[Joint House and Senate Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 112-376
 
BOLSTERING THE ECONOMY: HELPING AMERICAN FAMILIES BY REAUTHORIZING THE 
                    PAYROLL TAX CUT AND UI BENEFITS 

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 7, 2012

                               __________

          Printed for the use of the Joint Economic Committee

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                        JOINT ECONOMIC COMMITTEE

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

SENATE                               HOUSE OF REPRESENTATIVES
Robert P. Casey, Jr., Pennsylvania,  Kevin Brady, Texas, Vice Chairman
    Chairman                         Michael C. Burgess, M.D., Texas
Jeff Bingaman, New Mexico            John Campbell, California
Amy Klobuchar, Minnesota             Sean P. Duffy, Wisconsin
Jim Webb, Virginia                   Justin Amash, Michigan
Mark R. Warner, Virginia             Mick Mulvaney, South Carolina
Bernard Sanders, Vermont             Maurice D. Hinchey, New York
Jim DeMint, South Carolina           Carolyn B. Maloney, New York
Daniel Coats, Indiana                Loretta Sanchez, California
Mike Lee, Utah                       Elijah E. Cummings, Maryland
Pat Toomey, Pennsylvania

                 William E. Hansen, Executive Director
              Robert P. O'Quinn, Republican Staff Director































                            C O N T E N T S

                              ----------                              

                     Opening Statements of Members

Hon. Robert P. Casey, Jr., Chairman, a U.S. Senator from 
  Pennsylvania...................................................     1
Hon. Kevin Brady, Vice Chairman, a U.S. Representative from Texas    12

                               Witnesses

Mark M. Zandi, Ph.D., Chief Economist, Moody's Analytics, 
  Philadelphia, PA...............................................     4
Hon. Mark W. Everson, Commissioner of the Department of Workforce 
  Development, State of Indiana, Indianapolis, IN................     5
Mr. James Sherk, Senior Policy Analyst, The Heritage Foundation, 
  Washington, DC.................................................     8
Ms. Judith M. Conti, Federal Advocacy Coordinator, National 
  Employment Law Project, Washington, DC.........................    10

                       Submissions for the Record

Prepared statement of Dr. Mark M. Zandi..........................    34
Prepared statement of Hon. Mark W. Everson.......................    47
Prepared statement of Mr. James Sherk............................    54
Prepared statement of Ms. Judith M. Conti........................    64
Chart submitted by Vice Chairman Brady titled ``Social Security's 
  Cash Flow Deficits''...........................................    84
Prepared statement of Vice Chairman Kevin Brady..................    85


BOLSTERING THE ECONOMY: HELPING AMERICAN FAMILIES BY REAUTHORIZING THE 
                    PAYROLL TAX CUT AND UI BENEFITS

                              ----------                              


                       TUESDAY, FEBRUARY 7, 2012

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The committee met, pursuant to call, at 2:34 p.m. in Room 
216 of the Hart Senate Office Building, the Honorable Robert P. 
Casey, Jr., Chairman, presiding.
    Senators present: Casey, Klobuchar, and Lee
    Representatives present: Brady, Duffy, Mulvaney, and 
Maloney.
    Staff present: Gail Cohen, Will Hansen, Colleen Healy, 
Jesse Hervitz, Patrick Miller, Robert O'Quinn, Steve Robinson, 
and Jeff Schlagenhauf.

  OPENING STATEMENT OF HON. ROBERT P. CASEY, JR., CHAIRMAN, A 
                 U.S. SENATOR FROM PENNSYLVANIA

    Chairman Casey. The hearing will come to order. We will get 
started. I know some are delayed by votes, but we will get 
started.
    I want to thank the witnesses for being here at this busy 
time. I will do my opening, and then we will turn to our 
witnesses. Vice Chairman Brady, after he's voted, will be able 
to do his opening when he gets here. But we know that the House 
is voting as we speak.
    But thanks very much. Today's hearing on the Payroll Tax 
Cut and Unemployment Insurance is indeed timely. I believe it 
can be helpful for Members of Congress on both sides of the 
aisle who are wrestling with how to continue these two programs 
through the remainder of 2012; it is good that we have a 
hearing like this in the midst of those discussions and debates 
and deliberations.
    Like our Vice Chairman, Congressman Brady, I am a member of 
the Payroll Tax Cut Conference Committee, and we are making 
progress. It is slow, but we are making progress.
    While the Conference Committee is immersed in the details 
of how to pay for Unemployment Insurance and the Payroll Tax 
Cut through the remainder of this year, today's hearing can 
shed additional light on the impact both programs have on the 
economy.
    By reaching an agreement to cut payroll taxes for the 
remainder of 2012 and continue Unemployment Insurance for 
workers who have been out of work for more than six months, we 
can help Americans regain their economic footing, create jobs, 
and bolster the recovery.
    While the economy has made good progress, adding more than 
100,000 jobs in each of the last five months, we still have a 
long way to go to dig out from the Great Recession and the weak 
job growth that preceded it in the previous decade, the so-
called ``2000s''.
    The Democratic staff here at the Joint Economic Committee 
recently prepared a report that highlights how continuing the 
Payroll Tax Cut and Unemployment Insurance Benefits will boost 
consumer demand and strengthen the economy.
    Both policies put money into the hands of consumers, money 
in their pockets so to speak, that they can spend. Unemployment 
insurance goes to workers struggling to make ends meet while 
they search for new jobs. Through the Payroll Tax Cut, over 
half of the increase in take-home pay in 2011 went to families 
making less than $100,000, and 86 percent of the increase in 
take-home pay went to families making less than $200,000.
    The boost to paychecks has been critical to helping workers 
who have been coping with weak wage growth, which has failed to 
keep pace with the cost of living since early 2010.
    This same Joint Economic Committee report that I referred 
to provides an analysis of the impact--or I should say, the 
economic impact of failing to continue Unemployment Insurance 
and the Payroll Tax Cut for the remainder of the year.
    This particular Report estimates that failing to 
reauthorize Unemployment Insurance Benefits and the Payroll Tax 
Cut for the remainder of this year would reduce GDP growth by 
1.7 percentage points in calendar year 2012. That is a very big 
hit when you consider real GDP is expected to grow by just 2.2 
percent in 2012, according to the Blue Chip Consensus. We 
cannot afford to jeopardize the modest economic growth that is 
currently forecasted.
    Last week, the Joint Economic Committee released a second 
report detailing on a county-by-county basis the impact of 
extending the Payroll Tax Cut. The report specifies the 
additional take-home pay that a worker would receive in each 
county in the country, if Congress were to reauthorize the cut 
for the remaining 10 months of the year.
    We know that this data will be helpful in states and by 
county. The Employment Report that was released on Friday 
showed that the economy added more than 250,000 private-sector 
jobs in January. The unemployment rate dipped for the fifth 
consecutive month to 8.3 percent. This is both welcome and 
encouraging news.
    But--and this is a big ``but''--with the economic growth 
forecasted to be slow in the first half of the year, we cannot 
be complacent, or take our eye off the ball. As I said at the 
outset, this hearing is timely. We have just three weeks before 
the two-month reauthorization of both Payroll and Unemployment 
Insurance expires, three weeks to come together on a bipartisan 
manner to continue these very important programs to help 
families and to strengthen the economy.
    So I look forward to listening to each of our witnesses, 
and to a good discussion of these topics.
    I will first provide just a brief introduction of our 
witnesses. Moving from my left to your right, Dr. Mark Zandi is 
the Chief Economist of Moody's Analytics, where he directs the 
company's research and consulting services to business, 
governments, and other institutions. Dr. Zandi's research 
includes macro-economic, financial, and regional economics. In 
addition, he conducts regular briefings on the economy. He 
received his Ph.D. at the University of Pennsylvania.
    I'll just stop there and pause for a moment.
    [Laughter.]
    He received his BS Degree from the Wharton School at the 
same University of Pennsylvania. So, Dr. Zandi, welcome, and 
welcome back.
    The Honorable Mark W. Everson----
    Mr. Everson. ``E-''verson.
    Chairman Casey. Oh, I'm sorry, ``Ee-verson''. I'm sorry for 
mispronouncing that.
    Let me start again. The Honorable Mark W. Everson became 
Commissioner of the Indiana Department of Workforce 
Development, or DWD, on June 1st, 2010, and is a member of the 
cabinet of Governor Mitch Daniels.
    The DWD manages and implements training and employment 
programs for Hoosiers, unemployment insurance systems, 
facilitates regional economic growth issues for the State of 
Indiana. Mr. Everson has extensive Federal Government and 
private sector experience, including service as an IRS 
Commissioner and president and CEO of the American Red Cross. 
He has held operating and financial posts with major companies 
in the United States and abroad.
    Thank you, sir, for being here.
    Mr. James Sherk is Senior Policy Analyst in Labor Economics 
at the Heritage Foundation. Mr. Sherk has written on the 
dynamics of rising unemployment in the recession, the economic 
consequences of extending Unemployment Benefits, Cardcheck, and 
other labor policy issues. He joined the Heritage Foundation in 
2006 after completing Master of Arts at the University of 
Rochester, where he concentrated in econometrics and labor 
economics.
    Mr. Sherk, thank you for being here.
    Mrs. Judy Conti--Ms. Judy Conti, I should say, is the 
Federal Advocacy Coordinator for the National Employment Law 
Project, so-called NELP. We all have acronyms around here; we 
should use them where we can. Judy joined NELP in 2007 after 
spending seven years as co-founder and executive director of 
the D.C. Employment Justice Center, a legal service provider 
devoted to workplace justice in the D.C. Metropolitan Area. 
Before joining NELP, Judy's work has been widely recognized 
with awards from the American Bar Association, the Washington 
Area Women's Foundation, the Hispanic Bar Association of the 
District of Columbia, and the Echoing Green Foundation. Ms. 
Conti has a J.D. from the College of William & Mary.
    So those are the biographical sketches, and we will start 
with Dr. Zandi.

