[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

                              ----------                              

                                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

                              ----------                              


                        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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