[Joint House and Senate Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
S. Hrg. 111-585
AVOIDING ANOTHER LOST DECADE: HOW TO PROMOTE JOB CREATION
=======================================================================
HEARING
before the
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
MAY 5, 2010
__________
Printed for the use of the Joint Economic Committee
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JOINT ECONOMIC COMMITTEE
[Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]
HOUSE OF REPRESENTATIVES SENATE
Carolyn B. Maloney, New York, Chair Charles E. Schumer, New York, Vice
Maurice D. Hinchey, New York Chairman
Baron P. Hill, Indiana Jeff Bingaman, New Mexico
Loretta Sanchez, California Amy Klobuchar, Minnesota
Elijah E. Cummings, Maryland Robert P. Casey, Jr., Pennsylvania
Vic Snyder, Arkansas Jim Webb, Virginia
Kevin Brady, Texas Mark R. Warner, Virginia
Ron Paul, Texas Sam Brownback, Kansas, Ranking
Michael C. Burgess, M.D., Texas Minority
John Campbell, California Jim DeMint, South Carolina
James E. Risch, Idaho
Robert F. Bennett, Utah
Andrea Camp, Executive Director
Jeff Schlagenhauf, Minority Staff Director
C O N T E N T S
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Members
Hon. Carolyn B. Maloney, Chair, a U.S. Representative from New
York........................................................... 1
Hon. Kevin Brady, U.S. Representative from Texas................. 11
Witness
Hon. Alan B. Krueger, Assistant Secretary for Economic Policy and
Chief Economist, U.S. Department of the Treasury............... 3
Submissions for the Record
Prepared statement of Representative Carolyn B. Maloney, Chair... 22
Prepared statement of Dr. Alan B. Krueger........................ 24
Prepared statement of Representative Kevin Brady................. 43
Chart titled ``Reality vs. Forecast Unemployment Rate (%):
Actual vs. Stimulus Projections (2009-2014)''.............. 45
Chart titled ``Reality vs. Forecast `90% of the Jobs Created
. . .in the Private Sector'''.............................. 46
Letter from Representative Michael C. Burgess, M.D., dated May
11, 2010, transmitting questions for Dr. Alan B. Krueger....... 47
Letter from Dr. Alan B. Krueger dated June 9, 2010, transmitting
responses to Representative Michael C. Burgess, M.D............ 48
AVOIDING ANOTHER LOST DECADE: HOW TO PROMOTE JOB CREATION
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WEDNESDAY, MAY 5, 2010
Congress of the United States,
Joint Economic Committee,
Washington, DC.
The committee met, pursuant to call, at 1:00 p.m., in Room
210, Cannon House Office Building, The Honorable Carolyn B.
Maloney (Chair) presiding.
Representatives present: Maloney, Hinchey, Cummings,
Snyder, Brady, and Burgess.
Senators present: Casey.
Staff present: Andrea Camp, Gail Cohen, Colleen Healy,
Jessica Knowles, Lydia Mashburn, and Robert O'Quinn.
OPENING STATEMENT OF THE HONORABLE CAROLYN B. MALONEY, CHAIR, A
U.S. REPRESENTATIVE FROM NEW YORK
Chair Maloney. I believe meetings should start on time. I
am going to start this meeting even though my colleagues on
both sides of the aisle are on their way here.
Today's hearing is aptly called ``Avoiding Another Lost
Decade: How to Promote Job Creation.'' From February 2001 to
February 2009, our economy gained a mere 293,000 jobs. As we
are facing the greatest post-war economic crisis, we need to
take another look at history. In contrast to the Bush
Administration, during the Clinton Administration 22.5 million
jobs were created, an average of 234,000 jobs per month.
But even with the stellar Clinton job creation record, it
would take 3 years for us to recreate the 8.4 million jobs lost
during this recession. And that doesn't even factor in the
additional 2.5 million jobs that were needed during the
recession just to keep up with population growth. In other
words, we are about 11 million jobs in the hole.
The great recession has taken a tremendous toll on our
economy and families across the country who are struggling to
find work and make ends meet. Without the swift, effective
response from policymakers, the great recession could have been
another Great Depression.
Signed into law less than a month after President Obama
took office, the Recovery Act helped soften the blow of the
recession and returned the economy to growth in the second half
of 2009. It provided a tax cut to 95 percent of American
families, extended unemployment benefits, expanded credit to
small businesses, and provided a first-time home-buyers tax
credit to help families purchase a home.
The Recovery Act has been followed by other congressional
actions to create jobs, including the Worker, Homeownership,
and Business Assistance Act, which expanded the first-time
home-buyers tax credit and enhanced small business tax relief,
and the HIRE act, which provides tax incentives for businesses
that hire out-of-work Americans. These actions are working.
Under the current Administration, the employment report has
shown steady improvement, with 162,000 jobs created in March,
with three-fourths of these new jobs coming from the private
sector. Manufacturing employment has been up for 3 straight
months. On Friday, the JEC will hold its monthly hearing with
the Bureau of Labor Statistics Commissioner to discuss the
April employment data. I am optimistic that Friday's employment
report will show another month of robust job creation, but we
need to remain focused on job creation.
Part of the solution will be to look back to the Clinton
Administration and see what fueled job creation during the
1990s. We need to recapture the spirit of innovation that
fueled the economy for those 8 years.
Another part of the solution will be to look at the last
decade and not repeat the same mistakes. When we came out of
the 2001 recession, job creation did not return to pre-
recession levels. We can't afford to repeat the mistakes of the
last decade and rely on asset bubbles to fuel job creation. We
are still dealing with the aftermath of the housing bubble
bursting.
But just as we fail to regain the job creation momentum
after the last recession, we have also squandered a record
budget surplus, leaving us with fewer options to address future
challenges.
Part of the path forward is continuing to invest in
programs and policies that work. Yesterday, as part of the
effort to create a wide net and look for innovative but
effective approaches, the House Democratic leadership held an
economic summit. At that summit, Professor Alan Blinder from
Princeton said, ``I think the challenge for the Congress now is
to devise budget packages that are efficient in terms of job
creation, relative to any deficit increases that they cost. It
is not easy.''
In an effort to look for efficient solutions to the job
crisis, the House of Representatives recently passed the
Disaster Relief and Summer Jobs Act of 2010, which supports an
additional 300,000 summer jobs for young workers--summer jobs
that are particularly needed in this weak economy.
But we also need to take some chances and be willing to
place some bets. We should target those sectors that offer the
best prospects for growth. We should recommit ourselves as a
country to basic research that pays dividends well into the
future in new industries and new jobs.
It is clear that the private sector will drive the next
expansion, but it is also clear that government needs to be an
engaged partner, helping to build skills, to shine a spot light
on new sectors and opportunities, and to fund research that can
lead to the industries and jobs of tomorrow.
