[Joint House and Senate Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-537

      THE ROAD TO ECONOMIC RECOVERY: PROSPECTS FOR JOBS AND GROWTH

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 26, 2010

                               __________

          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]

HOUSE OF REPRESENTATIVES             SENATE
Carolyn B. Maloney, New York, Chair  Charles E. Schumer, New York, Vice 
Maurice D. Hinchey, New York             Chairman
Baron P. Hill, Indiana               Jeff Bingaman, New Mexico
Loretta Sanchez, California          Amy Klobuchar, Minnesota
Elijah E. Cummings, Maryland         Robert P. Casey, Jr., Pennsylvania
Vic Snyder, Arkansas                 Jim Webb, Virginia
Kevin Brady, Texas                   Mark R. Warner, Virginia
Ron Paul, Texas                      Sam Brownback, Kansas, Ranking 
Michael C. Burgess, M.D., Texas          Minority
John Campbell, California            Jim DeMint, South Carolina
                                     James E. Risch, Idaho
                                     Robert F. Bennett, Utah

                    Andrea Camp, Executive Director
               Jeff Schlagenhauf, Minority Staff Director




                            C O N T E N T S

                              ----------                              

                                Members

Hon. Carolyn B. Maloney, Chair, a U.S. Representative from New 
  York...........................................................     1

                               Witnesses

Dr. Richard Berner, Managing Director, Co-Head of Global 
  Economics and Chief U.S. Economist, Morgan Stanley & Co., New 
  York, NY.......................................................     3
Mr. Jeffrey Joerres, Chairman, Chief Executive Officer, Manpower 
  Inc., Milwaukee, Wisconsin.....................................     7
Dr. Kevin A. Hassett, Senior Fellow and Director of Economic 
  Policy Studies, American Enterprise Institute for Public Policy 
  Research, Washington, DC.......................................    10

                       Submissions for the Record

Prepared statement of Dr. Roger Altman...........................    40
Prepared statement of Representative Carolyn B. Maloney, Chair...    42
Prepared statement of Dr. Richard Berner.........................    43
Prepared statement of Jeffrey Joerres............................    47
Prepared statement of Dr. Kevin A. Hassett.......................    64
Article titled ``Stimulus Arithmetic'' by J. Bradford DeLong.....    79
Prepared statement of Representative Kevin Brady.................    81

 
      THE ROAD TO ECONOMIC RECOVERY: PROSPECTS FOR JOBS AND GROWTH

                              ----------                              


                       FRIDAY, FEBRUARY 26, 2010

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The committee met, pursuant to call, at 9:27 a.m. in Room 
216 of the Hart Senate Office Building, The Honorable Carolyn 
B. Maloney (Chair) presiding.
    Representatives present: Maloney and Brady.
    Senators present: Bingaman.
    Staff present: Brenda Arredondo, Andrea Camp, Gail Cohen, 
Colleen Healy, Kinsey Kiriakos, Andrew Wilson, Rachel Greszler, 
Lydia Mashburn, Jeff Schlagenhauf, Ted Boll, and Robert 
O'Quinn.

OPENING STATEMENT OF THE HONORABLE CAROLYN B. MALONEY, CHAIR, A 
               U.S. REPRESENTATIVE FROM NEW YORK

    Chair Maloney. The meeting will come to order.
    I am thrilled to be joined by Senator Bingaman. Congressman 
Brady will be here momentarily, but I want to start on time 
because votes are projected for 10:30 and I will have to leave 
for that.
    I first would like to thank Mr. Joerres and Dr. Hassett for 
their willingness to return to Capitol Hill and testify before 
the Joint Economic Committee. Our last meeting on February 9th 
was snowed out, and the weather continues to cause problems. 
Roger Altman, a former Deputy Treasury Secretary for our 
country, was going to testify (he's now a leading businessman), 
and he has been snowed out and is not able to come.
    So I ask unanimous consent to put his testimony in the 
record.
    [The prepared statement of Roger Altman appears in the 
Submissions for the Record on page 40.]
    Chair Maloney. Today's hearing continues our in-depth 
series on job creation. Today we will be examining the 
prospects of a labor market recovery from the Great Recession, 
which was fueled by the double-digit crises in both the housing 
and the financial sector.
    A recent op-ed by Professor Alan Blinder--which was based 
on the testimony that he was supposed to give before this 
Committee before he was snowed out--presents a clear picture of 
the two possible policy options to increase private sector 
employment: either increase demand by consumers and businesses, 
or give employers the incentive to hire workers.
    On Tuesday, the JEC heard testimony from Dr. Doug 
Elmendorf, Director of the Congressional Budget Office. His 
testimony showed that an employer tax credit--similar to the 
one in my bill--is one of the most effective and efficient ways 
of spurring hiring.
    His testimony also showed that extending unemployment 
benefits has the biggest ``bang for the buck'' on the economy. 
Those benefits quickly multiply beyond the original recipients 
since families will spend all of their benefits on food and 
their expenses. Those purchases have a ripple effect throughout 
the economy.
    We have come a long way since last January, when the 
economy lost 779,000 jobs in that month alone, and recorded an 
average monthly job loss of over 750,000 jobs in the first 
three months of 2009.
    Last month we lost 20,000 jobs. And in the most recent 
three months of the Obama Administration the average monthly 
job loss was 35,000. So we are headed in the right direction. 
Thanks to the Recovery Act, the economy is growing.
    The Bureau of Economic Analysis reported that in the final 
quarter of 2009, the economy expanded at a rate of 5.9 percent.
    The Recovery Act included a tax cut for 95 percent of all 
American families and created jobs while investing in clean 
energy, infrastructure, and education. While we have brought 
back the economy from the brink, we are not yet where we need 
to be in terms of job creation.
    Over 8.4 million jobs have been lost during the Great 
Recession. And in addition to the 14.8 million workers who are 
currently unemployed, there are 8.3 million workers who are 
currently working part-time but would like to work full-time.
    In the last year, Congress has enacted policies that 
support struggling families and encourage job creation. These 
actions include creating and extending the first-time 
homebuyers credit, boosting funding for small business loans 
via the Small Business Administration, extending safety net 
programs, and extending the net operating loss carry-back 
provision that will help small businesses hire new employees.
    But we need to redouble our efforts to create jobs. The 
Senate jobs bill, which passed this week, is a step forward and 
an encouraging sign of bipartisanship.
    It includes a scaled-down version of my employer tax 
credit. I am happy that the Senate has included this. As Dr. 
Blinder said in his op-ed, reducing costs for employers to hire 
new workers will create jobs.
    During today's hearing we will explore other options and 
hear other ideas to help workers get back on their feet, spark 
consumer spending, and brighten our economic future.
    I am pleased that Dr. Berner was able to testify today and 
provide us with his forecasts of which sectors and regions of 
the economy are expected to grow in the coming year.
    Mr. Joerres will be giving us Manpower's on-the-ground 
experience about the increase in demand for temporary workers. 
Job creation in the temporary help sector is a leading 
indicator of progress in the labor market.
    Since September 2009, temporary help services has added 
over 247,000 jobs--52,000 in January alone.
    Finally, Dr. Hassett will be giving his views about future 
growth and the health of the labor market.
    I am also pleased to see that today's panel will touch on 
another topic discussed on Tuesday with the CBO, and that is 
the role of uncertainty about government policies on dampening 
economic and employment growth.
    I look forward to a lively discussion with the panel today, 
one that I hope will help spark bipartisan efforts to create 
certainty so that households and businesses will feel confident 
and will lead our country out of this Great Recession.
    [The prepared statement of Representative Maloney appears 
in the Submissions for the Record on page 42.]
    Chair Maloney. Thank you all for coming, and I recognize my 
colleague, Senator Bingaman.
    Senator Bingaman. Thank you all. I don't really have an 
opening statement. I look forward to hearing from all of you 
about our prospects for accelerating the economic recovery and 
creating jobs, and your best suggestions as to what policies we 
could adopt that have not been adopted. Thank you for being 
here.
    Chair Maloney. You are in charge.
    Senator Bingaman [presiding]. Okay. Let me just start, 
unless you have some preference in the order that you would 
like to testify, with Dr. Berner. Have you been adequately 
introduced here? I can certainly do that.
    Dr. Berner. I am happy to proceed, Senator.
    Senator Bingaman. Let me just briefly indicate, he is the 
managing director and Co-Head of Global Economics, and Chief 
U.S. Economist with Morgan Stanley. We appreciate you being 
here. You direct the firm's forecasting and analysis of the 
global economy and financial markets, and co-head the firm's 
Strategy Forum.
    You have served here, of course, on the Research Staff of 
the Federal Reserve in Washington where you co-directed the 
Fed's Model-Based Forecasting. There are a lot of other things 
I have written here that I could say about you, but I think 
that gives us an indication of your qualifications.
    We are very pleased that you would be with us today. Why 
don't you go ahead, and let me hear from you, and then I will 
introduce Mr. Joerres.

STATEMENT OF DR. RICHARD BERNER, MANAGING DIRECTOR, CO-HEAD OF 
  GLOBAL ECONOMICS AND CHIEF U.S. ECONOMIST, MORGAN STANLEY & 
                       CO., NEW YORK, NY

    Dr. Berner. Okay, Senator. Thank you, and other Members of 
the Committee who may not be here. Thanks for inviting me to 
this hearing.
    Following the deepest financial and economic crisis since 
the Great Depression, the U.S. and global economies are 
starting to recover.
    In our view, however, the recovery will be moderate and job 
gains modest. In 2010 and 2011, respectively, we expect real 
GDP to grow by 3\1/4\ percent, and 2\1/2\ percent.
    We expect annual job growth to average about 110,000 
monthly over that 2-year period, excluding hires for the 
decennial census. Even those job gains, however, are not a 
foregone conclusion. We have yet to see job growth in our 
economy, as you know. And, while indicators have improved, that 
is still a forecast.
    More important, as you also know it would take stronger job 
and economic growth over the next few years to regain the 8.4 
million payroll jobs we have lost in this Recession, or to gain 
the 10.6 million jobs required to restore the employment rate, 
or the employment population ratio to the one prevailing before 
we got into the downturn.
    Importantly, as well, our unemployment problem has become 
chronic. Two statistics I think document that fact. The median 
duration of unemployment has reached 20 weeks, and a record 41 
percent of the unemployed have been jobless for 6 months or 
longer.
    So my testimony today I will talk about four specific 
obstacles to hiring. Each of these has both a cyclical and a 
structural element to them. For each I will talk about policies 
that might help foster economic growth and job creation, but 
first I want to identify, as you asked me to, where job gains 
are likely to be over the next two years and why.
    We think advances in export, infrastructure, capital goods, 
energy, and health care-related industries likely will account 
for most of the job gains in the next 18 to 24 months.
    That echoes our views regarding the sources of growth in 
our economy. The combination of strong global growth, the 
lagged effects of fiscal stimulus, and improving financial 
conditions--thanks to the efforts of the Federal Reserve--will 
continue to promote growth and will promote improvement in many 
of those industries. And of course rising demand for health 
care services continues.
    When we think about where the regional strengths will be, 
that's a little harder. For example, industries that likely 
will benefit from exports and other strong sectors happen to be 
located in regions that were hard-hit by regional housing 
problems.
    In our judgment, the Pacific Northwest, parts of the 
Rockies, and Upper Midwest, parts of the Southeast, and parts 
of the Southwest seem likely to us to be the strongest regions.
    Turning to export markets and employment, which is 
important, I expect gains in export volumes of around 10 
percent to be sustained over 2010. Paced by their domestic 
demand, growth in many of our major trading partners--
particularly in Asia and Latin America--probably will average 
around 6 to 7 percent this year, and Canada probably will grow 
more strongly than in the U.S. A little slower growth in 2011 
is likely to occur as the U.S. and overseas policymakers exit 
from their very expansive fiscal and monetary stimulus.
    In manufacturing, some 20 percent of employment in 2006 was 
directly or indirectly related to exports, and I expect that 
share to grow over the next two years.
    Capital equipment and industrial supplies exports likely 
will continue to do well, while consumers will represent a 
rising share of overseas demand.
    Now let me turn to some of the obstacles to hiring. I think 
worries about the sustainability of the recovery are 
legitimate, as they often are, early in a recovery, and that is 
maybe holding hiring back.
    The fallout from the bursting of the housing and credit 
bubbles I think has intensified such concerns this time. So I 
think it remains essential to pursue policies oriented towards 
reducing housing imbalances, reducing debt, and improving the 
functioning of financial markets and financial institutions.
    In addition, I think there are four specific obstacles to 
hiring today:
    Rising benefit costs;
    Mismatches between skills needed and those available;
    Labor immobility resulting from negative equity in housing; 
and
    Uncertainty around policies here in Washington, as the 
Congresswoman mentioned earlier.
    I want to turn to what you can do to help the economy and 
labor markets to improve as quickly as possible. Let's talk 
about the cost of labor.
    Thanks to high fixed costs of health and other benefits, 
and of taxes on labor to pay for the social safety net, our 
labor costs are out of line with other countries when adjusted 
for living standards.
    I say ``fixed costs'' because benefits do not vary with 
hours worked; they are paid on a per-worker basis. But as 
employers seek to cut the cost of compensation, these benefit 
costs drive a growing wedge between total compensation and 
take-home pay.
    The Recession made that wedge bigger as cost-cutting 
private sector employers cut take-home pay while leaving 
benefits intact. So relative labor costs go up in that 
circumstance versus other countries, and median pay suffers.
    The long-term solutions to this issue include comprehensive 
health care reform and innovation to boost productivity and 
labor skills.
    A short-run remedy might include the refundable payroll tax 
credit that we've just mentioned in the hearing, perhaps for 
firms that increase their payroll. CBO estimates that would be 
one of the most effective short-run remedies, as was just 
mentioned.
    The second obstacle I think is a mismatch between skills 
needed in the workforce, or work place, and what there are in 
the workforce. Workers' skills have greatly lagged technical 
change, and the big changes in the structure of our economy.
    Dislocations in several industries in the Recession magnify 
that mismatch as workers who have been trained for one 
occupation lose their jobs and have difficulty taking another. 
And even in health care there is a growing nursing shortage 
that requires new training facilities.
    The long-term solution, or solutions, include policies that 
keep students in school, improve access to education, 
reorientation of our higher educational system towards 
specialized and vocational training and community colleges, and 
of course the training programs that firms like Mr. Joerres 
seek.
    The short-term remedies are a little harder. One short-term 
remedy might pair training and basic skills that are needed for 
work with the income support we need through unemployment 
insurance to help people bridge the gap during jobless spells.
    Two other groups seeking employment--newly minted college 
students and recently unemployed teachers--could be an ideal 
nucleus, in my view, for a job training corps that would 
empower job-seekers with new skills.
    The third obstacle is labor immobility resulting from the 
housing bust. Negative equity among a Nation of homeowners, in 
my view, leads to substantially lower mobility rates--one-third 
lower, according to one study.
    That is leading to a wave of strategic defaults in which 
borrowers who can otherwise afford to pay decide to walk away 
from their homes. Whether through foreclosure or default, this 
process is undermining the economic and social fabric of 
communities and reducing job opportunities. And so far the 
policies that we have employed really have not dented the 
problem.
    The long-term solution of course is financial and mortgage 
regulatory reform which are essential to restore the health of 
housing finance. Significantly, improving financial literacy in 
my view is equally important.
    In the short run, efforts to stabilize communities plagued 
by foreclosure are essential, and they are worthwhile, but they 
are not enough.
    Modifying existing mortgages has not worked. Re-default 
rates following modification are between 50 and 60 percent. I 
think establishing a protocol for short-sales and principal 
reduction should be a useful tool in avoiding costly 
foreclosure and strategic default.
    The fourth obstacle is policy uncertainty. I think that is 
a negative for the economy and for markets. It is clear to all 
of us that we need to solve our long-term challenges, and there 
are many--health care, budget and tax reform, financial 
regulatory reform, retirement savings, infrastructure, the list 
goes on--and the debates around major initiatives to address 
those problems are obviously an important part of the 
democratic process.
    But the uncertainty that accompanies major policy change I 
think is weighing on business and consumer decisions to hire, 
to expand, to buy homes, and to spend.
    Now there is some recent work that confirms this intuition. 
In effect, the rise in uncertainty increases the option value 
of waiting as volatility in markets and the economy rises.
    Moreover, this line of reasoning suggests that uncertainty 
reduces the potency of policy stimulus. In effect, it raises 
the threshold that you have to clear to make a business choice 
worthwhile. And, conversely, as uncertainty declines, the 
threshold falls with it.
    I can tell you as someone who works in financial markets 
that market participants are used to thinking that political 
gridlock is good, that it prevents politicians from interfering 
with the marketplace. And by the way, I think sometimes that 
interference is essential and important.
    The financial crisis clearly exposed the flaws in that 
reasoning, however, with respect to appropriate financial 
regulation whose absence allowed abuses. Indeed, gridlock today 
is more likely to be bad for markets, as our long-term economic 
problems are partly the result of past policies and can only be 
solved with political action.
    So the long-term solutions here involve bipartisan 
leadership to tackle those complex problems one by one in steps 
that are fair and call for shared sacrifice and benefits.
    The short-term remedies are no easier. They involve, 
obviously, getting together, but they will be a tonic for 
growth in my view. Reduction of the uncertainty around the 
political environment here in Washington I think would give 
some clarity to policies and the direction we're headed, and I 
think that would support an improvement in our economy and our 
financial markets, and would pave the way for renewed job 
growth.
    Thank you very much. I will be happy to take your 
questions.
    [The prepared statement of Richard Berner appears in the 
Submissions for the Record on page 43.]
    Senator Bingaman. Thank you very much. I appreciate you 
being here, and I appreciate that testimony.
    Jeffrey Joerres is the Chairman and Chief Executive Officer 
with Manpower Inc. He joined Manpower in 1993, served as vice 
president of marketing, and later as senior vice president of 
European operations and global account management, promoted to 
president and CEO in 1999. In 2001 he was named Chairman of the 
Board.
    Again, I have more information that I could put out here 
explaining your eminent qualifications, but thank you for being 
here and we are anxious to hear your perspective on these 
questions.

