[Joint House and Senate Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 111-584
LONG-TERM UNEMPLOYMENT: CAUSES, CONSEQUENCES, AND SOLUTIONS
=======================================================================
HEARING
before the
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
APRIL 29, 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
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Members
Hon. Carolyn B. Maloney, Chair, a U.S. Representative from New
York........................................................... 1
Hon. Kevin Brady, U.S. Representative from Texas................. 3
Hon. Representative Elijah E. Cummings, a U.S. Representative
from Maryland.................................................. 5
Hon. Sam Brownback, Ranking Minority, a U.S. Senator from Kansas. 6
Witnesses
Dr. Lawrence F. Katz, Elisabeth Allison Professor of Economics,
Department of Economics, Harvard University.................... 7
Dr. Till M. von Wachter, Associate Professor of Economics,
Department of Economics, Columbia University................... 9
Ms. Diana Furchtgott-Roth, Director, Center for Employment
Policy, Hudson Institute....................................... 11
Submissions for the Record
Prepared statement of Representative Carolyn B. Maloney, Chair... 30
Prepared statement of Representative Kevin Brady................. 31
Prepared statement of Representative Elijah E. Cummings.......... 32
Prepared statement of Senator Sam Brownback...................... 33
Prepared statement of Dr. Lawrence F. Katz....................... 35
Prepared statement of Dr. Till M. von Wachter.................... 48
Prepared statement of Diana Furchtgott-Roth...................... 67
Chart titled ``Measuring the Stimulus''.......................... 85
LONG-TERM UNEMPLOYMENT: CAUSES, CONSEQUENCES, AND SOLUTIONS
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THURSDAY, APRIL 29, 2010
Congress of the United States,
Joint Economic Committee,
Washington, DC.
The committee met, pursuant to call, at 2:00 p.m., in Room
210, Cannon House Office Building, The Honorable Carolyn B.
Maloney (Chair) presiding.
Representatives present: Maloney, Sanchez, Cummings, Brady,
Burgess, and Snyder.
Senators present: Klobuchar and Brownback.
Staff present: Andrea Camp, Gail Cohen, Colleen Healy,
Kinsey Kiriakos, Jessica Knowles, Justin Ungson, Jim Whitney,
Lydia Mashburn, Rachel McFadden, Jeff Schlagenhauf, and Robert
O'Quinn.
OPENING STATEMENT OF THE HONORABLE CAROLYN B. MALONEY, CHAIR, A
U.S. REPRESENTATIVE FROM NEW YORK
Chair Maloney. I understand Mr. Brownback is on his way, so
we are going to call this committee meeting to order. The Chair
recognizes herself for an opening statement.
Just over one year ago, the current Administration took
office while the country was suffering from the worst economic
crisis since the Great Depression. In fact, last October,
Council of Economic Advisers Chair Christina Romer testified to
this Committee that the shocks we endured in the Great
Recession were actually worse than those of the Great
Depression.
But today it is clear that America is on a path toward
economic recovery. After four straight quarters of negative
growth, the economy grew during the last two quarters of 2009.
There is a consensus that when the latest GDP numbers are
announced tomorrow, we will see that our economy continued to
expand during the first quarter of 2010.
The most recent employment report showed that 162,000 jobs
were created in March, with three-fourths of those new jobs
coming from the private sector. Manufacturing employment has
been up for 3 straight months. Sales of cars and light trucks
were up in March. Excluding aircraft orders, durable goods
orders were up almost 3 percent in March, and retail sales were
up 1.6 percent, their third straight month of growth. Sales of
both existing and new homes increased in March, with sales of
new single-family homes rising by almost 27 percent, and many
surveys of the economy are optimistic about growth in both the
service and manufacturing sectors.
These improvements in our economy are proof that actions
taken by Congress, the Fed, and the Administration have put our
economy back on track. While we are making progress, the road
to recovery will not be without bumps. Although we saw
significant job creation last month, we need stronger job
creation to reduce unemployment.
In addition, while the unemployment rate rose during this
recession, it is the rise in the long-term unemployment rate
that is especially troubling. Nearly half of the unemployed
have been without work for over 6 months, and more than a
quarter of unemployed workers have been looking for work for
over a year, even before the Recovery Act was signed into law.
Some groups are suffering more than others. Younger workers,
less educated workers, and African-American workers are among
those who are likely to be unemployed and stay unemployed.
The painful aftermath of long-term unemployment is borne by
the unemployed, their families, and the economy as a whole.
While the long-term unemployed earn 30 percent less in their
new jobs than before they lost their jobs, even 15 to 20 years
later these workers' earnings are still about 20 percent less
than similar workers who did not lose their jobs. The scarring
effect of long-term unemployment also reaches into the next
generation. The children of displaced workers have lower
earnings and are more likely to be unemployed than those whose
fathers had stable employment.
Finally, the costs to the economy in terms of lost output
are great, which will have an impact on our debt and deficit;
$3.1 trillion of the deficit over the next 10 years can be
attributed to the recession due to lost and lower incomes and
the need for government assistance during periods of
unemployment.
While many believe that a rising tide will float all boats
and that a growing economy is all that we need to help the
long-term unemployed, it is clear that targeted provisions are
needed to move the large numbers of unemployed back into the
labor force.
Congress passed legislation to lessen the depth of the
recession, including the Recovery Act, which provided tax
relief for 95 percent of American families and created jobs,
while investing in clean energy technologies, infrastructure,
and education. The Worker, Home Ownership and Business
Assistance Act expanded the first-time home-buyer tax credit
and enhanced small business tax relief. And just last month,
Congress passed the HIRE Act, which provides tax incentives for
businesses that hire out-of-work Americans. The House of
Representatives passed the Disaster Relief and Summer Jobs Act
of 2010, which supports an additional 300,000 summer jobs for
young workers.
But when it comes to long-term unemployment, we need to do
more. That is why we are particularly fortunate to have such a
distinguished panel of labor economists before us today. We owe
it to the unemployed workers, some of whom are watching this
hearing, their families, and to our economy to search for ways
of getting all workers jobs.
At a recent JEC hearing, Dr. Berner, Chief Economist of
Morgan Stanley, said that we have a responsibility to look
under every rock for solutions. I look forward to looking under
new rocks this afternoon with today's panel as we search for
solutions to the problem of long-term unemployment.
[The prepared statement of Representative Maloney appears
in the Submissions for the Record on page 30.]
Chair Maloney. I thank our panelists for coming, and
recognize Mr. Brady for 5 minutes.
OPENING STATEMENT OF THE HONORABLE KEVIN BRADY, A U.S.
REPRESENTATIVE FROM TEXAS
Representative Brady. Madam Chair, I am pleased to join in
welcoming today's witnesses before the committee.
Although many economic indicators show signs of recovery,
the employment situation remains dire. As of last month, 15
million Americans were out of work, for an employment rate of
9.7 percent. Moreover, over 44 percent of the unemployed have
been out of work for 27 weeks or longer, which is an all-time
high. Given these grim unemployment statistics, I thank the
chair for convening this hearing on long-term unemployment.
I agree with many of the things that today's witnesses have
to say.
Long-term unemployment presents Congress with two distinct
challenges. First, what policies will boost economic growth,
entrepreneurship, and business investment in the private sector
so the rapid job creation will slash unemployment? Secondly,
how does America successfully address the mismatch between
skills and jobs, both today and in the future? Too many of our
long-term unemployed have limited education and skills, while
the high-paying jobs they are seeking require higher levels of
both.
Ms. Furchtgott-Roth, your written statement is such a
comprehensive indictment of the economic policies of President
Obama and this Congress that there is little to add.
To accelerate economic growth, create millions of new jobs,
and address the Obama unemployment bubble, we need to restore
America to the best business climate in the world in which to
invest, innovate, and produce. To do that, we must admit
America has fallen behind. Other nations have taken a page from
our successful playbook and have attracted U.S. companies and
jobs by lowering taxes, rewarding investment, and recruiting
research and development facilities.
To restore our economic strength, the United States must
lower its punitive taxes on business investment. Countries
around the world have been slashing their corporate income tax
rates to stimulate job-creating business investment while the
United States has largely stood pat. In 1990, our average
combined Federal and State corporate income tax rate was 6
percentage points lower than the average in other OECD
countries. We were leading our competitors. Today, it is 9
percentage points higher, and now we are losing out to them.
The same goes for incentivizing research employment in
America. In 1981, realizing the importance of research and
development for technological leadership and economic strength,
the United States enacted the R&D tax credit. At the time we
were leading the world. Seeing the benefits, other countries
have enacted more generous R&D tax credits and created
incentive packages to relocate these critical jobs elsewhere,
and now we are losing out. This Congress stood by while our R&D
tax credit expired last year. We need to restore, modernize,
and expand that tax credit immediately and permanently or watch
as the exodus of American research workers overseas
accelerates.
Misguided and harmful proposals by this White House and
Congress, during an economic recession of all times, to levy
hundreds of billions of dollars in higher taxes on capital
gains, dividends, income, U.S. energy production, inventories
and U.S. businesses reaching customers around the globe, will
only ensure America will fall further behind its international
competitors and fall further behind in creating the types of
high-paying jobs that will help solve our long-term
unemployment crisis.
If these job-killing tax increases become law, America will
have tragically gone from first to worst in business climates
among the world's largest economies. Instead, we should boldly
strive to create the best business climate in the world for
21st century jobs by reducing the Federal corporate income tax
rate to no more than 25 percent, modernizing and making
permanent the R&D tax credit, eliminating taxes on dividends
and capital gains, and reforming our international Tax Code.
The United States must also seek new customers around the
world by ratifying this year the three pending free trade
agreements with Colombia, Panama, and South Korea. They
represent $13 billion in new sales abroad and 250,000 new high
paying jobs here in America. And then to ensure our companies
and workers don't fall further behind in the global
marketplace, Washington should renew Trade Promotion Authority,
conclude a meaningful Doha Round at the WTO, and aggressively
negotiate new free trade agreements, beginning with the Trans-
Pacific Partnership.
