in the unemployment insurance program that deny 
benefits to thousands of hard-working families, especially low-wage and 
part-time workers.
    Today, only 36 percent of unemployed workers collect unemployment 
benefits, due mostly to outdated state eligibility rules. According to 
a recent study by the U.S. Government Accountability Office, low-wage 
workers are now twice as likely to become unemployed as higher wage 
earners, but they are one-third as likely to receive unemployment 
benefits.\31\ More than a decade ago, a bi-partisan Congressionally 
chartered commission recommended state and Federal reforms to address 
these concerns.\32\
---------------------------------------------------------------------------
     \31\U.S. Government Accountability Office, Unemployment Insurance: 
Receipt of Benefits Has Declined, With Continued Disparities for Low-
Wage and Part-Time Workers (September 18, 2007).
    \32\ Advisory Council on Unemployment Compensation, Collected 
Findings and Recommendations: 1994-1996 (1996).
---------------------------------------------------------------------------
    Incorporating many of the Federal commission's recommendations and 
the model state reforms already adopted by half the states, the House 
of Representatives recently passed legislation providing incentive 
grants for states to modernize their unemployment insurance programs 
(H.R. 3920, Title IV). A similar measure, the Unemployment Insurance 
Modernization Act (S. 1981), has strong bi-partisan support in the 
Senate. If enacted into law and embraced by the states, an estimated 
500,000 low-wage and part-time workers will qualify for unemployment 
benefits under the modernized state programs.\33\ The legislation is 
paid for from the Federal unemployment trust funds by extending an 
unemployment surtax that has been in place for over 30 years. If 
swiftly passed, the legislation will go a long way to modernize the 
unemployment program and help stabilize the economy.
---------------------------------------------------------------------------
    \33\ National Employment Law Project, ``The New Congress Proposes 
$7 Billion in Incentive Payments for the State to Modernize the 
Unemployment Insurance Program,'' (July 25, 2007).
---------------------------------------------------------------------------
                               CONCLUSION

    The nation's economy is in downturn and may well already be in 
recession. Job growth has slowed, and unemployment, while hovering 
still at around 5 percent, is higher now than at the beginning of the 
two most recent past recessions. In crucial respects, the labor market 
has not rebounded from the last recession. Job growth overall has been 
lackluster, at the same time long-term unemployment has been tenacious. 
Enacting a program of extended unemployment insurance benefits now 
would quickly move resources to working families that need them and 
will spend them, helping to stimulate demand, boost consumer 
confidence, and avert a more serious downturn. Failing to act now means 
that over the next year, three million jobless workers will run out of 
state unemployment benefits without finding new jobs or having a 
program of extended Federal benefits to fall back on, to support 
themselves, their families and the nation's economy.