   STATEMENT OF DR. MARK M. ZANDI, CHIEF ECONOMIST, MOODY'S 
                  ANALYTICS, PHILADELPHIA, PA

    Dr. Zandi. Thank you, Senator.
    I want to thank you and other members of the Committee for 
the opportunity to speak today. The views I express are my own 
and not those of the Moody's Corporation.
    I am going to make five points in my remarks.
    Point number one is that the economy is much improved, and 
fiscal policy has contributed significantly to that 
improvement. The improvement is most evident in the job market. 
As you pointed out, we saw payrolls grow almost a quarter of a 
million in January; 2 million payroll jobs have been created 
over the past year through January.
    The job gains are increasingly broad-based across 
industries and regions of the country. Hours worked has 
improved. Hours worked in manufacturing were as high as they 
have been since the 1990s. Unemployment has declined 
significantly--almost a percentage point--over the past year. 
That is due to the stronger job growth, not due to weaker labor 
force growth, which is encouraging.
    I do think fiscal policy has contributed significantly to 
this improvement. There are many things that you and other 
Congressmen and the Administration have done. I would just like 
to point out, though, that last year's Payroll Tax holiday and 
Emergency UI Programs were very instrumental in keeping the 
economy together.
    I would argue that without the benefit of those programs 
last year the economy would likely have fallen back into 
Recession; that the surge in gasoline, food, apparel prices was 
a significant hit to the economy and the help from Emergency UI 
and from the Payroll Tax helped fill the void. That was very 
significant.
    The second point that I would like to make is that the 
economy, while much improved, is still very fragile, as you 
pointed out. Growth is still less than we would hope for, and 
there are significant threats to the recovery.
    The European sovereign debt crisis remains a very 
significant threat, and the European economy is in recession, 
and the financial system there is still in turmoil.
    The housing crisis here in the United States is also a very 
significant program. The foreclosure crisis continues on and we 
are still suffering house-price declines. As long as house 
prices are falling, it is hard to get entirely enthusiastic 
about the economy's prospects. The home is still the most 
important asset that most people own. It is key to small 
businesses that use their home as collateral for getting a 
loan. Of course local governments rely on property tax revenue.
    Judging from surveys of consumers and businesses, the 
collective psyche is still very fragile. So if anything else 
goes wrong, I think the recovery could easily be derailed. We 
cannot conclude that we are off and running here.
    This leads me to the third point. I do think it is vital 
that you extend the current Payroll Tax Holiday and the 
Emergency UI Program through the end of the year. This is 
important to the recovery, keeping it together.
    It is a lot of money to American households. By my 
calculation, it's almost $150 million in total, which is about 
1 percent of GDP. Based on my work, if the programs are not 
extended, GDP growth in 2012 will be seven-tenths of a percent 
lower this year than otherwise would be the case. We would lose 
roughly a half-million jobs compared to what we would have 
gotten otherwise if we extend them. Unemployment would be 
measurably higher.
    So in my view, it is very important. The Payroll Tax 
Holiday is particularly important because it is big. It's about 
a little over $100 billion of the $150 billion, and evidence 
from other similar kinds of tax cuts indicate that roughly two-
thirds of any tax cut will be spent within six months. So this 
is very important to spending and keeping the economy going in 
the near-term.
    The UI is also very important. It is much smaller in cost, 
but the bang-for-the-buck is very large. Unemployed workers 
will use the benefits quickly to spend.
    There are disincentive effects. I do think there is 
evidence to suggest that some people will stay out of the 
workforce, out of work longer because of the UI benefits; but 
those negative disincentive effects are swamped by the benefits 
of the UI Program in terms of its benefit to aggregate demand.
    Fourth, I think reforming UI is very important, but I also 
think it is important not to restrict UI. My favorite reforms 
would be work/share, wage-subsidy programs. I think they hold 
out a lot of potential benefit. But restrictions on UI, such as 
some of the discussion regarding the need for a high school 
diploma, drug testing, I think is unnecessary and 
counterproductive in the current context.
    Finally, my fifth point, I think this should be paid for. I 
think we are now at a point where we can't do this without 
paying for it in the long run. I will point out, though, that 
there is a lot of fiscal restraint coming in current law in 
2013. So any pay-for should be accounted for over a longer 
period of time. I don't think you want to pile on in terms of 
the pay-fors in 2013. The economy will already have a lot to 
digest.
    Thank you.
    [The prepared statement of Dr. Mark M. Zandi appears in the 
Submissions for the Record on page 34.]
    Chairman Casey. Thank you. Commissioner Everson.

STATEMENT OF THE HONORABLE MARK W. EVERSON, COMMISSIONER OF THE 
    DEPARTMENT OF WORKFORCE DEVELOPMENT, STATE OF INDIANA, 
                     INDIANAPOLIS, INDIANA

    Mr. Everson. Mr. Chairman, Senator, Congressman:
    The Federal-State Unemployment Insurance partnership is an 
important, proven system which has successfully served the 
Nation for more than seven decades. Over time, the system has 
adapted well to changes in the American economy and the 
evolution of the Nation's workforce.
    Nevertheless, the system has been severely strained by the 
recent Recession. It can weather the storm, but states require 
flexibility on the part of the Federal Government to do so. 
States can also be laboratories for policy changes that can 
improve the program and help the Nation's workforce meet the 
challenges of the 21st Century.
    Last week, 138,000 individuals collected some form of 
Unemployment Insurance Benefits in Indiana, comprising 74,000 
who drew state benefits, and 64,000 whose benefits were paid 
100 percent by the Federal Government.
    Similar to other states, Indiana has a significant number 
of people who unfortunately have been unemployed for over a 
year. I would note, however, that our state initial and 
continued claims have now returned to 2007 levels. So that is 
good news.
    As you are no doubt aware, 27 States have borrowed over $38 
billion to continue funding the state portion of Unemployment 
Insurance Benefits. You can see there is a map in the testimony 
on page 3. The States with the highest indebtedness per worker 
are Indiana, Nevada, North Carolina, California, and 
Pennsylvania, Mr. Chairman.
    At the start of the last decade, Indiana's trust fund had a 
$1.6 billion surplus. In 2001, the State Legislature enacted a 
series of benefit increases implemented in steps over much of 
the past decade and provided limited premium relief to 
employers.
    These legislative changes created a continuing structural 
imbalance. In Indiana, our trust fund coffers were empty by 
late 2008, just as the collapse began. At the end of 2010, the 
trust fund owed the Federal Government $1.96 billion.
    The Unemployment Insurance Program has three overall design 
elements: Revenues, the premiums paid by employers into the 
system; eligibility--that is, who is entitled to receive 
benefits; and benefit levels--that is, the method of 
calculating how much an unemployed individual receives each 
week, and for how long.
    In early 2011, Indiana's Legislature enacted balanced, 
comprehensive reform addressing all three elements. Although 
the trust fund got into trouble mostly due to an increase in 
benefits, over two-thirds of the cost of this solution is being 
borne by employers.
    Premiums increased--and the total aggregate cost for 
employers between the premiums and the interest surcharge, and 
the FUTA reclaim went up by 60 percent from 2010 to 2011.
    The most notable change in eligibility standards in 
Indiana's reform package addressed repeat users of the system 
who plan and conduct regular shutdowns of their operations.
    Prior to the 2011 reform package, Unemployment Insurance 
Benefit amounts in Indiana--as in many states--were calculated 
based only on the highest quarter of a worker's earnings. This 
method of calculation often yielded different benefit amounts 
for individuals who had earned the same wages over the course 
of the year.
    To provide an example: Under current law, last month my 
department received a WARN notice of the closure of a K-Mart in 
Portage, Indiana. Over 200 people would lose their jobs. Assume 
that one of the workers has earned $500 a week. That is $26,000 
a year. Under current law, that individual will receive $280 a 
week in benefits.
    Take a construction worker earning the same $26,000 but 
only working 9 months. That individual receives $367, much more 
because of the high quarter calculation. To address this 
inequity, the legislature determined that the future benefit 
amounts should be calculated based on annual earnings.
    Thus far, our reform package is working as intended. The 
trust fund balance, as I indicated, was $1.96 billion at the 
end of 2010 and held steady in 2011. That is also a chart in 
your packet. You can see it goes flat.
    Now most of that, or the big piece of that is a reduction 
in the benefits, because as was indicated the economy is 
better, but the increase in the premiums also significantly 
contributed.
    My last section: The Federal non-reduction rule was 
initially established in 2009 to prevent states from offsetting 
through benefit reductions a $25 supplemental payment paid for 
with federal funds. The $25 supplement has been discontinued, 
but for the first time--in early 2010--the Federal Government 
required the non-reduction rule be tied to Federal Extended 
Unemployment Benefits. This is a departure from the past when 
Federal extensions of benefits were provided in periods of high 
unemployment but there was no such rule.
    When Indiana enacted its reform package, the new benefit 
calculation was purposefully delayed until July 1, 2012, in 
order to take effect after the expiration of the Federal 
extensions. While the non-reduction rule was eliminated from 
the House version of the most current Federal extensions, it 
was retained in the recent two-month law. We urge you to 
eliminate it from any further extension of this program.
    There are currently three other states that may be 
implicated by the non-reduction rule, along with Indiana: Rhode 
Island, Arkansas, and Pennsylvania.
    Other states have addressed trust fund insolvency by 
avoiding the non-reduction rule but decreasing the number of 
weeks of Unemployment Insurance compensation available to 
individuals. Several have reduced the duration of benefits from 
26 weeks to 20.
    If the non-reduction rule remains in place, more states 
will likely shorten the number of weeks of Unemployment 
Insurance Benefits, and in fact they may be reluctant in the 
future to increase benefits at all for fear that if there are 
more Federal extensions in bad times they can't bring them 
down.
    The recently enacted non-reduction rule has significantly 
altered the long-standing Federal-State balance of the program. 
States should retain the flexibility to determine the most 
appropriate Unemployment Insurance Benefits program and the 
method of addressing the insolvency of their trust funds.
    I would note that the National Association of State 
Workforce Agencies called for the elimination of the non-
reduction rule in its last annual conference in September.
    In Indiana, we value our partnership with the Federal 
Government in operating the Unemployment Insurance System. We 
believe we have put our program on a healthy and sustainable 
path. I commend Congress for looking at avenues of reform, such 
as work search and training requirements. However, as with the 
non-reduction rule, I ask you to provide states the flexibility 
to provide appropriate overall program design best suited for 
their circumstances.
    Thank you.
    [The prepared statement of Hon. Mark W. Everson appears in 
the Submissions for the Record on page 47.]
    Chairman Casey. Thanks, Commissioner. Mr. Sherk.

 STATEMENT OF MR. JAMES SHERK, SENIOR POLICY ANALYST IN LABOR 
      ECONOMICS, THE HERITAGE FOUNDATION, WASHINGTON, D.C.