Shifting gears and wrapping up, Dr. Katz, I would like to
thank you for your research identifying skill-biased
technological change due to the rapidly falling costs of
computers and computer-driven machinery as the major cause for
the growth of income inequality in the United States since the
1970s. Skill-biased technological change is a global phenomenon
that has widened the income gap in developing countries alike.
Your research indicates that to address the mismatch
between jobs and skills, we must improve the educational
attainment and skills of our workforce. To compete and win in
the global economy, the needs of our children in public schools
must come first. We should sweep away wasteful layers of
education bureaucracy, redirect tax dollars to classrooms, and
free principals to manage their schools.
We must also focus on the needs of young adults entering
college and workers seeking continuing education or retraining
based not on the needs of politicians or union leaders or
bureaucrats. Our current Federal retraining programs are often
too slow, bureaucratic, and driven by special interests rather
than the workers. With a worker-driven program, our colleges,
universities, and training centers can help both current and
future workers improve their skills to qualify for high paying
jobs. At the end of the day, the greatest affirmative action
program yet invented is a good, solid education.
I look forward to today's discussion, and yield back.
[The prepared statement of Representative Brady appears in
the Submissions for the Record on page 31.]
Chair Maloney. Thank you so much.
Mr. Cummings is recognized for 5 minutes.
OPENING STATEMENT OF THE HONORABLE ELIJAH E. CUMMINGS, A U.S.
REPRESENTATIVE FROM MARYLAND
Representative Cummings. Thank you very much, Madam Chair,
and I thank you for this hearing.
Like many of us in Congress, I have spent the bulk of the
last week talking about Goldman Sachs and financial regulatory
reform. We have been able to generate strong support for the
SEC casting a wider net around Goldman Sachs' Abacus
transactions. I am grateful for the support of my colleagues in
this endeavor, including members of this committee. However, I
have consistently told my staff that none of this matters if,
at the end of the day, it does not result in benefits to our
constituents.
My constituents and neighbors in Baltimore continue to
struggle--to find a job, to stay in their homes, and to provide
for their families. So many have lost jobs in this recession,
and as CBO Director Douglas Elmendorf told this committee, a
large number of those jobs are simply not coming back. That is
why the work of one of our witnesses, Dr. Katz, on the benefits
of education is essential to our ongoing recovery.
Dr. Katz has argued persuasively on the need for
educational systems and protocols that produce high returns for
young students and adult learners alike. He has written that
``Although college enrollment rates among new high school
graduates have been rising since the early 1980s, the share of
young adults completing four-year college degrees has risen
only modestly.''
Clearly, as strong as our higher education system is, there
are constituencies that are not able to thrive within the
current infrastructure. Therefore, we must embrace alternative
approaches to higher education that not only provide the
necessary critical thinking, but also real job training and
work skills.
I know that these two goals can be attained through two
approaches. First, America's community college system, which
offers not only higher education to those who otherwise could
not afford it, but also critical worker and vocational training
programs. Community colleges also provide a haven for the non-
traditional student, offering, as Dr. Katz noted in his opening
statement, high returns for the dislocated workers.
Unfortunately, the community college system relies heavily
on State and local governments to meet financial obligations,
and as we know, the recession has decimated State and local
government coffers. While the Recovery Act provided essential
assistance to community colleges, more must be done to allow
these institutions to continue to meet the needs of a changing
workforce.
The second way we can complement our traditional higher
education institutions is through customized programs developed
by business and community organizations. A top example of this
is the Bio Stars to Bio Professionals Program, a product of the
East Baltimore Development Initiative and the Biotechnical
Institute of Maryland located in my district.
The program, one I pushed for, prepares the residents of
east Baltimore for careers in biotechnology through not only
technical training, but also with the personal and professional
skills that are applicable in any vocation. This program helps
address the skill mismatch that plagues our unemployed,
especially the young and minorities, who are among the most
vulnerable in this recession.
I hope today's hearing will not only discuss the benefits
of programs like Bio Stars, but also what other efforts we must
explore and undertake to ensure that none of our constituents
fall through the cracks during the recovery.
I would also be interested to hear about how we can direct
more of our young people to jobs, say, in the green area, and
jobs in the health area.
What we have found in Baltimore is we have got Coppin State
University, for example, an Historically Black College, which
has a phenomenal and top-rated nursing school, yet they are
denying admittance. For every person they admit, a qualified
student they admit, they cannot admit five qualified students.
These students are from the inner-city of Baltimore and they
are left out in the cold. Why? Because there is not enough
space and faculty at the university.
So, I would love to hear our witnesses talk about how do we
put our priorities in order to begin to push our young people
in the direction of where the jobs are and where they will be,
and then, of course, we will address the issue of retraining. A
lot of people think they are going to get their jobs back, but
they are not.
With that, Madam Chair, again, I thank you for this
hearing, and I yield back.
[The prepared statement of Representative Cummings appears
in the Submissions for the Record on page 32.]
Chair Maloney. Thank you very much.
Senator Brownback.
OPENING STATEMENT OF THE HONORABLE SAM BROWNBACK, RANKING
MINORITY, A U.S. SENATOR FROM KANSAS
Senator Brownback. Thanks, Madam Chair. I appreciate your
holding this hearing. I appreciate the witnesses being here. I
look forward to your testimony.
Job one, two and three is getting jobs back to the United
States. We all know that. We have different perspectives maybe
on how we can get that done. I hope that you can provide us as
a panel with what we know from the data that works, that is
within our reach to do? I think that is what we need to look
at, and that is what we need to hear from you folks.
We have lost over 8 million jobs in this downturn. If you
just have a slow growth of 3 percent, you are barely keeping
track and you are barely moving up with the population of the
United States. So we need growth. We need jobs. That is what I
hope for more than anything.
Madam Chair, I appreciate very much your holding the
hearing, because this is what is on most Americans' minds. I
have a statement I will submit for the record. I look forward
to the testimony.
[The prepared statement of Senator Brownback appears in the
Submissions for the Record on page 33.]
Chair Maloney. Thank you very much.
I would now like to introduce our panel of experts. Dr.
Lawrence F. Katz is the Elisabeth Allison Professor of
Economics at Harvard University and a Research Associate of the
National Bureau of Economic Research. His research focuses on
issues in labor economics and the economics of social problems.
His past research has explored a wide range of topics,
including wage and equality trends; the impact of globalization
and technological change on the labor market; the economics of
immigration, regional labor markets, and the problems of low
income neighborhoods; and the social and economic consequences
of the birth control pill.
Professor Katz has been Editor of the Quarterly Journal of
Economics since 1991 and served as the Chief Economist of the
U.S. Department of Labor for 1993 and 1994.
Dr. Till von Wachter is an Associate Professor at the
Department of Economics of Columbia University, as well as a
Faculty Research Fellow of the Aging and Labor Groups at the
National Bureau of Economic Research. He is also affiliated
with the Center for Economic Policy Research in London. His
research focuses on the long-term impact of job loss on
earnings, health, and retirement. He has also studied the
persistent effect of business cycles on career outcomes of
younger and older workers. His work has been published in top
economic journals.
Ms. Diana Furchtgott-Roth is a Senior Fellow at Hudson
Institute and directs the Center for Employment Policy. From
February 2003 to April of 2005, she was Chief Economist of the
U.S. Department of Labor. She was Assistant to the President
and Resident Fellow at the American Enterprise Institute from
1993 to 2001. Prior to that, she served as Deputy Executive
Director of the Domestic Policy Council and Associate Director
of the Office of Policy Planning in the White House under
former President George H.W. Bush.
So, starting with you, Dr. Katz, we look forward to all of
your testimony. Thank you so much for coming.
STATEMENT OF DR. LAWRENCE F. KATZ, ELISABETH ALLISON PROFESSOR
OF ECONOMICS, DEPARTMENT OF ECONOMICS, HARVARD UNIVERSITY
Dr. Katz. Chair Maloney and other members of the committee,
I am honored to have the opportunity to talk to you today about
the extremely important and distressing issue of the plight of
the long-term unemployed. I will talk about what we know about
the causes of the growth of long-term unemployment, the
consequences of which Professor von Wachter will talk more
about, and possible solutions for the current situation.
The past 2\1/2\ years have been particularly trying ones
for American workers and their families. Labor market
conditions have deteriorated dramatically since the start of
the Great Recession in late 2007, making this the severest
labor market downturn since the Great Depression of the 1930s.
We have already lost 8.4 million payroll jobs, or a 6
percent decline in employment, through February 2010. There are
some encouraging signs of employment growth in the last month
and of GDP recovering, but we still have a tremendous jobs
problem and jobs deficit. If you take into account how much we
would have needed employment to grow just to keep up with
population growth, we are actually about 11 million jobs behind
where we would need to be, and we need to create 15 million
jobs in the next 4 years to get back to sort of a normal
employment situation.
So, clearly there is a huge job creation problem. But on
top of that, there are two particularly worrisome signs about
the aspects of the labor market. That is, as has been noted,
unemployment is increasingly concentrated in the long-term
unemployed. We have 6\1/2\ million Americans who have been out
of work for 27 weeks or more, over 6 months, and another almost
2 million that have become so discouraged that they are no
longer even looking for work, who have exhausted benefits or
have dropped out of the labor force.
So there are over 8 million Americans that can be
reasonably classified as long-term unemployed, and most of them
are permanent job losers. The rate of long-term unemployment
and the share of the unemployed who are permanent job losers
are at record levels since we have collected data starting in
1945.
This is quite worrisome because permanent job losers and
the long-term unemployed seem to have quite persistent earnings
losses. It impacts on their family and it impacts on their
health. So doing something to assist them is going to be a
first order of importance in making our society whole over the
upcoming period.
Additionally, a large share of long-term unemployed also is
a drag on a macroeconomic recovery. Their employment
opportunities tend to be less sensitive to standard macro
policies, whether fiscal or monetary policy, than those of the
short-term unemployed. So we need a robust jobs recovery, and
we are going to need to do something targeted to the long-term
unemployed.