              Table 2: Estimated Number of Workers Who Will Exhaust State Jobless Benefits in 2008
----------------------------------------------------------------------------------------------------------------
                                                       Estimated number    Estimated number
                                                        of workers who      of workers who
                        State                         will exhaust State  will exhaust State         Total
                                                       benefits (January   benefits (July to
                                                         to June 2008)      December 2008)
----------------------------------------------------------------------------------------------------------------
Alabama.............................................             12,510              17,533              30,043
Alaska..............................................              6,913               9,775              16,688
Arizona.............................................             18,846              20,713              39,559
Arkansas............................................             16,505              17,918              34,423
California..........................................            218,496             285,756             504,252
Colorado............................................             12,996              19,165              32,161
Connecticut.........................................             17,250             27, 301              44,551
Delaware............................................              3,776               4,927               8,703
DC..................................................              4,769               5,357              10,126
Florida.............................................             86,092              85,941             172,033
Georgia.............................................             39,826              45,644              85,470
Hawaii..............................................              2,654               3,122               5,776
Idaho...............................................              5,151               7,561              12,712
Illinois............................................             57,093              84,209             141,302
Indiana.............................................             33,598              51,380              84,978
Iowa................................................              8,736              15,518              24,254
Kansas..............................................              7,754              12,324              20,078
Kentucky............................................             11,458              15,603              27,061
Louisiana...........................................             11,140              13,171              24,311
Maine...............................................              4,019               7,565              11,584
Maryland............................................             15,848              20,972              36,820
Massachusetts.......................................             34,275              52,821              87,096
DMichigan...........................................             72,136              95,207             167,343
Minnesota...........................................             19,237              34,468              53,705
Mississippi.........................................              7,819              10,592              18,411
Missouri............................................             17,727              29,927              47,654
Montana.............................................              2,996               4,653               7,649
Nebraska............................................              6,009              10,046              16,055
Nevada..............................................             15,645              16,188              31,833
New Hampshire.......................................              1,848               2,982               4,830
New Jersey..........................................             66,415              89,617             156,032
New Mexico..........................................              6,142               8,274              14,416
New York............................................             84,866             107,493             192,359
North Carolina......................................             48,245              64,853             113,098
North Dakota........................................              1,562               2,945               4,507
Ohio................................................             35,320              54,049              89,369
Oklahoma............................................              7,515              10,479              17,994
Oregon..............................................             20,695              26,094              46,789
Pennsylvania........................................             58,976              94,434             153,410
Rhode Island........................................              7,038              10,748              17,786
South Carolina......................................             21,960              26,591              48,551
South Dakota........................................                304                 672                 976
Tennessee...........................................             22,037              33,386              55,423
Texas...............................................             49,104              68,018             117,122
Utah................................................              4,029               4,882               8,911
Vermont.............................................              1,763               3,000               4,763
Virginia............................................             17,076              25,242              42,318
Washington..........................................             18,253              21,648              39,901
West Virginia.......................................              4,179               7,274              11,453
Wisconsin...........................................             32,401              47,8D0              80,201
Wyoming.............................................              1,147               1,932               3,079
                                                     -----------------------------------------------------------
    Total...........................................          1,282,149           1,737,770           3,019,919
----------------------------------------------------------------------------------------------------------------
Source: Estimates prepared by the National Employment Law Project (NELP) based on U S. Department of Labor
  Employment and Training Administration data.

                               __________
 Prepared Statement of Dr. Lowell Gallaway, Distinguished Professor of 
    Economics, Ohio University and Richard K. Vedder, Distinguished 
                Professor of Economics, Ohio University

    Our message today is quite straightforward, namely, that it would 
be very unwise to return to an activist short-run contra-cyclical 
macroeconomic policy. A more detailed argument for this position is 
provided in a set of extended remarks that we ask to have incorporated 
in the hearing record.
    For now, we will provide a summary description of the behavior of 
the American unemployment rate beginning with 1948. For this purpose, 
we call your attention to the graphic appended to this statement. It 
describes the 10-year average unemployment rate for six decades, 
beginning with 1948-1957 and concluding with 1998-2007. In the initial 
decade, unemployment averaged 4.3 percent, while the most recent period 
shows an average unemployment rate of 4.9 percent. Thus, there is only 
a modest difference between the early and late years.
    Far more interesting, though, is what happened in the intervening 
decades. Over the period 1958-1967, the average unemployment rate 
increased to 5.3 percent. In the years starting with 1968 and 
concluding with 1977, it increased to an average of 5.7 percent. Next, 
in the interval 1978-1987, it further increased to an average of 7.4 
percent.
    These three decades span a period in which the basic philosophy of 
policymakers was an activist one. Perhaps the quintessential statement 
of the attitudes of the time was provided by John Kenneth Galbraith, in 
1982 testimony before this committee, when he remarked as follows:

``Persistent in the belief of the present administration is the notion 
that economic recovery and improving unemployment are an autonomous 
tendency of the system .  .  . (T)here is .  .  . no such autonomous 
tendency. Recovery is not the work of kindly gods with a special 
commitment to the free enterprise system. It is, alas, the affirmative 
accomplishment of man--and woman.''