We are very fortunate today to have Dr. Alan Krueger before
us to discuss job creation. Dr. Krueger served as Chief
Economist of the Department of Labor during the Clinton
Administration and is an editor of and contributor to the book,
``The Roaring '90s: Can Full Employment Be Sustained?'' We look
forward to his testimony.
I welcome my colleague, Mr. Snyder, for any opening
statement he may have.
Representative Snyder. I am glad to be here.
Chair Maloney. And our Republican colleagues have not come
yet.
Are they on their way?
They are on their way.
So I am going to introduce Dr. Krueger and then yield back
to my Republican colleagues when they come.
Dr. Alan Krueger is the Assistant Secretary for Economic
Policy and the Chief Economist at the Department of the
Treasury. On leave from Princeton University, where he has
taught since 1987, Dr. Krueger is published widely on a broad
range of topics, including the economics of education,
unemployment, income distribution, and even what makes people
happy. In his other published work, Dr. Krueger showed that
increases in the minimum wage do not lead to increases in
unemployment. Dr. Krueger is one of the world's leading labor
economists, and we look forward to his testimony this
afternoon.
So I recognize Dr. Krueger for as much time as he would
like to use to express his thoughts today.
Thank you for being here.
[The prepared statement of Representative Maloney appears
in the Submissions for the Record on page 22.]
STATEMENT OF HON. ALAN B. KRUEGER, ASSISTANT SECRETARY FOR
ECONOMIC POLICY AND CHIEF ECONOMIST, U.S. DEPARTMENT OF THE
TREASURY
Dr. Krueger. Thank you very much, Chair Maloney.
Thank you, Congressman Snyder, for coming. I appreciate
that you mentioned the book, ``The Roaring '90s,'' that is a
book I coedited with Bob Solow.
Chair Maloney. Can you speak up? Is your mike on?
Dr. Krueger. It is on.
Chair Maloney. Maybe pull it closer to you.
Dr. Krueger. That is a book that I edited with Bob Solow
and I have to say, we reached a rather optimistic conclusion
that the set of policies that did help produce the strong job
growth in the 1990s could be replicated and extended. We saw
that evaporate in the 2000s.
What I am going to do in my remarks, which is elaborated in
the prepared testimony, is to describe what seems to me to have
gone wrong in the 2000s in terms of job growth. I reach a
somewhat optimistic conclusion that, as we found in that book
``The Roaring '90s,'' with the right set of economic policies,
it is possible to see jobs growing again and to see the U.S.
economy producing enough jobs for its expanding population.
The failure of job growth in the 2000s was not inevitable.
As Chair Maloney mentioned, we are meeting at a time when the
U.S. labor market is beginning to show signs of improvement
after moving through the worst downturn since, by some
measures, the early 1980s and, by others, all the way back to
the Great Depression. The unemployment rate is currently 9.7
percent, down from a high of 10.1 percent last October. This is
an improvement, but the number of people who want jobs but
can't find them is still unacceptably high.
The economy gained an average of 54,000 jobs per month in
the first quarter of 2010, a vast improvement over the 750,000
jobs lost per month in the first quarter of 2009. Yet even with
these recent gains, 8.2 million jobs have been lost since the
start of the recession in December 2007. A look at the jobs
picture in the past decade, even before this recession hit,
indicates that job market performance in the U.S. was poor
relative to the 1990s across a number of measures. In other
words, while the recession has taken a terrible toll on
American workers, the job market during the first 8 years of
the 2000s before the recession was already underperforming.
If you look over an even longer stretch of history, as the
first figure in my testimony shows, that despite occasional
recessionary periods, the U.S. job market has steadily
increased employment to accommodate our growing population.
That trend came to a halt in the past decade.
During the 1990s, the economy gained 22 million payroll
jobs. By contrast, from December 1999 to December 2009, the
economy lost almost 1 million jobs and nearly 3 million
private-sector jobs. With no net job gains in more than 10
years, it is no wonder that many analysts are calling this
period the lost decade.
And I want to emphasize that the jobs picture in the 2000s
is weak, even if we exclude the losses that occurred during the
recession. Over the first 8 years of the 1990s, the economy
gained almost 16 million jobs. During the first 8 years of the
2000s, however, payroll employment rose by somewhat less than
half of that, just 7.5 million jobs.
The lackluster job market performance is also evident in
the employment-to-population ratio, which is the fraction of
the working-age population that is employed. This ratio rose by
1.3 percentage points in the 1990s and reached a record high in
April of 2000. In contrast, during the most recent decade, the
ratio fell nearly 5 percentage points and is now at a level
that was last seen after the 1982 recession. And even before
the most recent recession, the share of the population that was
employed fell for both men and for women.
After looking at this poor performance, I asked myself why?
Did we get it wrong in this book, ``The Roaring '90s,'' or was
the poor performance the result of changes in policy? Was it
something inevitable due to technological change or
globalization or perhaps demographics?
One way to get a sense of whether this very weak trend,
this disturbing trend in job growth in the 2000s was something
that the U.S. was destined for is to look at other countries
that have economies that are in some respect similar to the
U.S. In particular, and my written testimony documents this, if
we look at Canada, the UK, or the rest of Europe, we see a very
different picture.
Canada and Europe had nearly a 3 percentage point increase
in the share of their populations that were working from 1999
to 2007, while the U.S. saw a decrease of over 1 percentage
point. This suggests to me that the poor U.S. labor market
performance was not inevitable. Countries, such as Canada and
the UK, were subject to the same international trends, had
access to the same technological advances, and faced similar
demographic shifts as the U.S., yet they managed to produce
significant job growth of the 2000s, as the U.S. lost jobs.
One point that I would highlight is that the U.S. has also
lost its leadership in education. The U.S., if you look at
older workers in the U.S., people 55 and over, the U.S. is
number 1 in the world in average educational attainment and in
the share of the population with a college degree. If we look
at those 25 to 34 years old, we are not in the top 10 of the
OECD. And if we look at high school graduation, excluding GEDs,
we are in the bottom of the OECD.
One of the advantages that the U.S. has had is that we were
the first to have universal high school. We led the word world
in the human capital of our workforce. And we have lost that
advantage, and I think that that has contributed to our poor
performance in the 2000s.
The dominant feature, of course, in the jobs picture in the
U.S. in the last decade was a sharp, sharp job loss during the
financial crisis. Fully 4.2 million private-sector jobs were
lost in the 6 months after the fall of Lehman Brothers in
September 2008. This pace of job loss exceeded what one would
have predicted, even from the sharp concurrent contraction in
GDP by about 25 percent. Most likely, the panic that took hold
of the financial markets spread to employers and other sectors,
causing them to react more than normally to a contraction in
demand for the goods and services by shedding workers.