How did we get to this situation? Obviously, the financial
crisis and the macroeconomic problems are the first order of
fact. A way of putting this in context, we currently have more
than five unemployed workers per job. We actually have two-and-
a-half long-term unemployed workers per job opening. So clearly
a macroeconomic jobs recovery is a necessary factor for
anything that will help the long-term unemployed.
But there are several reasons to think there are structural
problems beyond that were already in the economy. The first are
the skill-biased technological change and the polarization of
job opportunities in the U.S. over the last 25 years.
We have growing employment opportunities in very high-end
jobs and in-person services; a weakening of employment
opportunities in traditional middle-class jobs, whether middle
management with education, or production jobs or construction
jobs, and we are going to need to find the types of training
and job creation to provide new middle-class jobs.
So there is a skills and aspiration mismatch between the
long-term unemployed and the jobs. There also is a regional
mismatch tied up in our housing market problems and the fact
that the usual areas of expansion in the U.S. economy, places
like Nevada, places like California and Florida, are depressed.
Currently a large part of the U.S. recovery is the dynamism of
moving workers to areas of new opportunities.
What can we do to try to deal with the problems of the
long-term unemployed? On top of job creation, there are several
things I would like to conclude would make sense.
One is we need to do something to supplement their earnings
when they take a new job, serious consideration of wage loss
insurance as an additional component, a way of using
unemployment insurance more effectively to provide people with
support when they move into a new job with training.
Second, we need better reemployment services and training
opportunities. We have a lot of people going into community
colleges. They have a high rate of return when they get proper
training, but they have very little rate of return when people
are taking remedial classes or caught in a maze and not taking
the courses that line up with labor market projects.
So we need to make sure that community colleges are
reasonably funded, but we also need to provide the student
services and guidance so people take courses that have a
return.
Finally, one of the things we have learned in the last few
years is a tremendous innovation in job training. Some of the
stuff that Representative Cummings was talking about are these
what we call sectoral employment training, working between
businesses, community organizations, community colleges and
labor market intermediaries.
The latest evaluations show the highest rates of return
that we have ever seen on job training programs, and we need to
think about redirecting many of our resources that now go into,
frankly, not terribly effective Federal job training programs
into some of the more innovative ones that are working at the
community level.
I think if we do those things, we can at least have a
chance of trying to provide better job opportunities to those
who we worry are going to be left behind in this recovery.
[The prepared statement of Dr. Lawrence F. Katz appears in
the Submissions for the Record on page 35.]
Chair Maloney. Thank you so very much.
Dr. von Wachter.
STATEMENT OF DR. TILL M. von WACHTER, ASSOCIATE PROFESSOR OF
ECONOMICS, DEPARTMENT OF ECONOMICS, COLUMBIA UNIVERSITY
Dr. von Wachter. Chair Maloney, Vice Chairman Schumer,
Ranking Members Brady and Brownback and members of the
committee, it is a great honor to be with you today.
As you know, as was already pointed out, the labor market
in the United States is recovering from the most severe
recession since World War II. As the overall economy continues
to recover, an important question is the fate of the large
number of workers affected by layoffs and lengthy spells of
unemployment. My testimony is going to focus on the short- and
long-term consequences of layoffs and unemployment and on
potential policy options to ease the burden of adjustments on
workers and their families.
Judging from experience in past recessions, the
consequences of layoffs for job losers are substantial and
long-lasting along several dimensions. Our evidence suggests
that average mature workers losing a stable job at a good
employer will see earnings reductions of 20 percent lasting
over 15 to 20 years. While these earnings losses vary somewhat
among demographic groups or industries, no group in the labor
market is really exempt from significant and long-lasting costs
of job loss.
A job loss is also typically followed by extended periods
of instability in employment and earnings. During this period,
job losers can experience declines in health. In severe
downturns, these health declines can lead to a significant
reduction in life expectancy of 1 to 1.5 years.
The consequences of job losses are also felt by workers'
children, who can suffer from the consequences even as adults,
and by their families. All of these costs are likely to be
greater for the long-term unemployed.
Government programs can alleviate part of the short-term
earnings loss associated with job loss and unemployment. As a
typical measure, extensions of unemployment insurance ease the
burden of adjustment for laid-off workers. They are likely to
prevent entering into more costly government programs, such as
disability insurance, and they also provide a degree of demand
stabilization, and at least in this large recession, they are
unlikely to be associated reduction in employment in the short
or the long run.
Extension of unemployment insurance could be combined with
policies that have been able, shown to be able, to improve
employment prospects of the long-term unemployed such as
targeted efforts to help in their job search or programs
reducing costs of long-term adjustments, such as the cost of
retraining or the cost of relocating.
However, the available evidence suggests that it may be
difficult to help workers recover from the large and long-term
reductions in earnings that eventually follow a spell of
unemployment or a job loss. The majority of long-term losses
are due to losses in the value of certain skills as industries
decline. They are due to the loss of long-term career jobs, or
they are due to slow wage adjustment in the labor market.
None of these factors are likely to be easily manipulated
by government policies. Yet there may be policy options
available to prevent large-scale layoffs in the future. Such
options could be programs of work sharing, to subsidize
employment before workers are laid off and become unemployed,
or to introduce flexible work time arrangements with workers
and their employers.
For example, the cost of unemployment insurance benefits
for a typical worker is a fraction of the lifetime loss in
earnings once the job loss has taken place. So if the same
benefits were paid during employment to avoid job loss, this
would substantially reduce the cost of a recession and this
would be beneficial even if the worker were to be let go
eventually, since their earnings losses tend to be much smaller
for layoffs that don't occur in recessions.
To conclude, the evidence suggests that job loss and
unemployment during severe recessions can impose substantial
and lasting costs on affected workers, in terms of earnings, in
terms of health, and strain on their families, and it appears
the short-term burden of these costs may in part be alleviated
compared to these small costs, for example, by extension of
unemployment insurance or by introductions of wage insurance to
get long-term unemployed back into employment.
Similarly, cost-effective policies may be available to help
reemploy the long-term unemployed, for example, by informing
where they could get better jobs or where retraining would be
most efficient. Yet, less is known about how to help reduce the
substantial long-term earnings losses following a job loss and
unemployment, and given these large and long-term costs,
preventive measures to avoid massive layoffs in the future may
be a policy option worth considering.
Thank you.
[The prepared statement of Dr. Till M. von Wachter appears
in the Submissions for the Record on page 48.]
Chair Maloney. Ms. Furchtgott-Roth.
STATEMENT OF MS. DIANA FURCHTGOTT-ROTH, DIRECTOR, CENTER FOR
EMPLOYMENT POLICY, HUDSON INSTITUTE
Ms. Furchtgott-Rott. Thank you.
Madam Chairwoman, Senator Brownback, members of the
committee, thank you very much for allowing me to testify
today. I don't want to repeat what my fellow panelists have
said about the dire situation of the long-term unemployed. They
and you have laid it out well.
Over the past few days, I have spoken to many long-term
unemployed who have contacted me personally through a forum for
the unemployed called Unemployed Friends. I have spoken to
Pamela from Philadelphia, who used to work at the State's
Career Placement Center. She has been out of work for over 2
years. Doug from Battle Creek, Michigan. Greg Rosen, who used
to be a sales manager for a telecom company. Natasha Jones used
to work in administration. They are long-term unemployed. They
are all desperately looking for jobs.
Greg said to me, ``I have scaled down. All I want is a
position where I can pay my mortgage and bills.'' Gloria
Stevens sent me suggestions for changing the unemployment
insurance program.
But whereas jobs are the first priority of all these
Americans, unfortunately, the legislative agenda has reduced
jobs rather than created them. The high minimum wage, the
proposed energy and environmental legislation, the new health
care law, tax increases and the Employee Free Choice Act all
serve to drive jobs abroad rather than attract them here. And
the legislation that is under consideration but has not yet
passed serves as a warning to any employers who want to create
jobs: You create a job, we are going to punish you.
There is a joke that says Democrats love jobs; it is
employers they can't stand, and many of the legislative
priorities today show that.
Low-skill Americans are having a harder time recovering
from the recession because the minimum wage has increased over
the past 3 years from $5.15 to $7.25 an hour. A minimum wage of
$7.25 an hour plus the mandatory employer's share of Social
Security, unemployment insurance and worker's compensation
brings the hourly employer cost close to $8 an hour, even
without any benefits. So employers only hire workers who can
produce $8 an hour or more in goods and services.
At a time of high unemployment, the Federal Government is
dooming unskilled workers to the ranks of the unemployed by
saying they cannot even take the first step on the rung of the
career ladder.
Let's look at tax increases. Income taxes on the most
productive small businesses, often called the engine of growth
in the economy, are going to increase, making them less willing
to expand production and employment now. The top tax rate on
business owners who pay taxes as individuals, not corporations,
which is how small businesses file their taxes, is now 35
percent. It is scheduled to go up to 39.6 percent on January
1st, 2011, and under the new health care bill it will rise even
further with an addition of an almost 1 percent Medicare tax on
wage and salary income and a 3.8 percent tax on investment
income. With state taxes, some combined rates will exceed 55
percent.
In addition, last week the Senate Budget Committee passed a
fiscal 2011 budget resolution that includes an increase in the
top tax rate on dividends to 39.6 percent from the current 15
percent. That is a 164 percent tax increase.
The cap-and-trade bill, another legislative priority, would
raise energy prices, impose strict new efficiency standards on
automobiles and appliances, and mandate greenhouse gasses per
person back to 19th century levels by 2050. That is enough to
discourage anyone from creating a job here in the United
States. It would discourage jobs in the United States in oil,
natural gas, and coal. It will create jobs building more
expensive forms of energy, such as solar panels and wind
turbines, in China, not here.
The bill's $800 billion-plus price tag comes from new
taxes, higher prices for energy and increased borrowing. Again,
this decreases jobs in the United States.
In Spain, Economics Professor Gabriel Calzada Alvarez of
the Universidad Rey Juan Carlos has indicated that Spain has
spent about $763,000 per green job, and higher energy costs
have driven away many kinds of jobs. This is not the path we
want to be following. And even in Spain, which has beautiful
sunshine, solar power didn't account for even 1 percent of 2008
electrical production.