    In the years that followed, disenchantment with the activist 
approach became widespread and, in the years 1988-1997, the average 
unemployment rate fell to 6.0 percent, presaging a further decline to 
the most recent decade's 4.9 percent.
    Obviously, we are implying that the recent declines in the 10-year 
average of unemployment rates are a product of a turning away from an 
activist policy approach. Is this, perhaps, too simplistic? We think 
not. Our view is based on the extended remarks that we have asked to be 
included in the hearing record. Specifically, we refer you to a 
technical appendix to those remarks which consists of extracts from an 
article published in a refereed academic journal. This article 
concludes, among other things, that:
    (1) Cycles in the unemployment rate are the result of shocks in the 
labor market that produce discoordination;
    (2) These shocks are random, in a statistical sense, and, 
therefore, cannot be successfully forecast;
    (3) About forty percent of the effects of the random shocks are 
eliminated by an endogenous correction mechanism;
    (4) Assuming that economic policymakers recognized the shocks 
immediately and were able to exactly compensate for them, the result 
would be a less stable labor market and higher average unemployment 
rates;
    (5) Therefore, short-term macroeconomic contra-cyclical policy is 
counter-productive.
    Based on these premises, we find it disturbing that there is much 
talk of a return to a philosophy that deliberately accepts higher 
inflation in an attempt to stimulate the economy. This is the language 
of the late 1950's and the 1960's, which ultimately led to eleven 
consecutive years of increase in the 10-year moving average of the 
unemployment rate. In the last 100 years, this is surpassed only by the 
thirteen year run-up of the average unemployment rate that embraces the 
Great Depression of the 1930's.
    Contrast that with what happened when we turned away from 
emphasizing short-run contra-cyclical policy in the early 1980s. We 
have just now (in 2007) concluded the twenty-third consecutive year of 
decline in the 10-year moving average of the unemployment rate. That is 
almost twice the length of the second-longest period of decline, twelve 
years, which accompanied the recovery from the Great Depression and 
World War II.
    To conclude our testimony, we offer two bits of advice to the 
formulators of national policy. First, do not repeat the errors of the 
past. Second, do not destroy the good that has emerged in the last 
quarter century in a futile pursuit of an unattainable perfection. We 
thank you.
                                            Lowell Gallaway
                                             Richard Vedder
                                       Ohio University Athens, Ohio
[GRAPHIC] [TIFF OMITTED] T2514.036

      a brief history of unemployment in post-world war ii america
          Lowell Gallaway and Richard Vedder