To better understand the dramatic loss in employment that
we experienced in recent years, I have analyzed for this
hearing unpublished research data from the Bureau of Labor
Statistics. BLS prepared for me information from the job
openings and labor turnover survey, better known as JOLTS,
broken down by establishment size. I appreciate the effort that
the BLS put into computing and double and triple checking these
statistics for me. These data reveal that the experiences of
small establishments in the wake of the financial crisis were
notably different from that of larger establishments.
In the months immediately following the crisis, small
establishments responded by quickly laying off a large number
of workers and closing down. While mid-size and large
establishments responded by sharply cutting back on hiring.
Larger establishments also increased layoffs moderately, but
the increase was not as large as that seen by smaller
establishments. This pattern is consistent with small companies
having difficulties accessing credit to maintain employment
when demand for their products collapsed in late 2008. While
larger companies eventually had access to corporate debt
markets that would turn to function, small businesses are more
dependent on bank financing, which remains tight.
The Administration's small business proposals, including
the proposals to create a $30 billion small business lending
fund and raise the cap on Small Business Administration 7(a)
loans to $5 million, therefore, come at a particularly
opportune time.
The unpublished JOLTS data further highlight that the
improvement in the labor market to date has been unevenly
distributed across different sized establishments. Labor demand
has trended up at large private-sector establishments since
February 2008. Indeed, large establishments started increasing
employment 8 months ago, beginning in September 2009, a
possible sign of durable job growth.
Labor demand by smaller establishments, however, has
continued to be weak, with low rates of new hires in
particular. The challenges faced by small businesses remain a
significant concern to the Administration, particularly in
light of the fact that small businesses disproportionately hire
minority and less skilled workers.
In summary, the past decade could be characterized as a low
pressure labor market, punctuated by a deep recession at the
decade's end. The consequences of a low pressure labor market
are obvious: job growth that is not strong enough to
accommodate a growing labor force results in higher
unemployment. Unemployment carries severe personal and social
costs and can also reduce future economic performance as out-
of-work individuals see their skills atrophy and their
attachment to the labor market erode. A chronically weak labor
market has also been found to raise income inequality and
increase poverty.
For all these reasons and more, the Administration is
committed to working with Congress to enact policies to promote
sustainable job growth. These policies are focused on both the
short run and the longer run. Short-run policies include such
things as creating a small business lending fund to improve
credit to small businesses, as I mentioned; summer jobs, as
Chair Maloney mentioned; aid for State and local governments;
and an increase or an extension of unemployment insurance
benefits. Long-run policies include investments in education,
innovation, and infrastructure.
With that, I am happy to take any questions you might have.
[The prepared statement of Dr. Alan B. Krueger appears in
the Submissions for the Record on page 24.]
Chair Maloney. Well, thank you so much, and this is
certainly, I would say, a top priority on both sides of the
aisle, coming up with ideas of ways that we can help our
recovering economy hire more people.
And I am interested in your comments on the disparity
between hiring among large and small companies. You noted that
the labor demand has picked up significantly for larger
companies, with large establishments increasing employment in 5
of the last 6 months, but at smaller companies, demand for
labor remains very low. And part of that weak demand for new
hiring reflects the reality that small businesses are more
dependent on bank lending, which is still very tight and which
may be limiting their growth.
You mention that the President, in his State of the Union,
talked about the $30 billion TARP money loan program. Could you
comment on where that stands at this point? And also, what
impact do you believe the Administration's proposal to raise
the cap on Small Business Administration 7(a) loans to $5
million could have on small business hiring?
Dr. Krueger. I think the diagnosis is right, that the
sector or the segment of employers that are lagging most behind
now in hiring is small businesses. I think that that is a
common pattern after recessions that are caused by financial
crises. Our data are not all that great in looking
historically, and fortunately, we don't have all that many
financial panics to look at. However, normally it appears that
when we have a recession that is not caused by a financial
panic, small businesses are a moderating force. They tend to
pick up earlier and to contribute less to job losses on the way
down. That was the case in the recession in the early 2000s and
then the recovery.
In the current climate, however, it seems to be the
reverse, and larger companies, which as I mentioned, have more
access to credit markets because they have access to corporate
bond markets, do tend to be expanding more.
So that suggests to me that one avenue is to work directly
on improving credit markets. And quite a bit of effort has been
put into trying to stabilize credit markets, as you know,
trying to strengthen banks to have them raise capital where
they are in a position where they can lend.
And the Administration's proposal to take funds from TARP,
to separate it from the TARP program, because TARP has a stigma
attached to it and the banks that would be the vehicle for
doing the small business lending weren't necessarily the source
of the financial problems that we face; to take these funds,
invest them in viable banks, invest the capital in these banks
at an interest rate of, say, 5 percent. If the banks increase
their lending to small businesses, lower the interest rate.
That gives them a strong powerful incentive to increase their
lending. And we have been working intently with the
congressional leadership to try to move this proposal forward.
On the 7(a) loans, the cap of a million dollars prevents in
particular startups in certain segments for small businesses.
For example, many franchises would require more than a million
dollars for startup. And franchise companies tend to be fairly
stable businesses and fairly stable employers. So raising the
cap to $5 million I think will open up kind of a new segment
for SBA lobes with potential beneficial consequences for job
growth.
Chair Maloney. Well, assuming we can get this legislation
through, lift the cap, and have targeted money through Treasury
and TARP for small businesses, how quickly could we expect
increased capital to flow through to hiring?
Dr. Krueger. Well, I think some of it is a matter of
confidence on the part of the employers. I think some of it is
that there is considerable amount of damage that was caused by
the recession and a lot of uncertainty remains. If the dynamic
changes to one in which companies are expecting to see demand
increase, which they are seeing, if they are expecting the
recovery to continue, and if public policy can reinforce those
expectations, it is entirely possible that we can see a
continuation of the improvement that we have seen in terms of
job growth; although I have to say that the normal pattern
after a recession is that unemployment declines painfully
slowly. Job matching takes time in the job market, and
unfortunately, the historical pattern is that unemployment
declines very slowly after a recession.
Chair Maloney. My time is up.
Mr. Burgess is recognized.
Representative Burgess. I thank the Chairwoman for the
recognition.
Just a couple of thoughts on some of the data that you have
presented to us. You know, there is a pervasive sense that I
get when I go home and talk to, particularly, the small- and
medium-size employer that they are really not so much
interested in another Federal program being created to help
them. In fact, if anything, they say, spare us from another
Federal program to help us; what we need is for you to stop
doing the programs that you have been working on for the last
14 months, specifically in that vein would be health care, cap
and trade, and now the financial regulatory bill, all of which
has had a fairly toxic effect on the environment in which small
business exists.