As we all know, and as we have seen, the new health reform
bill is also going to hurt employment. Companies across the
industry spectrum, such as AT&T, Prudential, Verizon, and
Caterpillar, are all writing down their earnings because the
new bill is going to raise their taxes. Higher insurance
premiums and taxes on income and payrolls are going to leave
individuals with less to spend on goods and services. Employers
are going to be required to offer health care to workers or
face a $2,000 per worker fine. Again, that doesn't encourage
employment. That discourages employers from hiring. It makes
them want to have more machines and fewer people.
Let's look at the Employee Free Choice Act, which attempts
to raise union membership by making it easier for unions to
organize. The bill would take away the secret ballot in
elections for union representation, as required for almost 75
years, and impose mandatory 2-year contracts through political
arbitrators.
Michigan, one of the highest unionized states, has one of
the highest state unemployment rates, now about 14 percent. Why
do we want to make more states follow Michigan?
Let's look at regulating private sector employment. The
Davis-Bacon and Service Contract Acts and their associated
regulations have always required contractors to pay prevailing
wage rates. Now, in addition, project labor agreements ensure
that workers in the construction sector are being paid wages
even higher than Davis-Bacon rates, and the Administration is
also discussing giving preferences to ``high road''
contractors.
These regulations worsen unemployment by raising the price
of labor, causing fewer workers to be hired. Taxpayer dollars
don't go as far because projects are more expensive. And small
business, the engine of job growth, will employ workers.
Under project labor agreements, all employees on projects
over $25 million have to receive union-approved wages and
benefits, even if they don't belong to unions. This drives out
small business from competing for these projects, raises their
costs from taxpayers, and funnels a larger stream of union dues
from taxpayer pockets to union treasuries.
On April 13th, the Administration issued final regulations
for this executive order mandating project labor agreements.
The order is going to take place on May 13th.
In addition to these project labor agreements, the
Administration is discussing an additional method of regulating
Federal contracts called the high road procurement process. The
high road contractors would pay living wages and they would be
given preference for government contracts now worth about $500
billion a year. And just as with project labor agreements, the
government would award the contracts to the highest bidder, not
the lowest bidder, reducing employment.
Recommendations: What is needed is a whole new approach to
job creation, and I agree with my fellow panelists on some of
their recommendations. Approximately $358 billion of the $787
billion stimulus has been spent, leaving us with more than $420
billion that we could use. There is still time to reallocate
the remainder.
Lower taxes encourage firms----
Chair Maloney. The gentlelady's time has expired. Could you
summarize and move forward with questions?
Ms. Furchtgott-Roth [continuing]. Yes, let me summarize.
We could have lower taxes; we could reduce the minimum wage
to $5.15 an hour; we could encourage community colleges to
offer high return courses.
In answer to Congressman Cummings's question as to why more
high-return jobs are not created, community colleges have an
incentive to offer fewer courses in nursing, which is a high-
return profession, and I have written a paper on this. They
could be encouraged to have more high-return slots, such as
nursing.
We could have wage insurance that would give the unemployed
an incentive to take a lower paying job and pay part of the
difference between the lower paying job and the higher paying
job.
I would just like to conclude with today's editorial from
the Washington Post talking about the problem with Greece and
the debt ratio. It says, ``For all of Europe's indebted
governments, the key statistic is the ratio of government debt
to gross domestic product. Greece's is 125 percent.'' Ours, by
the way, is now 63 percent, due to be 90 percent in 2020.
The Washington Post writes, ``Austerity can cut the
numerator--debt--but only growth can increase the denominator--
GDP. In many countries, labor protections, bloated public
sectors, byzantine taxes and other stultifying policies have
hindered private investment and employment. From Madrid to
Athens, politicians must take on the special interests that
benefit from outmoded practices, lest their countries sink into
permanent stagnation or worse.'' And we in the United States
must also pay attention.
[The prepared statement of Ms. Diana Furchtgott-Roth
appears in the Submissions for the Record on page 67.]
Chair Maloney. Thank you very much for your testimony.
I first would like to ask the panelists if they are aware
of the use of unemployment checks to cover the costs of
training as one idea of how to move forward.
Beginning with Dr. Katz, are you familiar with the Georgia
Works program that began in 2003, and other States trying to
follow this example? It pairs unemployed workers with companies
for job training, and during their training they would receive
their unemployment check and also a stipend to cover
transportation and other costs, and there is no cost to the
employer. And at the conclusion of the training, sometimes
there is a job waiting for them that they have been trained
for. According to a report I read, over half of the people who
entered the Georgia Works program ended up with a full-time
job.
I wonder if you have looked at this, and if such a model
could be successful with the long-term unemployed that we have
in our country now?
Dr. Katz. I think Georgia Works is a quite interesting and
promising program. I do not know all the details of it in
specific, but there is something--traditionally the way our
unemployment insurance system worked is basically employers
paid money, which largely came out of workers' wages when you
look at the incidence of it, to provide this insurance for when
downturns occurred workers would have some support. The
unemployment insurance system was only supposed to use its
money to pay out benefits and determine eligibility.
People who receive unemployment insurance benefits are
supposed to be searching for work, but a big question is what
does it mean to search for work within that system?
Historically, there are two other ways to get work than to just
go pound the pavement. One is to actually increase your skills
and move into a new job, which is known as State-approved
training, and Georgia is using that ability and interpreting it
I think in the correct way. And the other way is to actually
form your own business, and about half the States in the U.S.
allow people to use unemployment insurance to set up a business
plan and support themselves while they are forming their own
business.
Our evaluation of the self-employment one is that for a
small group of unemployed it is a quite beneficial program that
helps in moving forward in both getting them employed and
creating new businesses for others. And the best evidence on
these sort of sectoral employment training businesses, where
the unemployed receive some support and are linked up with
employers, is that those are very promising.
This specific one I don't know about. But combining the use
of some supplement, some intermediary and employers with a job
at the end, can be a very promising approach. And making sure
that the U.S. Department of Labor and States liberally
interpret the rule of what approved training is to continue
receiving a stipend I think is quite important, and it is
something I know there are a number of efforts in many States
right now to try to expand.
Chair Maloney. A lot of job training is a job training
program at the end of which there is no job. So by hooking them
together it seems like a better approach. Can you think of
changes that you could suggest that would strengthen this
approach or to tailor it to particular sectors or demographic
groups? Or what are your ideas for generating training for new
jobs? It seems like putting the two together is an effective
way of doing things. Are there particular challenges with this
kind of approach that policymakers should be aware of as they
consider new job training and placement options?
Dr. Katz. There are a number of challenges. So what we do
know is we have seen some evaluations of programs that are
quite successful, that combine a local community group that
recruits people or gets people from unemployment insurance that
have employers, that do a lot of research in, let's say, what
do the local hospitals need, what sort of positions are they
having difficulty finding people in, can we sort of set up
something that works there.
Those programs have been quite successful at modest scale
in places like Project Quest in San Antonio. There is the
Jewish Vocational Services in Boston which appears to be quite
successful. So there are a number of these.
The issues we face are they take a lot of work and they
tend to be long-term. They are not things you can just set up
in 3 weeks and get going. So we don't know how scalable they
are. We don't know how easily transferable they are. But we do
know with creativity and the combination of employers having an
incentive of getting good workers, local communities working
with them, and workers really getting the support to go through
training that leads somewhere, the best evaluation show things
like 20-30 percent persistent earnings increases from such
programs. So those are the most promising models I have seen in
recent years.
In general, the combination of some financial support for
employers to get people into positions, some training, and some
intermediary that vouches that the worker is seriously doing
the training seem to do better than stand-alone training
programs by themselves that aren't linked to employers, and can
supplement giving workers things that look like vouchers to go
out on their own into community colleges, which can be helpful,
but this combination really does look promising.
So I think making sure that training money, that UI does
not rule out that as an appropriate way to find a job is
important, and, additionally, encouraging these models to be
transferred. For example, Project Quest in San Antonio is
spreading out into a number of other cities in Texas with some
of the State support, and there are some very nice models out
there that are promising for both the long-term unemployed and
for people with limited education from disadvantaged
backgrounds.
Chair Maloney. Thank you very much.
Congressman Brady.
Representative Brady. Thank you, Madam Chair.
I agree with members of our panel who are concerned about
the mismatch between skills and jobs, and I agree with many of
the recommendations that we need to modernize our job training
programs. We have an eight-track tape stereo job training
system in an iPad world, and it is serving us very poorly.
I want to talk about unemployment. Obviously, jobs are the
key issue. The signature portion of this Administration's and
this Congress' job creation program has been the stimulus bill,
$862 billion, plus interest, over $1 trillion.
If I could have this chart, we were told about three
promises if Congress went debt to finance the stimulus bill.
One is that the unemployment rate wouldn't rise above 8
percent. We know that failed.
The second one, 90 percent of the jobs would be created in
the private sector. That is just the opposite. The private
sector has lost 3.7 million jobs. Government has gained some
100,000 jobs.
But the one that really relates to unemployment is this: We
were promised that by the end of this year, payroll employment
in America would be at 137 million jobs. What this chart shows
is what it would take in performance on job creation over the
next months to reach that, which shows we would have to create
866,000 jobs each and every month to be able to meet that
standard that the White House and this Congress set for itself.
So my question for each of the panelists is, one, is the
White House and Congress going to be able to keep that promise
of reaching 137 million jobs by the end of this year? Secondly,
to do that, to reach it, what should Congress be doing or not
be doing in order to create job growth?
I should point out the only time in American history we
have ever added 866,000 jobs was one time, September of 1983,
only because there was a settlement of an AT&T strike that
temporarily that month boosted employment.
My question is, are they going to be able to keep this
promise, and what should Congress be doing or not doing to
create job growth over the rest of this year?
[The chart titled ``Measuring the Stimulus'' appears in the
Submissions for the Record on page 85.]
I will start with Ms. Furchtgott-Roth.