    As World War II moved toward its conclusion, there emerged a 
widespread consensus that substantial unemployment would be the order 
of the day after the war. One review of various forecasts confirms that 
many economists believed that a severe recession, or even depression, 
was on the horizon.\1\ That view also was held by most Federal 
officials. As one of the nation's foremost experts on business cycles 
put it, ``In the summer of 1945 the belief was fairly widely held in 
Washington that unemployment would be a serious problem in the winter 
of 1945-1946 and a strong deflationary trend was predicted.'' \2\
    In part. The forecast of a depression could be traced to the 
secular stagnation argument propounded by Alvin Hansen in his 1938 
Presidential Address before the American Economic Association.\3\ In 
that speech, he argued that the investment boom which had stimulated 
American economic growth had stalled after the closing of the frontier 
and with the advent of a slower rate of population growth.
    It also reflected a more short-term concern associated with the 
prospect of a decline in Federal Government expenditures. The thought 
of a rapid reduction in government military spending was a nightmare 
for some, including Hansen, who wrote, in 1943, ``when the war ends, 
the government cannot just disband the army, close down munitions 
factrories, stop building ships, and remove all economic controls.''\4\
    Politicians took the dire predictions of economists seriously. 
President Truman, speaking to the Congress a few days after the 
Japanese surrender, said of re-conversion: ``Obviously, during the 
process there will be a great deal of inevitable unemployment.'' \5\ 
Business groups agreed with the President. Just a few days earlier, the 
prestigious Committee for Economic Development, representing twenty-
nine hundred business practitioners and headed by prominent 
industrialist Paul G. Hoffman, Chairman of the Studebaker corporation, 
called for Federal aid to assist the newly created jobless to move to 
areas where jobs were created.
    Truman's choice of the adjective inevitable was an unfortunate one. 
In the first nine quarters following the formal end of the war, the 
unemployment rate never exceeded 4.1 percent and averaged 3.9 percent. 
This burst of prosperity was explained, after the fact, by some of the 
very same economists who had forecast hard times, as being the result 
of pent-up consumer demand. However, the empirical evidence does not 
support this thesis.\6\ Rather, government decisions to do exactly what 
Hansen proclaimed it could not do freed markets to establish a new set 
of relative prices that largely were devoid of the distortions that had 
characterized the Great Depression.
    There was still a nagging concern about unemployment. Many people 
anxiously were waiting for a severe economic downturn that would signal 
a return to Great Depression levels of activity. It never came. To be 
sure, there were a series of brief recessions in 1949, 1954, 1958, and 
1961. Yet the average unemployment rate for the years 1948-1957 was 
only 4.3 percent.
    By now, though, that old gadfly, Alvin Hansen, was back at work, 
ignoring his having been consistently wrong over the previous twenty 
years. He was bothered by those nagging recessionary episodes and he 
was quite willing to provide a new round of advice. While admitting 
that things had not gone too badly thus far in the post-World War II 
era, he admonished policymakers that America could do much better if it 
would put aside its fears of general price inflation. All we would need 
to do to increase the level of economic activity and reduce 
unemployment would be to introduce an additional amount of inflationary 
pressure in the economy.\7\ Hansen's policy prescription acquired 
greater validity in the wake of Paul Samuelson's and Robert Solow's 
notorious Phillips Curve paper presented in 1959.\8\ It argued that 
there was a stable tradeoff between inflation and the unemployment 
rate.
    The notion of a stable Phillips Curve suggested the existence of a 
fixed menu of choices from which policymakers could choose. The fly in 
the ointment, however, was that Phillips Curve stability required the 
presence of a permanent money illusion on the part of workers. This 
proved not to be the case and, as we moved through the 1960's and into 
the 1970's, higher and higher rates of price inflation were required to 
hold the unemployment rate in check. By the late 1970's, the Phillips 
Curve concept was so discredited that, in the 1976 amendments to the 
Employment Act of 1946, language was inserted that one of the co-
authors of the legislation, Congressman Augustus Hawkins, would later, 
somewhat fatuously, assert made the practice of tradeoff economics 
illegal. Meanwhile. The 10-year moving average of the unemployment 
rate, after bottoming out at 4.6 percent in 1973, began what would be 
an eleven year steady ascent to almost 7.7 percent in 1984, despite 
double digit rates of price inflation circa 1980. See Chart A for 
details.
    To provide some insight into the state of economic thinking at the 
end of the decade of the 1970s we offer some remarks from the preface 
to the proceedings of a conference held in March 1980. The conference 
was held by that venerable body, the American Assembly, with the 
sponsorship of the Annenberg School of Communication's Center for the 
Study of the American Experience, under the title, Economic Issues and 
the President: 1980 and Beyond. The preface contains the following 
assessment: \9\

``When the United States entered the decade of the seventies, political 
leaders were divided in their views about the most effective measures 
to pursue in the management of the American economy .  .  . but they 
all had one thing in common: the conviction .  .  . that the American 
economy was manageable.
``As we enter the decade of the eighties, more and more Americans are 
beginning to question whether our economy is manageable. Some observers 
have suggested that our economy is ``over the hill'' and that we must 
either undertake fundamental changes to our whole system or else face 
the prospect of becoming a second-rate nation, watching others take 
over the primacy of world economic leadership.''

    Two sets of comments from this time illustrate the state of 
American thinking. First, there is President Jimmy Carter's remarks in 
the 1980 Economic Report of the President\10\

``I have therefore been forced to conclude that reaching the goals of a 
4 percent unemployment rate and 3 percent inflation rate by 1983 is no 
longer practicable.

``Reducing inflation from the 10 percent expected in 1980 to 3 percent 
in 1983 would be an .  .  . unrealistic expectation. Recent experience 
indicates that the momentum of inflation built up over the past 15 
years is extremely strong. A practical goal for reducing inflation 
should take this into account.