And I particularly heard from small employers after the
passage of the health care bill, during the Easter recess,
where individuals who employed folks--I would call them entry
level jobs. They tend to pay just a little bit over the minimum
wage. They typically do not have a lot of benefits associated
therewith. And these folks were looking at the bill that we had
just passed--it had just been signed into law in fact by the
President--and say, according to our study of this, it is going
to cost us if these individuals, because the benefits are low
at these entry level jobs, if these individuals seek help for
their health care through the exchange, we will be fined a
significant amount of money for each one. So what that is
telling us is, between now and 2014, to get rid of as many of
these jobs as we possibly can. The message we are receiving
loud and clear from you, Congressman, is, don't hire right now,
because we are going to punish you if you do.
Can you tell us anything to perhaps at least address that
notion, and of course we haven't even touched the expiration of
the 2001 tax policy, which is also very heavily on people's
minds as well? So can you help us with at least, from the
direction of the administration--I know the direction of the
Democratic leadership here in Congress--but from the direction
of the administration from the Treasury Department, can you
help us with the direction on what you are doing to at least to
allay and ameliorate the fears that small- and medium-size
businesses have right now?
Dr. Krueger. Thank for the question.
I agree that a number of small businesses are concerned
about health care costs. In fact, when they list their concerns
in surveys, they often list health care costs and weak sales as
among their top concerns.
I think the health care bill that passed the Congress and
the President signed into law will help to lower health care
costs for many small businesses. Right away, they are going to
be eligible for tax credits for providing health insurance.
Representative Burgess. If I could, because my time is
limited. I don't mean to interrupt, but just on that point,
what I hear back from my small businesses, they say, this tax
credit is fairly confusing. It is time limited. And
realistically, the 6 million small businesses it was supposed
to help, in all likelihood, according to the National
Federation of Independent Business, is likely to provide help
to less than 4 million businesses. And there is also concern
because of the nature of the way that benefit or that tax
credit is written that it will decay over time. So it is not
seen as a solid backstop that the small businessman is looking
for. They are looking at a fairly hostile environment, and they
are looking for some sure footing. And I don't think that tax
credit, in all candor, I don't think that provided it.
Dr. Krueger. Well, I think their experience might be
different from that. I think what they may find after the tax
credit is made available, that it does provide relief to the
small businesses that are already providing health insurance
and for those who would like to but can't afford it. And my
memory is that credit actually becomes more generous after 4
years, not less generous, although that is something I can
certainly double-check.
I think that small businesses will also find that they will
benefit from being able to participate in exchanges, because
right now, in the small group market, they are paying very high
administrative costs. So I think that when the health care bill
is implemented, they may find that some of their concerns in
fact were not well justified by what actually took place.
Representative Burgess. But the sense now----
Dr. Krueger. You also ask about tax policy, and let me also
mention, of course, the President has supported extending the
middle class tax cuts from 2001, 2003, for those earning below
$250,000; that is the vast majority of small businesses. So the
vast majority of small businesses in fact will continue to get
a tax cut from the Administration's policy.
Representative Burgess [continuing]. Unless their gross
receipts are over $250,000.
Let me just ask you a question. And of course,
congratulations on the 1-year anniversary of your confirmation
tomorrow. That is a milestone I am sure you are aware of.
Dr. Krueger. I am now.
Representative Burgess. In reading through your resume, and
it is an impressive resume, but can you just give us a sense of
the private-sector experience you had prior to coming to this
position?
Dr. Krueger. Oh, certainly. For 20 years, I worked in the
private sector, Princeton University. I also have been in small
business, also involved in writing textbook, so that is my most
recent private-sector experience.
Representative Burgess. Would you care to elaborate what
the small business was?
Chair Maloney. The gentleman's time has expired. The
gentleman may answer his question, and then we need to move on.
Dr. Krueger. My small business involved consulting,
writing, and similar types of activities.
Representative Burgess. Thank you.
Chair Maloney. Congressman Snyder.
Representative Snyder. Thank you, Madam Chair.
And thank you, Dr. Krueger, for being here.
I will continue a little bit on this discussion about
health care because I think it is important. I think it is part
of our job to, in the words of Dr. Burgess, ameliorate anxiety.
One of the anxieties I have heard for nearly decades now
from folks back home that our current health care system, and
this is more a question to a labor economist, the efficiency
that comes from people feeling like they are trapped in a
current job because of health insurance; and it seems like it
mostly happens with family businesses, and sons and fathers and
moms and daughters that probably should have parted the company
some years before find themselves staying at the same work site
because of somebody developing a preexisting condition. They
are apprehensive about moving on. What is your comment about
how you see the impact of this bill may help the efficiency,
the economic efficiency of our country by people being able to
move around with more flexibility?
Dr. Krueger. I think your point is exactly right. I think
that job lock, the term that we use, is a potential concern for
the job market. Employees, particularly if they have a
preexisting condition or if they have a family member with a
preexisting condition, may be reluctant to change jobs for fear
of losing their health insurance coverage. Others who are
workers may have a concern about starting a small business
because they would have difficulty getting health insurance
coverage.
My father was a small businessman and he was fortunate
that, when he started his company, he was covered by my
mother's health insurance. So I know that is an issue for lots
of people and the health care bill can help to ameliorate that.
Representative Snyder. And those are people that we
currently count as being taken care of under our current
system. If you talked to them, your term job lock, they would
actually feel like their economic prospects are limited, even
though we would count them as currently a success.
Dr. Krueger. That is correct. To the extent that job lock
prevents people from moving to positions where they are more
productive, that is inefficient for the economy. We have seen
kind of a decline in labor turnover and movement across
companies which might be indeed related.
Representative Snyder. I have a couple of quick points I
just want to leave with you before I ask another question. One
of them is, I never pass up an opportunity when somebody from
the Administration comes here to say, if you want to
immediately do something about exports and about job creation,
do something about Cuban trade policy. I come from a State
where some studies have shown Arkansas would benefit the most
from making it easier to trade, particularly agricultural
products, with Cuba, and for a lot of us, it just doesn't make
sense to have the restrictions on trade with Cuba that we do.
The second point I want to make and, again, perhaps you
want to get back to us on this, but I have had some discussions
the last week or so, I am sure other members have, too, about
the issue of nursing. And here we have something, there are a
lot of jobs out there for nurses right now. It is anticipated
those needs are not going to go away because of my generation,
us aging Baby Boomers. The health care will continue to go up
and up. But we have a real problem with inadequate numbers of
faculty in nursing programs, specifically the Ph.D. type level
of training to be a faculty member in a nursing program,
because a lot of nursing programs don't pay faculty well enough
to make it worthwhile for them to stay in a teaching position.
They get lured away to other places of work.
And consequently, you have nursing programs that would be
willing to take substantially more students in order to meet
the needs of nurses out there in employment, but we don't have
adequate faculty. Maybe it has been going on for enough years
now, that maybe there would be a need for a Federal look at
that as a challenge; what can we do to encourage more folks to
stay in a nursing faculty profession?