Ms. Furchtgott-Roth. There is no way employment is going to
grow by that much towards the end of the year. Congress should
say this is an emergency. We are going to freeze tax rates. We
are not going to increase tax rates on January 1st, 2011. We
are going to let the minimum wage go down to $5.15 an hour, so
low skilled workers can get their foot on the first rung of the
career ladder. We are not going to pass the Employee Free
Choice Act, we are not going to pass cap-and-trade, and we are
going to focus on basic measures that help employers create
jobs.
In the way of job training, there are many high-return
slots that could be funded through our community colleges. I
did a study of 85,000 community college students, including
those who got Cs, in the State of Florida. When they graduated
from community college with an AA or a credential in the health
care sector, they got jobs earning $45,000.
Education and health services is a sector that has been
hiring every single month since the recession began, and of
course even before. We need to make more use of these high-
return fields to get workers, especially low skilled workers,
back into the job market.
Representative Brady. Thank you very much.
Dr. von Wachter, will they be able to keep that promise,
meet that goal?
Dr. von Wachter. Well, that is a very important question. I
am not qualified to speak on that particular question as that
is very hard to predict. That is clearly an enormous task.
Several things could be done to get towards that.
First of all, one could subsidize employment through tax
breaks for employers, and reemploy many unemployed workers by
providing wage insurance to raise hiring. This could work
together with incentives for firms to provide on-the-job
training, so this could lead to the instant reemployment of
large groups of workers. This could be complemented with public
works programs, although this form of spending typically takes
longer to take effect. And certainly what is needed is to ramp
up the matching of workers and firms by providing information
on workers where the viable jobs are.
Finally, one version of job sharing that was proposed would
probably cut down on continuing job obstructions and
immediately raise the number of total created jobs.
Representative Brady. Run that last part by me?
Dr. von Wachter. Of course. This was laid out in a recent
testimony by Mr. Hassett. As others have done, Mr. Hassett has
proposed a system of job sharing in which the total number of
employment that should be reduced by a firm could be spread
across all workers by lowering hours instead. Instead of firing
workers, you lower hours and the government steps in to take
part of the wage bill. Mr. Hassett calculates that that would
lead to an instantaneous increase in jobs.
Representative Brady. Dr. Katz, are we going to hit that
goal?
Dr. Katz. I would call it an inaccurate forecast rather
than a promise. But, no, there is no conceivable way that we
will have that amount of job growth, given how deep the shock
to our financial sector was in 2008 and early 2009. So, no,
that is not a reasonable forecast.
What could we do to sort of try to get closer in that
direction? Well, I think that we could do more on providing
short-run tax breaks for job creation. I personally think a
short-run net job creation tax credit that provided a hefty tax
break to companies that expanded employment would both speed up
hiring as the economy recovers, and it would also target those
to jobs that are likely to last, because the people who would
be using it would be firms that are expanding. It should be
available to new employers since new startups are actually a
key part of economic recovery.
We need to do something to improve credit access to new and
small businesses. Those would be important things to do in the
short run. We need to make sure the purchasing power of the
unemployed stays reasonable through continuing the current
extensions of unemployment insurance both on humanitarian and
fiscal stimulus grounds, as well as on consumptions moving. And
we certainly need to improve access to training and education
and do something like wage insurance.
We can do better than the current trend. This economy has
faced a lot of damage. Employers are going to be very hesitant
to expand employment greatly. There has been a lot of
reorganization and productivity improvement.
And the other thing to remember is, while one talks about
job sharing, there actually has been a lot of job sharing in
this downturn. The number of workers who work part time for
economic reasons which we call involuntary part time is at a
record level. Just getting them back up to normal hours, which
is going to happen before firms do new hiring, is going to take
a long time. And there is going to be a lot of temporary hiring
also before permanent jobs. So all of those things are going to
have to take place before we will have a sustained jobs
recovery.
Representative Brady. Thank you, Madam Chair.
Chair Maloney. Mr. Cummings.
Representative Cummings. I was listening to the testimony,
and I have always--this issue of minimum wage--a lot of the
people who have minimum wage live in my district. And I don't
know if anybody ever tried to live off of $5.15 an hour. It is
hard. And I just want you all to--Dr. Katz and Dr.--I just want
you all to talk about that for a moment. I want job creation,
but I also want people to be able to survive. So, Dr. Katz,
would you comment on that, please?
Dr. Katz. Yes. We both want job creation, and we want
people to have jobs of reasonable quality at a reasonable
living standard. The minimum wage had eroded dramatically.
$5.15, if you put it into real terms, was much lower than the
minimum wage prevailing, say, in 1980 or 1970. The current
level of the minimum wage is not very high by historical
standards.
Before this downturn hit, the first year of the minimum
wage increase, there is no evidence whatsoever of significant
employment effects on the youth labor market. The best analyses
of minimum wage research using the sharp changes across States
of the Federal minimum wage or State minimum wage changes have
found in the range of minimum wages in the U.S. almost no
adverse employment impacts but substantial positive impacts on
earnings.
Furthermore, the notion of lowering a minimum wage from
existing standards--in fact, there is a large amount of
experimental evidence of what happens in a labor market when
you cut back wages from what was the prevailing standard. In
fact, workers won't work at something that is viewed
substandard. The reservation wage, which is a technical term in
economics, rises with the minimum wage. So reversing a pre-
existing increase in minimum wage does not have the same
effect, even if you believe the minimum wage has adverse
employment effects.
Furthermore, we have had youth sub-minimum wages and
training wages, and firms don't take them up. They actually
don't believe in paying teenagers lower wages than people doing
the exact same job standing next to them. It violates their
standards. I did some of the earliest work on that.
So I don't think time is right for a large new increase in
the minimum wage, given the state of the labor market, but I
think what Congress did was a reasonable response to the
erosion in the past and that what we need to do is have much
more demand for workers, improved training so people are really
worth over 8 bucks an hour. And, if necessary, we need to do
the type of net job creation tax credit, which is naturally
going to be somewhat capped and will lower the cost of hiring
new workers and at least for some period will offset the impact
of the minimum wage. But that would not be a particularly
effective way of either improving employment and it certainly
wouldn't improve the living standards of disadvantaged workers.
Representative Cummings. Let me just throw this question
out to you, Dr. Katz, and you, Dr. von Wachter. You both
discuss in your written testimonies the fact that falling home
values, especially in places like Florida, California, and
Nevada, have limited workers' geographic mobility and limit a
workers' ability to move to where the jobs have sprung up.
Now, as the chairlady said a moment ago, there are people
probably watching this right now or they may be watching it
later on on tape; and they are glued to their TVs because they
are trying to figure out--they are saying, okay, if there is
one job, for every job there are five folks trying to get it.
And they are one of the five, and they are trying to figure
out, where can I go to get a job?
So what do you say to people like that? Are there areas
that have recovered faster? And why have they recovered faster?
You mentioned a program, something Quest, a moment ago. So
where do they go, the person who is desperate, has got two
kids, five and aides, and a husband, a husband and wife? They
are just trying to make it. Right now, they are both out of a
job, or one of them has lost a job and now 65 percent of the
income is gone. What do you say to them? Any of you.
Dr. von Wachter. As I pointed out--and I should make
clear--this is more of a medium- to long-term help to help
workers once the economy has picked up to move to the places
where more jobs are being created.
In the short run, as you point out, there is no place to
go, and we need other measures. We need to match workers and
firms with firms who want to create jobs or to train workers,
and then we could pay firms to effectively lower the minimum
wage but require that workers be trained alongside. Or we need
to provide some form of wage insurance, or we need to provide
unemployment insurance in the short run to help people do their
living.
But in the medium run, helping workers to reset their
mortgages would be very helpful, and here is a program for
workers receiving unemployment insurance that is called HAMP
that helps them reset their mortgage which will in the long run
improve mobility. So that is the right way to go.
Representative Cummings. Doctor?
Dr. Katz. I agree with what Dr. von Wachter just said. I
think that in an economy that still has a 9.7 percent
unemployment rate there are some pockets of opportunity. There
are a few States out there with actually low unemployment
rates, but they--the truth is, we for a long time have had--the
U.S. is a very mobile society. There are certain areas that
have been attracting workers for the last century. As things
get better in the Sunbelt and other places--and most of those
areas are still quite depressed because they were some of the
areas where the subprime hit the worst.
So we need a stronger recovery. There will be. Florida will
grow in the future. Places like Nevada and California will
again. And there will be new opportunities, but it is going to
take some time.
The key thing is, one, to pick up a set of skills that are
going to be valuable as the economy recovers. So finding a good
community college program, finding a good program through one
of these sectoral employment things and trying to learn about
what are your interests and what are the types of things
available, some of the local programs you talked about and
being willing to actively search and to take a job that might
not have the best wage to start but might be a stepping stone
to some other place.
But the truth is we do need more aggregate job creation.
Because even if we could magically take every unemployed worker
and put them in the existing openings, we would still have an 8
percent unemployment rate.
Chair Maloney. Thank you.
I would like you to comment on younger workers. I have been
talking to graduating students, and many of them do not have
jobs. Some of you testified earlier about the impact of long-
term unemployment on productivity and on long-term earnings,
and it appears that this would have a huge impact, particularly
on younger workers. So I would like to ask, Dr. von Wachter, if
you could comment on what we can do to help get these young
people back on track. And should training programs for teens
and young adults look different from those that we are trying
to develop for our other workers that have lost jobs? And are
there training and placement strategies that have been
particularly effective for younger workers?
I am particularly concerned about the comments you made
earlier about the long-term unemployment having such a huge
impact on future productivity and earnings, as it seems to be
extremely challenging for young workers who are not able to
find a job upon graduation from high school or college.
Dr. von Wachter. Thank you, Chair Maloney, for your
question.
First, the good news. Compared to a laid-off mature worker,
a worker, for example, that graduates from college in a
recession will eventually recover their earnings, on average.
The bad news is that this will take between 10 to 15 years.
The recovery process typically works this way. Workers
start at firms and employers that pay, on average, low wages.
They search for a better employer. And then, once they arrive
at the better employer, say after 5 years, they keep growing
within the firm to recover the wage loss.