``Because of these economic realities, I have used the authority 
provided to me in the Humphrey-Hawkins Act to extend the timetable for 
achieving a 4 percent unemployment rate and a 3 percent inflation. The 
target year for achieving 4 percent unemployment is 1985, a 2-year 
deferment. The target year for lowering inflation to 3 percent has been 
postponed until 3 years after that (1988).''

    Carter's stance suggests an attitude that perceives that there is 
something intractable about the inflation rate. This is consistent with 
the thinking of certain major economists. In particular, Otto Eckstein, 
an eminence in the area of economic forecasting and the founder of Data 
Resources Incorporated, formalized the notion of inflation being a 
structural problem by formulating the notion of core inflation.\11\ He 
estimated core inflation to be quite high and thought that to achieve 
an unemployment rate of 5 percent would require an inflation rate of 10 
percent. He despaired of economic management's being able to deal with 
the problem of inflation in any satisfactory way, remarking that:

``In summary, the fiscal and monetary policies which the government 
employs to manage aggregate-demand must create a constructive 
environment in which inflation can be improved, but they cannot, ``by 
themselves,'' solve the problem. Aggressive demand management, aiming 
at unemployment rates averaging 6 percent or less every year, makes it 
impossible to have any other policy succeed The inflation will simply 
become worse and worse--until the public despairs and forces 
politicians to adopt price controls.''

    History was unkind to Otto Eckstein. His words were written for the 
American Assembly conference in March, 1980. Roughly a year-and-a-half 
later, in the fourth quarter of 1981, the rate of price inflation 
suddenly slowed, falling to levels that, according to his estimates of 
core inflation, were not attainable in the American economy. The trend 
continued through the first quarter of 1982. In these 6 months, the 
average rate of price inflation fell from the 1 percent a month that 
had been common since the beginning of 1979 to one-quarter of 1 percent 
per month. There was a brief resurgence of inflation in late Spring 
(may and June), but, even so, from mid-1981 through mid-1982, the rate 
of price inflation (measured by the consumer price index) declined to 
6.2 percent, some 40 percent less than the 10.3 percent increase 
between mid-1980 and mid-1981. After the brief surge in inflation in 
the spring, the lower level of price inflation reasserted itself. In 
the last 6 months of 1982, the monthly average for the rate of price 
inflation returned to a quarter of 1 percent per month. History was 
also unkind to Jimmy Carter. From mid-1982 to mid-1983, the inflation 
rate was 3.2 percent, almost the 3 percent that he had announced 
couldn't be attained until at least 1988.
    Other victims of this historical quirk were Walter Heller, Chairman 
of the Council of Economic Advisors during the Kennedy years, and Nobel 
Laureate Paul Samuelson. Heller's fall from grace relates to the 
massive income-tax reduction that had been enacted in 1981. When such a 
tax cut was first proposed in 1978, by Representative Jack Kemp and 
Senator William Roth, Heller offered the following evaluation: \12\

``A $114 billion tax cut in 3 years would simply overwhelm our existing 
productive capacity with a tidal wave of increased demand and sweep 
away all hopes of .  .  . containing inflation.''

    One can ask, legitimately, why the Reagan tax cuts of 1981 did not 
produce greater inflationary pressure. As to Paul Samuelson, his 
pessimism was almost unbounded as the country moved into the eighties. 
He remarked: \13\

``A basic fact about present day Americans is our scaled down 
expectations. This seems a rational rather than pathological reaction 
to what have been the realities of the 1970s.''