I want to ask, yesterday or a couple days ago, I was at a
company in Little Rock, a company from India that makes the big
pipe that would transport natural gas and oil throughout the
country. This is their 1 year anniversary, about 1 year in
Little Rock; tens of millions of dollars in investment. They
are now seeing an expansion. What role does international
investment in the United States play in job creation?
Dr. Krueger. I think it plays a very important role. To
your point about exports more generally, I think that exports
are going to play an important role going forward in job
creation. If you look at the components of GDP and where is
growth going to come from, exports are a very likely source.
Foreign direct investment in the U.S. is also an important
source of job growth and there are studies about quality of
employment for those who work for foreign companies in the
U.S., which also tends to be high.
Representative Snyder. Thank you.
Thank you, Madam Chair.
Chair Maloney. Congressman Brady.
Representative Brady. Thank you, Madam Chair.
Since I was late, I would like to place my entire written
opening statement in the record if I may.
Chair Maloney. Yes.
OPENING STATEMENT OF THE HONORABLE KEVIN BRADY, A U.S.
REPRESENTATIVE FROM TEXAS
Representative Brady. Thanks for being here today, Dr.
Krueger.
After reading your written statement, I was surprised that
as Treasury's chief economist, you didn't mention the stimulus
bill or assess its effect on employment in your written
statement. I wonder if it is because the stimulus law has
failed on so many accounts to deliver the employment growth
that President Obama and congressional Democrats promised.
The Administration predicted if Congress enacted a stimulus
plan, the unemployment rate would not exceed 8 percent. We know
where that is today, 9.7 percent. They predicted payroll
employment would increase to 137.6 million by the end of this
year; it won't come anywhere close to that. And the
Administration forecast that 90 percent of payroll growth will
occur in the private sector. Actually, the only growth has been
in the Federal Government sector. The private sector has lost
3.7 million payroll jobs since the stimulus was enacted.
Secondly, when you make comparisons in your statement
between payroll employment growth in the U.S., Canada, and the
United Kingdom in the 1990s and the last decade, you say more
payroll jobs were created in the United States during the 1990s
than the last decade, while the reverse was true in Canada and
the UK.
Based on these statistics alone, you jumped to the
conclusion, the United States had better economic policy in the
1990s than in the last decade, but that comparison is gamed,
because you don't place these statistics in context. It is
where both or all three countries started that is the key.
The U.S. economy in December 1999 was near the peak of a
multi-business cycle sector boom that began in November of 1982
for a number of reasons: marginal tax rate reductions,
deregulation, openness of new customers through trade. It was
combined with disinflationary monetary policies that Federal
Reserve Chairmen Volcker and Greenspan pursued as well.
And the United States began the last decade, though, with
the recession caused by the collapse of dot-com stock bubble
and the job destroying 9/11 terrorist attack, that didn't occur
in Canada and the UK, and ended the decade with a recession
caused by the collapse of the housing bubble. So it is not
surprising U.S. growth in the last decade was not as strong in
the 1990s.
But the 1990s were not kind to either Canada or the UK so
they started at a much lower base. Canada experienced a federal
debt crisis and suffered as its resource exports fell after the
Asian financial crisis. In the UK, the collapse of the
exchange-rate mechanism on Black Wednesday triggered a severe
recession. So it is not surprising the British and Canadian job
growth was stronger in the last decade. They had nowhere to go
but up.
Finally, I find your observations on how the recession
affects employment differently in small and large firms
interesting. You attributed the difference on credit
constraints on bank-dependent small businesses. I think you are
partially right. Credit has been too tight.
But I think, from a bigger standpoint in working with our
smaller and mid-sized businesses, you would be ignoring other
more important factors. That is Washington, D.C. There is an
uncertainty created by the policies today; the businesses of
all sizes tell me they are delaying critical hiring,
investment, and expansion decisions for fear of proposals here
in Washington by the White House and Congress regarding costly
health care mandates, as Dr. Burgess said, higher energy
prices, increased regulations, and now a slew of higher taxes
on industry, on capital, international businesses.
I think businesses have good reason to worry for all of
those issues, especially the health care mandates, the fact
that almost 90 percent of all small businesses will not be
eligible for the tax credits in health care. Energy costs are
driven up by cap and trade and a slew of new energy taxes,
hidden gas taxes on the industry. And of course, the White
House has proposed more than $100 billion of penalties on U.S.
companies that export and sell abroad. So, as one owner of a
company told me, it is hard enough to predict the market, but
trying to predict Congress, too, forget it.
To address that uncertainty, what small- and medium-size
businesses tell me is that they need customers. Many of the new
customers that they can reach are outside the United States,
and other regions are recovering faster than we are. So my
question is, to Dr. Snyder's question, why are we not opening
up markets for new customers in Colombia, South Korea, and
Panama? Why are we not moving more aggressively to counter Asia
and the European Union as they cut trade agreements that leave
our workers in the dust?
Now Canada and the EU have cut deals with Colombia that
have already cut our wheat and soybean and corn sales by half
in a year. So we are not just losing customers, losing out on
new customers, we actually are losing the ones we have. So why
won't the Administration pursue new customers, give us a chance
to sell to them?
[The prepared statement of Representative Brady appears in
the Submissions for the Record on page 43.]
Chair Maloney. The gentleman's time has expired. You may
answer the question.
Dr. Krueger. Sure, there is quite a bit there to discuss.
The Recovery Act, I think, is part of the answer, by the way,
to the question that the businesses raised to you about
customers. The Recovery Act helped to support aggregate demand.
Support for the unemployed, for example, has led to more
consumer spending in the U.S. economy. That creates jobs and is
one of the forces that has helped to put the brakes on this
very steep slide that the economy was going through.
I think the Recovery Act is a critical reason why, after
four quarters in a row of contraction in the economy, we have
now had three quarters in a row of expansion. So the fact that
I didn't emphasize the Recovery Act was mainly a result of the
fact that I was looking backwards over the past couple of
decades.
On the international comparisons, I agree with you that
there are many differences going on. You never have perfect
controlled experiment when you look across national borders. I
would point out, however, that in the beginning of the 1990s,
the U.S. also had a recession, not too different than the
recession from the early 2000s. They were both, by historical
standards, fairly moderate recessions. So I think the starting
conditions were fairly similar comparing those two decades.
Representative Brady. The starting conditions of Canada and
the UK in 1999, when you begin part of your comparison, you are
saying were the same, because they were dramatically----
Dr. Krueger. Oh, no, I am sorry, when you compare the U.S.
performance in 1990s versus the 2000s.
If you are making the international comparisons, I would
make the argument that the U.S. had a lot of advantages going
into the early 2000s compared to Canada and the UK. We had
higher productivity and a budget surplus. We were starting with
better educated workforces. We had more advanced in some
respects adapting information technology, so I think one can
make an argument that the U.S. started with many advantages.