So workers have to stay very mobile. And that is the first
message that has to go out there to younger workers or young
college graduates, that they have to stay mobile for the next 5
to 10 years. And mobile means being mobile across regions, it
means being open to new occupations, it means switching jobs
and switching industries. And whatever can be done to help
these workers in this rebuilding of a career that got off the
wrong foot should be helpful.
First of all, informing workers and making them realize two
things. First, once the economy picks up, they are not going to
immediately pick up. It is going to take another 10 years from
there. And they have to be active.
Second, they have to realize that something may have to
give, meaning their ideal career path or their ideal location
won't come through anymore. So either they have to change
occupation or change location. Whatever help can be given, for
example, for noncollege graduates or something like the Georgia
Works program would be an excellent example. Or, for college
graduates, help to do internship or to match to growing firms
would be extremely helpful.
Chair Maloney. Dr. Katz and Ms. Roth, would you like to
comment on strategies for our younger workers?
Dr. Katz. So I think what Dr. von Wachter said was quite
sensible. I mean, the first thing I--I would reiterate what he
said, which is the largest consequences of job loss are
actually the more mature workers. Young workers luckily, they
experience a lot of pain, are more flexible and adaptable and
more willing to go back to school.
But the first thing I would say is staying in school is
always a good thing to do, given the economic returns to higher
education in the U.S. It is even more important given the
current employment situation and the fact of having a set of
skills that will allow you to adapt to things that we don't
understand yet where the jobs of tomorrow will be quite
important.
So there are two interesting signs in the current labor
market and overall experience for young people. One, the Bureau
of Labor Statistics just released 2 days ago numbers that we
have a record rate of college enrollment among last year's high
school graduates, up to 71 percent. That is something to
applaud, because that is going to pay off in the long run. In
fact, it was the tremendous expansion of people staying in high
school in the Great Depression that greatly set us up for a GI
bill afterwards and for great growth afterwards. That is
important.
On the other hand, the youth problem is bifurcated. While
more people are staying in school, the enrollment rate is up,
more people are both out of work and out of school. And when
you leave school and don't have a job and don't go any farther,
that is where the persistent things happen.
So we need to, one, encourage people to be in school, but,
two, we need to think about things that are actually going to
provide employment and training for young workers out. And if
you look, what we sometimes call the idleness rate for young
men now in particular in the U.S. is reaching incredibly high
levels, and those are not the college graduates who all will
make it up in a decade. We need to keep people out of crime,
which has long stigma effects. And thinking of something
seriously on youth jobs directly being created or some form of
wage subsidy there I think is a sensible thing in the short
run. We now have the lowest youth employment rate since it has
been recorded since World War II.
Chair Maloney. And we did pass in the House this summer a
youth program and also the HIRE Act that has a tax incentive to
hire unemployed workers.
Mr. Brady.
Ms. Furchtgott-Roth. I thought you said I could answer the
question.
Chair Maloney. Yeah. Absolutely. Go right ahead.
Ms. Furchtgott-Roth. My research shows that if young people
get degrees in high-return fields--and it doesn't necessarily
mean a 4-year BA; it could also be credentials or an AA degree
in a community college--they do very well. Forty-five percent
of the Nation's freshmen are at community colleges; and they
need to be guided into fields, these high-return fields.
What is also relevant for these young people is the minimum
wage. I agree with Dr. Katz, that it doesn't affect the economy
as a whole, but it overpoweringly affects teenagers. More than
half of the people on the minimum wage are teenagers, many of
them in the leisure and hospitality sector.
We talked about internships, letting them get internships.
Well, the Labor Department is now investigating internships at
for-profit businesses. So not only are we raising the minimum
wage so we can't let them have minimum wage jobs, we are not
letting them work for free to have business experience either.
They are just supposed to sit around at home and not do
anything.
If the minimum wage didn't have any effect, as Dr. Katz
says, why not raise it to $20 an hour? That way everyone would
be better off if there were no costs associated.
The point is, it does affect, not the economy as a whole
but this small group of teens. It means that when they graduate
from college they will not have the work experience that they
would have had otherwise.
By the way, there is still an exemption for teens in the
minimum wage. They can earn $4.25 an hour. But the reasons
firms aren't taking them up is because it is just so
complicated to do the paperwork. It is really complicated
paperwork. If you only hire them for 3 months at a time, then
they can be employed right now for $4.25 an hour.
Chair Maloney. Thank you.
Mr. Brady.
Representative Brady. Thank you, Madam Chairwoman.
The problem with subsidizing employment is the job only
lasts as long as the taxpayers pay for it, and we are running
trillion dollar deficits last year and for this year and for
the next decade if we don't change our ways. That is adding a
great deal of, I think, angst to consumers who are not only
worried about their own jobs but they are worried about this
dangerous level of deficits and debt and the drag it will
create ultimately on our economy.
I guess we all know job creation from our local region. In
2007/2008, while unemployment was increasing in Michigan, Ohio,
and other States, our biggest problem in southeast Texas--we
met every 2 weeks--is we could not find enough workers for the
jobs. Yet our Federal training programs actually discouraged
relocation and discouraged regions from advertising in other
areas to tell them what the jobs are in that area.
I think, again, we want our folks to stay in their
community and to find jobs there. Sometimes regional
opportunities occur, and I think we ought to be more worker-
neutral, geographic-neutral in our training programs so that,
given other options, if moving is one that gives them a
standard of living and restores it, that we allow the worker to
make that choice.
It has changed in our region. I have run past our small-
and mid-sized business the ideas and the details of the job tax
credit and they reject it and the reason being is they are
fearful of what is coming ahead of them. They are fearful about
and have been about the health care mandates, about cap and
trade, which would destroy 200,000 jobs in our region, 30 to
$40 billion in new energy taxes that would discourage
exploration production here in the United States and would cost
our independent producers 300,000 jobs. They are very worried
about new taxes on real estate partnerships, the ones who
construct our apartments and strip centers and office buildings
and multifamily housing; and I am convinced the reason we are
having such a subpar economic recovery is that uncertainty that
has been created by the agenda up here in Washington.
But back to the original point. How do we remove that
uncertainty and how do we finally reform our job training
program so that they actually are effective? I see pockets of
them. I see models of them. But, as a whole, I think they are
generally--I don't want to say doing a poor job but not doing a
good job of training for the skills not just of today but of
tomorrow.
Dr. Katz--I started last time on the other end of the dais.
Dr. Katz, do you want to weigh in? How do we make them work the
right way? Because we have all talked about it for an awfully
long time.
Dr. Katz. Yeah. So there are a number of ideas out there.
One is, we should be consistently evaluating programs, using
true, scientific, random assignment methods; and then we ought
to be hardheaded about the ones that don't seem to be
effective, and we ought to be much more generous with the types
of ones that seem to be effective. That is the first important
thing to do.
A second important thing to do is we need to improve the
incentives of the job training programs and the one-stops
themselves. There are some interesting examples, for example,
in welfare to work, that a number of States have done where
they basically use intermediaries to try to help people find
jobs. Sometimes they are community colleges, sometimes they are
other nonprofits and community groups. But they basically
essentially say, you don't get to choose who your clients are.
We are going to assign you ones. Those clients can go to other
places, but you are responsible for trying to make them do
well. We are going to compensate you not just on a fixed amount
of money for each client you see. You are not going to get the
same amount for your center. We are actually going to pay you
on the things we care about, not just are they placed tomorrow
because you got them a temporary job but a year from now or 2
years from now, how many of them are sort of earning and how
well are you doing versus others.
We could greatly improve--we use a lot of contractors. We
have very short-term limited sort of incentives. And in the
welfare to work area, we have seen the ones where they get sort
of longer term incentives, don't just churn people through
temporary jobs and short-term programs, so we can use the
intermediaries better.
And then we have to empower the workers themselves with
better information and choice. These intermediaries ought to
have incentives, but they shouldn't have monopoly power on what
sort of programs workers use.
I think if we do all of those things, we could have a much
more effective system.
Just to conclude, there was one other important point. We
have lots of people entering community college. And when you
take a good program that leads to a certificate, it has very
high payoff, but a huge number of people in community colleges
spend time taking remedial courses, taking courses that are not
going anywhere.
We need to, one, reform, make sure the people up front do
some sort of intensive, getting over their remedial courses
quickly, rather than just throwing them, not knowing they are
not getting credit; and, two, we need much better guidance for
students entering community colleges about what types of things
are actually leading to jobs.
We could do much better. The graduation rates at many
community colleges in the U.S. are in the 15 percent, 20
percent range. We need to do better than that.
Representative Brady. I am out of time. Is there
disagreement with some of those recommendations?
Dr. von Wachter. I completely agree that it is sensible,
what Dr. Katz said. Let me just say that my research shows that
people who have more math-based subjects, say, in college will
do much better in a recession. So that is an extremely
important point.
Another point is that the idea of matching firms with
potential trainees allows an input by employers to what type of
training they require, and that would be a very helpful step in
making the training programs work.
Ms. Furchtgott-Roth. There is a certain amount of
accountability already at One-Stop centers to the extent that
they don't take everyone who comes in and wants to be trained.
They give them tests beforehand. And if they think they can't
be trained properly and given a job, they actually don't take
them on. So there is a problem also with the people that One-
Stop centers turn away. What do we do with those?
One idea--you asked about relocation--that we explored when
I was in the Bush Administration was career advancement
accounts or personal reemployment accounts, where someone,
instead of getting their 6-month unemployment insurance
benefits spread out over 6 months, would have it as a fixed sum
at the beginning. This would give them a fixed sum of money,
which they could use either for a training program, or to
relocate, or to buy a car to get to work, or something like
that. And, unfortunately, this did not pass Congress, but it
was a well-developed idea which I think could still be
considered.
Representative Brady. Madam Chair, thanks for letting me go
over time.
Chair Maloney. Thank you.
And Mr. Cummings.
Representative Cummings. Madam Chair, Dr. Katz, I want to
pick up on where you left off with regard to this community
college thing.
You make a very valid point. I know a lot of young people
who go to community colleges and never graduate because they
can't get past the remedial math. In other words, they have
taken all the courses, they get to the end, and then they are
spending all kinds of money and time to do remedial math when
they have already gotten through everything else and some of
them with very, very good grades.