    Mr. Sherk. Chairman Casey, Vice Chairman Brady, and members 
of the Joint Economic Committee:
    Thank you for inviting me to testify this afternoon. My 
name is James Sherk. I am a Senior Policy Analyst in Labor 
Economics at the Heritage Foundation. However, the views I 
express in this testimony are my own and should not be 
construed as an official Heritage position.
    This afternoon I want to explain to you that, while the 
Unemployment Insurance System should be changed in a recession, 
spending more on UI benefits does not bolster the economy.
    There are three factors for Congress to consider about 
extended Unemployment Insurance.
    The first factor is that increasing the duration of 
benefits in a recession does make sense, but these increases 
should be proportionate to the state of the economy. 
Unemployment Insurance insures workers against the risk of 
losing their job. Since it takes longer to find new work in a 
recession, it takes longer benefits to provide the same degree 
of insurance.
    The question is: How much longer? Additional benefits help 
workers in a difficult situation, but they also cause UI 
claimants to stay unemployed longer. This fact is one of the 
most conclusively established findings in all of labor 
economics.
    Unemployment Insurance encourages the unemployed to search 
for the jobs they want to find, rather than the jobs they are 
most likely to find. Alan Krueger, Chairman of the President's 
Council of Economic Advisors, finds that unemployed workers 
tripled their time job-hunting when their benefits were about 
to run out.
    Researchers at the Federal Reserve Banks of San Francisco 
and Chicago found that extending Unemployment Benefits to 99 
weeks has increased the unemployment rate by about half a 
percentage point. Extended benefits are not the main reason 
unemployment remains high, but they are economically 
significant. And even in today's job market, 99 weeks of 
benefits is excessive.
    In a normal economy, Unemployment Insurance's six months of 
coverage provides benefits for about 50 percent more than the 
average spell of unemployment. Now in the current down economy, 
the average length of unemployment has risen to 40 weeks. 
Extending benefits to 60 weeks would thus proportionately 
increase benefits in accordance with the state of the weak 
economy.
    But especially in light of recent improvements in the labor 
market, benefits should be brought down from the level of 99 
weeks.
    The second factor Congress should consider is that 
Unemployment Insurance benefits do not stimulate the economy. 
Benefits should only be extended if the humanitarian arguments 
for doing so justify it.
    Over the past four years, the federal and state governments 
have increased Unemployment Insurance spending by $300 billion. 
Congress has repeatedly heard testimony that this increased 
spending will bolster the economy. Instead, Americans have 
suffered through the slowest recovery of the post-War era.
    This should have not come as a surprise. Empirical studies 
find that government spending does not spur private-sector 
growth. Empirical research into UI spending in individual 
states also finds it has negligible economic effects. And 
international evidence reinforces this conclusion.
    If Unemployment Insurance spending stimulates the economy, 
then unemployment would not rise as fast in countries that have 
more generous systems. The automatic stimulus from the more 
generous benefits would cushion the shock of any recession. 
Instead, the opposite happens.
    Unemployment rises faster in countries with more extensive 
benefits. The disincentive effects of Unemployment Insurance 
overwhelm any stimulus they provide. And this may be why few 
policymakers in other developed countries argue that UI 
spending stimulates demand and employment. This is a uniquely 
American debate.
    Now this does not mean, and I am not arguing, that benefits 
should drop back to six months. What it means is that extending 
benefits are not an economic free lunch, and they come at a 
cost.
    If extended benefits are a priority, they should be paid 
for by reducing spending on less important programs that are 
less of a priority.
    The third factor is that Unemployment Insurance needs 
reforms that go far beyond changing the number of weeks of 
benefits. The UI system largely focuses on distributing 
benefits to covered individuals. It places little emphasis on 
returning the unemployed to work, the primary policy goal.
    Unemployment Insurance also needs more safeguards against 
abuse. In most states, claimants apply either online or by 
calling an automated hotline. They attest to their job search 
by clicking a box or pressing a button. Now this reduces 
administrative costs, but it also enables individuals to 
collect checks without trying to find work.
    The vast majority of UI recipients try hard to find work, 
but some do not. Experiments in Maryland found that stronger 
job search requirements reduced UI claims by 5 to 8 percent. 
Reducing Federal UI spending by a similar amount would save 
about $2 billion.
    The UI system should be reformed to address these problems. 
The Federal Extended Benefits Program should have job-search 
requirements, which are not currently in place. State law 
requires it, but the extended benefits do not require job-
search.
    The states should also be given freedom to innovate, to try 
different reforms to get the unemployed back to work faster. 
Now some of the ideas would be those that Mr. Zandi has 
suggested that I am somewhat skeptical of--things like work 
sharing, or wage subsidies.
    There are other ideas that different states might try like 
intensive job search assistance, or requiring more training as 
a condition of receiving benefits, or even getting an 
associates degree online, which state could do at relatively 
low marginal cost.
    We don't know in advance which of these systems would work. 
The federal government should allow the states to innovate. 
Give the states waivers from the Federal requirements to let 
them try new approaches, but require them to demonstrate that 
any innovation they're doing is actually succeeding.
    That was how welfare reform happened in the 1990s, because 
the waivers for individual states demonstrated successful 
policy solutions. By 1996 there was a bipartisan consensus, and 
overwhelming bipartisan majorities in both Houses that passed 
welfare reform, and President Clinton signed it. And it has 
been one of the greatest public policy successes of the past 
several decades.
    This is a model we should look to for improving 
Unemployment Insurance. Thank you for inviting me to testify.
    [The prepared statement of Mr. James Sherk appears in the 
Submissions for the Record on page 54.]
    Chairman Casey. Thanks very much. Ms. Conti.

STATEMENT OF MS. JUDITH M. CONTI, FEDERAL ADVOCACY COORDINATOR, 
        NATIONAL EMPLOYMENT LAW PROJECT, WASHINGTON, DC

    Ms. Conti. Thank you, Senator Casey, Congressman Brady. I 
appreciate the opportunity to come here today.
    The National Employment Law Project is a nonprofit 
organization that advocates on behalf of low-income and 
unemployed workers. We work to maintain strong federal and 
state programs of Unemployment Insurance that are providing an 
essential lifeline of support for individuals who, through no 
fault of their own, have lost a job.
    As we have discussed, the economy is improving--and that is 
a good thing--but unemployment still remains unacceptably high, 
and long-term unemployment, more than six months, remains 
dangerously high. And we cannot lose sight of that.
    Therefore, it is crucial for Congress to maintain the 
robust support that it has provided for the unemployed over the 
past three years, and to refrain from enacting unnecessary and 
harmful barriers to benefits that would impair the economic 
functions of the UI safety net now and in the future.
    Presently, 42.9 percent of those who are unemployed, nearly 
6 million, have been out of work for over 6 months. Average 
durations of unemployment in November reached a record high of 
almost 41 weeks; and they have only come down slightly, 
registering 40.1 weeks in our latest work--jobs statement.
    UI Benefits are an essential lifeline for the unemployed 
Americans. The average UI Benefit is only $296 per week, and 
this represents about 50 percent of the income needed to cover 
the most basic necessities of food, housing, and transportation 
as measured by the Annual Consumer Expenditure Survey.
    While the average family spends about $1,380 per month on 
housing alone, the average monthly UI Benefit is $100 less than 
that. Put simply, today's unemployed workers are not living the 
high life. Yet these benefits, modest as they are, have gone a 
long way to prevent economic hardship for millions of families 
since the Recession began.
    In 2010 alone, according to recent Census figures, UI kept 
3.2 million Americans out of poverty, over 1 million of whom 
were children. Equally important, UI plays an important and 
positive role in the overall economy and broader labor market.
    Over the years, several exhaustive studies have documented 
the countercyclical impact of Unemployment Insurance, lifting 
up an economy that's been beaten down by a Recession. The most 
recent such study, authored by Wayne Vroman of the Urban 
Institute, reviewed the role of UI Benefits in this particular 
economic downturn and Recession and found that the Nation's 
economy grew by $2 for every $1 spent on Unemployment Insurance 
during the latest Recession.
    Time and time again, the nonpartisan Congressional Budget 
Office rates UI Benefits as among the most impactful economic 
stimuli possible.
    And contrary to claims that receipts of UI Benefits serves 
as a substantial significant disincentive to work--and these 
claims are often based on dates studies of the impact of UI 
during non-recessionary periods--recent research by Professor 
Jesse Rothstein of the University of California at Berkeley, 
roundly refutes that assertion.
    Rothstein's work is a careful study of the effects of UI 
extension on the job searches in this Recession. Although he 
finds a .3 percentage point increase in the December 2010 
unemployment rate, he also found that at least half of this 
increase is due to the fact that receipt of UI Benefits keeps 
workers in the labor force. It keeps them searching for jobs, 
rather than dropping out and becoming discouraged workers.
    And just two weeks ago, the Federal Reserve Bank of San 
Francisco put out a report concluding that weak labor demand is 
the big driver of increases in the length of time that workers 
are unemployed, not UI Benefits.
    Finally, a recent survey and report from the Heldrich 
Center for Workforce Development at Rutgers University of 
workers who had lost their job during the Recession showed that 
unemployed workers who received UI were more likely to have 
been proactive in seeking work than those who didn't receive 
UI, with beneficiary recipients reporting more hours devoted to 
job search, more frequency contacting friends and examining job 
postings.
    As a final matter, I note that there are many proposals in 
H.R. 3630, the bill in the House of Representatives that is the 
subject of the Conference Committee that Mr. Brady and Mr. 
Casey both serve on. Many of these proposals represent 
unnecessary and punitive barriers to benefits that should not 
be rushed into law in the context of a Conference Committee 
negotiation over a much larger bill.
    There is a full discussion of these proposals in my written 
testimony, including NELP's arguments as to why we need to 
retain the non-reduction rule, and I am happy to answer 
questions about that during the question and answer period.
    If we do want to have a serious conversation about how to 
help reattach people to the workforce, there are actually many 
tried and true programs that we could better fund or enact, 
such as work sharing, or enhancing the high quality 
reemployment services that are already offered by all state 
agencies with only modest Federal funding right now.
    If Congress is serious about aiding re-employment, these 
are the ideas to consider, not ill-advised proposals that do 
nothing but serve as barriers to benefits, or as ways for 
states to raid already stretched UI trust funds and use that 
money for unproven programs, rather than paying benefits that 
workers have earned.
    It is inconsistent with American values and bad for the 
American economy to penalize those who have suffered most as 
victims of the Great Recession by denying or reducing their UI 
benefits, or to demonize them through unnecessary and 
stigmatizing barriers to participation in the program.
    Instead, Congress should reauthorize the Federal UI 
programs immediately, and without reductions or barriers to 
benefits.
    Thank you very much for your time.
    [The prepared statement of Ms. Judith M. Conti appears in 
the Submissions for the Record on page 64.]
    Chairman Casey. Thanks, Ms. Conti.
    We are joined by Vice Chairman Brady, who had a series of 
votes, and then sprinted over to get here. So we are grateful 
he is here. Vice Chairman Brady will do his opening, and then 
we will get to questions. Thank you.