Representative Brady. When?
Dr. Krueger. When you look at the 20-year period as a
whole, the U.S. didn't perform better.
Representative Brady. I understand. The point is, we were
growing from a peak; they were growing from a valley.
Representative Cummings. Thank you very much, Secretary.
I want to go back to something that Mr. Snyder was talking
about, and I think we in government, we want to be most
effective and efficient in what we do. And it is clear, with
adding some 32 million people to the insured rolls, that we are
going to need more people, and by the way, with the population
becoming older, we are going to need more people in the health
care area. In this committee, as we have gotten reports every
month about unemployment, we noticed that it seems that the one
area that seems to not be losing jobs but adding them is health
care.
I am just wondering, what kind of coordination there is in
the Administration, when we have got, for example, a
historically black college in my district, 5 blocks from my
house, where they--it is one of the best--has one of the best
nursing schools in the country. They are turning away, for
every one person they admit, 5 inner city young people who have
done everything right, worked hard, and because of the very
things Mr. Snyder talked about, faculty and space, they can't
accommodate them. And I am trying to figure out, and what I
have been saying to my colleges, I want them to look more at
allied health areas and look more at things like nursing and
whatever, because that is where the jobs are going to be.
And I am wondering, the President talks about innovation,
and I agree with him a million percent; we have got to be
innovative. We also have to be effective and efficient. And
then we have a large population that have lost their jobs and
are not getting them back. They are not coming back. The
research is showing that people have learned, a lot of these
companies have learned to do more with less. So those jobs
aren't coming back.
So I am just wondering, what kind of coordination is there
within the Administration to begin to steer some of our folks,
both laid-off workers and our young people coming out of
school, to say, look, green jobs, health care jobs, we need you
in those areas, and how do we get them there? And how do we
address, you didn't get a chance to address Mr. Snyder's
question, how do we address questions like, turning away our
own people, our own kids that have busted their butts and done
everything they are supposed to do, and then they get to a
point to go to school, and there is no opportunity for them?
Talk to me.
Dr. Krueger. I will tell you what I can. You asked about
how coordination takes place within the Administration.
Representative Cummings. Yes.
Dr. Krueger. Obviously, the health care workforce is not a
mainline Treasury Department issue.
Representative Cummings. I understand that.
Dr. Krueger. Nonetheless, through the interagency task
force, I have been involved in discussions about, how do we
train enough health care workers for what is an expanding
sector and will continue to be an expanding sector, given our
demographics. Within the Administration, both health care
working groups, which were headed by Nancy-Ann DeParle,
considered issues about health care professionals. And then,
within the DPC and the National Economic Council, there are
also interagency groups that have looked at the question of
where do we get the biggest bang for the buck in terms of
education dollars? Where does it have the most immediate return
in terms of job creation? I would have to say I agree
wholeheartedly that nursing is one profession where we do have
demand, where workers can be retrained or the flow of workers
can be expanded, because some nursing degrees only require 2
years; others require 4 years. But there are, of course, issues
in terms of building up the infrastructure for training that
workforce. And I would also add very big regional differences
across the country. In some areas, tremendous difficulty with
recruiting enough doctors, and perhaps in those areas, nurses
can perform----
Representative Cummings. It is not just nurses. It is
allied health, all those fields, people who look at your X-
rays, take your X-rays, physical therapists, all of them. So I
will talk to the folks in the Administration because I really
want to see us address that more effectively and efficiently.
Let me ask you this, because I see my time is running out.
I know that you wrote a recent paper about the unemployed and
life satisfaction and intense sadness. A lot of people don't
realize that when a person loses their job, it is more than
just losing some money, isn't it?
Dr. Krueger. Chair Maloney mentioned my work on happiness,
which I appreciate. This work was more on misery.
We had looked at how people spend their time, how they feel
about their lives. And what is striking about unemployment is
it doesn't only affect people while they are unemployed; it has
a lasting effect. And many of life's events, people are
tremendously resilient; they adapt to them. But unemployment
seems to last for a very long time period in terms of scarring
people's psychological well-being.
And one concern is that with the high rates of unemployment
that we have, especially long-term unemployment, that that
could have an adverse effect on people going forward in terms
of their ability to get jobs in the future because they maybe
have become isolated. So I think it is particularly important
for the unemployed to make productive uses of their time, to
volunteer in their community if they can, to spend time working
around their house and their neighborhood, and not to become
isolated, which could have an adverse effect down the road.
The field of looking at people's subjective well-being has
been advancing very rapidly, and economists tend to be very
skeptical about what people's responses are about how happy
they are or how sad they are. What I think the research is
showing is that people's self-reported well-being measures do
seem to be predictive of their future outcomes. And
unemployment is one of those life events which has a long-
lasting negative effect on well-being, which is why it is so
important, as you all know, why it is so important to do what
we can to continue the recovery and ensure sustainable job
growth.
Representative Cummings. Thank you, Madam Chair.
Chair Maloney. Thank you.
Senator Casey.
Senator Casey. Thank you, Madam Chairwoman.
Dr. Krueger, thank you for your testimony and for your
public service.
Just by way of a predicate for a couple of questions, I
don't think there is any question right now that we are
recovering. The economy is growing, which is a dramatic change
from a year ago or less. And I believe the recovery bill is
having a very positive impact on the economy. We may not be
doing a very good job of talking about those positive impacts,
but that is our fault. And at the same time, the unemployment
situation is better than it has been, certainly better than a
year ago. Job loss is down, and job gains are up, but it is
still far too high. We have to acknowledge that figure.
In Pennsylvania, we have a 9 percent unemployment rate,
which a lot of big States would prefer to their own rate, but
that 9 percent still means 582,000 people out of work.
The question that I want to ask you centers on small
business and really three basic words: Access to credit, which
is a continuing frustration. I have been hearing about this
from the beginning of the recession, but we are still hearing
about it today. Something is still not working in terms of the
access to credit that small businesses need and are asking for.
I just want to get your thoughts, I guess in two parts,
assessing the strategies that have been put in place so far in
terms of their success, but secondly, more importantly, what
can we do going forward to make sure that we are providing that
kind of access to credit, which is going to be the driving
force to keeping the unemployment rate a lot lower?
Dr. Krueger. The first requirement was to stabilize the
financial system, and that required the financial stability
plan, TARP investments in banks, and the stress tests, which
were enormously beneficial. I think history will show that they
were a turning point in terms of encouraging banks to go out
and raise private capital. The banks were far more able to
raise private capital than I think many people expected. That
was necessary, but it hasn't been sufficient.
Additionally, targeted efforts, particularly for small
businesses, I think would be helpful. As I mentioned earlier,
raising the cap on SBA 7(a) loans to $5 million will help
certain lines of small businesses get started, particularly
franchises, which tend to be more stable businesses.