    STATEMENT OF JEFFREY JOERRES, CHAIRMAN, CHIEF EXECUTIVE 
          OFFICER, MANPOWER INC., MILWAUKEE, WISCONSIN

    Mr. Joerres. Thank you, Senator.
    Job creation is the topic that we absolutely deeply believe 
in, as every day we connect people to jobs. That is what we do 
for a living.
    Globally we have more than 400,000 associates on assignment 
at any given day. In 2009 we interviewed over 12 million people 
through our network of over 800 offices in the United States. 
We absolutely have a finger on the pulse of what is going on in 
the labor market.
    So what are we seeing? Companies are clearly starting to 
hire. There is no doubt about it. However, this recovery, like 
the recovery in the last few recessions, will be a jobless 
recovery.
    This is because companies are much more sophisticated in 
their ability to assess their workforce needs. Companies can 
determine exactly when they need workers to support the demand 
for their products and services. So from now on, companies will 
no longer engage in ``anticipatory hiring.''
    They will instead wait for clear signs of an increase in 
demand before making permanent hiring decisions. As a result, 
we would expect that short-term increases in the level of job 
hiring will be driven by new businesses, or by actual demand.
    The Manpower Employment Outlook Survey looks to 28,000 U.S. 
companies to assess hiring expectations in the quarter ahead. 
The latest survey shows that twelve percent of those companies 
said they would increase their staff in the first quarter; 73 
percent of the employers expected no change in their hiring.
    Why is that important? In the 42 years of this survey the 
``no change'' number has never been that high. Those companies 
are really stuck in the middle of the stabilization waiting for 
a sign for them to be able to take on people. The normal number 
of employers expecting ``no change'' would be somewhere around 
58 percent.
    Additionally, the national survey data shows that employers 
in mining, durable manufacturing, information, government, are 
expecting hiring in the first quarter versus the fourth quarter 
of 2009. Slight increases are also expected in nondurable goods 
manufacturing, transportation, utility, professional and 
business services. Employers in sectors, as you would imagine, 
like construction, retail, wholesale, will have a very soft 
first quarter, and some of the preliminary indications, we say, 
a softer second quarter as well.
    Using the seasonally adjusted data, all regions anticipate 
moderate quarter-over-quarter growth in their staffing levels, 
with the highest growth coming from the South and the Midwest. 
And you can see why: growth in the manufacturing jobs is where 
our growth is coming from.
    A major trend emerging from this down cycle is the number 
of unemployed workers who will be forced to find new jobs 
outside their industry-of-expertise. In our company we have 
labeled these people: ``industry migrants,'' very similar to a 
migrant coming into the country.
    They face challenges including how to adapt old skills to 
the new demand in the marketplace, and how to represent those 
skills in a brand new light.
    For example, a foreman in an auto company on a shop floor, 
might have problems fitting into a manufacturing environment.
    Another one of these major challenges that workers face in 
this recovery is the lack of mobility exacerbated by the 
housing crisis, very similar to what Dr. Berner had referred 
to. This inability to help homeowners get out from underneath 
their negative equity problems means that many jobless are 
unable to take jobs in different locations, when in fact there 
are available jobs.
    We believe that any initiative that the government 
implements to address the level of unemployment and foster job 
creation should focus on three specific areas: the individual 
job seeker; companies; and potential new businesses.
    So what can be done to assist in the individual employment? 
Training programs. Again, as Dr. Berner mentioned, these have 
very good track records. They also have some challenges 
associated with them. But workforce development programs and 
other forms of skill retooling--and I might suggest 
specifically focusing on these potential industry migrants--to 
enable them to leverage their existing skills, but move them 
into different industries.
    What can we do to assist corporations? Corporations are 
more specific than ever about their hiring needs. This is the 
conundrum. There are people saying: I have the skills. And 
there are companies saying: your skills aren't good enough for 
me. That skills mismatch is critical.
    They have to have softer skills. They have to have 
flexibility, adaptability, intellectual curiosity, an interest 
in lifelong learning; things that we didn't have to have 
before.
    Given the velocity of change in these requirements' skills, 
all citizens and particularly industry migrants will need to 
develop them.
    Tax credits and incentives for companies to increase the 
size of their workforce will put needed money in the hands of 
businesses. However, companies have gotten smarter, in that 
from this recovery going forward hiring decisions will be made 
based on demand for their product and services and goods.
    Offering incentives will not create new jobs, in my 
opinion. Rather, they will subsidize the cost of growth of 
companies that they would have hired anyway.
    This use of taxpayer monies in this incentive program is 
well-intended, yet at the same time will create a tax break for 
companies, which is good, but if you look at the long-term core 
it is not getting at true job creation.
    Businesses create new jobs. One of the biggest challenges 
of any Federal Government initiative is getting to the end 
citizen, and how that end citizen can participate in those 
programs. Programs to provide this group of people with access 
to start-up capital, grants, access to cheap real estate, 
perhaps even using some FDIC-owned real estate, will create 
jobs.
    In conclusion, I am suggesting three specific actions that 
should be considered to address the three areas of focus I just 
spoke about:
    One, a targeted investment aimed at new business creation. 
Develop a comprehensive program, breaking down the silos within 
government to support entrepreneurs to set up and establish new 
businesses. A new pipeline of businesses must be there in order 
to replace the continued productivity and efficiency.
    A program targeted on unemployment and the homeowner. 
Again, as Dr. Berner talked about. We need to create a more 
flexible and fluid labor market, and therefore we need to be 
able to have people continuing to pay their mortgages so 
they're not trapped in their city when there's a job offer 
elsewhere.
    A targeted program to address soft skills which will 
particularly benefit industry migrant populations. This 
development of these industry migrant populations. This is an 
opportunity to develop a training curriculum and program 
through workforce investment boards. Industry migrants require 
assessment skills, skills' transfer training, and soft skills' 
training. All of these can introduce the likelihood of this 
migrant moving to other industries.
    Manpower has been in the business of jobs and the job-
training business for more than 60 years. We have seen the 
economic ups and downs. It is clear that this recession is by 
far the most severe that we've seen.
    It has been a privilege to share some of the thoughts that 
we get and feel from on the ground and those actions I have 
presented to this Committee. We consider that strong 
partnerships between government and industry will be critical 
for rapid progress in the recovery.
    It will also be critical that we get it right. Right means 
systemically so that we are not solving this same issue 18 
months from now. The employees of Manpower and I are ready to 
assist in getting America back to work.
    Thank you.
    [The prepared statement of Jeffrey Joerres appears in the 
Submissions for the Record on page 47.]
    Senator Bingaman. Thank you very much for that testimony, 
and I will have some questions when we get to the question 
part.
    Our third and final witness is Kevin Hassett, Director of 
Economic Policy Studies, a Senior Fellow at the American 
Enterprise Institute. His research areas include the U.S. 
economy, tax policy, and the stock market. He previously was a 
senior economist at the Board of Governors of the Federal 
Reserve System, and a professor at the Graduate School of 
Business at Columbia. He also served as a Policy Consultant to 
the Treasury Department during the Presidency of George H.W. 
Bush, and the Clinton Administration.
    Dr. Hassett, thank you for being here.

 STATEMENT OF DR. KEVIN A. HASSETT, SENIOR FELLOW AND DIRECTOR 
 OF ECONOMIC POLICY STUDIES, AMERICAN ENTERPRISE INSTITUTE FOR 
             PUBLIC POLICY RESEARCH, WASHINGTON, DC