 OPENING STATEMENT OF HON. KEVIN BRADY, VICE CHAIRMAN, A U.S. 
                   REPRESENTATIVE FROM TEXAS

    Vice Chairman Brady. Great. Thank you, Mr. Chairman, for 
holding today's hearing. I appreciate the witnesses being here 
today.
    I agree with you that this Committee must examine the whole 
picture--understanding both the benefits of extending the 
Payroll Tax Cut and long-term Unemployment Benefits and their 
unintended consequences.
    There is a strong bipartisan consensus in Congress to 
extend both of these expiring provisions through the end of 
this year. However, serious differences remain over how we 
should pay for these expensive extensions and whether we should 
reform the outdated Unemployment Insurance program.
    As popular as the Payroll Tax Holiday may be, economists 
disagree about its effectiveness as an economic stimulus. 
However, economists agree that Social Security faces serious 
and growing cash-flow deficits. I want to refer to this chart 
over here that shows the cash-flow deficits for Social Security 
over the next decade.
    [Chart submitted by Vice Chairman Brady titled ``Social 
Security's Cash Flow Deficits'' appears in the Submissions for 
the Record on page 84.]
    In the black area of that graph, you can see what has 
happened as a result of diverting one-sixth of Payroll Tax 
revenue away from the Social Security revenue stream. It 
creates a significant sinkhole that exacerbates Social 
Security's cash flow problems. Noncash accounting transfers 
from the General Fund cannot alleviate these cashflow problems.
    Last year, the U.S. Government had to borrow $142 billion 
from investors--including foreign countries like China--to pay 
Social Security benefits to our seniors.
    Congress must fill this sinkhole to ensure that we will be 
able to pay promised Social Security benefits. That is why 
House Republicans are insisting that Congress must offset any 
loss of payroll tax revenue with actual cash savings in other 
areas of the government, not simply accounting gimmicks. House 
Republicans will protect this vital program from debilitating 
cash diversions with common sense savings that have had strong 
bipartisan support.
    As for unemployment, clearly economic policies of the Obama 
Administration did not produce the vigorous recovery, for which 
hardworking taxpayers had hoped. Tens of millions of Americans 
are struggling to make ends meet. Millions can't find a full-
time job, and millions more can't find any job at all. Even 
worse, other millions have simply given up and stopped looking 
for work, leaving us with the lowest workforce participation 
rate in nearly three decades.
    Our priority must be to create a far stronger economy in 
which American businesses will have the confidence to make 
investments in new buildings, equipment, and software, expand 
production; and create millions of new well-paying jobs to get 
this economy back ontrack.
    As to Unemployment Insurance, we should reform this program 
and refocus it on the common-sense goal of getting people back 
to work sooner rather than just paying benefits. House 
Republicans have passed legislation that would:
    One, renew the long-term Federal Unemployment Benefits for 
the rest of this year while gradually reducing the maximum 
duration of benefits to 59 weeks.
    We require recipients to search actively for work from day 
one. We know the longer the people are unemployed the harder it 
is for them to new employment. Under existing law, 
beneficiaries may collect unemployment checks for a year and a 
half without really having to look for a job. In some states, 
they don't even have to search for a job at all. That's 
unacceptable.
    This bill, passed in the House with bipartisan support, 
allows the States to adopt innovative programs to match 
beneficiaries with local jobs.
    We also require those on unemployment without a high-school 
degree to work on earning a GED. Adults without high school 
diplomas have a very hard time finding and keeping a job. They 
are often the last hired and often the first fired.
    We also end the Federal prohibition against States testing 
applicants for illegal drug use. Drug-screening ensures that 
recipients will be able to take the jobs that they are offered.
    As we will hear today, and have heard today, long-term 
unemployment benefits have clearly helped families in need, but 
there is a cost as well. Two recent studies found that 
extending the duration of benefits actually increases the 
unemployment rate:
    A study by the Federal Reserve Bank of San Francisco found 
the unemployment rate at the end of 2009 would have been nearly 
half a percentage point lower--9.6 percent instead of 10 
percent--if jobless benefits had not been extended beyond their 
usual 26 weeks to as much as 99 weeks.
    According to a Brookings Institute paper, the 2011 
extension of long-term Unemployment Insurance raised the number 
of unemployed in January of last year by between 0.2 and 0.6 
percentage points. That translates into between 200,000 and 
900,000 additional workers without jobs.
    Repeated extensions of long-term benefits are also 
threatening the solvency of the entire unemployment system, as 
Commissioner Everson has pointed out. States have borrowed over 
$38 billion from the Federal Government to cover their 
shortfalls. Under current law, repaying these Federal loans and 
rebuilding state trust fund balances would require an 
unprecedented payroll tax increase in nearly every State. These 
higher taxes would punish the very job creators that we hope 
will add new jobs to hire the unemployed.
    To conclude, we must move forward with a bipartisan 
agreement to extend the payroll tax holiday and long-term 
unemployment benefits. But at the same time, we must also adopt 
common-sense reforms to make the Unemployment Insurance Program 
work better and avoid adding to our unsustainable federal debt.
    I look forward to the testimony of the witnesses today and 
to the questions, as well, Mr. Chairman.
    [The prepared statement of Representative Brady appears in 
the Submissions for the Record on page 85.]
    Chairman Casey. Vice Chairman Brady, thank you very much.
    I will start. We will do five-minute rounds, and just so 
our colleagues know, the lineup we have so far is after me; 
Vice Chairman Brady, then Senator Klobuchar if she is back, 
Senator Lee, Representative Duffy, and Representative Mulvaney, 
and we will keep to that. And we can certainly add a second 
round.
    Dr. Zandi, I wanted to start with you. Particularly with 
regard to the so-called bang-for-the-buck argument and the 
analysis that undergirds the conclusions that you and others 
have reached about the benefit of spending a buck on 
Unemployment Insurance, say, or in another program, and the 
economic benefit that follows from that.
    Can you walk through some of that? I know in your testimony 
you did not have time to get through every part of it that you 
prepared, but I just wanted to get a sense of that, especially 
on the two major topics of the bang-for-the-buck on the Payroll 
Tax Cut, as well as that for Unemployment Insurance.
    Dr. Zandi. Sure. In my testimony there is a table where I 
lay out my current estimates of the multipliers, or so-called 
bang-for-the-buck for different programs, including the Payroll 
Tax Holiday and Emergency UI.
    For UI I'm speaking from memory, I think it is $1.55. That 
is an estimate of the impact on GDP one year after the benefit 
is provided. So looking out a year from now.
    For the Payroll Tax Holiday it's smaller. I believe it is 
$1.27, something like that.
    I should point out that the logic is pretty 
straightforward; that you provide a benefit to a household, 
particularly in the case of UI, a very financially stressed 
household. They take that dollar. They have no other financial 
resources. They've probably blown through their savings, any 
help they could get from family and friends, and they spend 
that money to support themselves. And that money gets into the 
economy and creates other economic activity and jobs and so 
forth and so on down the road, and it is about $1.55.
    These multipliers, bang-for-the-buck estimates, are varied. 
They depend on the various models that are being done. In the 
case of UI, the range of estimates--and this is from the CBO 
and the Urban Institute, Department of Labor, other studies 
that have been done over the years, range from $1.50 to over, 
in the case of the Urban Institute $2, and some are higher than 
that. It is one of the most effective forms of support to the 
economy, particularly in recessions.
    I should say also that these multipliers are not immutable. 
They vary according to the economic environment. So for example 
in a well-functioning economy where the unemployment rate is 
near full employment, let's say 5.5, 6 percent, then providing 
this kind of benefit will not result in a very large 
multiplier, and in some cases for some kind of stimulus it 
could be negative because they do have to pay for it, and it 
has negative consequences through issuing debt and interest 
rates and so forth and so on.
    So in an economy that is operating flat out, you don't want 
to do something like this. But in an economy that is really 
struggling with unemployment in the case of the Great Recession 
at 10 percent, then you don't have those kinds of negative 
effects and you get much larger multipliers.
    Also in the analysis that I do, you will note that over 
time I've produced similar kinds of multipliers for you and 
Congress over the past several years, you'll note that those 
multipliers change over time. In the case of UI, the 
multipliers have actually declined over time because I do think 
that there is some disincentive effects from long-term 
unemployed, and they cease to benefit of Unemployment 
Insurance. But net-net, considering the disincentive effects 
and the positive benefits that are created by supporting 
consumer spending and demand in helping these households, it's 
a slam-dunk positive. It is still very, very important to do.
    Chairman Casey. I know that in the context of both these 
issues, and especially in the context of the work of the 
Conference Committee that Vice Chairman Brady and I are serving 
on. One of the things we have tried to emphasize and I think 
it's better to be positive and emphasize the benefits, but also 
the consequences of not getting an agreement on the two. In 
particular it has been helpful for me in Pennsylvania. Our 
staff asked you months ago and you produced an analysis that 
was just payroll tax cut consequence in Pennsylvania for one 
year.
    And the job impact--because sometimes when people hear 
``GDP'' impact it's kind of hard for folks to measure--but I 
know the analysis you gave was just for Pennsylvania, just on 
payroll, and the consequence of not doing it was I think 19,700 
jobs. In 2011 we grew north of 50,000 jobs. A lot of states 
would be envious of that, not enough but it was a significant 
job growth for one year, and you would cut off roughly 20,000 
of that kind of growth if you didn't get it done.
    So having that number is very helpful. The other analysis 
that I referred to earlier is kind of the county-by-county 
impact for an individual worker. In a lot of counties in our 
State it works out to be a little bit more than $400 per worker 
just for the 10 months. In other words, the 10 months we don't 
have an agreement on yet.
    That was true whether they're in a big city like 
Philadelphia, or a smaller county like Potter County, for 
example. They were both in the $400 range. So we will talk more 
about it as we go.
    I am actually over time a little bit, and I will turn to 
our Vice Chair.
    Dr. Zandi. I am amazed at your memory. You're sure it's 
19,700?
    Chairman Casey. Repetition helps me.
    [Laughter.]
    Vice Chairman Brady. It's like a steel trap with the 
Chairman, I'm telling you.
    Because I was late, I would like to defer to Senator Lee 
for the first question.
    Senator Lee. Thank you, Vice Chairman Brady, and Chairman 
Casey.
    I intend to make just two quick points before I launch into 
questions because I am of course more interested in hearing 
from you. But the first point I wanted to make is, our Social 
Security tax is a tax. It is just like any other tax imposed by 
the Federal Government. In the sense that, although some of the 
proceeds from that tax are spent on today's retirees, none of 
that money that is saved, none of the excess is currently saved 
for the benefit of retirees.
    It is spent through the General Fund just like all other 
revenue. And so Social Security is not a savings program, as it 
is commonly billed, and as it was intended to be. The mere fact 
that Congress has strayed so far from the original intent of 
Social Security is yet further evidence of Congress's lack of 
fiscal discipline over a rather prolonged period of time. And I 
think that is something that we need to consider as we evaluate 
our tax policy generally and as we evaluate our approach to 
Social Security.
    Second, as several of you have mentioned today, economic 
research on Unemployment Insurance indicates that many 
recipients of UI tend to wait for their benefits to expire 
before going back to work. Therefore, this does seem to suggest 
that to some extent extending benefits can tend to lengthen the 
amount of time that many people are unemployed, actually 
increasing unemployment and, to that extent, reducing economic 
growth and even overall prosperity.
    Consequently, I do worry that extending Unemployment 
Benefits might be harmful to the economy and might result in 
expanding dependence on an already bloated and already deeply 
indebted Federal Government.
    This is not just a hypothetical concern. It is one that I 
think about from time to time, and especially in light of 
evidence suggesting that as long as we remain in a position in 
which our Federal debt to gross domestic product ratio is in 
excess of 90 percent--we're over 100 percent now--our economic 
growth is going to continue to take a hit.
    So for us to fund programs that we cannot afford could tend 
to exacerbate that trend.
    Mr. Sherk, I wanted to start with you and ask you if you 
are familiar with something that I am told has been introduced 
in the House, sometimes referred to as ``The Spice Act,'' the 
Social Security Preservation Through Individual Choice Act, 
which would indefinitely extend in some circumstances the 
Payroll Tax Holiday, but do so on an opt-in basis, allowing 
every employee to make this determination on an annual basis, 
pushing back the retirement age by one month for every year 
that this partial holiday is extended.
    Are you familiar with that proposal?
    Mr. Sherk. I'm not, so it's not something I can comment on. 
It sounds like a good idea, but it's not something I have 
examined.
    Senator Lee. Okay. But in theory it is something that you 
could support insofar as it expands individual choice, assuming 
it can be made actuarially sound?
    Mr. Sherk. Based on what you have described, it certainly 