And I would just highlight the President's proposal to take
$30 billion from TARP; there is the head room that is available
to do that to create a small business lending fund. Use that to
take capital and invest it in banks. Lower the interest rate
that they pay to the Treasury on those funds if they increase
their small business lending. I think that will give them a
strong incentive to raise their small business lending.
I have to say I am particularly worried about our start-up
companies. The data that I was able to show you in my testimony
looked at existing establishments. Another set of problems
revolve around start-ups and trying to support new businesses
to form, because ultimately, that will be the source of job
growth in the future.
Senator Casey. I just want to clarify on the new fund you
would create with $30 billion of TARP money; you are talking
about using those resources to get to community banks so they
can loan to small businesses in their regions?
Dr. Krueger. That is right. In our proposal only banks with
below $10 billion in assets would be eligible, and those below
a billion dollars in assets would be eligible for a higher
share of capital. Our view is that those are the banks in the
best position to decide which the best businesses to invest in
are. That is their business. That is their specialty, but if we
could give them the funds so that they could leverage up to
invest in businesses, that that is probably one of the best
ways that government can try to increase the flow of credit to
small businesses.
Senator Casey. Thank you very much.
Chair Maloney. Thank you, we have been called to a vote,
followed by several 5-minute votes.
I am going to call on Mr. Hinchey now.
Representative Hinchey. Thank you very, much Madam Chair.
And thank you, Dr. Krueger.
I am impressed with reading your testimony, and I am sorry
I wasn't here to listen to you in your presentation that you
made. I am sure there were a number of important things that
really need to be dealt with.
Representative Hinchey. One of the ways in which you
describe the last period of time that we are dealing with is
the lost decade with little net job growth, which, of course,
is exactly right.
Part of the problem that we have been facing here is a lot
of expenditure of money but no money being extended in ways
that are going to stimulate the economy, and have positive
impacts on the internal needs here in the country to promote
internal growth, generate jobs and to make life better. A lot
of the money has been wasted, and it was wasted in providing a
concentration of wealth in the hands of the wealthiest 1
percent, and was wasted on spending money in Iraq. That number
is getting now close to $1 trillion that has been spent over
there, which shouldn't have been spent at all. The focus of our
intention really has got to be internally, here in the internal
needs of this country. These needs have not really been
adequately addressed.
So you may have spoken about this already, but maybe you
want to say a little bit more about what really needs to be
dealt with. What kind of internal investments we should be
making? What are the kinds of things that we should be doing?
The investment program we have, which is called the
stimulus bill, has had a positive effect on the economy; it has
been creating jobs. But it would seem to me that more is
needed; more is needed primarily because so little has been
done in the past. Now, we need to begin to catch up with the
internal needs of this country.
One of the aspects of the internal needs is an improvement
in technology, and one of the most important aspects of
technology is energy. Our dependence on fossil fuels is
something that really should be changed.
Do you think that we should be focusing attention on
alternative energy, focusing attention on ways in which we can
generate energy more effectively, solar, for example, and other
ways? Are there things like that that we should be paying
attention to and putting funds into?
Dr. Krueger. Thank you very much for raising such a big
issue.
I think there are many dimensions of investment that have
been neglected in the U.S. I highlighted in my remarks earlier
education. The U.S. has lost its lead in education. Ultimately,
in the long run, there is no reason why jobs wouldn't be
attracted to the place or employers wouldn't be attracted to
the place where they get the best value. And the main resource
we have in the U.S. is our people.
So, first and foremost, I think, for sustainable job
growth, we need to improve the quality of our education and the
quantity of our education. Secretary Duncan has pursued a
number of different and innovative programs to try to get the
most bang for the buck in our education dollars.
One area I would highlight is support for Pell Grants for
those going to 2-year colleges, junior colleges, or community
colleges, which a lot of research suggests has very high payoff
for those who are going through those types of educational
programs.
But you mention a number of priorities and I would also
add, going forward, given the high rate of unemployment that we
have, extending unemployment benefits further. Also the COBRA
support, which I think is an unprecedented initiative to try to
help the unemployed maintain their health insurance while they
are unemployed.
So I think there are many, many areas, and you highlight
some of the most important ones.
Representative Hinchey. I very much agree with you, and one
of the things that I think that we should be focused on is the
energy issue because we are seeing examples of the way in which
our dependence on fossil fuels is not only driving up the
price, but it is also driving up contamination and tragedies
and a whole host of things that we are experiencing. So there
are a lot of things that have to be dealt with there.
Your focusing attention on education, of course, is
critically important. We have passed in the House of
Representatives a significant bill which would provide
additional funding, a significant amount of funding for
education. That is one of a number of very critically important
bills which would have very positive effects on the economic
conditions that haven't been dealt with in the Senate.
Do you think that something should be done? What can be
done? Is the whole 60 number issue something that has to be
dealt with? We are impeded because of the circumstances in the
Senate and particularly with education.
What do you think?
Dr. Krueger. Well, my expertise is in economics, not in
congressional analysis, so I really don't have something to add
on relations with the Senate in terms of passing that bill.
But I do agree with your comments about energy. And I would
also add the importance of improving our infrastructure, as the
Recovery Act tries to do and as the President has proposed
further infrastructure investments. Infrastructure will help
put displaced construction workers back to work now and raise
productivity in the future.
So I think there are a number of areas in investment that
have been neglected.
Representative Hinchey. Thank you.
Chair Maloney. Thank you so very much, Dr. Krueger. We are
very fortunate to have you as our Chief Economist and Assistant
Secretary at the Department of the Treasury.
Regretfully, we have been called for a long series of
votes, so we are going to have to adjourn. I have additional
questions and my colleague on the other side of the aisle,
Congressman Brady, has some, and we will be submitting them to
you in writing.
Again, thank you for your testimony. We were really very
grateful for your testimony today.
The hearing is adjourned.
[Whereupon, at 2:05 p.m., the committee was adjourned.]
SUBMISSIONS FOR THE RECORD
Prepared Statement of Carolyn Maloney, Chair, Joint Economic Committee
Today's hearing is aptly named ``Avoiding Another Lost Decade: How
to Promote Job Creation.''
From February 2001 to February 2009, our economy gained a mere
293,000 jobs.
As we are facing the greatest postwar economic crisis, we need to
take a look at history.
In contrast to the last Administration, during the Clinton
Administration, 22.5 million jobs were created, an average of 234,000
jobs per month.
But even under the stellar Clinton job creation record, it would
take 3 years for us to recreate the 8.4 million jobs lost during this
recession.
And that doesn't even factor in the additional two and a half
million jobs that were needed during the recession just to keep up with
population growth. In other words, we're about 11 million jobs in the
hole.
The Great Recession has taken a tremendous toll on our economy and
families across the country who are struggling to find work and make
ends meet. Without the swift, effective response from policymakers, the
Great Recession could have been another Great Depression.