    Dr. Hassett. Thank you, Senator, for having me. It is a 
real honor to be here in the room. Also, I commend--I have 
turned on my microphone. Is it working? The microphone is not 
working?
    Senator Bingaman. No, I think it works. If you will just 
pull it a little closer, that seems to be the thing.
    Dr. Hassett. How about that?
    Senator Bingaman. That's great.
    Dr. Hassett. Okay, terrific. Thank you.
    It is really an honor to be here, especially before this 
Committee, which as you can see looking at my fellow panelists 
has a long tradition of inviting people who give the unbiased 
truth and are not here to make political points, but rather to 
help us think about where we are and what we need to do.
    As you know, Senator, my testimony was fairly long. And 
after listening to my two predecessors, a lot of the things 
they said are things that I agree with explicitly in my 
testimony. So what I will do is go through the parts of my 
testimony that offer slightly different, or alternative 
perspectives and not emphasize the areas of agreement.
    So I will begin with a brief overview of our current 
economic situation, discuss what I see as the most pressing 
challenges for employment and growth, and then describe policy 
changes that I think would address our current challenges, 
especially those challenges in the U.S. labor market.
    The headline of my testimony is that it is absolutely clear 
that the Recession is over, although that is not really 
commonly discussed, although it is certainly accepted by most 
economists. I think in the end the date of the end point, or 
the trough of the Recession will be probably sometime in July 
of last year.
    But even though the Recession is over, as was the case in 
the previous two recessions, we've begun with something that 
looks a little bit like a jobless recovery. The labor market is 
still terrible, and it is improving far too slowly, although it 
may have very subtly turned the corner lately.
    The fact is that we are coming out of what economists now 
call ``The Great Recession,'' but I think that we need to amend 
that as we think about our policy challenges because it was 
``the Great Recession'' for whites, but it has been a Great 
Depression for blacks. If you look at the differences across 
races in unemployment, for example, it is startling and 
disturbing and an urgent call to action.
    I think also the Great Depression for blacks is not over. 
So we are starting to see some signs of improvement in labor 
markets, but if you decompose the statistics and look at the 
different experience of whites and minorities, you find that 
minorities are really trailing in a way that challenges 
policymakers.
    And so I think looking at the economy, we are clearly out 
of the Recession. We have had a tremendous growth quarter, but 
that growth, a lot of it came from inventories and 
traditionally inventory spikes are followed by weak quarters; 
they tend to be negatively correlated, the inventory 
contributions, which means that there is a downside risk at the 
beginning of this year and ample room for caution.
    I think that, given that, and given the state of the labor 
market, that we would be wrong not to think about additional 
measures to take.
    Now before I go on to the specific proposals that I would 
urgently encourage you to consider, I would like to talk a 
little bit about what we did last year. Because I think it is 
crucial to not repeat what we did last year, for reasons that I 
go into in depth in my testimony.
    Now the CBO report released just this week provided 
estimates of the impact of the stimulus, and they offer broad 
ranges in the report when estimating the economic effects which 
are intended to encompass most economists' views, and thereby 
reflect the uncertainty involved in such estimates.
    As you know, Senator, the estimates were then actually 
fairly favorable, giving ranges, you know, well above a 
million, or two million jobs. My view is that the CBO report is 
incorrect. And I make these observations here not to make 
political points about what we did last year, but rather just 
to emphasize that it is crucial that we look elsewhere now.
    Now why do I disagree with the CBO report? Well, the CBO 
analysis relies on large-scale Keynesian macro forecasting 
models that were mostly discarded by the economics profession a 
long time ago.
    The CBO analysis concludes that we got lots of jobs created 
and that the broad range of economists' views would support 
that, but I disagree. That is not my read of the literature.
    A sign of how far off the CBO analysis is comes from the 
comparison of their broad range to the analysis in a Wall 
Street Journal article, also written this week, by Robert Barro 
of Harvard.
    Professor Barro has been one of the primary contributors to 
the macroeconomic times series literature that has tried to 
estimate effects from observed economic data, rather than 
assume the facts, as is often done by the Keynesian models.
    I should note that Barro is perhaps Harvard's most famous 
macroeconomist, is a virtual lock to win a Nobel Prize, and his 
work is not out of the mainstream. It has been followed by the 
work of many others who have made similar findings.
    The key point is that Barro estimated that the government's 
spending multiplier for the first year of the Stimulus 2009 was 
about .4 percent, pretty small; and the multiplier for year two 
would be about .6 percent, a little bit bigger, but both of 
these estimates fall well short of the bottom of the range of 
CBO multipliers, because the CBO chose to ignore the literature 
that relies on experience rather than Keynesian speculation.
    I believe that the correct position for policymakers as we 
now look ahead at what to do is to adopt skepticism concerning 
these effects, and openness to different approaches.
    I guess the last point from my testimony that I would like 
to emphasize is that it is worth adding that we need to be 
particularly wary of big job creation estimates precisely at 
this moment.
    One reason job creation lags the cycle is that businesses 
hoard labor and have excess capacity when times turn sour. As 
the economy recovers, they are able to ratchet up production 
without making new hires.
    Even if the Stimulus did have an outsized effect on output, 
one would not expect to see a large impact on hiring at the 
beginning of a recovery. The large job-creation claims just do 
not add up.
    So what should we do, if we're not going to do what we did 
last year? Well, I highlight a number of things in my testimony 
which I am going to have to give a kind of helicopter view of, 
as I am running out of time.
    The first thing is that I think that we should recognize 
that we have a serious opportunity, if we can get our house in 
order. As Mr. Berner emphasized, uncertainty about future 
policy and about the course of U.S. prices and the value of the 
dollar is certainly having a depressing effect on the U.S. 
economy.
    The good news is that there have been many countries in the 
past that have been in circumstances similar to our own. The 
literature suggests that those countries that then get their 
house in order, by having something like the bipartisan 
commission that was proposed in the Senate recently to reduce 
the deficit in the long run, well they have seen even near-term 
economic booms in part, I believe, because the uncertainty 
about what future policy is going to be is removed.
    So I think the first thing we need to think about is not to 
sharply cut back government spending, for example, in this 
year, which would certainly have some negative effects on the 
economy, but rather recognize that we have a near-term 
opportunity to remove the uncertainty about future policy by 
getting our house in order in the long run.
    Such a fiscal consolidation I believe would be a very 
beneficial policy going forward. It would give people reason 
for confidence as they make their plans about the future.
    The second policy that I emphasized in my testimony is 
something known as job sharing, which is really a very smart 
and clever idea that has been floating around for years and 
perfected somewhat by some European nations.
    Again, as I'm running short, I will summarize it in this 
way. Right now we have unemployment insurance. And if a firm 
lays a person off, then they will have a reduction in their 
wage bill in what they have to pay, and the person who is laid 
off will get some unemployment insurance.
    What job sharing is is a kind of fractional unemployment 
insurance. So you could reduce a worker's hours by say 20 
percent, and then they could get 20 percent of their 
unemployment insurance.
    The experience of such programs is really remarkable. In 
some European nations like Germany they have had GDP declines 
very similar to our own, and yet the unemployment rate has 
barely gone up at all. And many analysts attribute this to 
their job-sharing program.
    I think it would be very cost effective to adopt one now, 
and it is important to note that it is not too late, even if we 
are in the first stages of a recovery. The fact is that each 
month four million or so jobs are created and destroyed, so 
there is job creation out there, but there is still a lot of 
job destruction out there.
    If we can use job sharing to slow job destruction, say even 
10 percent, then that might add up as much as 400,000 to the 
net job numbers that you see in the top line employment report.
    I then go on to discuss the idea of creating jobs directly, 
which is not something that I would naturally choose to do if 
asked, but given the state of the labor market we need to 
really be creative about how we do it. And the good news is 
that the few programs that we've seen that have tried to create 
jobs directly have done so at an astonishingly cost-effective 
way compared to things like the Economic Stimulus.
    So, for example, one jobs program that H.R. 4564 is seeking 
to extend maybe created jobs at a cost of about $10,000 to 
$20,000 a job, which is, even by optimistic estimates if we 
accept President Obama's numbers, about one-tenth the cost of 
creating jobs through the Stimulus.
    And the final thing that I mentioned is that, if we want to 
give people reason for optimism, we can resolve uncertainty 
through a fiscal consolidation, but we have also got to give 
America's businesses a break.
    The rest of the world has been reducing its corporate taxes 
for years, and the idea is that now the average for our OECD 
trading partners is about 10 percent below what our current 
corporate tax rate is. And so if you are a big multi-national 
firm deciding where to locate your activity, are you going to 
locate it in the U.S. where you have to pay 10 percent more of 
your profits in taxes? Or are you going to choose another 
location that has lower taxes?
    The literature on this is clear. When your corporate tax is 
as far out of whack as ours is with the rest of the world, then 
the revenue costs are really extreme from having the high rate 
and you can reduce the rate without losing much revenue, if at 
all.
    Indeed, I even have references that are listed in my 
testimony that suggest that the cost of reducing the corporate 
tax rate might actually be nonexistent. It might actually raise 
revenue because we're on the wrong side of the corporate tax 
Laffer Curve. That is actually an opportunity right now.
    We are looking for something to do that will not cost much 
revenue because we do not have much revenue to give, and the 
corporate tax area is one that both is harming our 
competitiveness and, too, can be fixed without having a big 
budget cost.
    Thank you very much for your attention, Senator, and that 
concludes my prepared remarks.
    [The prepared statement of Kevin A. Hassett appears in the 
Submissions for the Record on page 64.]
    Senator Bingaman. Thank you all very much for your 
excellent testimony. Let me at this point put an article in the 
record that relates to some of the same issues that Dr. Hassett 
and the rest of you testified to. This is an article entitled 
``Stimulus Arithmetic,'' by J. Bradford DeLong, a Professor of 
Economics at UC Berkeley, discussing Dr. Barro's analysis of 
the American Fiscal Stimulus Act and its effect on jobs.
    [The article titled ``Stimulus Arithmetic'' appears in the 
Submissions for the Record on page 79.]
    Senator Bingaman. Let me start, Dr. Berner, with a few 
questions to you. I think your testimony is very useful, 
particularly in that you organized it in terms of the short 
term and the long term. That is obviously the reality that we 
are faced with here in trying to make policy for the country 
here in the weeks ahead, and the months ahead.
    One big debate that I think I hear all of you taking a 
position on is, we have got some here in the Senate who are 
taking the position that we should not be spending any more for 
unemployment insurance, any of these job creation initiatives, 
payroll tax holidays, these types of things, unless we offset 
that spending by cuts elsewhere, or by, I guess presumably by 
increased taxes. But some way or another we need to pay for any 
continuation of the job creation provisions that we have in law 
today, or the job maintenance provisions that we have in law 
today.
    I guess I would be interested, if I am understanding your 
position, Dr. Berner, your position would be that that is not 
the right policy in the short term? That is probably the right 
policy in the long term? That there is a distinction we need to 
keep in mind here about what we do now versus what we do with 
regard to the long term deficit and fiscal situation in the 
country.
    Is that accurate, or not?
    Dr. Berner. Yes, Senator, that is accurate.
    I think there are two things that are important. In the 
short term I think what we are all saying is we need to be 
smarter about the way we implement programs, and the way we use 
taxpayer money to implement them.
    We are all interested in getting the maximum bang for the 
buck out of those programs. Income support, for example, is 
really important in a period of great stress for American 
families and workers. But as I suggested in my testimony, for 
example, it might better be paired with training and other 
things that would make it more productive in use.
    And Kevin and Mr. Joerres also talked about ways that we 
could spend our money more effectively in short-term programs. 
But I think what we are talking about here--and here is where I 
would join Dr. Hassett in this--we need a credible plan to get 
our fiscal house in order, and we have not seen that yet.
    I think markets would derive great benefit from that. Not 
only would we reduce uncertainty, but I think that people would 
understand that, while it is going to take some time because we 
have got difficult problems to solve and big challenges to 
address, a credible plan to resolve our fiscal problems over 
time I think would be enormously beneficial to markets and to 
the economy.
    Senator Bingaman. So the Deficit Reduction Commission that 
the President is establishing is the right thing to be doing 
for the long term, but continued support for job creation 
initiatives now is also the right thing to be doing? Is that 
what I understand?
    Dr. Berner. It is, Senator. It is the right thing to be 
doing as long as we do it in a way that is both creative and 
where we get the most bang for the buck.
    Senator Bingaman. This suggestion that Dr. Hassett is 
making about work sharing, job sharing, is that something you 
have looked into, Dr. Berner? Does that make sense as a policy 
option we ought to explore or adopt?
    Dr. Berner. Senator, I have not looked into that but it 
does sound like something we could explore. After all, I do not 
think we ought to leave any stone unturned. We should explore 
all options.
    And the appeal of what Dr. Hassett is talking about is that 
if you have people who have their hours significantly cut back, 
that there is a level of income support there for those people. 
That builds an automatic stabilizer into the system so that we 
do not while at the same time reduce hours we also reduce 
wherewithal for spending and create a problem for consumers 
where we get into them saving in a precautionary way if there 
is a lot of uncertainty out there.
    So that sort of support could be useful. But I think we 
ought to also look at other--the other kinds of creative ways 
to both support demand and to get our economy going to support 
job creation.
    Senator Bingaman. Mr. Joerres, did you have thoughts on any 
of these questions that I have just posed to Dr. Berner here 
about what short-term policies make sense for us to consider 
here in Congress?
    Mr. Joerres. Well any time you can get somebody back to 
work instead of sitting at home makes a big difference. So 
whether it be some form of job sharing, or the industry that 
Manpower is in, makes a tremendous amount of difference, 
because there is an awful lot of research that says the longer 
you are unemployed, the longer it takes for you to get to a 
long-term employment situation, even if you just do comparisons 
between the U.S. and Europe on the long-term unemployment rate. 
A lot of that has to do with not getting people back to work 
fast enough.
    There are two forms of safety net that must be employed 
now, because we are in a period where you have to have safety 
nets. In almost all cases, safety nets do not create jobs. But 
if we serially look at the connection between safety nets and 
creating jobs, we are going to see an S-curve environment where 
you're really going to have that dropoff again. There must be 
some parallels in order to do that.
    To your point earlier, this all costs money, thus we are 
going to have to make some choices. Are we interested in true, 
long-term systemic job creation, which is really new businesses 
filling in the slack of mature businesses continuing to enhance 
efficiency?
    Say I have 5,000 employees and reduce it to 4,500. A new 
business must come up underneath to 500 people just to maintain 
those jobs. Right now, the pipeline of new businesses we so 
desperately need is not there.
    So I would suggest to be very clear about safety net 
services, short-term job creation, or really more short-term 
job preservation, and then longer term programs in order for us 
to start this pipeline of new jobs.
    Senator Bingaman. All right. Dr. Hassett, maybe you could 
just comment on the general question that I posed to Dr. Berner 
as to, as I understood your testimony, you say we have a near-
term opportunity to get our long-term house in order, and that 
is the Deficit Reduction Commission, or at least that is one 
way to try to begin to address that problem, and you believe 
that is a good step to be taken?
    Dr. Hassett. Yes. I am not sure about the Deficit Reduction 
Commission, although I have a great deal of respect for the 
folks who have been charged with setting it up. The fact is 
that we have got tough choices to make. And as you know, 
Senator, there have been many more failed commissions in the 
past than successful ones, and I wish that we were a little 
more ambitious in this regard.
    I also would highlight the part of my testimony where there 
is a chart for this that looks at the U.S. debt situation, 
external debt situation, and points out that we really are 
pushing the envelope in terms of our debt.
    And again I am not here to point fingers on who is to 
blame; it certainly is something that started about a decade 
ago that we began running up bigger deficits; but the fact is 
that right now our external debt relative to GDP is worse than 
the external debts we saw for Latin American countries that 
have defaulted over the last few decades.
    And so if you were to say the U.S. is just like another 
Latin American country, then I guess I would respond to that: 
You wish. Actually, it would be a big improvement from where we 
actually are.
    And so I think that, given that that is the circumstance, 
we need to be very wary of expanding things without thinking 
about how we are going to pay for them. But we do not have to 
time them so that they all happen this year.
    So, for example, if you could find--and I know that this is 
something that politicians often refer to but it never really 
exists, or it never really happens--lots and lots of money that 
we can save from reducing waste three years from now, or some 
program that we are actually going to cancel, and the present 
value of that cancelled out all of our jobs programs, then I 
think the panelists would all agree that that would be a policy 
that would have a significantly better effect than one that 
just added to the uncertainty about how we are going to fix 
this mess.
    But the good news--you know, in some sense it is depressing 
to think about our fiscal situation, but I think that there is 
a twist on it that one could think of as good news, in the 
sense that if you're a person who like me likes to watch the 
sort of medical mystery style TV show, then if somebody shows 
up and they've got a knife in them, then it is kind of good 
news in the sense that you take the knife out, you sew them up, 
and then they go home. But if somebody comes in and they've got 
a high fever and you don't know why, then it could be really 
bad news.
    The fact is that we have got some knives in us that we know 
how to take out and sew up, and so we can fix this thing. It is 
not a mystery how. And I think the question is just how do we 
generate the political will; it is not how to design the 
policy.
    Senator Bingaman. Let me also ask, your endorsement of 
direct job creation I think is very interesting. Because again 
we get into a real ideological discussion around here whenever 
we try to appropriate money for direct job creation. And folks 
take the position that that is a terrible thing, that is 
government expanding, we should not be doing that, we should be 
doing some other indirection action through some tax provision 
to incent someone else to create jobs, instead of directly 
creating jobs.
    But I understand you to be saying that direct job creation 
seems to be a more successful way to get jobs created at a 
reasonable cost? Am I understanding you right?
    Dr. Hassett. Thank you for pointing that out, Senator. I 
would add that the thought that started leading me in this 
direction was that if we had spent the Stimulus last year by 
just hiring people and paying them the median wage of $38,000, 
then with the original Stimulus estimate I calculated that we 
would have created 21 million jobs.
    I think with the new-hire CBO number it is climbing to 
something like 23. And I am not saying that that is something 
that we really would have wanted to do, but it puts in 
perspective the notion of, you know, when is a multiplier a 
multiplier?
    If you just actually create the job directly, then it turns 
out to be a lot more cost effective than to design some big 
public works program that is going to create some jobs.
    I think that in addition the idea that creating jobs 
directly means big government is incorrect, because I think one 
could easily envision a program that I would probably want my 
colleague to the right of me to design where we arranged for 
firms that hire someone who is unemployed to get a fraction of 
their salary for the first few months for that person in terms 
of a wage-sharing or something contribution. If you did that, 
then the firms would have access to the cheaper labor, so their 
profits would go up, which would make them want to buy 
machines, and so on. We would get someone back into the labor 
force before they are lost forever, as my colleague on the 
panel mentioned--if people stay out of the workforce for a year 
or two, then very often they have a hard time ever returning. 
We have got to send a lifeline to these folks.
    So I think that, given all of these concerns, especially if 
it focused on private job creation, it seems like people of 
both parties should agree that it is a much more cost-effective 
way to create jobs than anything else, or many of the other 
things on the table.
    Senator Bingaman. Dr. Berner, I would be interested in your 
comment on this proposal that Dr. Hassett has about reducing 
corporate tax rates, and indicating that we are at a 
competitive disadvantage because of the top marginal corporate 
tax rate here being so much higher than it is in many OECD 
countries.
    My impression is that, while the tax rate is higher, the 
effective taxes paid by corporations are not out of line for 
corporations operating here versus corporations operating in 
Europe. Am I wrong about that? Do you have any thoughts on 
this? Or is this something you have looked into?
    Dr. Berner. Senator, I have not looked into that 
comparison, but I think your intuition is probably correct. 
Because many of our largest corporations are global in scope 
and they think about their tax liability in the way that they 
structure it in a global perspective.
    But in my testimony I identified something else that on a 
cross-country comparison basis I think is really important. 
That is, the role of health care in the workplace.
    I think that is one area where we are out of line with 
other countries. Even though those benefits are a tax deduction 
because they are compensation for employees, nonetheless they 
do represent in my view a fixed cost that, when hours are 
reduced, still persists. They put our cost structure out of 
line, our compensation cost structure out of line with those of 
other countries. And a different approach to the way that we 
deal with health care and the health care benefit provision I 
think would make us more competitive.
    Senator Bingaman. Okay----
    Dr. Berner. So I think that is a really important issue.
    Senator Bingaman [continuing]. Let me throw out a radical 
view of things here. Sort of three of our problems are, one is 
short-term job creation; a second is eliminating uncertainty 
for the long term; and third is getting our fiscal house in 
order for the long term--if those are the three big challenges, 
it would seem to me that a major reform of our health care 
system accomplishes all three, or holds out promise for 
progress on all three.
    Because it does hold out promise for job creation in the 
near term. There are direct jobs being created in the proposals 
we have been talking about. One of the uncertainties, I think 
you referred to in your testimony, Dr. Berner, that businesses 
look at is the uncertainty about what is going to happen with 
health care reform.
    And then I believe CBO and most economists are in agreement 
that over the long term if we cannot reduce the growth in the 
cost of health care we can't get this debt problem fixed. We 
can't get our fiscal house in order.
    So it would seem that doing something significant on health 
care ought to be a priority, as it has been for the President. 
Do you agree with that, Dr. Berner, or not?
    Dr. Berner. I do strongly agree with that, Senator. I think 
that the three things that are important in health care are 
costs, access, and quality. And many people view them as in 
conflict with each other.
    I actually think that if we do it right, then we can 
actually achieve a lot of those objectives, and the objectives 
that you just mentioned. Namely, reduce the cost of health care 
for businesses and for consumers; improve the quality; increase 
the access; and because that's such a big part of our fiscal 
problem going forward, and is only growing over time under 
current law, that fixing that is imperative right now to get 
our fiscal house in order.
    Senator Bingaman. Mr. Joerres, did you have a perspective 
on this, whether or not this is an important policy initiative 
for us to try to deal with? Or whether we can put this off and 
deal with it down the road? What's your thought?
    Mr. Joerres. Well, because of the complexity, it is 
difficult to put off to down the road. Having said that, in the 
U.S. we have over 200,000 clients, many of them small- and 
medium-sized businesses telling us, in their exact words, ``I'm 
not hiring a person until I find out what that is.''
    Senator Bingaman. Till I find out what?
    Mr. Joerres. What that cost of that health care----
    Senator Bingaman. What the health care costs are going to 
be associated with that hiring?
    Mr. Joerres [continuing]. Right. So right now, those small- 
and medium-sized businesses are not going to make a move unless 
they absolutely have to. Then they can do the math. Because 
when you take 10 people and move it to 12 and put an additional 
30 percent burden on top of a pay rate, or 10 percent, it is 
too much money for them.
    So they are holding out and stopping. So while we need to 
address it, this process of addressing such a complicated issue 
during a period of time when you want hiring is creating a 
stumbling block. Once that legislation is passed, after 
something is passed, it will require some time for digestion. 
Because, as an employer, sifting that legislation down to my 
additional burden cost over pay is going to take awhile.
    So while it needs to be addressed for the long term health, 
portability of jobs, movement of jobs, health care solves a lot 
of that. And the more we allow for portability of jobs back and 
forth, the more vibrant our economy will be. The challenge is 
we are in the middle of a time where we are really vapor-
locking small businesses, and they are saying ``I am not moving 
unless I have to.''
    I think that becomes the biggest issue right now.
    Dr. Berner. Senator, if I could just add?
    Senator Bingaman. Surely.
    Dr. Berner. Mr. Joerres has pointed out something really 
important. That is, that there are lots of Americans who are 
staying in their jobs essentially to keep their health care 
benefits.
    That frustrates the mobility that we have in our workforce, 
the dynamism of our economy. I think that when you make policy 
you have to consider that that is going to be an important 
benefit to health care reform, that it is going to actually 
make our workforce and our labor markets much more efficient 
and dynamic and free labor mobility.
    Mr. Joerres. And there are some very good examples of that. 
It's a smaller example, but if you were to study what happens 
in Singapore between the portability of health care and the 
portability of your pension scheme, it allows a high velocity, 
which is required in a smaller environment.
    Even now in a larger environment, what is happening is that 
talent needs to move quickly and companies need to move talent. 
But without the portability of pension scheme, and without the 
portability of health care, you are really shortening the 
ability to really create a robust economic and job creation 
environment.
    Senator Bingaman. Dr. Hassett, did you have a perspective 
on this?
    Dr. Hassett. Thank you, Senator.
    I think that I understand that the political clock and the 
economic clock, you know, sometimes they are in harmony and 
sometimes they are not, and I understand why health care was 
addressed this year, but I agree that it was probably the wrong 
time and that health care is best folded into the fiscal 
consolidation.
    We need to build a process for fiscal consolidation, and it 
will not work without addressing health care. And so I think 
that many of the facts about our long-run objectives that, even 
though I agree with specific policies, that those facts are 
unassailable.
    I would just like to make one last aside, Senator, about 
the corporate tax issue.
    You absolutely are correct that if we look at corporate 
taxes in the U.S. that the actual raw number, the sort of 
average tax that a firm will pay, is not the highest on earth. 
It is the corporate tax rate that is. But that is precisely 
because there is this Laffer Curve in the data.
    The fact is that these firms are rocket scientists at 
locating their profits and low tax jurisdictions. They move the 
profits around to reduce their global tax rate. And that 
involves moving stuff out of the U.S.
    So that is why, if we lowered our rate, we should not 
expect to lose a lot of revenue because we sort of lost that 
revenue already, it is just going to somebody else. There is a 
real opportunity to make us a more attractive place to do 
business, without losing a lot of revenue I think in the 
corporate tax, and I think we would be wrong at this time to 
ignore it.
    Mr. Joerres. I----
    Senator Bingaman. Mr. Joerres.
    Mr. Joerres [continuing]. Must jump in on that, because 85 
percent of our business is outside the U.S., going to 95 
percent. $20 billion in our companies, $2 billion right now are 
in the United States.
    None of that is outsource jobs. Our two largest competitors 
are a Swiss-based company, and a Dutch-based company. In our 
current environment we have $120 million deficit disadvantage 
because of taxation with our Swiss-based competitor. So that 
means we have to do $120 million more of productivity in order 
to just maintain a competitive position with this company.
    None of those jobs have been offshored. None of those jobs 
are coming back. I am growing markets in Vietnam, in China, and 
in others. So when I look at taxation, taxation within the 
minimizing the effective tax rate can be done very, and much 
more effectively, in a manufacturing environment through the 
use of transfer pricing.
    That is not done within the services industry. I recognize 
that is not what this is about, but it is a very serious issue.
    Senator Bingaman. All right. Well, I am informed that Chair 
Maloney is on her way back and will be here in about 15 minutes 
and would like us to recess for a short period, and then she 
would like to ask some questions. If you folks have the time on 
your schedule, we would put the Committee in recess at this 
point and she will reconvene the Committee.
    Thank you all very much for being here. I think this is 
very useful testimony.
    [Brief recess.]
    Chair Maloney [presiding]. This Committee is called back 
into order, and I regret and apologize that we had hearings 
right in the middle of it, and I will be looking at the tapes 
of this hearing to hear your testimony.
    Mr. Brady is on his way back and will be here in a moment, 
but I would like to ask the witnesses something that I always 
ask at the monthly hearings of the Bureau of Labor Statistics.
    Do you see any bright spots for job growth in our economy? 
Anyone who would like to give any positive news about job 
growth in our economy?
    Mr. Joerres. I think I can do that. As you had mentioned 
earlier in some of your remarks, there is a very traditional 
flow of what happens in the economy. When there is some 
uncertainty but demand, we are the ones who come back first.
    On a weekly basis, the number of people that we are adding, 
and the additional people that are out on assignment that we 
are adding, says that this is clearly recovery. The majority of 
those jobs are going in manufacturing, and they are spread 
across the entire U.S.
    We have not seen a growth rate like this since 1993. So, 
yes, it is happening. We, like you, have questions: is it 
sustainable? How long will it be? Is it inventory 
replenishment? Sure, in some cases. But I would say right now 
our field of some 800 offices in the U.S. are feeling like, 
``Wow, it might be over; we're on our way.''
    Chair Maloney. Well, could you tell us some of the things 
we could do for the people that have been unemployed, or under-
employed, for a long period of time? Do you have any ideas in 
that area?
    Mr. Joerres. It is something we have worked on for a long 
time. We have organized programs in the under-employed and 
unemployed. We spend a lot of time on training and development 
in order to put them in jobs.
    What we have found is that work readiness is becoming more 
and more of a difficult issue. And of course work readiness for 
the longer and long term unemployed----
    Chair Maloney. That is important, Mr. Joerres, because 40 
percent of the unemployed have been unemployed for over 6 
months, and their skills are deteriorating, and this is a 
problem.
    Do you have any ideas for programs to put in place to 
reduce long-term unemployment?
    Mr. Joerres [continuing]. Well the programs, unfortunately, 
that we have seen--and I say unfortunately; they work, they 
have good efficacy, but they take time--that is, to get them 
back into some type of training, training that is tied to a 
job. Not training that is just for training's sake.
    So the things that we have done in that area, we work very 
closely at a community level with a workforce investment board 
to say: Where are the jobs? Where are the people? And try to do 
surgical training updates to get people into a job quickly.
    Chair Maloney. Would anyone else like to testify about the 
green shoots or bright spots that they see in the economy now?
    Dr. Berner. Sure. You know, I think that we are starting to 
see some advance-indicators. We do actually a survey of all of 
our industry analysts where I work, and hiring plans--and I 
think this echoes what Mr. Joerres was saying--hiring plans 
reported by those companies are up back where they were before 
the Recession began.
    Chair Maloney. Wow. Good news.
    Dr. Berner. Those are hiring plans, however, and they 
haven't materialized yet into action. And I think the 
discrepancy between the plans and the action has something to 
do with the uncertainty point that you made, and that we all 
referred to in our testimony.
    But just coming to the issue that you raise about the long-
term unemployed, in both of our prepared remarks Mr. Joerres 
and I referred to training.
    The history of training programs is, to some extent, a 
checkered one but I think the importance of training cannot be 
denied. The importance of education. So there is a short-term 
component and a long-term component to that.
    In the short term, for example, I propose that we pair the 
unemployed who are getting income support, which is very much 
needed, with a pool of unemployed, for example, newly minted 
colleges students, perhaps some teachers who have been laid 
off, and get them together in a training program that can give 
people some basic job skills.
    That way, you are giving people important things to do 
while they are looking for a job. And I think we all agree that 
when you have long spells of joblessness, that erodes the 
chance that you are going to get a new job; it erodes your 
skills; and it erodes your ability to find a new job. All those 
things are really important.
    Chair Maloney. Dr. Hassett, do you see any bright spots?
    Dr. Hassett. Yes, thank you, Mrs. Maloney.
    I think that first of all an interesting chart, which in 
questions and answers we always follow up hearings with those, 
I'll be happy to include, is one that shows the geographic 
distribution of the economic recovery. Because you can see that 
there are some states that are actually starting to really look 
pretty solid again, and other states that are still in deep 
trouble.
    In particular, one correlation that I have seen in some of 
the work I have done is that if you want to organize them, the 
states that had the real estate markets that you read the most 
about are the places that still are even going in the wrong 
direction, and maybe are not even seeing recovery yet.
    So there are some----
    Chair Maloney. Well, where are we seeing recovery? Which 
states? And which regions?
    Dr. Hassett [continuing]. One state that comes to mind--I 
wish I had the chart with me, because it has been about a month 
since I have looked at it--but one state that I remember was 
Texas seems to be doing pretty well. Maybe Mr. Joerres has some 
other detail on that.
    The other thing I would say that is a bright spot--and the 
opportunity that motivates me to be so psyched about job 
sharing--is that there is always a lot of job creation and 
destruction going on. That number you see in the Labor Report 
is very often one-tenth, or one-twentieth of the actual growth 
flow in that month.
    So in November there were more than 4 million jobs created, 
but there were more than 4 million jobs destroyed. And so the 
destruction was still winning. But I think that it is important 
to remember that our economy is a place where there is always 
creation and destruction going on, and what we need to do is 
create the circumstances where the creation can overwhelm the 
destruction.
    Chair Maloney. Thank you. My time has expired.
    Mr. Brady.
    Representative Brady. Thank you, Madam Chair, for calling 
this hearing.
    Mr. Joerres, I was just on a teleconference back to the 
Woodlands, Texas, participating in an economic outlook 
conference. On the panel with me was your regional 
representative, Mr. Arkless, I believe?
    Mr. Joerres. Arkless, David Arkless.
    Representative Brady. Yes. So apparently a lot of people 
are interested in what Manpower has to say these days. And I 
agree with you, I think that the corporate tax rate the U.S. 
has to shoulder does put us at a competitive disadvantage 
internationally. And the proposals to raise $120 billion more 
on top of that from our U.S. companies that are trying to sell 
American products around this world, to compete, I think will 
be even more damaging to us.
    Dr. Hassett, I am not an economist. I am a Chamber of 
Commerce executive by trade and work with small businesses. It 
seems to me the economic models on the Stimulus are outdated. 
They seem to be one dollar in of government spending generates 
this much of output, period.
    But back home, you listen to our small business consumers, 
their behavior is modified because they know increased spending 
leads to new debt, and new taxes. The business community, 
small, medium, and large, looks at cap and trade, health care 
mandates, spending, taxes, international tax provisions, and 
they are frightened by it. The uncertainty.
    One of them said, look, it's tough enough to predict the 
market; trying to predict the market and you guys? I'm not 
going to do it. I'm holding my money. And I think that is 
affecting those older economic models.
    My question to you is: Thinking about the study that John 
Cogan and Tobias Cwik and others did examining the forecasts of 
Christine Roemer and others on the Stimulus, they were using 
sort of the old Keynesian forecasting models instead of the 
ones that really sort of deal with those expectations, rational 
expectations of people, businesses, consumers, and others.
    Looking at CBO, who does a terrific job on things, but 
based on your extensive research and knowledge of 
macroeconomics, were the CBO's fiscal multipliers used too 
high? Were there estimates of the Stimulus impact perhaps a 
little larger than you see?
    Dr. Hassett. Thank you, Mr. Brady.
    I am a big fan of the CBO, and an especially big fan of its 
current director, who I think has been in the tradition going 
back to Alice Rivlin, exactly what we expect of directors. But 
the thing is, the infrastructure that has been built up to 
analyze these things has kind of been there since day one.
    Too often in Washington proof proceeds by induction. If you 
remember your math, that if something is true today, it was 
true yesterday. And so if we adopt a model in the 1970s that 
tells us how policies affect the economy, then it is very 
unlikely the government agency will ever stop using the same 
darn model.
    But the fact is that the literature has moved on. One 
metric--and I was trying to think of the most vivid way I could 
describe this--but the place where these big, large macromodels 
were really developed, pushed perhaps the farthest, was the 
University of Pennsylvania.
    Larry Kline got a Nobel Prize for it. Albert Ando, who is a 
close friend and a mentor of mine, designed the model for the 
Federal Reserve that was a large Keynesian macromodel. Those 
were developed in the 1970s. I started graduate school in the 
mid 1980s. And when I was in graduate school at the University 
of Pennsylvania, they did not teach these models. Because 
already they had been rejected by the literature.
    And yet, these are the models that are creating the sound 
bites. I think though that does not mean that we know--we think 
that it hurt growth last year, or that we know precisely that 
the Stimulus was a failure and made things worse. What it does 
mean is that we should have a great deal of skepticism that we 
know what the right thing to do is.
    And so, especially going forward, I think that we have seen 
some success of some programs that I highlight in my testimony, 
and that we should try to trust evidence more than models, I 
think, and be skeptical about what the models say, especially 
when the model predictions are so at odds with what we see in 
the literature.
    Representative Brady. You know, my gut feel is that the 
economy has changed; that those models are not as reflective. 
And I think stimulus almost always arrives after the recession 
has peaked, and is slow. And I think that today we downplay the 
economic boost from a lower after-tax cost of capital, lowering 
corporate income taxes, and on a permanent basis where 
businesses can count on it, not a gimmick, but where they can 
count on that rate of return and the ability to invest.
    Your thoughts?
    Dr. Hassett. I think that you are right, Mr. Brady. And 
again the way I like to think about it is, not that the 
Stimulus again made the economy worse last year; I think that 
there is no question that growth was higher last year because 
of the Stimulus. It had to have been. The question is how much.
    But the problem is that, as we see when we consider that 
the job measures that I mentioned in my testimony could have 
created jobs for maybe one-tenth the cost of the Stimulus, when 
you consider that, and when you consider that we spent an 
enormous amount of money on it and did not repair the broken 
policies like the corporate tax that could have made people 
optimistic about the long run, I view it as something of a 
squandered opportunity.
    Representative Brady. Right. I appreciate all the panelists 
today. Thank you.
    [The prepared statement of Representative Brady appears in 
the Submissions for the Record on page 81.]
    Chair Maloney. Thank you.
    Dr. Berner, do you agree with Dr. Hassett on the CBO model 
used to estimate the effects of the stimulus?
    Dr. Berner. Well thank you for your question, 
Congresswoman. As a former model builder and one who ran the 
forecasting models at the Federal Reserve, I just point out 
that we were constantly changing our methodology, and 
constantly adapting it to reflect new considerations, whether 
it is structural change in the economy, globalization, and a 
variety of other things.
    The models that we use, and we do not rely exclusively on 
models because I am old enough to use judgment and experience 
as my key model, but the models that we use explicitly 
incorporate the role of expectations, whether it is 
expectations in financial markets, or for inflation, or the 
kind of uncertainty that we are talking about that affects 
business decisions so importantly.
    So, you know, I think that that is really important in 
thinking about how to use those models. And, quite frankly, I 
think that is something that people often overlook.
    Chair Maloney. Can you tell me, in your opinion, and I am 
asking all of you this question, the number one thing that can 
be done to stimulate job creation in the short run? Could you 
give the number one thing you think we could do? Of course it's 
a combination of things, but if you had one thing that you feel 
could stimulate job creation in the short run, what would it 
be? Dr. Berner?
    Dr. Berner. You know, Mr. Joerres talked about the role of 
small business and new business is what we really mean by small 
business. When we think about what their main problems are, 
small businesses are telling us in the surveys that we have 
that their problems are poor sales, access to credit, and the 
cost of employee health care.
    So we need to continue to use policies that improve the 
functioning of our financial system, that get people access to 
credit on reasonable terms. We need to address in the short run 
and over time the cost of health care and reduce the 
uncertainty around that. And we need to have policies that will 
continue our ability to access global markets, because that is 
the key source of growth that I indicated in my testimony.
    Exports and the access to global markets are going to be a 
key driver for our economy.
    Chair Maloney. Mr. Joerres.
    Mr. Joerres. Well I would really like to do two. One, 
because I think where we are right now is we are in a critical 
spot. So I do not want to underestimate what we need to do in 
some form of what we call safety net, or stop some things 
happening now.
    That is not job creation. That is stopping the slide. And I 
think we need to do that. I have spoken before, and----
    Chair Maloney. So how do we stop the slide?
    Mr. Joerres [continuing]. Well we stop the slide in some 
ways of giving some additional visibility of what will be 
coming and not coming. We have some limited opportunities to do 
that.
    It is difficult to say that we have long-term and short-
term objectives. But in order to do that, it comes down to 
confidence. Hiring is confidence and demand combined.
    Those two combined. We are starting to see the demand. Now 
is the demand inventory-replenishment? Does the demand start to 
level off? We don't know that. But I can feel very confident in 
saying the demand may not level off as much if we give them 
confidence that we are not going to create policies that get in 
the way of expanding their business.
    Small business must create jobs to back up the efficiency 
that will be driven out by job deterioration in large 
businesses.
    Chair Maloney. Thank you.
    Dr. Hassett.
    Dr. Hassett. Thank you, Mrs. Maloney.
    You know, I hate to waffle and say two things, but I think 
that reducing the corporate rate is urgent if we want to create 
the context that is necessary for long-term growth to really 
ignite.
    But I think that if we were to adopt a job sharing proposal 
that we could see a response right away, right away. I would 
expect that the reduction in the corporate rate would have 
benefits that would be spread out over many years. I think that 
a job sharing program could slow job destruction almost 
immediately, if it were a generous one, and we could see a 
turnaround in labor markets a few months after the proposal 
became law.
    Chair Maloney. Thank you. My time has expired.
    Mr. Brady.
    Representative Brady. Mr. Joerres, is that uncertainty 
among your clients real? Do businesses look at--and again, the 
efforts like on targeted tax credits, or payroll--are sincere 
efforts to try to help--are small businesses responding to 
that? But is that uncertainty an issue with your clients in 
their hiring practices? In their ability to either rehire, hire 
new, or buy that new warehouse and make an expansion plan?
    Mr. Joerres. The number one discussion that we have with 
our small clients is the amount of uncertainty. Their business 
is growing. So when the business is growing at a pace where 
uncertainty is overcome by demand, then of course they'll do 
that.
    But as the demand is somewhat tepid, the uncertainty is 
their diver. So they are really looking at the tax rate. What 
is the additional burden on top of an additional person?
    I can't emphasize enough that if I'm going to add an 
additional person, and I don't know what that person's cost is, 
plus the other 10 percent that I have on existing staff, or if 
it is going to have an additional 30 percent increase in burden 
over the cost of pay? That slows down employment decisions. No 
doubt about it.
    Representative Brady. Looking at job opportunities, it 
seems to me because so many of the world's customers live 
outside the United States, because other regions are recovering 
in some ways faster than us, it is important not to just buy 
American but sell American, sell our products throughout the 
world, every corner.
    Sometimes we can do it with a company from here. Other 
times they have to have--they are headquartered here, and they 
have to have a presence overseas to sell our goods and 
services. Today there is almost an attitude of Benedict Arnold 
if you are out--if you are large and you are out there 
competing. You know, if a company expands into another state we 
say ``go get 'em; way to go.'' A company that expands into 
another country to get those customers somehow is viewed by 
some as, you know, some bad actor.
    Yet, in almost every study it shows those jobs create 
stronger headquarters here. A lot of the research and 
development technology--we have an energy company in Houston 
that has a project in Algeria. It has 40 workers on site. It 
has 400 in Houston, monitoring, operating, doing all the 
services tied to it. So it is a huge help.
    Shouldn't we be, as lawmakers, encouraging rather than 
discouraging companies that are finding new customers in every 
quarter? Is it outsourcing of jobs? Or is it looking for 
opportunities to sell more of our products and services?
    Mr. Joerres. Because all of these have some complications, 
I think it would be easiest for me to talk about my specific 
situation. We are headquartered in Milwaukee. We are 62 years 
old. We have had three CEOs in those 62 years. Each one of them 
was born in Milwaukee. So we think Milwaukee is a good place.
    Ninety percent of our $20 billion business is outside the 
U.S. In six to seven years, it will be 96 to 97 percent of our 
business. While the U.S. is growing, the Chinese market is 
growing fast. None of this is outsourcing. We are putting 
thousands of people into jobs in China, in Vietnam, in the 
Middle East, in Qatar, in Abu Dhabi.
    Because of the success in the last 10 years of growing our 
business from an $8 billion business to a $22 billion business, 
we have built a brand new building in downtown Milwaukee that 
has 400,000 square feet that employs 1200 people.
    The mayor of the city was all in favor of it, and we have 
re-energized a park downtown. We could not have done that 
without our expansion overseas.
    Our two largest competitors on a global basis are foreign 
companies. Their tax rates are anywhere between 8 and 15 
percent less than ours, which puts us right now at a 
disadvantage annually of between $60 and $120 million compared 
to our two European competitors.
    Representative Brady. And my guess is that there isn't that 
big of a margin. You've got to compete in a pretty tight 
market, I would imagine, with our competitors?
    Mr. Joerres. 3.5 percent net margins. We do a lot of work 
for a little money, but we love what we do.
    Representative Brady. Great. Thank you for your story, 
appreciate it. We need more of you, by the way.
    Chair Maloney. That is an amazing story. Congratulations on 
your success.
    Dr. Berner, Greece and its financial problems are very 
much--I just came from the Floor, everyone's discussing it, 
everyone is looking at it, we are all concerned. And I am 
concerned about the potential impacts to the United States if 
Greece ends up defaulting on its debt.
    Dr. Berner, I know that you have previously reported that 
the impact to the U.S. of slow growth in the European Union is 
relatively small. I believe that you said that a one percentage 
point reduction in growth in Europe would shave only 0.2 
percentage points off of U.S. growth, but that you were worried 
about financial contagion. Can you speak about the crisis in 
the European Union and Greece and financial contagion?
    Dr. Berner. Yes, I can, Congresswoman.
    Very briefly, I think the big problem is that you have the 
potential for what's happening in Greece to spill over into 
other countries in the periphery of Europe--Portugal and Spain, 
for example--and that it is important for Greece to be able to 
refinance its debt over a long period of time, because they 
have a huge fiscal problem.
    They are having difficulty rolling over that debt on terms 
that they can afford, and they just postponed an auction of 10-
year debt this week, as you may have heard, so that they can 
cool off and get better terms on that debt.
    One way or another they are likely to get assistance from 
their partners in the European Union, That assistance will come 
with strings attached, of course, because the other members of 
the European Union do not want to pay for the mistakes that 
Greece made. But one way or another, that assistance is going 
to have to come or else they will all--as Ben Franklin was fond 
of saying--hang together.
    And so that is the real problem that the Europeans have. 
And because of the fiscal consolidation, and because of the 
increased cost of financing the debt which will spill over into 
the core of Europe and the increased cost of funding for 
European banks, all that is going to slow down the European 
economy.
    So we have been pretty pessimistic about Europe to begin 
with. These developments make us more pessimistic about 
prospects for Europe. But one of the things we talked about 
earlier--namely, coming up with credible plans to fix fiscal 
problems--is also important here.
    If Greece and the European Union can fix these problems 
that are prevalent now in the periphery of Europe and do them 
in a way that reinstills confidence in investors bringing down 
the cost of debt for Greece, for its people, for the banks in 
Europe, that is going to reinvigorate the Greek economy and the 
European economy.
    The key is to come up with a credible plan to do that. As 
we think about--you know, to your question--as we think about 
the potential for this contagion, if you will, to spill over 
into other economies, the point is that people are drawing 
parallels now between what is happening in Greece, and they are 
saying where is the next Greece.
    It is kind of like during the financial crisis people were 
saying, after Bear Stearns, where is the next Bear Stearns? And 
there are some parallels there. So we need to think about the 
way that, while there are many, many differences between what 
is happening in Greece and in Europe and what is happening in 
the United States and around the rest of the world, there are 
some parallels. And I think the thread that draws them together 
is that lawmakers around the world need to think about how they 
are going to deal with fiscal problems, and to articulate how 
they are going to come up with a game plan to do that in a way 
that reinstills confidence among investors.
    Chair Maloney. Can you tell whether the impact of the 
reduction in the export sector will be spread across the U.S., 
or whether certain sections of the country will be particularly 
susceptible to any reduction in exports to Europe or Greece? In 
particular, I am concerned about the Greek-American community 
that I represent, and I am concerned that they may have a 
burden on them and bear a disproportionate share of this 
burden.
    Dr. Berner. You know, Congresswoman, I have not really done 
the work on that so I will be pleased to get back to you, if I 
can, to try to uncover the answer to that question.
    Chair Maloney. And additionally, can you estimate the 
impact to employment in New York City if the financial 
contagion in the EU spreads to the U.S.?
    Dr. Berner. That is a difficult task, but I will do my best 
and try to get back to you on it.
    Chair Maloney. And lastly, Mr. Joerres, you mentioned that 
your growth--and I am amazed--is 92-96 percent in foreign 
markets. Do you have offices in Greece?
    Mr. Joerres. Yes, we do. We have an operation there.
    Chair Maloney. And can you tell us something about what is 
going on on the ground, information on employment with your 
organization's employees there?
    Mr. Joerres. Right. So our operation in Greece is no doubt 
feeling the effects of this. Things have kind of grinded to a 
halt as companies are, needless to say, very concerned about 
what might be happening.
    I can also say that in markets like France, Italy, Germany, 
Netherlands, the Belgian market, they are not on the ground 
feeling it at all. We are still seeing improved trends. So, as 
there is plenty of speculation about what Merck will do, or 
what others might do to generate recovery, we think that the 
employment numbers within Europe will have more of a knock-on 
effect further down than what they have now. Our Greece 
operation is facing a very challenging environment right now. 
There is no doubt about it.
    Chair Maloney. Thank you. My time has expired.
    Representative Brady. Thank you, Madam Chair.
    Dr. Berner, exports are one result of successfully selling 
American products and services throughout the world. And as you 
point out, one out of five manufacturing jobs is tied to that. 
And then with service companies like Mr. Joerres', we have a 
huge surplus. So when we compete and sell overseas, it has huge 
economic impacts.
    We are looking at three pending trade agreements in markets 
in Colombia, Panama, and a major one in South Korea. We are 
seeing other countries stepping in ahead of us from Canada, the 
EU, and others to get in line ahead of us and put us at another 
competitive disadvantage.
    Do you support passage of those trade agreements and 
opening those markets for U.S. service and production 
companies?
    Dr. Berner. Mr. Brady, thanks for your question.
    I support in general the idea that we should have free and 
open trade, and also the idea that it has to work both ways.
    Representative Brady. Yes.
    Dr. Berner. So that, you know, when we open our markets to 
companies in other countries and to other countries, we also 
want to make sure that we have access to their markets and that 
we have intellectual property agreements and other things that 
make sure that we have a level playing field, to the extent 
that that is possible, in which our companies can compete. And 
so it does work both ways.
    Representative Brady. I think it is important--you know, we 
are such an open economy in the United States. Panama and 
Colombia, for example, have one-way trade, almost duty-free and 
quota-free trade, but we have obstacles when we try to do two-
way trade. Clearly agreements like that give us a chance to 
compete on a level playing field and in every other case have 
worked beautifully for us. We have doubled, or tripled our 
exports.
    NAFTA, which I've worked on for many years, we've turned a 
trade deficit into a trade surplus. We even have a 
manufacturing surplus with our NAFTA countries, as well.
    Let me ask you this. Unrelated to exports but related to 
sort of your view going forward, I notice in your testimony 
your GDP growth percentages are higher than the Blue Chip this 
year, but lower next year, and much lower next year than what 
the White House forecasts.
    Is there a reason for that? I know there's always a range, 
but is there a reason why you see significantly lower economic 
growth next year than Blue Chip or OMB?
    Dr. Berner. Thanks for your question, Congressman.
    Yes, there is a reason. And to make it explicit, up until 
very recently we have been assuming that the tax cuts, the Bush 
tax cuts, would probably sunset as scheduled on January 1st, 
2011. If that is not the case and some of those tax cuts are 
extended, we would see somewhat faster growth in our forecast.
    In addition, we are thinking that our massive Treasury 
borrowing needs will combine with a return of private credit 
demand, as the economy comes back, and that will result in a 
significant increase in interest rates.
    So it is a combination of those two things: sunset of the 
tax cuts, as well as the rise in interest rates would give us 
somewhat slower growth.
    Representative Brady. So continuing the tax cuts helps 
boost our economy, in other words?
    Dr. Berner. It would have a modest positive effect.
    I would say, however, as I did in my testimony, that the 
most important policy decisions that are out there right now 
are not so much around taxes, but they are around foreclosure 
mitigation and coming up with a credible plan to do something 
about our fiscal situation.
    If we were to do that, then our forecast for long-term 
interest rates, U.S. Treasury Rates, would be somewhat lower 
and you would see that in the marketplace right away. And that 
would have a short-term beneficial impact on growth. So coming 
up with a plan, if it is credible, would make a material 
difference to the outlook.
    Representative Brady. Can I go back to why the Bush tax 
cuts are so good for America--I'm kidding. I'll stop with that 
one.
    Dr. Hassett, consumer demand. It's always hard to know what 
families are thinking about. Obviously they're looking at their 
own pocketbook, worried about their jobs, lots of things going 
through.
    The thing I hear back home, and it may be an intangible 
from an economic issue, but the debt, and the spending is a 
number one concern of consumers.
    Does that weigh on the decisions that a family makes in 
purchasing a new TV set, or making an economic decision?
    Dr. Hassett. Sure. Thank you for the question, Mr. Brady. 
There is a great deal of scholarship in this area that goes 
back to Milton Friedman's basic observation that the reason why 
temporary tax cuts like the ones that we observed last year do 
not have a really big effect is that people know that they are 
going to have to pay for them with future higher taxes. And so 
they are sort of skeptical about the fact that if you take a 
dollar from them next year and give it to them this year that 
you are really making them better off.
    And indeed I could add that if they are not skeptical about 
it and they think they are better off, then they are going to 
regret it next year when they get the tax. So it is not kind of 
clear that this is a point that argues for the policy, even if 
you disagree with it.
    The fact is, though, if you look at the numbers of future 
taxes associated with things like the Stimulus, they are really 
mind-boggling. So for example if we divide the Stimulus last 
year up amongst all taxpayers, the 110 million or so taxpayers, 
then the cost of just the Stimulus last year--we are not 
talking about the deficit--is about $8,000 per taxpayer, a 
little bit less.
    But remember that about half of taxpayers do not pay taxes. 
And so what that means is that if you are someone who does pay 
taxes, if you actually had a positive number on that tax return 
when you mailed it to the IRS, then your number is about 
expected to be double that.
    So if you are someone who paid taxes, then your bill just 
for the Stimulus will be maybe about $16,000. If we raise the 
monies for the Stimulus, according to the distribution of the 
income tax that we now observe, then for people with incomes in 
the hundred, or two hundred, or five hundred thousand dollar 
range, the small businesses maybe that have a little bit more 
money, their bills for just the Stimulus are enormous.
    For someone with an income between $200,000 and $500,000, 
the Stimulus bill will average about $41,000. If we then factor 
in the debt that we have to pay off, then we are talking about 
future tax liabilities that are mind-boggling. And I think that 
American consumers should expect those taxes, if we do not see 
a big reduction in government spending, they should expect 
those higher taxes, and they should wisely plan accordingly.
    And one reason why we see a spike in the savings rate and 
lower consumption, I believe, is the expectation of future 
taxes. Some of them are, as Mr. Berner just referred to, kind 
of, people thought, baked in the cake. The expiration of the 
Bush tax cuts is an example of that.
    Representative Brady. So people may not know the amount 
they are going to owe, but they know someone is going to pay.
    Dr. Hassett. They know that their taxes are going up and 
are consuming accordingly, I would add.
    Representative Brady. Thank you.
    Chair Maloney. I would like Dr. Hassett and Dr. Berner to 
react to a proposal that one of my constituents, Wilbur Ross, a 
businessman, put forward through the New York City Partnership.
    His idea was to take the unemployment, which many 
economists say is important not only in terms of helping the 
unemployed and their families, but this money is plowed back 
into the economy, therefore driving more goods, more spending, 
more services, but to take the unemployment and tie it to job 
training, and tie it to job hiring. Give it to a business that 
will hire an unemployed person and have their employment run 
through that business.
    Could you, or Mr. Joerres, any of you, could you comment on 
this idea, or any new ideas that you might have on how we could 
help job development in our country?
    Dr. Berner. Congresswoman, thanks for the question.
    As I indicated in my testimony, that is one of the four 
things that I thought would be very helpful. And specifically, 
if we look at training programs, and I think we all agree that 
education and training, training job skills, are extremely 
important, if you pair training with income support, which we 
all agree is so necessary to help American workers and families 
in this time, that that is going to give them the skills they 
need to acquire--to go out and look for jobs, to be able to 
perform in jobs when those jobs are available.
    And we have a skills' mismatch in America that is profound. 
I just read the other night, for example, that Microsoft built 
a development facility in British Columbia because they could 
not find the skilled workers that they needed in the United 
States--at the right price.
    And also, you know, they ran out of room under their H1B 
visa program. So that is I think just one little anecdote that 
supports the idea that we need to improve the skills of 
American workers and maybe doing that through the income 
support unemployment insurance programs would help.
    It would also help I think to look at newly minted college 
students, unemployed teachers, retirees, people who have 
experience and skills who can train others in basic job skills 
to link them up in a partnership that would help them acquire 
those skills.
    Chair Maloney. Any other comments?
    Mr. Joerres. Yes. We have a fair amount of experience in 
this, as we have worked with several WIBs across the United 
States, as well as in other countries.
    What we have found is that when there is a disconnect 
between the job training program and finding the job, it is 
much less effective. When the trainer and the end employer are 
two different organizations, the training organization is 
essentially training for government dollars, if I could be so 
bold.
    When corporations almost sponsor or take on the individual 
as they are going through their training program, the chances 
of that person getting hired have dramatically improved.
    I am sure you have heard many times, Congresswoman, that 
the companies are saying: you're not giving me the skills I 
need. You're not doing this. Well what we have said is we have 
said: ``Then get in the game. Get in the game and bring these 
people all the way through.''
    So I would ask for a connection between job training and 
job placement, as opposed to a hand-off. Because that hand-off 
is a very dangerous hand-off.
    Chair Maloney. It sounds like a very good bipartisan 
effort.
    Dr. Hassett.
    Dr. Hassett. Madam Chair, in fact in the break a number of 
the staff and I were actually discussing a very related point; 
that the Unemployment Insurance Program that we have was kind 
of designed for the old-fashioned economy where people took a 
break in August, or something, and got laid off.
    And now we have got an economy that requires moving between 
jobs a lot of time, and search costs are really high, and a 
really important factor for firms and so on, and it is urgent 
that we redesign the Unemployment Insurance Program allowing 
for things like job sharing maybe through the Unemployment 
Insurance Program, and I would encourage you to consider having 
a hearing where you ask the best minds, the people who have 
spent their careers studying it, for proposals.
    Because as we analyze the sort of low-hanging fruit right 
now, given the terrible job market, it seems like all of them 
are kind of mutations of revising Unemployment Insurance.
    Mr. Joerres. I'm sorry. I know the time is limited, but I 
have such anecdotal evidence here that is compelling. We have 
about 2500 accountants in one of our organizations that we own.
    There are people who have been unemployed in the finance 
industry. We have been able to find them jobs, put them in 
jobs, that would be contract jobs. In other words, they might 
work for three months. They have refused those jobs because if 
they take that job their Unemployment compensation goes away 
and they are not sure really what is going to happen.
    When in fact, about 50 percent of all the people we put out 
on an assignment get hired by the company that they are placed 
in.
    So there is something wrong here in not having these hand-
offs right that the individual is put in this poor position of 
either sitting home working on job boards and getting paid, or 
possibly improving their skills. So it is almost like a job 
sharing environment that you could consider it not just job 
sharing but ways of splitting the Unemployment dollars that 
they might be getting less, paid for by them, getting work 
experience, and then getting hired.
    Dr. Hassett. And just to follow, there are two spikes in 
re-employment from workers who are on Unemployment Insurance. 
There is one at the beginning, and there is one near the end. 
And it is exactly because of that.
    Sort of once you are in, then if you go take a job then you 
are sort of giving up a big spell of Unemployment Insurance 
that is costly. And so people tend to be very cautious about 
which jobs they accept once they get into the spell.
    Chair Maloney. Thank you. My time has expired.
    Mr. Brady.
    Representative Brady. I know there have been past proposals 
on job training where they create not a voucher but a lump sum 
for workers where they could continue their training, or 
retraining, take job opportunities if they got that full-time 
job, they weren't penalized for the money they were given. In 
fact, even part-time jobs, as long as they were continuing the 
education and skill building, too. We need to be innovative 
like that.
    At a time when business investment is scarce, why aren't we 
repatriating more of our foreign investments back to the U.S.? 
Because of our Tax Code, in 2005 a number of us pushed for a 
provision successfully in the American Jobs Creation Act to 
address the issue of stranded U.S. profits, our Tax Code, 35 
percent HCI, to bring it back. So we proposed for one year to 
lower it to a fairly minimal 5 percent, let that investment 
flow back to the United States.
    Even with some restrictions I didn't think belonged there, 
$300 billion came through that year. Today it's regenerated. We 
have $600 to $800 billion stranded U.S. profits outside the 
United States too expensive to bring back.
    Why are we not lowering the gate again for a year to bring 
back that type of investment? It is the size of the Stimulus 
outside the United States waiting to find a home. Right now, 
finding a home in another country.
    Why aren't we--and I know the government can't direct that 
investment. You know, it's got to go straight into the 
marketplace in decisions that benefit the companies, and 
hopefully the workers, but do any of you have any thoughts on 
why we would not be encouraging bringing back those 
investments?
    Mr. Joerres. Well I won't speak from a political view 
because on this I don't have it. I can speak purely from a 
mathematical view.
    Our largest operation in the world is France where we 
produce $7 to $8 billion a year in that organization, 
generating somewhere between $250 and $300 million of free 
cash. We have never repatriated that cash because it is a pure 
CFO, chief financial officer, calculation.
    The only time we will use that cash is when we were able to 
use that cash to buy assets in the same denomination. In other 
words, Euro denominated.
    Two weeks ago we bought a company in Houston for $431 
million, a very good IT contracting staffing company. We 
decided to use half cash, half stock because we can't get the 
pull from France to convert it into dollars.
    So this is just pure math. This is not about whose tax 
code, or what tax code. When we look at a transaction like 
this, we look at it purely from an efficacy of the dollars and 
return to shareholders.
    Representative Brady. Thank you.
    Dr. Hassett. Mr. Brady, the one thing I would add, though, 
is that the reason this mess is happening is that our tax 
policies are out of whack. It's a symptom, and it is something 
that happens when our corporate tax rate is so high that people 
have to locate their profits overseas in order to compete.
    And so the problem I have with this proposal--and it is not 
one that I have ever come out and combatted--but I have two 
problems with it.
    One is that it is salve on the wound. What we really need 
to do is fix the wound that's driving the problem in the first 
place.
    The second problem is a temporary holiday creates all sorts 
of uncertainty about, you know, when is the next time they are 
going to have one of these, that is going to make people not 
repatriate in the income. And so I think that----
    Representative Brady. To bring the gate down permanently?
    Dr. Hassett [continuing]. You've got to bring the gate down 
permanently. I mean, again, as an economist it is obvious that 
that is the right answer, and I understand budget constraints 
and so forth, but I think that rather than focus on that gate 
what I would do is I would focus on reducing the corporate tax 
rate.
    Representative Brady. Got it. Great. Thank you.
    Chair Maloney. Thank you. One effort where we do have 
bipartisan efforts is our effort to cut the debt. Currently it 
is about $12 trillion, or about 85 percent of annual GDP.
    I want to know, how are we comparing to other countries? Do 
you know what percentage of annual GDP in debt Greece, and say 
France, or England, or Spain have? Anyone who can answer that?
    Dr. Berner. Congresswoman, I don't have the statistics 
right in front of me, but I think what is important is that our 
debt is growing rapidly. As you know, at the end of Fiscal 2008 
our debt held by the public, you referred to the gross debt 
statistics, the debt held by the public, which is now about 
$7.2 trillion, was then 48 percent of--sorry, 41 percent of GDP 
at that time, and here we are in 2010 and by the end of this 
fiscal year it will be about 61 percent of GDP.
    So it has risen rapidly, obviously because of the 
Recession. Other countries have gone through a recession. The 
point here is that we're just on the cusp, as you know, of 
seeing a major increase in our deficits. And whether you look 
at CBO's forecast adjusted for realistic assumptions, or the 
Administration's forecasts, we're going to be looking at 
deficits of 5 or 6 percent of GDP for quite some time to come.
    So our guess is that by, in the next 10 years we will be 
looking at debt held by the public at 87 percent of GDP. And 
there's no magic threshold in my view, although some economists 
think that there is--Ken Rogoff thinks it is 90 percent, for 
example, in his recent book--where investors start to question 
the fiscal sustainability of your policies.
    Personally, I think that they are already starting to 
question that. We haven't seen it in our interest rates. They 
are low. And they are low because other countries are in many 
cases in worse shape. And so they look to us still as the 
broadest, deepest, and most liquid financial markets in the 
world, and the benchmark against which others are judged.
    If we want to maintain that status, then we have to think 
seriously about making the tough choices to get our fiscal 
house in order.
    Chair Maloney. Okay. And in making those tough choices, how 
much can we reduce the deficit by cutting discretionary 
spending, say by 10 percent?
    Dr. Berner. You know, as you know, Congresswoman, the 
discretionary spending is not the real story here. The real 
story----
    Chair Maloney. Okay, how much by cutting government 
spending that is actually discretionary and how much that is 
mandatory, such as Medicare?
    Dr. Berner [continuing]. Well right now, if we look over 
the next ten years and we take Medicare, Medicaid, and Social 
Security, they will account for half of all federal outlays. 
And they are growing very rapidly. And that Medicaid portion 
assumes that state and local governments will get back on their 
feet and be able to pay their share of the Medicaid burden.
    If they aren't, then what we will see is the Federal 
Government being asked to pick up an increasing share of that 
tab, which will make Medicaid grow even faster. And that is the 
fastest growing health care plan that we have. And so that 
percentage will likely rise even further.
    Chair Maloney. Well on that note, the state and local 
governments are facing enormous budget shortfalls. We have had 
states come to the Federal Government and ask for bailouts and 
total support.
    At the same time, the swelling ranks of the unemployed are 
putting further pressures on the budget. I would like to hear 
your ideas--any of the panelists--about two problems: the 
short-run problem in the states and local governments and the 
potential impact on employment, and how do we deal with the 
long-run problem of these budget problems in the states?
    As you said, if Medicaid can't be assumed by the states, 
then it is a tremendous pain, or a tremendous problem going 
forward. Your comments further on these two points?
    Dr. Berner. Well from a federal perspective, we obviously 
have a system of federalism which is not working. Medicaid is 
one of the key issues in that system. So we all know that when 
we go into a recession, particularly the deepest Recession we 
have had in 70 years, the ranks in the Medicaid grow 
dramatically, and that puts an enormous burden on states that 
they really can not pay.
    In my state, your state, the State of New York for example, 
it is 50 percent shared. In Mississippi it is only 22 percent 
at the state level. Either way, it is an enormously growing and 
unsupportable burden.
    So the grants to state and local governments for FMAP 
assistance, or to offset the cost of Medicaid, have been in the 
very short run necessary without making cuts to those programs.
    But in the longer run, part of health care reform, it seems 
to me, has to involve fixing the way that we share Medicaid, 
and the way that the Medicaid program is in fact designed.
    At the state and local level, we have enormous fiscal 
problems that need to be addressed. Obviously the governance 
there is at the state and local level. They vary tremendously 
by state.
    There are 50 different kinds of problems in 50 different 
states, and thousands of different problems in local 
governments as well. Ultimately, tough choices are going to 
have to be made there because, like it or not, we have been 
making promises for health care, for pension benefits, and 
other promises that haven't been funded and that can't be kept. 
And we are going to have to make a lot of tough choices around 
those areas, as well.
    Chair Maloney. I could listen to this panel all day long. 
All of you have been inspiring and insightful. You have given 
us a great deal to think about, but I am told that it is 
impossible to get back to New York; that the planes are not 
running, and if we don't watch out the trains won't be running.
    So we are going to have to call an end to this. I hope you 
will come back to testify again. You have given us a tremendous 
session today. And the truth is, we will have a slow, long 
climb to get where we need to go in terms of creating jobs in 
this economy, but we are beginning to see glimmers of 
opportunity, and certain strategies in certain sectors, and 
this will help us on an upward trend toward future growth.
    My goal is to work with my colleagues in a bipartisan way 
to develop and enact effective policies that will create jobs 
immediately and in the long term that ensure that we are 
getting the most value for our dollars, and helping our economy 
move permanently in the right direction.
    I want to thank all of you for the tremendous work that you 
do in your lives to help employ and move our economies forward, 
and we really appreciate your time here today. Thank you very, 
very much.
    Dr. Berner. Thank you.
    Mr. Joerres. Thanks for having us.
    Dr. Berner. Thank you.
    Chair Maloney. Thank you for being here.
    [Whereupon, at 12:55 p.m., the hearing was adjourned.]
                       SUBMISSIONS FOR THE RECORD