sounds like something I would support, but I would want to 
study it in detail before I would commit to that.
    Senator Lee. Okay. I heard you mention that unemployed 
workers tend to triple the amount of time that they spend job 
hunting when their Unemployment Insurance Benefits are about to 
expire. Wouldn't that suggest then that extending them would 
reduce them by two-thirds, reduce the amount of time that they 
might otherwise be spending looking for jobs by two-thirds?
    Mr. Sherk. This is research done by Alan Krueger, which he 
published shortly before he joined the Administration. Krueger 
examined Time-Use diaries that the Bureau of Labor Statistics 
produces and found that workers who don't have UI benefits have 
a fairly constant level of job search all throughout their time 
unemployed. But those who have UI benefits, have a lower level 
of job search in the months before their benefits run out, and 
then their job search triples in the last few months before 
their benefits start to run out.
    There is very clearly a disincentive effect. There are some 
people who are clearly abusing the system who could get a job 
and don't. And a lot of people know stories of people who have 
done exactly that.
    But I think a better way to think about it is that workers 
have in mind the kind of job they are looking for. In many 
cases, in the previous industry they were in before, which is 
what they are skilled in, or in the same city; often they want 
something near their old salary range. And so quite 
understandably that is what they initially look for when they 
are unemployed.
    Now unfortunately about half the jobs lost in this 
recession were in manufacturing and construction. Those sectors 
are not going to recover to anything near what they were 
before. There's going to be some increase, but a lot of workers 
are going to have to move into different industries. A lot of 
workers are going to have to move to different states.
    Having almost two years of benefits encourages workers to 
search for jobs that they are simply not going to find; no 
matter what the government does, the jobs that were created by 
the housing bubble are not going to come back. And it is 
ultimately not helpful for them if they spend a year searching 
for a job they cannot find, a year-and-a-half searching for 
that job, and then spend the rest of the time when their 
benefits expire looking for positions that they are more likely 
to find.
    It is counterproductive in the long run, even if it is well 
intentioned.
    Senator Lee. It does not mean they are abusing their 
benefits; it is just a natural consequence of what happens.
    Mr. Sherk. Exactly. It is an understandable response, but 
it is not helpful to them.
    Senator Lee. Thank you. I see my time has expired. Thank 
you, Mr. Chairman.
    Chairman Casey. Thank you, Senator Lee. Representative 
Duffy.
    Representative Duffy. I travel my District. I am in the 
northwest corridor of Wisconsin. I run into a lot of people who 
are going through some very difficult times, and they rely upon 
these benefits to make sure they can bridge that gap between 
their time of unemployment to the time of their next 
employment.
    I think everyone on this panel, everyone in both chambers, 
agrees that when people fall on hard times we want to be able 
to help them out. And sometimes it may be several months, 
sometimes it may go up to 99 weeks.
    I think many of our concerns are not about those who truly 
need the help, who have families, who have young children, and 
who need the help of this Unemployment Benefit; but it is those 
who abuse the program, who abuse the system, and who don't 
actually go out there and look for work. They eat up that 
benefit at a time when they could really find some other kind 
of employment.
    The way we weigh and balance; to weed out the bad actors 
and provide the benefit to those who truly need the benefit; 
is, I think, the real issue that we struggle with in the two 
chambers.
    I guess I would throw it to the panel as a whole. If we 
have an unemployed individual who is looking to get back in the 
market, I mean I think there are some reasonable steps that we 
can take to make sure they are aggressively trying to find 
work.
    One is to verify, not through lax standards where we do the 
call-in, as I think Mr. Sherk indicated, but to actually verify 
that they are looking for work. And if they are looking for 
work but they cannot find it, that we encourage them to go get 
other job skills training so if they have to transition from 
one job skill to another they are going to have a skill set 
that can actually be used in this ever-changing economy.
    And finally, we have talked about drug testing. I mean, I 
think this just makes sense. If you're using drugs and you're 
saying you're looking for work, I would call bogus on that. 
You're not going to get a job if you're doing drugs. There's 
too many people out there that are engaged, and good employees, 
and so that we would drug test those who are getting benefits I 
think makes sense.
    And I guess Mr. Zandi, based on your research and study, I 
mean would you have any objection to these simple concepts 
being in place for those to receive Unemployment Benefits to go 
through these steps of work search and job training, and drug 
testing?
    Dr. Zandi. Well I think it is important not to restrict UI 
Benefits to unemployed workers who have earned those benefits. 
I think that the principle that underpins the Unemployment 
Insurance System since it was founded in the Great Depression 
of the '30s was that if you work, and you pay an insurance 
premium while you're working, that if you lose your job you 
should receive a benefit, an insurance payout. And, that there 
should be no restrictions on that. That is what I get nervous 
about when we start talking about these things.
    Drug testing, I'm not sure really matters. In the studies 
I've seen they show that that's not significant in areas where 
we've had drug testing. It is costly. Someone is going to have 
to pay for it.
    Moreover----
    Representative Duffy. But I'm sure you would have no 
objection to drug testing, though?
    Dr. Zandi. One other thing I would say is, I don't know--
we're here in an--in my view, what matters most is making sure 
that we get through this very trying time with an economy that 
is back on track, and I don't think we should muck it up now.
    I am all for reform of the UI System. I think there are 
lots of things we should do. But that is one thing I don't 
think I would throw into the mix at this point in time.
    Representative Duffy. But to regain my time here, when 
we're talking about a benefit that's been promised because it's 
insurance, that initial promise wasn't for 99 weeks, was it? 
The agreement was something other than 99 weeks? So if we're 
going to extend it beyond what you originally bargained for, is 
it then fair to say if we're going to give you more than what 
you bargained for it might be fair to ask for job search, job 
training, and drug testing?
    Dr. Zandi. Yes, but I would say that, you know, in every 
recession since World War II, particularly severe recessions, 
we have provided benefits, emergency UI. That is part of the 
deal, in my view.
    Representative Duffy. But to 99 weeks, have we?
    Dr. Zandi. 99 weeks, given the severity of what we have 
gone through, the recession that we've been through, I would 
say that's part of the deal.
    Representative Duffy. No, no, I'm saying going back to the 
Great Depression. 99 weeks?
    Dr. Zandi. I think this is the first time we have gone up 
to 99 weeks.
    Representative Duffy. And I guess----
    Dr. Zandi. But----
    Representative Duffy [continuing]. And as I switch gears, 
we go to this theory of a multiplier effect where every dollar 
spent will give us a return of $1.55, I think that same 
argument was made for the nearly trillion dollar stimulus 
package. And I think, as most Americans look at that, they will 
go: I don't think that that multiplier came into effect. We see 
the pain continue to grow, even though all those dollars rolled 
out the door.
    And to make the same argument that it is going to now work 
for Unemployment Benefits, I think the American people will 
probably reject that. But I see my time is up and I yield back.
    Dr. Zandi. Darn.
    [Laughter.]
    Representative Duffy. Maybe we will have a round two.
    Chairman Casey. Thanks very much. Senator Klobuchar.
    Senator Klobuchar. Well thank you. My time is not up. So 
thank you. I have heard most of your opening statements. I had 
to go for another meeting, and I am glad to be back.
    Our State actually, when I was listening to Dr. Zandi about 
the fragile recovery, we have been ahead of the curve. We are 
down to 5.7 percent unemployment in Minnesota. And we have a 
major metropolitan area, and the rural has been very strong, as 
well. And it is this combination of innovation, exports which 
is huge in our State, which I think should be a good message 
for where we can go with the rest of the country.
    But that being said, there are still a lot of people that 
can barely afford their mortgages and are having trouble 
hanging on. Maybe they have lost part of a job, and only have 
one, or they are working more jobs to make up for the money. 
And so that is why this Payroll Tax Cut is so meaningful to 
them.
    And I know, Dr. Zandi, you wrote last fall that, quote, 
``Expiration of the Tax Holiday, Emergency Unemployment 
Benefits, and other stimulus efforts could shave up to 1.7 
percentage points from Gross Domestic Product in 2012. These 
are expensive programs, but not extending them could be even 
more costly to taxpayers if the economy slips back into 
recession.''
    So, despite the recent signs that our economy is picking up 
steam, we know you still want to see this extended. And do you 
think we could still risk slipping back into recession, or at 
least not moving as far forward as we want to if we let all of 
this lapse?
    Dr. Zandi. Yes, that is correct. You know, my sense is that 
if you do not extend these programs, the economy in all 
likelihood will make its way through without backtracking 
recession. But the odds are that we are far enough along in the 
recovery that that will occur.
    But I think the risks are high that I am wrong, and that if 
anything else does go wrong--and of course there's a long list 
of things that can go wrong--we could easily be derailed again.
    Senator Klobuchar. You mentioned Europe as one of those.
    Dr. Zandi. Just as an example. The housing crisis as 
another example. And I would also point out that we are 
guarding against very dark scenarios.
    So if we go back into a recession, the cost to taxpayers 
will be enormous. That would dwarf what we are talking about 
here. And, it will undermine what I consider to be some very 
significant progress in righting the wrongs that got us into 
this mess.
    I feel like we have done a lot good--you have done a lot of 
good, and that this will shine through. But that will not 
happen if we backtrack into a recession.
    Senator Klobuchar. And I know that Senator Casey is on the 
Conference Committee in the group, and so is Congressman Brady, 
working on this. Do you have any thoughts on how this should be 
paid for, these three major programs, plus perhaps some tax 
extenders?
    Dr. Zandi. Well of course that's why you get paid the big 
bucks.
    [Laughter.]
    Senator Klobuchar. Right. I just thought I'd ask you.
    Dr. Zandi. I'll give you my sense of it. My view would be 
that the cost should be included in the spending cuts that 
would be part of the sequestration process going forward; that 
that is going to be done over a 10-year period. The impact of 
that can be smoothed over time.
    In that way we do not get bogged down in some other ways of 
paying for this that could be counterproductive, as in the case 
of paying for this last two months. In my view, that was not 
very productive, and is in fact counterproductive. So I think I 
would go down that kind of a path.
    Senator Klobuchar. And to follow up on your last comment 
there, just the cost of brinkmanship that you've seen, the debt 
ceiling issue this summer, as well as what happened at the end 
of the year, when you look at it as an economist in terms of 
the consumer confidence, which is an incredibly important 
factor here, that is hard to measure, as well as the effect of 
really our reputation in other countries and across the world 
in terms of people wanting to make investment in our country, 
and business as well.
    Dr. Zandi. Yes. That is an excellent point. Now of course 
it is very difficult to quantify these things, but again my 
sense is that the political acrimony that was exhibited last 
year relating close to the government shutdown in the Spring, 
and then the debt ceiling spectacle, that that did undermine 
confidence significantly. It caused already shellshocked 
households and businesses to pull back.
    If you think back to that time in August-September, we did 
come very close to recession. The other thing I will say is 
that I have no inside information here. I'm part of Moody's 
Analytics, not part of Moody's Rating Agency, but just 
listening to what they say, and observing how they are 
thinking, if we go down that path again it's not going to be 
just one rating agency that potentially downgrades, it could be 
others.
    So again, I have no inside information. I am just 
forecasting what I am hearing. But I think we should be 
cognizant of that, and that could have significant 
ramifications.
    Senator Klobuchar. I remember having lunch with Bob Ulrich, 
who is a former CEO of Target. He retired, and it was during 
the McCain/Obama race, and he was saying, he just said, ``I 
want these negative ads to end.'' And I figured it was because 
he was weighing in--I think he was supporting Senator McCain, 
but I said, what do you mean? And he just said: ``It's so bad 
for consumer confidence. No one wants to buy anything.''
    And I think that I have always thought about that in terms 
of the much bigger picture, not just negative ads but what is 
going on when we go to this brinkmanship, what we do to our 
country when we do that. And it is just my hope, I will say it 
to all the panel members, that that just can't happen again 
with this work that is being done on the Payroll Taxes and 
other things. We just cannot afford to do it again. We have 
major decisions to make, but I would like to get through this 
and then go on to the much bigger issue of tax reform after 
that, which I think there's been some reference to that that 
could be very helpful.
    So thank you very much.
    Dr. Zandi. That makes a lot of sense, yes.
    Chairman Casey. Thanks, Senator Klobuchar. Congressman 
Mulvaney.
    Representative Mulvaney. I will preface these comments by 
saying I agree with the lady from Minnesota regarding the 
undesirability of brinkmanship, and the Senate is more than 
welcome to take up and pass our Cut, Cap, and Balance bill from 
last year. That would end a lot of this discussion.