I guess this is what I am trying to get to. Based on what
you are saying, you mean--you don't mean--you are not saying
take those courses out, are you? What are you saying? So do
they never get a degree or what?
Dr. Katz. No. What I was saying is I think the way we
organize remedial or what is called developmental education in
the community colleges is not working as well as it could in
the sense that taking all of your regular courses and having
this one or not being able to go into your regular courses,
there are a number of pilot programs that seem quite successful
that essentially, rather than just entering, taking the exam
the day you enter school and then being told you can't take any
of the courses you want because you have to do the remedial,
the summer before you enter community college we actually do
the diagnostic exam.
If you are going to be needing developmental courses, we
have an intensive spending the summer--it might be 1 month, it
might be 2 months--sort of 5 days a week just on that subject
with quite talented teachers in sort of a group environment to
get you to the level where you can take the courses you really
need. Those programs where it is a group experience, there is
an ongoing evaluation of them. That is what these programs like
Project QUEST, which is quite successful, in Texas uses, seem
to be much better. Not kids who have always had problems in
certain subjects just thrown into classes like they had in high
school is not going to work.
This seems to be an approach that gets people ready to
start community college and take the type of valuable courses
that lead to a career and not get hung up. So it is not that
they don't learn math. It is clear that if you ended up at that
stage, you have a problem with the way it is traditionally
taught, not that you can't do math and there has to be a better
way of doing it. And just having a large, impersonal community
college and throwing you into these courses that you are told
to take doesn't seem to be that effective. I think we could do
much better with this sort of up front, get you past there, and
then you enter taking the regular courses. That is what I mean.
Representative Cummings. In addition to my role as a
Congressperson, I am also on the board of a historically black
college, Morgan State University. One of the things I am
discovering, panel, is that the retention rate is not what I
would like for it to be, and one of the main reasons why it is
not is because the kids don't have money. A lot of people think
the kids are just not bright. They don't have the money. And in
this recession, the McDonald's job that used to go to that
college kid is now going to that 45-year-old man that was just
laid off from Bethlehem Steel.
So it seems to me that when we are talking about reductions
in various things that government does, one of the things that
I think is very positive was this whole Pell grant--increasing
the amount of the Pell grant that folks can get out of the Pell
grant. But we have got to find ways to help fund this
education.
And then there is another piece. The Commission on Future
Graduate Education released its report today in which it
posited that, by the end of the decade, nearly 20 percent more
jobs will require a masters degree or Ph.D. However, the report
also noted that graduation rates in Ph.D. programs are low and
relatively few minority students go beyond an undergraduate
education.
As we have been so often told, the minority community has
suffered disproportionately in current and in past recessions,
and I am just wondering what policies would be used to
encourage minority students to continue their education and
keep all graduate students in the pipeline to get the doctoral
degrees.
So I am combining two things. The one, a lot of these kids
don't even have money to even get out of a community college,
let alone to get a BA degree. So it just seems to me that we
need to put our priorities in order a little differently,
because I have got kids that probably would do fine if they had
the financial support. Mamma has lost her job, daddy has lost
his job, and they are in pretty bad shape.
Panel, respond to what I just said. Dr. Katz, we will start
with you.
Dr. Katz. I completely agree that the cost of college and
the ability to pay for it is a big barrier to people
completing. So there are a couple of barriers. One we talked
about is people who aren't prepared need to do remedial
courses. The other important one, the dirty little secret, is
that the vast majority of American college students work
simultaneously while being in college. And prior to this
downturn, far more than half of all college students were
working 20 hours a week or more in the labor market to fund it.
So that greatly slows down people and the types of credits they
can take. It disrupts their training.
So, yes, one, that is exacerbated in this downturn because
the types of jobs they would get to support are now not
available. But, two, there are some interesting programs that
tie sort of financial support to taking a full load and to sort
of doing reasonably well in it.
There was an interesting program called the PROMISE
scholarship in West Virginia, which basically gave you free
tuition and support if you took a sufficient load and passed
it, that you could actually graduate within 4 years at a 4-year
college. So there are potentially ways of using financial aid
that would probably be more economical in getting people
through in 4 years rather than in 6 and 7 years and reduce the
workloads and having some where we have more sort of
performance requirements of the students but set a new norm
that you actually take a full load but we will give you support
to do that. The evidence is that could be a quite successful
path.
And the final thing you mentioned, the returns to going
beyond a bachelors degree are the one thing that has grown the
most in the U.S. economy over the last 20 years. So, yes,
anything that can encourage minority, disadvantaged to continue
on, if they have done well as an undergraduate, is going to
have a very high payoff. That has been what we call a
convexification, that is, the higher up you go in education,
the bigger seem to be the marginal returns. So that is where
the bucks are, and getting people to the point where they can
take advantage of it is certainly important.
Representative Cummings. I see my time is up.
Chair Maloney. I want to--would you like to comment on it
further?
Dr. von Wachter. Let me just add a brief thing.
Financial aid is typically based on last year's income of
the parents. Now, for the people who have been admitted to a BA
and their parents lose their job, they might not even show up
at the college or while they go to college the parents lose
their job, financial aid is based on an earnings level that
doesn't really correspond to the actual resources. So poor-
income kids are more likely to drop out. And something that is
worth considering is supporting those kids whose parents just
had a tremendous job loss while they are in college or while
they got accepted to college.
Chair Maloney. Thank you so very much.
When it comes to long-term unemployment, it is clear that
we have a great deal more to do. The painful aftermath of long-
term unemployment is borne by the unemployed, their families,
and the economy as a whole.
I want to thank our witnesses today for their excellent
testimony. You have given us some good ideas that I hope we can
follow up on in a bipartisan way.
We are shortly going to be called for votes, so I am
adjourning this meeting. Thank you.
[Whereupon, at 3:34 p.m., the committee was adjourned.]
SUBMISSIONS FOR THE RECORD
Prepared Statement of Carolyn Maloney, Chair, Joint Economic Committee
Just over one year ago, the current Administration took office
while the country was suffering from the worst economic crisis since
the Great Depression.
In fact, last October, Council of Economic Advisers Chair Christina
Romer testified to this committee that the shocks we endured in the
``Great Recession'' were actually worse than those of the Great
Depression.
But today, it is clear that America is on a path toward economic
recovery:
After 4 straight quarters of negative growth, the economy
grew during the last two quarters of 2009. There is a consensus that
when the latest GDP numbers are announced tomorrow, we will see that
our economy continued to expand during the first quarter of 2010.
The most recent employment report showed that 162,000
jobs were created in March, with three-fourths of those new jobs coming
from the private sector.
Manufacturing employment has been up for 3 straight
months.
Sales of cars and light trucks were up in March.
Excluding aircraft orders, durable goods orders were up
almost 3 percent in March.
Retail sales were up 1.6 percent in March, the third
straight month of growth.
Sales of both existing and new homes increased in March
with sales of new single family homes rising by almost 27 percent.
And many surveys of the economy are optimistic about
growth in both the service and manufacturing sectors.
These improvements in our economy are proof that actions taken by
Congress, the Fed, and the Administration have put our economy back on
track.
While we are making progress, the road to recovery will not be
without bumps.
Although we saw significant job creation last month we need
stronger job creation to reduce unemployment.
In addition, while the unemployment rate rose during this
recession, it is the rise in the long-term unemployment rate that is
especially troubling. Nearly half of the unemployed have been without
work for over 6 months and more than a quarter of unemployed workers
have been looking for work for over a year--even before the Recovery
Act was signed into law.
Some groups are suffering more than others. Younger workers, less
educated workers, and African-American workers are among those who are
likely to be unemployed and stay unemployed.
The painful aftermath of long-term unemployment is borne by the
unemployed, their families, and the economy as a whole.
While the long-term unemployed earn 30 percent less in their new
jobs than before they lost their jobs, even 15 to 20 years later, these
workers' earnings are still about 20 percent less than similar workers
who didn't lose their jobs.
The scarring effect of long-term unemployment also reaches into the
next generation. The children of displaced workers have lower earnings
and are more likely to be unemployed than those whose fathers had
stable employment.
Finally, the costs to the economy in terms of lost output are
great, which will have an impact on our debt and deficit. $3.1 trillion
of the deficit over the next 10 years can be attributed to the
recession, due to lost and lower incomes and the need for government
assistance during periods of unemployment.
While many believe that a ``rising tide will float all boats'' and
that a growing economy is all that we need to help the long-term
unemployed, it is clear that targeted provisions are needed to move the
large numbers of unemployed back into the labor force.
Congress passed legislation to lessen the depth of the recession,
including:
The Recovery Act, which provided tax relief for 95
percent of American families and created jobs while investing in clean
energy technologies, infrastructure, and education;
The Worker, Homeownership & Business Assistance Act,
which expanded the first-time homebuyer tax credit, and enhanced small
business tax relief.
And just last month, Congress passed the HIRE Act, which
provides tax incentives for businesses that hire out-of-work Americans.
The House of Representatives passed the Disaster Relief
and Summer Jobs Act of 2010, which supports an additional 300,000
summer jobs for young workers.
But, when it comes to long-term unemployment we need to do more.
That is why we are particularly fortunate to have such a distinguished
panel of labor economists before us. We owe it to the unemployed
workers--some of whom are watching this hearing, their families and to
our economy to search for ways of getting all workers jobs.
At a recent JEC hearing, Dr. Berner, Chief Economist of Morgan
Stanley, said that we have a responsibility to look under every rock
for solutions.
I look forward to looking under new rocks this afternoon with
today's panel as we search for solutions to the problem of long-term
unemployment.
__________
Prepared Statement of Representative Kevin Brady
I am pleased to join in welcoming today's witnesses before the
Committee.
Although many economic indicators show signs of a recovery, the
employment situation remains dire. As of last month, 15 million
Americans were out of work for an unemployment rate of 9.7 percent.
Moreover, 44.1 percent of the unemployed have been out of work for 27
weeks or longer, which is an all-time high.
Given these grim employment statistics, I thank the Chair for
convening this hearing on long-term unemployment. I agree with many of
the things that today's witnesses have to say.