   Prepared Statement of Roger C. Altman, Chairman, Evercore Partners
    Madam Chair and Members of the Committee, thank you for inviting me 
here today to testify on the labor market and policies for 
strengthening it.
    It seems to me that there are two overarching economic policy 
issues facing this Congress and the Administration. One is our topic 
today: jobs and how to improve the difficult outlook which faces 
American workers. The other is the threatening fiscal deficit, as 
outlined in the President's proposed fiscal 2011 budget. I might note 
that the two issues are linked. The deficit, if not tamed, will raise 
interest rates and put downward pressure on overall growth and on job 
growth. Indeed, the Clinton years demonstrated that deficit reduction 
can coincide with strong employment growth.
    Let me begin with a quick review of the outlook. By historical 
standards, it is a slow and difficult one. The latest Bloomberg survey 
of private sector forecasts average 3.0% real growth rates for both 
2010 and 2011. The related forecast for unemployment rates is 10.0% and 
9.1%, respectively.
    Such growth rates are far below those which the U.S. would 
typically realize in the years immediately following a severe 
recession. A historically normal rate for 2010, for example, might 
approximate 6-7%. We saw that in 1983, the first year of recovery 
following that deep recession.
    But, the downturn of 2008/2009 was caused by rare balance sheet 
factors. Not the traditional dynamic of overheating and monetary 
response. History and academic research tell us that the negative 
growth and employment impacts of recessions following financial crises 
are especially deep and prolonged.
    In this case, that reflects: (1) the over-stretched balance sheets 
of American households and the diminished consumer spending, especially 
discretionary spending, which results from it; and (2) the still 
shrinking balance sheets of our banks and the reduced lending which 
that causes, which we saw in the FDIC data earlier this week. It is 
difficult to achieve a healthy recovery when both consumers, whose 
spending represents 70% of GDP, and banks are retrenching.
    Through BLS data revisions, we recently learned the real number of 
jobs which actually have been lost since the so-called Great Recession 
began. That number is a staggering 8 million jobs, which means that an 
entire decade of job creation has been lost. In other words, the number 
of American jobs today is approximately the same as it was ten years 
ago, despite our population growing by thirty million over that period.
    The unemployment rate, of course, is 9.7% today, and job losses 
have continued through last month. The underemployment rate, perhaps a 
better measure of true unemployment, is 16.5%, and this translates into 
25.3 million Americans. This includes those who are looking for work 
and those who have given up and are no longer looking. Further, the 
employment-to-population ratio has fallen to 58.2%, down from 64.6% ten 
years ago. This is the lowest level in 26 years.
    With our population continuing to grow, America needs around 2% 
real growth to hold our unemployment rate stable. This is why the 3.0% 
growth rates forecast for 2010 and 2011 will only lower it modestly.
    Let me turn then to strategies for creating jobs, starting with 
lessons we can learn from the Clinton years. Those were remarkable ones 
in terms of employment growth. Over the eight years spanning 1993-2000, 
America saw 22.7 million new jobs. This equates to an average monthly 
gain of 237,000 jobs, the fastest job growth on record.
    Those years also saw strong income growth across the board. Real 
family income increased almost 3% annually over this period, and all 
income groups participated rather fully in this growth. In contrast, 
during the following eight Bush years, real income growth for the 
bottom 99% of families reached only 1.3%.
    The question, then, is what explains the powerful labor markets of 
the Clinton years? I do not have all the answers, but here are a few 
factors which played important roles:

      The U.S. experienced relatively high levels of savings 
and investment during these years. The net investment share of GDP rose 
from 2.1% to 4.4% under President Clinton. By 2008, it had fallen back 
to 2.5%. There is nothing which promotes job growth more effectively 
than strong investment. It expands the capacity of our economy, and 
that requires more employment.
      One reason for these high savings rates, of course, was 
the balanced budgets and subsequent surpluses of that period. These 
meant that both the federal sector and the private sector were saving 
at once. And, it is savings which finances investment.
      My very large generation--the baby boomers--were in prime 
working ages and this contributed to high employment rates.
      The boom in technology and technology investment also was 
a key contributor. The Clinton years saw record amounts of venture 
capital raised and invested, record amounts of capital raised through 
technology IPOs and large scale hiring in the tech sector and those 
businesses serving it.
      Manufacturing employment was stable, and the dollar value 
of industrial production grew 40%. In contrast, since 2000, the 
manufacturing sector has shed almost 400,000 jobs a year, and 
industrial output has been flat.
      The American export sector added 500,000 jobs a year over 
the Clinton period, but only one fifth of that rate over the following 
eight years.
      The U.S. stock market rose almost uninterruptedly over 
those years. The Dow Jones Industrial Average stood at 3,300 when 
President Clinton took office and 10,400 when he left it. There is no 
stronger impetus to consumer and business confidence than steadily 
rising equity prices, especially when matched with fiscal balance.
      Interest rates also remained low. Today, absolute rates 
also are low, but economic conditions would typically mandate even 
lower rates.