    But anyway, I will return to Unemployment Insurance for a 
second, because I hear what Dr. Zandi says about what matters 
most is that we get through these trying times, and I tend to 
agree with that, but I also hope that we get through them in 
such a fashion that it does not bankrupt the States.
    In looking through Commissioner Everson's testimony, I see 
that Indiana's circumstance is only slightly worse than ours in 
South Carolina. We have gone from a six or eight hundred 
million surplus in the beginning of this decade to owing the 
Federal Government almost $800 million. At one point, a five or 
six trillion--excuse me, billion dollar swing. You've been here 
too long now. ``Trillion'' comes out of my mouth too easily.
    So I want to press you, Ms. Conti, specifically on what's 
wrong with drug testing? What's wrong with looking at that as a 
reasonable way to cut costs and, more importantly perhaps, to 
make sure that this benefit is going to those truly in need and 
not to those who are taking advantage of the system?
    Ms. Conti. Sir, I think what I would say by introduction 
is: It is a solution in search of a problem. There is no 
evidence, statistical or otherwise, to show that there is any 
sort of broad-based epidemic, or even significant drug use 
among the people who are receiving Unemployment Insurance 
today.
    Twenty States in their UI law already provide that if you 
lose your job because of some sort of drug abuse--either you 
are using drugs on the job, you are intoxicated on the job, you 
fail a drug test--you are ineligible for Unemployment 
Insurance. The vast----
    Representative Mulvaney. Okay, how many states?
    Ms. Conti. There are 20 States that have it explicitly in 
law----
    Representative Mulvaney. It's not 50?
    Ms. Conti. Let me finish.
    Representative Mulvaney. Okay.
    Ms. Conti. The vast majority of other States have that 
exact same prohibition in case law that has developed around 
the law of misconduct. If you lose a job because of misconduct, 
you are generally disqualified from receiving Unemployment 
Insurance as well--misconduct or gross misconduct.
    Representative Mulvaney. But you are talking about 
something else, which is drug use on the job and the reason for 
the discharge, which----
    Ms. Conti. Or, or failing--or failing a drug test, even if 
you were not using drugs on the job.
    Representative Mulvaney. I am talking about as a 
prerequisite to receive the entitlement. Not what got you 
fired----
    Ms. Conti. Right.
    Representative Mulvaney [continuing]. But what is related 
to your receiving a benefit.
    Ms. Conti. But I'm saying there's--within the UI System 
there is already adequate protection against it. I would also 
point to some recent----
    Representative Mulvaney. Let me stop you there. Let me stop 
you, because you are answering a different question. I didn't 
ask you if there was adequate protection for folks who get 
fired because they're using drugs. I'm talking about the 
entitlement.
    Ms. Conti. Right.
    Representative Mulvaney. What is wrong with asking people 
to take a drug test before they actually get their Unemployment 
Insurance check?
    Ms. Conti. Well first of all there is no evidence that it 
is a problem, in the first instance, that there are all of 
these drug users getting Unemployment. It is an unfair and 
mean-spirited, we believe, stigmatization of people who are 
unemployed through no fault of their own. It is the bad economy 
that is prohibiting them from getting jobs; it is not drug use.
    And we can look to some recent examples. I would point to 
Indiana in general that just started--or just recently last 
year conducted a pilot program. It was testing people who were 
getting job training, who are people by definition who are 
either unemployed or under-employed and want to better 
themselves, to the tune of $45,000. I believe they tested about 
13,000 workers, and 13 tested positive.
    That was $3,500 per worker. Whereas, that money could have 
been spent, we believe, much more productively on high-impact 
re-employment services for the workers----
    Representative Mulvaney. But if a state wants----
    Ms. Conti [continuing]. That would get more people into 
jobs, which is what we say we all want to use the UI System to 
do.
    Mr. Everson. Could I comment on that, since Indiana has 
been drawn into this?
    Representative Mulvaney. Sure.
    Mr. Everson. When I got to my job two years ago, I toured 
the State and I was repeatedly told: Mark, you guys do a great 
job--We run the Unemployment Insurance System and the Worker 
Training System--But you keep sending us people who, when we 
tell them you're going to have to take a drug test, they say 
``thank you very much, and good bye.''
    And what I did was, I went back to my office and I said: 
What can we do about this? In the WIA, the program that is the 
enabling statute for the biggest training program, it said 
specifically, since '98, that no DOL could not prohibit any 
state Workforce System from having a drug test. And I checked 
into this, and we did it.
    And our rate, our failure rate since July 1 when we put it 
in, is 2.2 percent. 2.2 percent. That compares to about 3 
percent in the private sector, which is the failure rate for 
pre-employment drug screening. Most people do not show up when 
they are going to take a drug test if they are using drugs.
    Representative Mulvaney. That is to say, isn't there a 
deterrent effect?
    Mr. Everson. That's the point. And that's the point.
    Representative Mulvaney. Once a State starts to do this, 
Ms. Conti, don't you think it will deter people from either 
doing drugs in the first place, or showing up to collect their 
benefits if they know they are going to be tested?
    Ms. Conti. It could equally encourage people to find out 
how to do the proper type of fasting and cleansing processes 
for three to seven days before they have to take the drug test 
in order to beat the test.
    Again, we are assuming that there's some sort of widespread 
problem among those receiving Unemployment, that they're not 
getting jobs because they are using drugs.
    Representative Mulvaney. No, I'm not. I can see how you 
might think that. I am assuming that the State knows best how 
to implement its own Unemployment Insurance Program. My guess 
is you probably have not talked to many employers in Indiana--
neither have I--and there may not be a difficulty in North 
Dakota. There may be a difficulty in Florida. And I am simply 
suggesting that the States are more effective at doing that, 
but I will continue this line of questioning next time around.
    Chairman Casey. Thank you very much. Vice Chairman Brady.
    Vice Chairman Brady. Thank you, Chairman. And again, thank 
you to the witnesses and the Members who are here today.
    Will you put up that poster on Social Security? It is 
important we extend these benefits, that we do it now; that we 
not have another two-month extension. That was a disaster, in 
my view, for businesses, workers, and our local physicians.
    One of the big issues that Chairman Casey and I are dealing 
with is how you pay for these costs. These are real costs, more 
than $100 billion at a time we cannot afford it. And the one 
point I want to make today is: The Payroll Tax Holiday alone 
blows a significant hole in the cash flow of Social Security. 
And if we do nothing else with that important program, it is 
critical that we fill that hole back up with real cost savings.
    Again, we are not talking about the Trust Fund for Social 
Security. We are not adding. We are not running surpluses. We 
are running deficits and borrowing extensively. It is important 
we fill the sinkhole now, this year. And certainly it is clear 
that extending the Payroll Tax Holiday further would have 
dramatic impacts on Social Security.
    I want to talk about the unemployment reforms. I am just 
not convinced we run unemployment very well at the Federal 
level. Our focus is on getting those checks out for extended 
periods of time and not getting people back to work.
    One of the requirements that we are suggesting in the House 
is focused on those with the least education, those without a 
high school degree. We know they struggle to find a job.
    One of the points Ms. Conti made, which others have made, 
is that, look, some people, older workers, requiring them to 
get a GED as a condition of receiving Unemployment does not 
make sense. Everyone agrees with that. But how old is too old?
    A recent Census Bureau report looking at the one-half 
million people without a high school diploma, without a job 
today, 1 in 5 were under the age of 30, very young; 2 in 5 are 
under the age of 40. So, with my math, high-level math, 3 out 
of 5 are under 40 years old, have at least a quarter century of 
work time left in which a high school equivalent degree would 
put them in a better position.
    So, Ms. Conti, you are one of those who thinks we ought not 
be encouraging States to help these people work toward a GED. 
Why is that? You don't think they will be in a better position?
    Ms. Conti. No, I think you have actually misstated my 
position rather substantially. At the National Employment Law 
Project we are huge proponents of lifelong learning, of 
federally and state subsidized job training at all levels, 
whether it is GED or other sorts of occupational training; and 
we believe that workers of any age--nobody is ever too old to 
learn more skills and to get more knowledge.
    Vice Chairman Brady. So you would support that provision?
    Ms. Conti. We don't support that provision, but you stated 
that we don't support workers getting more education, getting 
their GEDs, and that is not correct.
    Vice Chairman Brady. So you support people getting more 
education, but you oppose helping unemployed work toward a 
GED----
    Ms. Conti. We support helping the unemployed work toward a 
GED through appropriate means. We do not believe that the UI 
Benefit should be conditioned on getting or enrolling in a GED 
program; rather, we support something that I believe the Senate 
Conferees have put out. The notion of putting some additional 
funds into re-employment and training services, and giving 
workers appropriate re-employment assessments. And if through 
that part of the employment services, not as, you know, sort of 
the stick over the head, you won't get UI if you don't get it, 
but through appropriate re-employment assessments----
    Vice Chairman Brady. I think we just have a disagreement on 
how----
    Ms. Conti. We do. Could I finish my statement, sir?
    Vice Chairman Brady. No. You answered it beautifully and I 
appreciate it.
    Let me go to job search. I would think most people are 
searching aggressively from day one when they don't have a job. 
Unfortunately, not all do. A recent report in The New York 
Times now, since 2009, show that the average unemployed in 
America spend about 30 minutes per day looking for work, and 1 
in 6 unemployed people look for work on a typical day.
    What we know is those who aggressively job search usually 
find a job sooner than others. Can I ask you, Commissioner 
Everson, do you have a job search requirement in your State 
Unemployment Benefits?
    Mr. Everson. Yes, sir, we do.
    Vice Chairman Brady. And would you recommend that at the 
Federal level we do the same, as well, since obviously your 
Unemployment Taxes don't pay for all your benefits; others chip 
in to do that. You would think that would be sort of a 
responsible reform to enact.
    Mr. Everson. I believe that job search, you want to 
certainly emphasize it. I agree with that a hundred percent. 
But I think that the traditional way the system has worked, 
with the States determining what is best in their 
circumstances, is an important principle. And the States do 
vary what they want to do.
    What I don't want to see happen is, like the nonreduction 
rule, is that you look at these occasional extensions, and we 
are in this period of extension now----
    Vice Chairman Brady. Yes.
    Mr. Everson [continuing]. And you force back changes into 
the core program which runs pretty well and has served us well 
for seven decades. The problem being, again, you are seeing 
right now that States have already cut the benefit duration 
from 26 weeks to 20 weeks--a number of them have done it--
because of they can't go through the nonreduction rule.
    So I just think it can have unintended consequences when 
you have the Federal mandates. But I do agree, you need 
enhanced work search.
    If I can make just one additional point, because it keeps 
coming up, the duration and lack of effort that's talked about. 
There is a public policy tension here. There is no doubt--I am 
not going to comment on the stimulative effect of the 
benefits--but there is no doubt we have in Indiana tens of 
thousands of people who benefit from these extensions. That is 
absolutely clear.
    But there is another factor that has not been touched upon. 
Clearly individuals make a decision every day not to take a job 
if it's paying $15 and they were making $20 in their old job. 
If they look at the economics of it, and they say, geese, my 
spouse is working so I've got health care. And I am avoiding 
child care costs. And, they say, I am going to wait until that 
better job comes along.
    It is just, as my colleague on the panel said, that is a 
good short-term decision for the individual, but it is a bad 
long-term decision for him or her because employers are 
increasingly skeptical about people who have been out of work 
for a year, or 18 months, or 2 years. That is just a 
consequence we have not touched on here that is real.
    Vice Chairman Brady. Thanks, Commissioner. And I apologize, 
I went way over my time, but thank you.
    Chairman Casey. Thanks, Commissioner. Thanks, Vice Chairman 
Brady. Congresswoman Maloney.
    Representative Maloney. I want to thank the Chairman for 
calling this hearing. And since we have one of the most 
respected economists here, I would like to ask Dr. Zandi your 
reaction to the recent jobs numbers: 253,000 new private-sector 
jobs created. I believe that is the 23rd month of job growth, 
and a very positive unemployment. After five consecutive 
months, the rate has been coming down, reaching 8.3 percent in 
January.
    We had an interesting hearing on Friday from the Bureau of 
Labor Statistics. They said that the recent decline in the 
unemployment rate was driven by unemployed workers finding 
jobs, which is a very positive sign.
    I wish you would just give us an overview of where the 
economy is. Is this a positive sign? Do you see this as a trend 
that will continue? What do we need to keep this positive jobs' 
situation moving forward?
    Dr. Zandi. Well thank you for the very kind words. They are 
much appreciated. Too bad we're not on TV so my wife could hear 
that.
    [Laughter.]
    Or better yet, my kids. That would even be better.
    I think we've made a lot of progress. The economy is 
improving, and that is evident in lots of different ways, but 
most encouraging in the job market. As you pointed out, almost 