Long-term unemployment presents Congress with two distinct
challenges:
First, what policies will boost economic growth,
entrepreneurship, and business investment in the private sector so that
rapid job creation will slash unemployment?
Second, how does America successfully address the
mismatch between skills and jobs--both today and in the future? Too
many of our long-term unemployed have limited education and skills,
while the high-paying jobs they are seeking require higher levels of
both.
Ms. Furchgott-Roth, your written testimony is such a comprehensive
indictment of the economic policies of President Obama and this
Congress that there is little to add. To accelerate economic growth,
create millions of new jobs and address the Obama unemployment bubble,
we need to restore America to the best business climate in the world in
which to invest, innovate, and produce.
To do that we must admit America has fallen behind. Other nations
have taken a page from our successful playbook and have attracted U.S.
companies and jobs by lowering taxes, rewarding investment, and
recruiting research and development facilities.
To restore our economic strength the United States must lower its
punitive taxes on business investment. Countries around the world have
been slashing their corporate income tax rates to stimulate job-
creating business investment while the United States has largely stood
pat. In 1990, our average combined federal and state corporate income
tax rate was 6 percentage points lower than the average in other OECD
countries. We were leading our competitors. Today, it is 9 percentage
points higher--and now we are losing out to them.
The same goes for incentivizing research employment in America. In
1981, realizing the importance of research and development for
technological leadership and economic strength, the United States
enacted the R&D tax credit. At the time we were leading the world.
Seeing the benefits, other countries have enacted more generous R&D tax
credits and created incentive packages for U.S. companies to relocate
these critical jobs elsewhere--and now we are losing out. This Congress
stood by while our R&D tax credit expired last year. We need to
restore, modernize and expand that tax credit immediately and
permanently or watch as the exodus of American research workers
overseas accelerates.
Misguided and harmful proposals by this White House and Congress--
during an economic recession of all times--to levy hundreds of billions
of dollars in higher taxes on capital gains, dividends, income, U.S.
energy production, inventories, and U.S. businesses reaching customers
around the globe will only ensure America will fall further behind its
international competitors and fall further behind in creating the types
of high-paying jobs that will help solve our long-term unemployment
crisis.
If these job killing tax increases become law, America will have
tragically gone from ``first-to-worst'' in business climates among the
world's largest economies.
Instead, we should boldly strive to create the best business
climate in the world for 21st century jobs by reducing the federal
corporate income tax to no more than 25 percent, modernizing and making
permanent the R&D tax credit, eliminating taxes on dividends and
capital gains, and reforming our international tax code.
The United States must also seek new customers around the world by
ratifying this year the three pending free trade agreements with
Colombia, Panama, and South Korea that represent $13 billion in new
sales abroad and 250,000 new high-paying jobs here in America.
Then, to ensure our companies and workers don't fall further behind
in the global marketplace, Washington should renew Trade Promotion
Authority, conclude a meaningful Doha Round at the World Trade
Organization, and aggressively negotiate new free trade agreements
beginning with the Trans-Pacific Partnership.
Shifting gears, Dr. Katz, I would like to thank you for your
research identifying skill-biased technological change due to the
rapidly falling cost of computers and computer-driven machinery as the
major cause for the growth of income inequality in the United States
since the 1970s. Skill-biased technological change is a global
phenomenon that has widened the income gap in developed and developing
countries alike.
Your research indicates that, to address the mismatch between jobs
and skills, we must improve the educational attainment and skills of
our workforce. To compete and win in the global economy, the needs of
our children in public schools must come first. We should sweep away
wasteful layers of education bureaucracy, redirect tax dollars to
classrooms, and free principals to manage their schools.
We must also focus on the needs of young adults entering college
and workers seeking continuing education or retraining--not on the
needs of politicians, union leaders, or bureaucrats. Our current
federal retraining programs are too often slow, bureaucratic, and
driven by special interests rather than the workers. With a worker-
driven program, our colleges, universities, and training centers can
help both current and future workers improve their skills to qualify
for high-paying jobs.
At the end of the day, the greatest affirmative action program yet
invented is a good, solid education.
I look forward to today's discussion.
__________
Prepared Statement of Representative Elijah E. Cummings
Thank you, Madam Chair. Like many of us in Congress, I have spent
the bulk of the last week talking about Goldman Sachs and financial
regulatory reform.
We have been able to generate strong support for the SEC casting a
wider net around the Goldman Sachs ABACUS transactions. I am grateful
for the support of my colleagues in this endeavor, including members of
this committee.
However, I have consistently told my staff that none of this
matters if, at the end of the day, it does not result in a benefit for
our constituents.
My constituents and neighbors in Baltimore continue to struggle--to
find a job, to stay in their homes, and to provide for their families.
So many have lost jobs in this recession, and as CBO Director
Douglas Elmendorf told this committee, a large number of those jobs are
not coming back.
That is why the work of one of our witnesses, Dr. Katz, on the
benefits of education, is essential to our ongoing recovery. Dr. Katz
has argued persuasively on the need for educational systems and
protocols that produce high returns for young students and adult
learners alike.
He has written that ``although college enrollment rates among new
high school graduates have been rising since the early 1980s . . . the
share of young adults completing four year college degrees has risen
only modestly.''
Clearly, as strong as our higher education system is, there are
constituencies that are not able to thrive within the current
infrastructure.
Therefore we must embrace alternative approaches to higher
education that not only provide the necessary critical thinking, but
also real job training and work skills.
I know that these two goals can be attained through two approaches:
First, America's community college system--which offers not only
higher education to those who otherwise could not afford it, but also
crucial worker and vocational training programs.
Community colleges also provide a haven for the non-traditional
student, offering, as Dr. Katz noted in his opening statement, high
returns for dislocated workers.
Unfortunately, the community college system relies heavily on State
and local governments to meet financial obligations. And as we know,
the recession has decimated the state and local government coffers.
While the Recovery Act provided essential assistance to community
colleges, more must be done to allow these institutions to continue to
meet the needs of a changing workforce.
The second way we can complement our traditional higher education
institutions is through customized programs developed by business and
community organizations.
A top example of this is the BioStars-to-BioProfessionals program--
a product of the East Baltimore Development Initiative and the
Biotechnical Institute of Maryland.
The program, one I pushed for, prepares the residents of East
Baltimore for careers in biotechnology through not only technical
training, but also with the personal and professional skills that are
applicable in any vocation.
This program helps address the ``skill mismatch'' that plagues our
unemployed, especially the young and minorities, who are among the most
vulnerable in the recession.
I hope today's hearing will not only discuss the benefits of
programs like BioStars, but also what other efforts we must explore and
undertake to ensure that none of our constituents fall through the
cracks during the recovery.
With that, I look forward to the testimony of our witnesses, and
yield back the balance of my time.
__________
Prepared Statement of Senator Sam Brownback, Ranking Minority
Chair Maloney, I want to thank you for scheduling today's hearing
to examine the particularly vexing problem of long-term unemployment:
the causes, consequences and solutions. Our economy continues to
struggle through a deep recession. While economic growth, as measured
by Gross Domestic Product, has returned, the labor market continues to
struggle. A total of 8.2 million payroll jobs have disappeared since
the recession began in December 2007. The official national
unemployment rate stands at 9.7%. We have experienced the first year
over year declines in the labor force since 1962. If normal labor force
growth trends had continued, the official unemployment rate would be
well north of 10% and would have registered above 11% early in the
fourth quarter of last year.
Recent gains in temporary-help services jobs are encouraging, but
since more than one million workers have exited the labor force in the
last nine months alone, as they re-enter the job market we may
experience rising payroll employment and a rising unemployment rate at
the same time.
There is no room for debate. Getting Americans back to work is job
one--and job two--and job three. A key part of that job is addressing
the problem of long-term unemployment. The duration of unemployment is
a key indicator of the health of the labor market. Short durations of
unemployment are often an indicator of a healthy labor market because
it is a sign that workers are easily able to move in and out of jobs
and various sectors of the economy.
The number of long-term unemployed--those unemployed for 27 weeks
or more--has reached 6.5 million or 44% of the nation's 15 million
workers looking for work. I suspect that number would be even more
staggering if it included those workers who have simply given up
looking for a new job. Prior to the current recession, the highest
previous percentage of long-term unemployment was 26% in June 1983 as
we were exiting the double-dip recessions of the early 1980s. To put
this in perspective, at the start of this recession, 17.3% of all
unemployed workers were classified as long-term unemployed. The
average, since data collection began in 1948, is 13.4%.
That the percentage of long-term unemployed is now close to 50% is
particularly troubling because long spells of unemployment not only
adversely affects workers' economic circumstances, but can lead to
deterioration in their future job prospects.
As Federal Reserve Chairman Ben Bernanke stated in testimony before
the Joint Economic Committee on April 14th, ``Long periods without work
erode individuals' skills and hurt future employment prospects. Younger
workers may be particularly adversely affected if a weak labor market
prevents them from finding a first job or from gaining important work
experience.''
Historically, a primary cause of long-term unemployment has been
periods of economic recession in which more unemployed workers are
competing for fewer job openings, leaving the average unemployed person
out of work for a longer period of time. The current high rate of long-
term unemployment has likely been exacerbated by the housing crisis.
Mobility plays a significant part in the ability of unemployed workers
to find new jobs, and the recent housing crisis has reduced the
mobility of many homeowners.
With nearly one out of every four mortgage holders ``under water,''
many people cannot afford to move to places that offer better
employment prospects because doing so would involve taking a
significant loss on their homes. Additionally, the glut of housing
inventory has made it extremely difficult even for homeowners who are
not under water to find buyers.
I could speculate on a number of other factors for the current
levels of long-term unemployment such as the increased presence of two-
earner families, the changing make up of the economy, or government
policies that reduce incentives to hire and be hired. We have an
outstanding panel of witnesses to discuss these and other issues. I am
hopeful that their testimony and the questions and answers will provide
us with some commonsense solutions that we can pursue on a bipartisan
basis. As I mentioned earlier, for Congress, jobs one, two and three
are getting America back to work.
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