    The natural questions, then, are: (1) which of these factors can be 
replicated to improve the employment outlook now?; and (2) what other 
policy initiatives could be taken?
    Overall, the Clinton years provided a climate of stability and 
consistency to our private sector. Employers will tell you, when they 
run small businesses or large ones, that consistency of policy is 
important to them and uncertainty is anathema. But, right now, 
Washington is inadvertently promoting uncertainty. And, that must 
change, in order to spur investment, growth and jobs.
    A central uncertainty relates to the deficit outlook. By any 
measure, it is threatening and undermines confidence at all levels. The 
idea that, over ten years, deficits will not fall below 4% of GDP and 
that debt will exceed 80% of GDP is not acceptable. Indeed, it won't 
materialize. Either Congress and the Administration will act 
proactively to rectify it or, at some medium term point, global 
financial markets will revolt, perhaps through the foreign exchange 
markets, and impose a solution on the U.S. If the latter scenario 
results, the solution will be a punitive one.
    We all know that 2010 is not the year for deficit reduction. Our 
economy is still too weak to absorb those contractionary impacts. But, 
it is not too soon to formulate a plan, beyond the Obama budget, for 
deficit reduction after this year. In particular, it is important that, 
later this year, the recommendations of the new Deficit Reduction 
Commission be taken seriously and given a true vote in the Congress.
    A second major uncertainty concerns health care legislation. This 
is a giant and transformative undertaking with large economic 
implications. It will affect a high proportion of employers and they 
need to know whether it will move forward or not. The longer that this 
uncertainty persists, the slower will be the recovery in confidence 
levels. Passing health care legislation will not only help dissolve the 
uncertainty currently surrounding it; it may assist in reigning in our 
long-term deficits, since the growth in health care costs is the most 
significant factor affecting the future of the federal balance sheet.
    Then, there is the question of new initiatives, both short term and 
long term. In the first category, President Obama is proposing $280 
billion of additional stimulus. That would come on top of the $787 
billion package which was adopted last year. The same four components 
in the 2009 program--extended benefits, state fiscal assistance, 
infrastructure and tax cuts for middle income Americans and small 
business--are included in the new proposal.
    I support the concept of additional stimulus. The growth and job 
markets outlooks are too weak. Moreover, last year's amounts, in the 
context of this economic weakness and the sheer size of our economy, 
was too small. But, the spend-out rate on the 2009 stimulus was not as 
rapid as it should have been. Only 34% of last year's total was 
dispensed in calendar 2009. This is surprising because the greatest 
stimulus should have been applied in the weakest year. The explanation 
partially lies in the infrastructure component. Despite countless 
promises to the contrary from localities, this spends out very slowly.
    It would seem wiser to design the new package to take effect more 
quickly. In turn, that would require maximum emphasis on steps which 
put money directly into the pockets of middle and lower income 
Americans. Perhaps, a greater focus on extended benefits and targeted 
tax cuts, and a lesser one on infrastructure. In addition, the earlier 
cash for clunkers initiative was an effective one. The homestead 
provision in the Senate jobs bill, which would use the same principle 
and extend it to appliances, makes eminent sense.
    Next, there is the question of longer term strategies for 
strengthening the labor markets. Beyond deficit reduction, which I 
regard as paramount, here are five areas which deserve this Committee's 
attention:

      Investing in science and technology. Historically, these 
have generated new industries, from information processing to the 
internet, and substantial job creation. While most technology 
businesses aren't large scale employers, their products generate 
growth, e.g., the iPhone. The new Obama budget recognizes this by 
increasing federal commitments to basic research. It also emphasizes 
energy technology, which would seem a clear opportunity.
      More effective education policies at all levels of 
government. Jobs and wages are becoming more polarized by education 
level. The urgency of raising high school and college education rates, 
therefore, is greater than ever.

        In New York City public schools, for example, the high school 
        graduation rate hovers just below 60%. Given the polarization 
        trend, how can America achieve its labor market goals without 
        raising such graduation rates?

        The most important steps which America could take would center 
        around raising teacher quality and increasing the amount of 
        time during which kids are in school. Recent data makes clear 
        that teacher effectiveness is the most important ingredient for 
        student success, together with the sheer amount of quality 
        teaching which kids receive.
      Build stronger connections between education and specific 
job markets. This is important because the days when certain levels of 
education assured good employment have receded. It is increasingly 
important that schools provide the more specific skills which today's 
workplaces demand. Including skills required by markets adjacent to 
those schools.

        One way to do this may be to strengthen the community college 
        system in this country. In turn, this could involve subsidies 
        to businesses which provide part-time employment to students in 
        those schools. The more a student acquires skills during 
        school, the more employable he or she is.
      Reduce the constraints on H1B visas. Today, only 85,000 
visa are reserved each year for highly skilled workers. But, consistent 
with reasonable national security tests, we should want every single 
such worker who wants to come here. They tend to be highly 
entrepreneurial and foster innovation, start-ups and job formation. 
Duke University has estimated, for example, that 52% of Silicon Valley 
start-ups over the past ten years were initiated by foreign born 
workers.
      Reform the U.S. disability system. Right now, too many 
older workers who find themselves jobless are moving onto permanent 
disability status because they cannot find work. The percentage of 
American males aged 40-54 who are on the disability program has reached 
nearly 5%. That is testimony to our difficulty in redeploying older 
workers. We should learn more about the approaches to re-training and 
re-employment which other nations use, including Germany.

    It is difficult to overstate the labor market challenges which 
America faces in corning years. We are going to need all of these 
initiatives, and more.
                               __________
 Prepared Statement of Carolyn Maloney, Chair, Joint Economic Committee
    I would like to start by thanking Mr. Joerres and Dr. Hassett for 
their willingness to return to Capitol Hill and testify before the JEC 
after our Feb. 9th hearing was cancelled due to the snow.
    The weather continues to wreak havoc with this hearing.
    The Honorable Roger Altman, former Deputy Treasury Secretary, had 
to cancel his appearance before this Committee because of the snowstorm 
in New York.
    I ask for unanimous consent to include his written testimony in the 
record.
    Today's hearing continues our in-depth series on job creation. 
Today, we will be examining the prospects of a labor market recovery 
from the Great Recession, which was fueled by the double blow of crises 
in both the housing and financial sectors.
    A recent op-ed by Professor Alan Blinder, which was based on the 
testimony he had planned to bring before this committee before the snow 
shut down DC, presents a clear picture of the two possible policy 
options to increase private sector employment: either increase demand 
by consumers and businesses; or give employers the incentive to 
substitute workers for equipment.
    On Tuesday, the JEC heard testimony from the Honorable Doug 
Elmendorf, Director of the Congressional Budget Office.
    His testimony showed that an employer tax credit--similar to the 
one in my bill--is one of the most effective and efficient ways of 
spurring hiring.
    His testimony also showed that extending unemployment benefits has 
the biggest ``bang for the buck'' on the economy.
    Those benefits quickly multiply beyond the original recipients 
since families will spend all of their benefits on food and other 
expenses. Those purchases have a ripple effect throughout the economy.
    We've come a long way since last January, when the economy lost 
779,000 jobs in that month alone and recorded an average monthly job 
loss of 753,000 in the first three months of 2009.
    Last month, we lost 20,000 jobs. And in the most recent three 
months of the Obama administration, the average monthly job loss was 
35,000. So we're headed in the right direction. Thanks to the Recovery 
Act, the economy is growing.
    The Bureau of Economic Analysis reported that in the final quarter 
of 2009, the economy expanded at a rate of 5.9 percent.
    The Recovery Act included a tax cut for 95 percent of American 
families and created jobs while investing in clean energy technologies, 
infrastructure, and education.
    While we have brought the economy back from the brink, we are not 
yet where we need to be in terms of job creation.
    Over 8.4 million jobs have been lost during the ``Great 
Recession.''
    And in addition to the 14.8 million workers who are currently 
unemployed, there are 8.3 million workers who currently work part-time, 
but would like to work full-time.
    In the last year, Congress has enacted policies that support 
struggling families and encourage job creation. These actions include:
    Creating and extending the first-time homebuyers credit, boosting 
funding for small business loans via the Small Business Administration, 
extending safety net programs, and extending the net operating loss 
carry-back provision that will help small businesses hire new 
employees.
    But we need to redouble our efforts to create jobs.
    The Senate jobs bill, which passed this week, is a step forward and 
an encouraging sign of bipartisanship.
    It includes a scaled-down version of my employer tax credit. I'm 
happy that the Senate has included this--as Alan Blinder said in his 
op-ed, reducing costs for employers to hire new workers will create 
jobs.
    During today's hearing, we will explore other options and hear 
other ideas for helping workers get back on their feet, spark consumer 
spending, and brighten our economic climate.
    I am pleased that Dr. Berner was able to testify today and provide 
us with his forecasts of which sectors and regions of the economy are 
expected to grow in the coming year or two.
    Mr. Joerres will be giving us Manpower's on-the-ground experience 
about the increase in demand for temporary workers.
    Job creation in the temporary help sector is a leading indicator of 
progress in the labor market.
    Since September 2009, temporary help services has added 247,000 
jobs--52,000 in January alone.
    Finally, Dr. Hassett will be giving his views about future growth 
and the health of the labor market.
    I am also pleased to see that today's panel will touch on another 
topic discussed on Tuesday with CBO--the role of uncertainty about 
government policies on dampening economic and employment growth.
    I look forward to a lively discussion with the panel today--one 
that I hope will help spark bi-partisan efforts to create certainty so 
that households and businesses will feel confident and will lead our 
country out of the Great Recession.
                               __________
 Prepared Statement of Richard Berner, Co-Head of Global Economics and 
               Chief U.S. Economist, Morgan Stanley & Co.
    Chair Maloney, Ranking Member Brownback, and members of the 
Committee, my name is Richard Berner. I am Co-Head of Global Economics 
and Chief U.S. Economist at Morgan Stanley in New York. Thank you for 
inviting me to this hearing on Prospects for Jobs and Growth.
    Following the deepest financial and economic crisis since the Great 
Depression, the U.S. and global economies are beginning to recover. 
Thanks to aggressive monetary stimulus, support from strong global 
growth and from fiscal stimulus, the U.S. economy is now growing again.
    In my view, however, the recovery will be moderate and job gains 
modest. The financial system, while improving, is still burdened by the 
legacy of bad lending decisions. Imbalances in housing persist. In 2010 
and 2011, we expect real GDP to grow by 3\1/4\% and 2\1/2\% (Q4/Q4 
change), respectively. We expect annual job growth to average 1% 
(110,000 monthly) over that two-year period, excluding hires for the 
decennial census. Even those modest gains are not a foregone 
conclusion. Job losses have abated, and some labor-market indicators 
have improved, but employment has yet to turn up.
    More important, we would need persistently strong economic and job 
growth over the next few years to regain the 8.4 million payroll jobs 
lost since December 2007, not to mention the 10.6 million jobs required 
to restore the employment rate (employment-population ratio) prevailing 
before the start of the Great Recession.
    Moreover, as you are aware, our unemployment problem has become 
increasingly chronic. Two statistics document that fact: The median 
duration of unemployment has reached 20 weeks, more than twice the peak 
in the deep 1981-82 recession, and a record 41% of the unemployed have 
been jobless for six months or longer.
    In my testimony today, I will identify four specific obstacles to 
hiring. Each of these hurdles has a cyclical and a structural 
dimension. For each, therefore, I will discuss policies that might help 
foster economic growth and job creation both in the immediate future--
the cyclical dimension--and for the longer run--the structural part. 
But first, I want to identify where job gains are likely to be over the 
next two years and why.
    Where will the jobs be? What sectors of the economy are likely to 
grow in 2010 and 2011, and by how much? How will employment growth vary 
in different regions of the country? What will be the likely state of 
the export market over the next two years, and the resulting impact on 
employment?
    Strong sectors. Advances in export, infrastructure, capital goods, 
energy, and health care related industries likely will account for most 
of the job gains in the next 18-24 months. That forecast echoes my 
views regarding the sources of growth in our economy. The combination 
of strong global growth, the lagged effects of fiscal stimulus, and 
improving financial conditions will promote improvement in many of 
those industries. And rising demand for health care services continues. 
In contrast, employment in residential and commercial construction, 
retailing, and financial services likely will remain soft as those 
industries continue to restructure.
    Strong regions. Identifying regional strengths and weaknesses is 
difficult. For example, industries that likely will benefit from 
exports and other strong sectors are located in regions hard-hit by 
regional housing woes. Conversely, some regions that fared relatively 
well in the downturn, like the Midwest, are now doing less well. In our 
judgment, the Pacific Northwest, parts of the Rockies and Upper 
Midwest, parts of the Southeast, and parts of the Southwest seem likely 
to be the strongest regions.
    Export markets and employment. I expect gains in export volumes of 
around 10% to be sustained over 2010. Paced by their domestic demand, 
growth in many of our major trading partners in Asia and Latin America 
likely will average 6-7% this year, and Canada probably will expand at 
a faster pace than the U.S. Somewhat slower growth seems likely in 2011 
as the U.S. and overseas policymakers exit from stimulus.
    In manufacturing, some 20% of employment in 2006 was directly or 
indirectly associated with exports, and I expect that share to grow 
over the next two years. \1\ Capital equipment and industrial supplies 
exports likely will continue to do well, while consumer goods will 
represent a rising share of overseas demand.
---------------------------------------------------------------------------
    \1\ Source: International Trade Administration, Department of 
Commerce.
---------------------------------------------------------------------------
    Obstacles to hiring. Worries about the sustainability of recovery 
are legitimate and probably are holding hiring back. Such concerns are 
characteristic early in recovery, but this time they are worse because 
of the lingering fallout from the bursting of the housing and credit 
bubbles. As a result, it remains essential to pursue policies oriented 
towards reducing housing imbalances, reducing debt, and improving the 
functioning of financial markets and financial institutions.
    In addition, I think there are four obstacles to hiring that 
magnify the normal, early-recovery hesitation: Rising benefit costs, 
mismatches between skills needed and those available, labor immobility 
resulting from negative equity in housing, and uncertainty around 
policies here in Washington. Each has both a long-term structural and a 
shorter-term cyclical element. For each, I'll first discuss the problem 
and the long-term solutions. Then I will turn to what policymakers can 
do to help the economy and the labor market improve as quickly as 
possible.
    Obstacle 1. Cost of labor resulting from escalation in benefits. 
The problem: Thanks to the high ``fixed'' costs of health and other 
benefits, and of taxes on labor to pay for the social safety net, our 
labor costs are out of line with other countries when adjusted for 
living standards. I say ``fixed'' costs because benefit costs don't 
vary with hours worked; they are paid on a per-worker basis. But as 
employers seek to cut the cost of compensation, these benefit costs 
drive a growing wedge between total compensation and take-home pay. 
Unlike in other countries where health care benefits are not directly 
part of compensation, these rising costs likely have intensified 
employers' efforts to boost productivity by cutting payrolls. \2\ The 
recession made the wedge between compensation and wages bigger, as 
cost-cutting private-sector employers cut take-home pay while leaving 
benefits intact. So relative labor costs go up versus other countries 
and median pay suffers.
---------------------------------------------------------------------------
    \2\ See Sarah Reber and Laura Tyson, ``Rising Health Insurance 
Costs Slow Job Growth and Reduce Wages and Job Quality,'' Working 
paper, University of California at Los Angeles, August 2004.
---------------------------------------------------------------------------
    Long-term solutions include comprehensive health care reform and 
innovation to boost productivity and labor skills. Health care reform 
to expand access and control costs will reduce the soaring costs of 
health care for employers and employees alike. Policies that boost 
worker productivity will reduce labor costs in what will be a win-win 
for employers, employees and overall living standards, because real 
wages will rise.
    Short-run remedies: A refundable payroll tax credit, perhaps for 
firms that increase their payroll, would be among the most effective 
short-run remedies. CBO estimates that a well-designed credit could 
boost employment by about 9 years of full-time equivalent employment 
per million dollars of budgetary cost. \3\
---------------------------------------------------------------------------
    \3\ See Congressional Budget Office, ``Policies for Increasing 
Economic Growth and Employment in the Short Term,'' February 2010.
---------------------------------------------------------------------------
    Obstacle 2. Skills mismatch. The problem: For years, employers have 
complained that they don't find the skills they need in today's 
workforce. Worker skills have greatly lagged technical change and 
tectonic shifts in the structure of our economy. Immigration 
restrictions and massive dislocations in several industries in 
recession have magnified that mismatch as workers who have been trained 
for one occupation lose their jobs. And even in health care, an oasis 
of job growth, there is a growing nursing and nursing skills shortage 
that requires new training facilities. \4\
---------------------------------------------------------------------------
    \4\ See Bridget M. Kuehn, ``No End in Sight to Nursing Shortage: 
Bottleneck at Nursing Schools a Key Factor,'' JAMA 2007; 298:1623-1625.
---------------------------------------------------------------------------
    Long-term solutions include policies that keep students in school 
and improve access to education, reorientation of our higher 
educational system towards specialized and vocational training and 
community colleges, and immigration reform.
    Short-term remedies: Our current unemployment situation demands 
income support through unemployment insurance for those seeking but 
unable to find a job. Jobless spells degrade worker skills, just when 
workers need re-training. One remedy would pair training in basic 
skills that are needed for work with such income support. Two other 
groups seeking employment--newly minted college students and unemployed 
teachers--could be an ideal nucleus for a Job Training Corps that would 
empower job seekers with new skills. As is the case with Teach for 
America, the Job Training Corps would build a pool of training 
advocates who then go on to work in other occupations with the 
perspective and conviction that come from helping others to acquire 
needed skills. \5\
---------------------------------------------------------------------------
    \5\ http://www.teachforamerica.org/mission/
mission_and_approach.htm.
---------------------------------------------------------------------------
    Obstacle 3. Labor immobility resulting from the housing bust. 
America's workers have always been footloose. Even in the Great 
Depression, they looked for work wherever it was. Today, however, about 
one in four homeowners is trapped in their house because they owe more 
than the house is worth, so they can't move to take another job. Unlike 
in the Depression, when homeownership was less prevalent, negative 
equity among a nation of homeowners leads to substantially lower 
mobility rates. Owners suffering from negative equity are one-third 
less mobile according to one study. \6\ That is leading to a wave of 
``strategic defaults,'' in which borrowers who can otherwise afford to 
pay decide to walk away. Whether through foreclosure or default, this 
process is undermining the economic and social fabric of communities 
and reducing job opportunities.
---------------------------------------------------------------------------
    \6\ See Fernando Ferreira, Joseph Gyourko, and Joseph Tracy 
``Housing Busts and Household Mobility,'' forthcoming in the Journal of 
Urban Economics.
---------------------------------------------------------------------------
    Long-term solutions: Financial and mortgage regulatory reform are 
essential to restore the health of housing finance. Significantly 
improving financial literacy is equally important. \7\
---------------------------------------------------------------------------
    \7\ Efforts by the Federal Reserve and others are especially 
encouraging. See http://www.federalreserve.gov/consumerinfo/
foreclosure.htm and http://www.mymoney.gov/.
---------------------------------------------------------------------------
    Short-term remedies: Local efforts to stabilize communities plagued 
by foreclosure are essential, but they are not enough. \8\ It is 
essential to reduce debt, writing off bad loans while not destabilizing 
the financial system. Modifying existing mortgages seems appealing, but 
policies aimed at mitigating foreclosures under the Home Affordable 
Modification Program (HAMP) have not worked because they attempt to 
modify mortgage payments and not the amount of debt owed; re-default 
rates following modification are 50-60%. Efforts to establish a 
protocol for short sales and/or principal reduction should be a useful 
tool in avoiding costly foreclosure and strategic default. \9\
---------------------------------------------------------------------------
    \8\ See http://www.stablecommunities.org/ for examples.
    \9\ See, for example, Larry Cordell, Karen Dynan, Andreas Lehnert, 
Nellie Liang, and Eileen Mauskopf, ``Designing Loan Modifications to 
Address the Mortgage Crisis and the Making Homes Affordable Program,'' 
Brookings Institution, October 2009.
---------------------------------------------------------------------------
    Obstacle 4. Policy uncertainty is a negative for the economy and 
markets. America's long-term challenges--health care, budget and tax 
reform, financial regulatory reform, retirement saving, infrastructure, 
education, energy, and climate change--are not new. Solving them is 
imperative. But while the debates around major initiatives to address 
them are an important part of the democratic process, the uncertainty 
that accompanies major policy change is weighing on business and 
consumer decisions to hire, expand, buy homes and spend.
    Recent work confirms this intuition, underlining how uncertainty 
produces negative growth shocks. Nicholas Bloom shows how a rise in 
uncertainty makes it optimal for firms and consumers to hesitate, which 
results in a decline in spending, hiring and activity. In effect, the 
rise in uncertainty increases the option value of waiting as volatility 
rises. Moreover, this line of reasoning suggests that uncertainty 
reduces the potency of policy stimulus. \10\ That's because the 
uncertainty can swamp the effects of lower interest rates, transfers or 
tax cuts. In effect, uncertainty raises the threshold that must be 
cleared to make a business choice worthwhile, and as uncertainty 
declines, the threshold falls with it. This notion squares with our 
long-held view that policy traction from easier monetary policy, 
improving financial conditions and fiscal stimulus was lacking through 
much of last year, but improved as uncertainty fell.
---------------------------------------------------------------------------
    \10\ See Nicholas Bloom,``The Impact of Uncertainty Shocks,'' 
Econometrica, vol. 77(3), pages 623-685, 05, May 2009.
---------------------------------------------------------------------------
    I can tell you as someone who works in financial markets that 
market participants are used to thinking that political gridlock is 
good, that it prevents politicians from interfering with the 
marketplace. The financial crisis clearly exposed the flaws in that 
reasoning with respect to appropriate financial regulation, whose 
absence allowed abuses. Indeed, gridlock today is more likely to be bad 
for markets, as our long-term economic problems are partly the result 
of past policies and can only be solved with political action.
    Long-term solutions involve bipartisan leadership to tackle these 
complex problems one-by-one, in steps that are fair and call for shared 
sacrifice and benefits. That means setting priorities, making hard 
choices, communicating the game plan, and getting buy-in for it in 
advance. I would encourage you to look to the National Commission on 
Fiscal Responsibility and Reform--the deficit reduction commission--for 
leadership.
    Short-term remedies: Reducing policy uncertainty now could be a 
tonic for growth. That won't be easy or come quickly, given the 
political backdrop in this election year. But even some incremental 
clarity on policies in any of these areas would offer investors a 
chance to assess the fundamentals again--fundamentals that we still see 
as improving.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                          Stimulus Arithmetic