250,000 payroll jobs in January; 2 million jobs over the past 
year through January.
    As you point out, the decline in unemployment is real. It 
is not a declining labor force; it is an increase in jobs. The 
job increase is broad-based across industries and regions. So I 
don't want to go so far as saying that we're off and running, 
you know, because we have had some head fakes before. This time 
last year, we were feeling good about things and we got nailed 
by higher energy prices, and surging food and apparel prices, 
and a lot of other things.
    But it feels like we are getting very close to that light 
switch going on; that businesses I am in economic consulting 
with business, and I talk to a lot of business people in lots 
of different walks of life. Just talking to them in traveling 
the country recently, you get the sense that they are at a 
point where they are about ready to engage and look for growth 
and revenue opportunity, and that means more investment and 
more hiring.
    So I think we have made a lot of progress, but we are 
really close to evolving into the economy evolving into a self-
sustaining strong economic expansion.
    That is why I think it is so important to extend the 
Payroll Tax Holiday/Emergency UI to make absolutely, positively 
sure that that is in fact what is happening here.
    Representative Maloney. So you think that is important, to 
continue the Payroll Tax Cut for 260 million working Americans?
    Dr. Zandi. I think it is absolutely vital. I think we do 
not want to take the chance that we let that lapse, and that we 
get derailed. Because if we do, the cost to taxpayers will be 
measurably more significant than the money that we are talking 
about here.
    So I view this as an insurance policy to make sure that the 
economy is indeed off and running.
    Representative Maloney. Well also a part that President 
Obama is working hard on in a bipartisan way is to extend the 
Unemployment Benefits. As a gentleman pointed out, Commissioner 
Everson and others there, the jobs are not out there. For every 
job, how many people do you think line up for it? Six? Seven? 
How many people are there for every job? So through no fault of 
their own, they are out of work.
    So is that also an important component to keep this economy 
moving, the Unemployment Benefits? Because that will go back 
into the economy.
    Dr. Zandi. Yes. So I would advocate extending both the 
Payroll Tax Holiday and the Emergency UI Program at least 
through the end of the year. And the statistic that I think 
is--we have not brought up at the hearing yet, but I think is 
very important is the fact that for every job opening, there 
are now four unemployed workers.
    Just to give you context, in a normal, well-functioning 
labor market, that should be closer to two to one. So for every 
unemployed worker--for every job opening there should be two 
unemployed workers.
    At the worst of the Recession it was six to one. But four 
to one is still very high. And we have been talking about 
disincentive effects and other issues, but we just need to 
remind ourselves that the predominant reason why people are 
looking so long for a job is because there aren't jobs. It is 
hard to find a job.
    Representative Maloney. Coming in, Ms. Conti was mentioning 
the GED and getting those degrees. I would like to ask you, 
what jobs do you think are out there in the future? And do you 
think having a GED degree is important to get those jobs?
    Dr. Zandi. Yes. I think the jobs we are going to create in 
the United States of America will embody a highly skilled and 
educated workforce; that that is our Nation's comparative 
advantage: producing goods and services that embody the skills 
and educational attainment of our population.
    So we need to work really hard at raising everyone's 
educational attainment level, particularly people who don't 
have good skills or lack at least a high school degree, because 
they are going to get creamed by the global world that we live 
in and the competition that we are in.
    So it is very important to spend resources to educate these 
folks, give them the training they need, and help them gain the 
skill set that they need to compete.
    Representative Maloney. Are you still the economist for 
Moody's?
    Dr. Zandi. I am, for Moody's Analytics, which is the 
independent subsidiary of the Moody's Corporation. So I am not 
part of the rating agency, but I am the Chief Economist of 
Moody's Analytics.
    Representative Maloney. I must say, I always listen to you 
because you work for the private sector. And if you're wrong, 
you're going to get fired.
    [Laughter.]
    So I know you are going to be very careful in what you say. 
Anyway, we appreciate----
    Dr. Zandi. You are very kind.
    Representative Maloney [continuing]. All your hard work, 
and we appreciate everybody's testimony. And we have been 
called to a vote, so I've got to go. Bye-bye.
    Dr. Zandi. Thank you.
    Chairman Casey. Congresswoman, thank you very much.
    I will move to a very brief--I won't call it a second 
round, we will call it a lightening round. There is a lot we 
could do. We could even start a great debate right at that 
table there, but we probably do not have time for it today. You 
can stay if you would like, but we are grateful to all of our 
witnesses.
    Just one point I wanted to make, Mr. Conti, regarding your 
testimony. I do not have a lot of time, but maybe even not by 
way of a comment, but if there is something you want to add to 
this:
    On page 3 onto page 4 of your testimony, you talk about the 
impact on children, Unemployment Insurance's impact on 
children. And I was struck by the sentence at the top of page 
4, and I'm quoting, `` . . . , the federal investment in 
unemployment benefits has an immediate payoff for those kept 
out of poverty, but it also produces long-term dividends for 
children and families given the social costs associated with 
child poverty and severe economic hardship. Children who 
experience economic hardship are more likely to drop out of 
school, suffer poor health, and experience difficulty 
maintaining stable employment as adults.'' Unquote.
    Ms. Conti. Um-hmm.
    Chairman Casey. I want to ask you, and it may be by way of 
repetition, but you had a number that you attached to that in 
terms of the number of children prevented from poverty. What 
was that number?
    Ms. Conti. The recent Census showed us that in the year 
2010 over 1 million children were kept out of poverty because 
their parents were receiving UI Benefits.
    Chairman Casey. Just for that one year?
    Ms. Conti. Right. And the number was about the same the 
previous year.
    Chairman Casey. That is the latest year we have data for?
    Ms. Conti. Yes.
    Chairman Casey. Thanks very much. Congressman, do you have 
something before we go?
    Representative Mulvaney. Very briefly, because I spent more 
time than I intended to with Ms. Conti. I enjoyed the 
conversation, but I did want to come to Dr. Zandi, and it 
follows up on what the Congresswoman was just talking about on 
job growth and how--``disappointed,'' Dr. Zandi, is not the 
right word, but I guess I am skeptical about your commentary.
    Your testimony reads that the recent rapid drop in 
unemployment rate is real, resulting primarily from more jobs 
and not a declining labor force. And actually you go to the 
extent of footnoting that by pointing out that since August the 
unemployment rate has fallen to 8.3. During this period, the 
BLS has recorded an employment increase of 1.9 million jobs and 
a gain of more than 700,000 people in the labor force. And you 
use this as evidence, I guess, to support the previous 
assertion that these are real job growths.
    Yet, sir, during the same period of time the labor force 
participation rate has fallen. Last month it went from 64 
percent to 63.7. The number of discouraged workers is up last 
month. The number of other marginally attached, U-5 
unemployment, is up last month. The number of U-6, part-time 
for economic reasons, is up. The unemployment by the widest 
measure is up. The total number of long-term is up. And I guess 
at a certain point I have to wonder, how do you back up that 
statement, that these are real jobs because the labor force is 
growing?
    It seems to me that the labor force did go up, sir, but not 
as fast as it should have, given the population growth. That 
even if your number of jobs goes up, if your participation rate 
in the job pool--in the workforce goes down, that clearly we 
are not keeping up with population growth, and the numbers are 
effectively cooked.
    The 8.3 percent number that we saw last number is not a 
real number. How do you respond to that?
    Dr. Zandi. Well a couple of things.
    When I cautioned your use of the data, the decline in the 
labor force participation rate in January is a statistical 
result. It is new population controls by Census. They go back 
and revise the data and they put all the revisions in January.
    Representative Mulvaney. But I think they said that was 
only one-tenth of one percent at the hearing we had on Friday 
last week.
    Dr. Zandi. I think by my calculation the labor force 
participation rate, from August of last year through January of 
this year, has been essentially constant, no change.
    Representative Mulvaney. Okay. Well it leads to the same 
question, though. If your labor force participation rate is 
unchanged----
    Dr. Zandi. Right.
    Representative Mulvaney [continuing]. But you are having 
more people in the workforce, how do you make the assertion 
that this is real job growth? If you're not growing fast enough 
to give people who come out of college and out of high school 
and out of the vocational schools jobs?
    Dr. Zandi. Right. Well I'll say two other things.
    First is the increase in the labor force since August is 
700,000. That is the Household Survey.
    Representative Mulvaney. Right.
    Dr. Zandi. That is what you would expect to see in a 
reasonably normal, well-functioning economy, about 700K in that 
five-month period, because that on an annualized basis results 
in 1.5 million labor force growth, which would be normal labor 
force growth in a good economy.
    Representative Mulvaney. But not in an economy that is 
coming out of a recession. We should be growing faster than 
that on an average basis, right?
    Dr. Zandi. Well you make a good point. I think there will 
be some point down the road when the labor market gets to a 
point where it's really healthy, unemployment has fallen some 
more and we start to----
    Representative Mulvaney. 700,000 jobs over five months is 
one hundred and twenty-odd thousand jobs a month, and I think 
the break-even number we have been told by BLS is we need 125- 
to 150,000 jobs a month just to keep up with the population 
growth.
    Dr. Zandi. Well let's not confuse things. We actually 
created 1.9 million jobs, household jobs, in that period; 700K 
labor force. So 1.9 million. That is a lot of jobs. That is 
boom times. We are not going to sustain it. I am not arguing 
that. But if we could, that would be fantastic. But I am not 
arguing that.
    But to your point, I do think there are a lot of people who 
have stepped out of the workforce. They are not counted as 
unemployed. They feel disenfranchised. They don't feel like 
there is job opportunity, and wage growth has been so weak, to 
the Commissioner's point, they don't feel like it is worth 
coming back into the labor market. I've got child care, I've 
got gasoline prices, I've got commuting costs. But at some 
point when the job market does improve, unemployment becomes 
low enough and we get a little bit of wage growth, those folks 
are going to start coming in and the labor force growth will 
pick up a lot more. And it is going to be harder to make 
progress in reducing unemployment.
    Representative Mulvaney. And this is my last question, 
because I just want to make sure I am reading this correctly. 
Your testimony says that you think unemployment might be below 
8 percent by the end of 2012.
    We just heard from the CBO last week, they are actually 
revising up their unemployment rates over that same period of 
time. They originally thought it would be about 8.2 percent; 
now they are up to 8.9.
    And I am led to believe that when you participate in the 
Blue Chip Analysis last month you yourself had suggested it 
might be 8.8 percent at the end of this year.
    Dr. Zandi. Yes.
    Representative Mulvaney. Up from 8.3 percent in a previous 
estimate that you made, and that is a fairly dramatic change in 
a month, if I got my data right. Last month you thought it 
would be 8.8 at the end of this year, and now you think it 
might be below 8. That is a significant change. What caused 
that?
    Dr. Zandi. You are absolutely right. And I think CBO, like 
all the economists, including CBO, when they do their 
forecasting will be marking down their forecasts for the 
unemployment rate. So my guess is, the consensus view now----
    Representative Mulvaney. They're making it up, sir.
    Dr. Zandi. No, but they will mark it down. They're lagging. 
They're going to mark it down. Given what's happened to the 
economy and to the unemployment rate. We are now at 8.3 percent 
unemployment. Everybody is going to be marking down their 
expectations for the unemployment rate. When you get next 
month's consensus, it is going to be at year-end probably 8.2, 
8.3.
    Representative Mulvaney. What has happened in the last 30 
days to change that, then?
    Dr. Zandi. The very dramatic improvement in the job market, 
and revisions to past data. So we have now a better sense of 
what has actually happened.
    I think there is a growing understanding of what is going 
on with the labor force. I think the views with respect to the 
growth of the labor force are changing so that people now think 
the labor force is now going to actually be slower than 
originally thought over the next year or two.
    Representative Mulvaney. Thank you, Mr. Chairman. Thank you 
for your leniency. I apologize for going over in the lightening 
round.
    Chairman Casey. Congressman, thanks so much.
    Dr. Zandi, thank you. Mr. Everson, thank you for being with 
us today. Mr. Sherk. Ms. Conti.
    Before we go, let me just say, I think from this hearing 
and the testimony that has been offered, one bipartisan note, 
we need to extend the Payroll Tax Cut and Unemployment 
Insurance Benefits through the end of 2012.
    I believe this is essential for an economic recovery that 
is still fragile. I am confident, and I think others are as 
well, but I will speak for myself, that the Conference 
Committee will be able to fashion a bipartisan agreement to get 
this done that will help both the economy and our families.
    Just so the witnesses and the Members know, the record will 
remain open for five business days for any Member who wishes to 
submit a statement or additional questions.
    And with that, our hearing is adjourned.
    [Whereupon, at 4:06 p.m., Tuesday, January 7, 2012, the 
hearing was adjourned.]
                       SUBMISSIONS FOR THE RECORD