    Add to that the almost grim forecast for the eighties he provided 
in his December 15, 1980 column in Newsweek magazine. What he saw was 
average levels of unemployment in excess of 8 percent, average rates of 
price inflation of more than 9 percent with frequent excursions into 
the double-digit range, and, perhaps, an average growth rate in gross 
national product of 2 percent a year.
    There was a downside to this unanticipated disinflation in the 
American economy. It was such a surprise that money wage rates were now 
rising quite a bit more rapidly that prices. This squeezed the 
profitability of businesses and led to a significant surge in 
unemployment. In September, 1982, the unemployment rate reached the 
double-digit level for the first time since the Great Depression. In 
the fourth quarter of 1982, the unemployment rate averaged 10.6 
percent. Pessimism reigned. But, the unemployment rate began to fall in 
January 1983. Still, the annual average unemployment rate for 1982 was 
9.7 percent and, for 1983, 9.6 percent. These rather high unemployment 
rates caused the 10-year moving average of the unemployment rate to 
rise through 1984. At that point, it began to drop and has fallen in 
every year since to reach its 2007 level of 4.9 percent.
    Over the twenty-three consecutive year decline in the 10-year 
moving average unemployment rate, there have been two rather mild 
business cycles, one in the early 1990s and another in the early years 
of the first decade of this century. Also, the economic philosophy of 
the era has been much less activist from the standpoint of short run 
contra-cyclical economic policy. We believe this accounts for the 
sustained decline in the longer run (ten year) average unemployment 
rate. This is consistent with the conclusions we reached in a technical 
paper published several years ago. In that paper, we demonstrated that 
short-run attempts at engaging in contra-cyclical macroeconomic policy 
will be counter-productive in the sense that it will produce a less 
stable economy with a higher average unemployment rate. For anyone who 
may be interested in the particulars of this argument, the paper is 
reproduced in Appendix A.
    This brings us to the current economic situation. We begin by 
noting that, recently, there has been substantial rhetoric that is 
quite reminiscent of Alvin Hansen as he spoke in the late 1950's urging 
policymakers to become more tolerant of some additional amount of price 
inflation. This is the language that ultimately took the United States 
economy down the path toward what became known as stagflation. We 
should not follow that path again. Much that is good has happened in 
the last quarter century. Let us not cast it away in a futile pursuit 
of some unattainable perfection. Let us not repeat the errors of the 
past.

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                               END NOTES

    *This discussion is based largely on our book Out of Work: 
Unemployment and Government in Twentieth Century America, Updated 
Edition (New York: New York University Press, 1997).

1. Michael Sapir, ``Review of Economic Forecasts for the Transition 
    Period,'' National Bureau of Economic Research, Studies in Income 
    and Wealth 11 (1949), pp. 275-351.
2. Robert A. Gordon, Business Fluctuations, 2nd ed. (New York: Harper 
    and Row, 1961), p. 454.
3. Alvin Hansen, ``Economic Progress and Declining Population Growth,'' 
    American Economic Review 29 (1939), pp. 1-15.
4. Alvin Hansen, After the War, Full Employment (Washington, D.C.: 
    United States National Resources Planning Boars, 1943), p. 5.
5. Reported in New York Times, September 7, 1945, p. 16.
6. See our Out of Work, op. cit., pp. 163-167.
7. Alvin Hansen, ``The Case for High Pressure Economics,'' reprinted in 
    The Battle Against Unemployment, Arthur Okun, ed. (New York: W. W. 
    Norton, 1965), pp. 53-64.
8. Paul A. Samuelson and Robert M. Solow, ``Analytical Aspects of Anti-
    Inflation Policy,'' American Economic Review 50 (1960), pp. 177-
    194.
9. The published proceedings bear a slightly different name than the 
    conference itself, namely, The Economy and the President: 1980 and 
    Beyond (Englewood Cliffs, N. J.: Prentice-Hall, 1980), p. 9.
10. Economic Report of the President, 1980 (Washington, D. C.: U.S. 
    Government Printing Office, 1980), pp. 9-10.
11. Otto Eckstein, ``Choices for the Eighties,'' in The Economy and to 
    President, op. cit., p. 76.
12 Walter Heller, ``The Kemp-Roth-Laffer Free Lunch, Wall Street 
    Journal, July 12, 1978, p. 20.
13. Paul A. Samuelson, ``Outlook for the `80s,'' Newsweek, December 15, 
    1980, p. 88.

                               APPENDIX A

``The Fraud of Macroeconomic Stabilization Policy.''
The Quarterly Journal of Austrian Economics
Volume 3, No. 3 (Fall, 2000), pp. 19-33
Lowell Gallaway and Richard Vedder

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