(By J. Bradford DeLong, Professor of Economics, U.C. Berkeley Research 
                  Associate, NBER; February 25, 2010)

    In The Wall Street Journal on February 23, Robert Barro made an 
intelligent argument against the American fiscal stimulus--the ARRA. It 
is a great relief after wading through the works of those who claim, 
one way or another, that the basic principles of economics set out by 
Say and Bastiat make it impossible for government decisions to spend. 
(They would, if they thought about it for even a minute, realize that 
their arguments also entail the conclusion that nobody else's decisions 
to spend can alter the flow of economic activity either, and hence that 
recessions simply do not happen. Which raises the question of why the 
unemployment rate has risen from 5% to 10%, but I digress.) Barro is, 
thankfully, not one of that crew. So my first desire is to wind up 
Barro and turn him loose to deal with those who stopped reading the 
economics literature before 1890, and not only never understood Milton 
Friedman \1\ but never understood Friedman's predecessors like Irving 
Fisher and Knut Wicksell.
---------------------------------------------------------------------------
    \1\ Who argued that the stimulative effects of expansionary fiscal 
policy were, as long as interest rates were at more-or-less normal 
levels, ``certain to be temporary and likely to be minor''--but who 
agreed that the stimulative effects on production and employment were 
there.
---------------------------------------------------------------------------
    However, I think Barro has gotten some key things wrong. First, I 
believe that Barro makes an error of logic in assessing how his own 
view of the situation applies to the question of what macroeconomic 
policy should be.
    Barro writes, in ``The Stimulus Evidence One Year On,'' \2\ that 
he:
---------------------------------------------------------------------------
    \2\ http://online.wsj.com/article/
SB10001424052748704751304575079260144504040.html?

                estimate[s] a spending multiplier of around 0.4 within 
                the same year and about 0.6 over two years. . . . [T]he 
                [tax] multiplier is around minus 1.1. . . . [Thus] GDP 
                would be higher [because of the ARRA stimulus] than 
                otherwise by $120 billion in 2009 and $180 billion in 
---------------------------------------------------------------------------
                2010 . . .

and by $60 billion in 2011.
    That is roughly 1.3 million more people employed in America in 
2009, 1.9 million more people employed in 2010, and 0.7 million people 
employed in 2011. Suppose that what the government spent money on is 
worth to us on average \2/3\ of what private-sector spending is worth. 
Then according to Barro we spent $600 billion on the ARRA and got $400 
+ $120 + $180 + $60 billion = $760 billion worth of goods and services 
in return, for a net social profit of $160 billion. And it is not as 
though that $160 billion would have been offset by a loss of leisure 
time on the part of those who are not but would have been employed. The 
cyclically-unemployed do not place a high value on their lost leisure.
    Only if you think there are additional large costs lurking down the 
road--that the ARRA has destabilized price expectations and set in 
motion a damaging and destructive spiral of deflation, or that the ARRA 
has used up America's debt capacity and so interest rates have spiked 
and amortizing the debt will be very costly--does the social profit 
turn negative. And neither of those things have happened. As the London 
Economist's ``Demcracy in America'' correspondent wrote on Wednesday:

                You can argue that private actors will spend the money 
                in ways that generate more employment than government. 
                . . . It's pretty hard to make this argument at a time 
                when banks are not lending . . . because they see few 
                promising opportunities. . . . You can argue that 
                government programmes generally take years to get 
                underway, and by the time the spending gets going, the 
                economy will already be in recovery . . . this argument 
                looks much weaker now than it did a year ago: the 
                recession has been far deeper than expected, we seem to 
                be having a jobless recovery, and unemployment looks 
                set to stay above the 5% ``full employment'' level for 
                many years . . .

    The long-term nominal and real Treasury rates continue to be 
absurdly low, so much so that I rub my eyes whenever I see them. Just 
today the Treasury auctioned $32 billion more of seven-year notes at a 
yield of 3.08% per year. And the market forecast of inflation--the 
spread between TIPS and normal Treasuries--remains extremely well 
behaved. As Martin Feldstein wrote yesterday, the market continues to 
expect consumer price inflation to average only 2.5% per year over the 
next several decades.\3\
---------------------------------------------------------------------------
    \3\ http://www.project-syndicate.org/commentary/feldstein20/
English.
---------------------------------------------------------------------------
    Thus I really do not understand the logic behind Barro's last 
paragraph in his op-ed, in which he claims:

                The fiscal stimulus package of 2009 was a mistake. It 
                follows that an additional stimulus package in 2010 
                would be another mistake . . .

    Second, I think Barro makes an error of analysis in reading the 
current situation. I think Stanford's Bob Hall \4\ has a better read on 
what is going on with respect to the current sizes of multipliers:
---------------------------------------------------------------------------
    \4\ http://muse.jhu.edu/journals/
brookings_papers_on_economic_activity/summary/v2009/2009.2.hall.html.

                With allowance for other factors holding back GDP 
                growth during those [years of total] wars, the 
                multiplier linking government purchases to GDP may be 
                in the range of 0.7 to 1.0 . . . but higher values are 
                not ruled out. . . . Multipliers are higher--perhaps 
                around 1.7--when the nominal interest rate is at its 
---------------------------------------------------------------------------
                lower bound of zero, as it was during 2009 . . .

    The problem, I think, is that Barro tries to use the total war 
years of the twentieth century to

                realistically evaluate the stimulus . . . the main 
                results come from fluctuations in defense outlays 
                associated with major wars such as World War I, World 
                War II and the Korean War . . .
Because

                the defense-spending multiplier can be precisely 
                estimated . . .

    This suffers from the standard economist's problem of looking for 
one's lost keys under the lamppost because the light is better there. 
Yes, the total war defense-spending multiplier can be relatively 
precisely estimated. But we are not interested in what the multiplier 
is when the unemployment rate is 3%, we are interested in what the 
multiplier is when the unemployment rate is 10%. And we are not 
interested in what the multiplier is when the government is taking all 
kinds of other steps to diminish consumption and boost private savings 
via rationing and patriotism-based bond drives, we are interested in 
what the multiplier is under more normal conditions.
    Third, Barro characterizes the stimulus bill as a two-year $600 
billion increase in government purchases. But about half of the 
stimulus money spent to date is on the tax and transfer side, and about 
a quarter is direct aid to states which enables them not to raise taxes 
during this recession. It seems to me that Barro should be weighted-
averaging his spending multiplier of 0.6 and his tax multiplier of 1.1 
to get an ARRA multiplier of 0.9--in which case our social profit is 
not $160 billion but rather $340 billion, and we should certainly do 
this again, and again, and again. (Until, that is, there are signs that 
additional stimulus may start to threaten price-level or debt-
management stability, or until unemployment falls far enough to make 
Barro's multipliers overestimates.)
    Fourth, Barro complains that because Christina Romer has ``not 
[carried out] serious scientific research . . . on spending multipliers 
. . .'' he ``cannot understand her rationale for assuming values well 
above one . . .'' To say that policymakers should rely only on their 
own personal research to formulate policy seems to me simply bizarre.
    Fifth, Barro assumes that spending in 2009-2010 is then offset by 
levying equal taxes in 2011-2012, claiming that ``the timing of future 
taxes does not matter.'' But it does. It matters very much. At the 
moment the U.S. Treasury can borrow at a real interest rate of zero for 
five years--and shove all of five-year inflation risk onto the lender 
at that. Time preference means that the $600 billion addition to the 
debt today that Barro sees as the cost of stimulus is--because of the 
easy terms on which the Treasury can finance things right now--not 
nearly as burdensome as a demand to pay $600 billion now would be. We 
get the goods now. But the costs are delayed until later, when we will 
in all likelihood be richer and feel the costs less severely.
    Sixth, when future taxes will be levied to amortize the added debt 
induced by the stimulus, they will be levied at a time at which nominal 
interest rates will not be stuck at their current floor of zero. The 
Federal Reserve will then be able to ease monetary policy--reduce 
interest rates--to offset the fiscal drag. There will be no lost 
production and employment through Keynesian channels. So I do not see 
why Barro believes that, although the stimulus boosts employment now, 
amortizing the stimulus must inevitably reduce employment at some point 
in the future.
                               __________
    Prepared Statement of Representative Kevin Brady, Senior House 
                               Republican
    I am pleased to join in welcoming Dr. Berner, Mr. Joerres, and Dr. 
Hassett before the Committee this morning.
    This is not a good time for American workers and their families. 
While there are some positive signs in the labor market--the rate of 
job losses has slowed and temporary services firms have begun to hire 
more workers in recent months--the unemployment rate is elevated and 
job openings remain scarce.
    President Obama signed the American Recovery and Reinvestment Act 
on February 17, 2009, promising that it would jump start economic 
growth, create jobs, and reduce the unemployment rate. At the time, two 
of the Administration's top economists predicted that Obama's stimulus 
plan would keep the unemployment rate below 8.0 percent.
    A year later, the Administration's rosy predictions remain 
unfulfilled. Since the Obama stimulus plan passed, the United States 
has lost more than 3 million payroll jobs. The unemployment rate is 9.7 
percent.
    At first, Administration officials tried to claim Obama's stimulus 
plan was creating or saving hundreds of thousands of jobs based on 
reports filed by stimulus fund recipients. However, the news media 
uncovered so many errors in the tabulation of these ``jobs created or 
saved'' that Administration claims became the butt of jokes by late 
night television comedians.
    On Tuesday, the Congressional Budget Office entered the fray with 
its estimates of how much the Obama stimulus plan contributed to real 
GDP growth and employment during the fourth quarter of 2009. The CBO 
used fiscal multipliers to make these estimates. Unfortunately, the 
CBO's methodology prejudges the outcome and causes it to overstate the 
likely economic benefits from Obama's stimulus plan.
    First, the CBO derived its fiscal multipliers from three 
macroeconomic forecasting models that use historical relationships 
among demand-side factors to predict the near-term performance of the 
U.S economy. These models ignore many supply-side factors. For example, 
business investment is treated largely as a function of aggregate 
demand and the real interest rate. Thus, a business tax cut does not 
affect directly investment by reducing the cost of investing and 
increasing the after-tax return on capital. Instead, a business tax cut 
affects investment indirectly through higher aggregate demand as 
business owners consume a portion of the payouts received from their 
businesses.
    The CBO even acknowledges that the models' demand-side orientation 
biases its calculation of fiscal multipliers. Quoting from the CBO 
report, ``Because they emphasize the influence of aggregate demand on 
output in the short run, the macroeconomic forecasting models tend to 
predict greater economic effects from demand-enhancing policies such as 
ARRA than other types of models.''
    Second, two of three macroeconomic forecasting models used by the 
CBO are ``old Keynesian'' models that do not allow for rational 
expectations. This creates a strong upward bias in the CBO's 
calculation of fiscal multipliers. Consequently, the CBO ignores what I 
see occurring in my district in Texas: people are saving more and 
businesses are investing less in anticipation of paying higher taxes in 
the near future to service the enormous debts from stimulus spending, 
``cap and trade,'' and new health care entitlements. Last year, John 
Cogan, Tobias Cwik, John Taylor, and Volker Wieland found that about 
\5/6\ths of the real GDP growth benefits and almost all of the net job 
creation benefits of stimulus spending disappear when a ``new 
Keynesian'' model that allows for rational expectations is used.
    For these reasons, the CBO's fiscal multipliers are biased. The CBO 
simultaneously overstates the likely economic benefits from stimulus 
spending and temporary tax rebates and understates the likely economic 
benefits of business tax cuts designed to reduce the after-tax cost of 
making job-creating business investments. Therefore, we should take the 
CBO's claims that Obama's stimulus plan increased real GDP by between 
1.5 percent and 3.5 percent and increased the number of people employed 
by 1.0 million to 2.1 million with a pound of salt.
    I am interested in hearing what the private sector experts here 
today have to say about job creation. I look forward to hearing their 
testimony.
  

                                  