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 

Prepared Statement of Representative Kevin Brady, Vice Chairman, Joint 
                           Economic Committee
    Mr. Chairman, thank you for holding today's hearing. I agree with 
you that this committee must examine the whole picture--understanding 
both the benefits of extending the payroll tax cut and long-term 
unemployment benefits and their unintended consequences.
    There is a strong bipartisan consensus in Congress to extend both 
of these expiring provisions through the end of this year. However, 
serious differences remain over how we should pay for these expensive 
extensions and whether we should reform the Unemployment Insurance 
program.
    As popular as the payroll tax holiday may be, economists disagree 
about its effectiveness as an economic stimulus. However, economists 
agree that Social Security faces serious and growing cash-flow 
deficits. Diverting one-sixth of payroll tax revenue away from the 
Social Security revenue stream creates a significant sinkhole that 
exacerbates Social Security's cash-flow problems. Non-cash accounting 
transfers from the General Fund cannot alleviate these cash-flow 
problems. Last year, the U.S. government had to borrow $142 billion 
from investors--including foreign countries like China--to pay Social 
Security benefits to our seniors.
    Congress must fill this sinkhole to ensure that we will be able to 
pay promised Social Security benefits. That's why House Republicans are 
insisting that Congress must offset any loss of payroll tax revenue 
with actual cash savings in other areas of the government, not 
accounting gimmicks. House Republicans will protect this vital program 
from debilitating cash diversions with common sense savings that have 
had strong bipartisan support.
    As for unemployment, clearly the economic policies of the Obama 
Administration did not produce the vigorous recovery, for which 
hardworking taxpayers hoped. Tens of millions of Americans are 
struggling to make ends meet. Millions can't find a full-time job, and 
millions more can't find any job at all. Even worse, other millions 
have simply given up and stopped looking for work, leaving us with the 
lowest workforce participation rate in nearly three decades.
    Our economy grew at a rate of 2.8 percent in the fourth quarter of 
2011. Given this sluggish pace, many Americans don't believe that the 
Great Recession is really over, or else they fear it may return. Last 
week, the non-partisan Congressional Budget Office forecast that 
economic growth would slow to 2.0 percent this year and 1.1 percent in 
2013, while the unemployment rate would once again begin to rise all 
the way to 9.1 percent in the fourth quarter of 2013. And that's 
obviously the wrong direction.
    Our priority must be to create a far stronger economy in which 
American businesses will have the confidence to make investments in new 
buildings, equipment, and software; expand production; and create 
millions of new well-paying jobs.
    As to Unemployment Insurance, we should reform this program and 
refocus it on the common-sense goal of getting people back to work 
sooner rather than just paying benefits. House Republicans have passed 
legislation that would:
        1. Renew long-term federal unemployment benefits for the rest 
        of this year while gradually reducing the maximum duration of 
        benefits to 59 weeks.
        2. Require recipients to search actively for work from day one. 
        The longer that people are unemployed, the harder it is for 
        them to find new employment. Under existing law, beneficiaries 
        may collect unemployment checks for a year and a half without 
        really having to look for a job. In some states, they don't 
        even have to search for a job at all. That's unacceptable.
        3. Allow the States to adopt innovative programs to match 
        beneficiaries with jobs.
        4. Require those on unemployment without a high-school degree 
        to work on earning a GED. Adults without high school diplomas 
        have a hard time finding and keeping a job. They are often the 
        last hired and the first fired.
        5. End the federal prohibition against States testing 
        applicants for illegal drug use. Drug-screening ensures that 
        recipients will be able to take the jobs that they are offered.
    As we will hear today, long-term unemployment benefits have clearly 
helped families in need, but there is a cost as well. Two recent 
studies found that extending the duration of benefits actually 
increases the unemployment rate:

      A study by the Federal Reserve Bank of San Francisco 
found the unemployment rate at the end of 2009 would have been nearly 
half a percentage point lower--9.6%, instead of 10%--if jobless 
benefits hadn't been extended beyond their usual 26 weeks to as much as 
99 weeks.
      According to a Brookings Institute paper, the 2011 
extension of long-term unemployment insurance raised the number of 
unemployed in January 2011, by between 0.2 and 0.6 percentage points. 
That translates into between 300,000 and 900,000 additional workers 
unemployed.

    Repeated extensions of long-term benefits are also threatening the 
solvency of the entire unemployment system. The States have borrowed 
over $38 billion from the federal government to cover their program 
shortfalls. Under current law, repaying federal loans and rebuilding 
state trust fund balances would require an unprecedented payroll tax 
increase in nearly every State. These higher taxes would punish the 
very job creators that we hope will add new jobs to hire the 
unemployed.
    To conclude, we must move forward with a bipartisan agreement to 
extend the payroll tax holiday and long-term unemployment benefits. At 
the same time, we must also adopt common-sense reforms to make the 
Unemployment Insurance program work better and avoid adding to our 
unsustainable federal debt.
    I look forward to the testimony of our witnesses as we consider how 
best to achieve these goals.
  

                                  
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