Signed into law less than a month after President Obama took
office, the Recovery Act has helped soften the blow of the recession
and returned the economy to growth in the second half of 2009. It
provided a tax cut to 95 percent of American families, extended
unemployment benefits, expanded credit to small businesses, and
provided a first-time homebuyers' tax credit to help families purchase
a home.
The Recovery Act has been followed by other Congressional actions
to create jobs, including:
The Worker, Homeownership & Business Assistance Act,
which expanded the first-time homebuyer tax credit, and enhanced small
business tax relief; and
The HIRE Act, which provides tax incentives for
businesses that hire out-of-work Americans.
These actions are working.
Under the current Administration, the employment report has shown
steady improvement with:
162,000 jobs created in March, with three-fourths of
those new jobs coming from the private sector;
Manufacturing employment up for 3 straight months.
On Friday, the JEC will hold its monthly hearing with the Bureau of
Labor Statistics Commissioner to discuss the April employment data. I
am optimistic that Friday's employment report will provide another
month of robust job creation.
But, we need to remain focused on job creation.
Part of the solution will be to look back to the Clinton
Administration and see what fueled job creation during the 1990s. We
need to recapture the spirit of innovation that fueled the economy for
those 8 years.
Another part of the solution will be to look at the last decade and
not repeat the same mistakes.
When we came out of the 2001 recession, job creation did not return
to pre-recession levels.
We can't afford to repeat the mistakes of the last decade and rely
on asset bubbles to fuel job creation. We are still dealing with the
aftermath of the housing bubble bursting.
But just as we failed to regain the job creation momentum after the
last recession, we also squandered a record budget surplus, leaving us
with fewer options to address future challenges.
Part of the path forward is continuing to invest in programs and
policies that work.
Yesterday, as part of the effort to cast a wide net and look for
innovative but effective approaches, the House Democratic leadership
held an economic summit.
At that summit, my friend Professor Alan Blinder said ``I think the
challenge for the Congress now is to devise budget packages that are
efficient in terms of job creation, relative to any deficit increases
that they cost. It is not easy . . . .''
In an effort to look for efficient solutions to the jobs crisis,
the House of Representatives recently passed the Disaster Relief and
Summer Jobs Act of 2010, which supports an additional 300,000 summer
jobs for young workers--summer jobs that are particularly needed in
this weak economy.
But we also need to take some chances and be willing to place some
bets.
We should target those sectors that offer the best prospects for
growth.
We should recommit ourselves--as a country--to basic research that
pays dividends well into the future--in new industries and new jobs.
It's clear that the private sector will drive the next expansion.
But it's also clear that government needs to be an engaged partner,
helping to build skills, to shine a spotlight on new sectors and
opportunities and to fund research that can lead to the industries and
jobs of tomorrow.
We are fortunate to have Dr. Alan Krueger before us today to
discuss job creation.
Dr. Krueger served as Chief Economist of the Department of Labor
during the Clinton Administration and is an editor and contributor to
the book ``The Roaring '90s: Can Full Employment Be Sustained.''
We look forward to your testimony.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of Representative Kevin Brady
I am pleased to join in welcoming Dr. Krueger 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.
Given these grim employment statistics, I thank the Chair for
convening this hearing on how to promote job creation. We should begin
by examining President Obama's record on job creation.
In January 2009, President Obama proposed an $862 billion stimulus
plan. Two of the Obama's Administration top economists, Jared Bernstein
and Christina Romer, forecast the economic benefits from Obama's
stimulus plan, which the Congressional Democrats enacted the next
month. This Romer-Bernstein forecast is the standard that the Obama
Administration set to judge the success of its economic policies. So
let's compare this forecast with reality:
The Administration predicted that if Congress enacted the
stimulus plan, the unemployment rate would not exceed 8.0 percent. The
unemployment rate increased to 10.1 in October 2009, and remained at
9.7 percent in March 2010.
The Administration predicted that payroll employment
would increase to 137.6 million in the fourth quarter of 2010.
Actually, payroll employment was 129.8 million in March 2010, and would
have to increase by about 867,000 payroll jobs per month to meet the
Administration's forecast.
Finally, the Administration forecast that 90 percent of
payroll growth would occur in the private sector. Actually, the private
sector lost 3.7 million payroll jobs from February 2009 to March 2010.
The only sector in which the number of payroll jobs increased was the
federal government.
Let's turn to the other major items on the Democrats' economic
policy agenda and assess their impacts on job creation.
First, the recently enacted health care legislation will require
employers to offer a costly government-mandated health plan or pay a
fine of $2,000 per worker. Insurance premiums are likely to soar as the
new system of guaranteed issue will cause some people to wait until
they are sick before they buy insurance. It is not clear how widespread
this practice will become. But, it is clear that the additional
employment costs will discourage hiring.
Second, the Democrats have proposed ``cap and trade'' legislation
that would raise energy prices, require firms to use currently non-
existent technologies, and mandate an 80 percent reduction in
greenhouse gases by 2050. Speaker Pelosi claims this bill is about
creating ``green jobs.'' Spain has tried this approach and failed.
Professor Gabriel Calzada Alverez found every ``green job'' created
cost about $763,000. Far more jobs are destroyed by raising energy
prices through ``cap and trade'' than ``green jobs'' are created.
Third, the Democrats have proposed ``card check'' legislation to
end the secret ballot for union representation elections and impose
mandatory two-year contract through political arbiters on newly
unionized firms if employers and unions cannot agree. This prospect
discourages private business investment and job creation.
Fourth, President Obama and Congressional Democrats have decided to
let the 2001 and 2003 tax reductions expire at the end of this year and
impose a 3.8 percent surtax on investment income effective in 2013. As
a result, the maximum tax rates on capital gains and dividends will
jump from 15 percent this year to 23.8 percent and 43.4 percent,
respectively, in 2013. This Congress also stood by while our R&D tax
credit expired last year.
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.
Despite the competitive disadvantages from the high U.S. corporate
income tax rate and our system of worldwide taxation with deferrals and
foreign tax credits, President Obama has proposed a grab-bag of hidden
tax increases on U.S. corporations selling American-made goods and
services overseas. And now, Administration officials and their friendly
media outlets are beginning to hint that President Obama and
Congressional Democrats may seek a value-added tax after the mid-term
elections in November to fund their permanent increase in the size of
the federal government. All of these tax policies discourage private
business investment and job creation.
Finally, Congressional Democrats have failed to ratify the already
signed free trade agreements with Colombia, Panama, and South Korea
that would boost U.S. exports by $13 billion and create 250,000 new
high-paying jobs here in America.
Taken together, the economic policies of President Obama and
Congressional Democrats, however well intentioned they may be, are a
hindrance to a robust job creation. If Americans wish to enjoy vigorous
job growth, these economic policies must be reversed.
I look forward to today's discussion.
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